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National Litigation Policy

2010-06-28T18:09:00.004+05:30

National Litigation Policy
Posted On : Jun 24, 2010

National Legal Mission to Reduce Average Pendency Time from 15 Years to 3 Years

National Litigation Policy Document Released

The Centre has formulated a National Litigation Policy to reduce the cases pending in various courts in India under the National Legal Mission to reduce average pendency time from 15 years to 3 years. This was announced by Dr.M.Veerappa Moily, Minister of Law and Justice while announcing the National Litigation Policy here today. Following is the full text of the National Litigation Policy.

NATIONAL LITIGATION POLICY

Table of Contents

I. Introduction – The National Litigation Policy

II. The Vision/Mission

III.Government Representation

IV.Adjournments

V.Pleadings/Counters

VI. Filing of Appeals

VII.Limitation : Delayed Appeals

VIII. Alternative Dispute Resolution – Arbitration

IX.Specialized Litigation

X.Review of Pending Cases

I.INTRODUCTION

Whereas at the National Consultation for Strengthening the Judiciary toward Reducing Pendency and Delays held on the 24th and 25th October, 2009 the Union Minister for Law and Justice, presented resolutions which were adopted by the entire Conference unanimously.

And Wherein the said Resolution acknowledged the initiative undertaken by the Government of India to frame a National Litigation Policy with a view to ensure conduct of responsible litigation by the Central Government and urges every State Government to evolve similar policies.

The National Litigation Policy is as follows:-

I. THE VISION/MISSION

1. The National Litigation Policy is based on the recognition that Government and its various agencies are the pre-dominant litigants in courts and Tribunals in the country. Its aim is to transform Government into anEfficient and Responsible litigant. This policy is also based on the recognition that it is the responsibility of the Government to protect the rights of citizens, to respect fundamental rights and those in charge of the conduct of Government litigation should never forget this basic principle.

“EFFICIENT LITIGANT” MEANS

- Focusing on the core issues involved in the litigation and addressing them squarely.
- Managing and conducting litigation in a cohesive, coordinated and time-bound manner.
- Ensuring that good cases are won and bad cases are not needlessly persevered with.
- A litigant who is represented by competent and sensitive legal persons: competent in their skills and sensitive to the facts that Government is not an ordinary litigant and that a litigation does not have to be won at any cost.

“RESPONSIBLE LITIGANT” MEANS

- That litigation will not be resorted to for the sake of litigating.
- That false pleas and technical points will not be taken and shall be discouraged.
- Ensuring that the correct facts and all relevant documents will be placed before the court.
- That nothing will be suppressed from the court and there will be no attempt to mislead any court or Tribunal.

2. Government must cease to be a compulsive litigant. The philosophy that matters should be left to the courts for ultimate decision has to be discarded. The easy approach, “Let the court decide,” must be eschewed and condemned.

3. The purpose underlying this policy is also to reduce Government litigation in courts so that valuable court time would be spent in resolving other pending cases so as to achieve the Goal in the National Legal Mission to reduce average pendency time from 15 years to 3 years. Litigators on behalf of Government have to keep in mind the principles incorporated in the National mission for judicial reforms which includes identifying bottlenecks which the Government and its agencies may be concerned with and also removing unnecessary Government cases. Prioritisation in litigation has to be achieved with particular emphasis on welfare legislation, social reform, weaker sections and senior citizens and other categories requiring assistance must be given utmost priority.

4. The Stakeholders:

A) In ensuring the success of this policy, all stake holders will have to play their part – the Ministry of Law & Justice, Heads of various Departments, Law Officers and Government Counsel, and individual officers all connected with the concerned litigation. The success of this policy will depend on its strict implementation. Nodal Officers will be appointed by Heads of Department.

“Head of Department” means the administrative person ultimately responsible for the working of the Department or Agency, as the case may be.

B) The appointment of Nodal Officers must be done carefully. The Nodal Officer has a crucial and important role to play in the overall and specific implementation of this Policy, including but not limited to the references made hereinafter. Every Ministry must be mindful of the responsibility to appoint proper Nodal Officers who have legal background and expertise. They must be in a position to pro-actively manage litigation. Whilst making such appointments, care must be taken to see that there is continuity in the incumbents holding office. Frequent changes in persons holding the position must be avoided. Nodal Officers must also be subjected to training so that they are in a position to understand what is expected of them under the National Litigation Policy.

C) Accountability is the touch-stone of this Policy. Accountability will be at various levels; at the level of officers in charge of litigation, those responsible for defending cases, all the lawyers concerned and Nodal Officers. As part of accountability, there must be critical appreciation on the conduct of cases. Good cases which have been lost must be reviewed and subjected to detailed scrutiny to ascertain responsibility. Upon ascertainment of responsibility, suitable action will have to be taken. Complacency must be eliminated and replaced by commitment.

D) There will be Empowered Committees to monitor the implementation of this Policy and accountability. The Nodal Officers and the Heads of Department will ensure that all relevant data is sent to the Empowered Committees. The Empowered Committee at the National level shall be chaired by the Attorney General for India and such other members not exceeding six in number as may be nominated by the Ministry of Law with an Additional Secretary to be the Member Secretary. There will be four Regional Empowered Committees to be chaired by an Additional Solicitor General nominated by the Ministry of Law. It shall include all the Assistant Solicitors General of the Region and such other members including a Member Secretary nominated by the Ministry of Law. The Regional Committees shall submit monthly reports to the National Empowered Committee which shall in turn submit Comprehensive Reports to the Ministry of Law. It shall be the responsibility of the Empowered Committee to receive and deal with suggestions and complaints including from litigants and Government Departments and take appropriate measures in connection therewith.

II. GOVERNMENT REPRESENTATION

A) While it is recognized that Government Panels are a broad based opportunity for a cross section of lawyers, Government Panels cannot be vehicles for sustaining incompetent and inefficient persons. Persons who recommend names for inclusion on the Panel are requested to be careful in making such recommendations and to take care to check the credentials of those recommended with particular reference to legal knowledge and integrity.

B) Screening Committees for constitution of Panels will be introduced at every level to assess the skills and capabilities of people who are desirous of being on Government Panels before their inclusion on the Panel. The Ministry of Law shall ensure that the constitution of Screening Committees will include representatives of the Department concerned. The Screening Committees will make their recommendations to the Ministry of Law. Emphasis will be on identifying areas of core competence, domain expertise and areas of specialisation. It cannot be assumed that all lawyers are capable of conducting every form of litigation.

C) Government advocates must be well equipped and provided with adequate infrastructure. Efforts will be made to provide the agencies which conduct Government litigation with modern technology such as computers, internet links, etc. Common research facilities must be made available for Government lawyers as well as equipment for producing compilations of cases.

D) Training programs, seminars, workshops and refresher courses for Government advocates must be encouraged. There must be continuing legal education for Government lawyers with particular emphasis on identifying and improving areas of specialization. Law schools will be associated in preparing special courses for training of Government lawyers with particular emphasis on identifying and improving areas of specialization. Most importantly, there must be an effort to cultivate andinstill values required for effective Government representation.

E) National and regional conferences of Government advocates will be organized so that matters of mutual interest can be discussed and problems analysed.

F) Advocates on Record must play a meaningful role in Government litigations. They cannot continue to be merely responsible for filing appearances in Court. A system of motivation has to be worked out for Government advocates under which initiative and hard work will be recognised and extraordinary work will be rewarded. This could be in the form of promotions or out of turn increments.

G) It will be the responsibility of all Law Officers to train Panel lawyers and to explain to them what is expected of them in the discharge of their functions.

H) Panels will be drawn up of willing, energetic and competent lawyers to develop special skills in drafting pleadings on behalf of Government. Such Panels shall be flexible. More and more advocates must be encouraged to get on to such Panels by demonstrating keenness, knowledge and interest.

I) Nodal Officers will be responsible for active case management. This will involve constant monitoring of cases particularly to examine whether cases have gone “off track” or have been unnecessarily delayed.

J) Incomplete briefs are frequently given to Government Counsel. This must be discontinued. The Advocates-on-Record will be held responsible if incomplete briefs are given. It is the responsibility of the person in charge of the Central Agency concerned, to ensure that proper records are kept of cases filed and that copies retained by the Department are complete and tally with what has been filed in Court. If any Department or Agency has a complaint in this regard it can complain to the Empowered Committee.

K) There should be equitable distribution of briefs so that there will be broad based representation of Government. Additional Solicitors General will be associated with regard to distribution of briefs in the High Court. Complaints that certain Panel advocates are being preferred in the matter of briefing will be inquired into seriously by the Empowered Committee.

L) Government lawyers are expected to discharge their obligations with a sense of responsibility towards the court as well as to Government. If concessions are made on issues of fact or law, and it is found that such concessions were not justified, the matter will be reported to the Empowered Committee and remedial action would follow.

M) While Government cannot pay fees which private litigants are in a position to pay, the fees payable to Government lawyers will be suitably revised to make it remunerative. Optimum utilisation of available resources and elimination of wastage will itself provide for adequate resources for revision of fees. It should be ensured that the fees stipulated as per the Schedule of Fees should be paid within a reasonable time. Malpractice in relation to release of payments must be eliminated.

III. ADJOURNMENTS

A) Accepting that frequent adjournments are resorted to by Government lawyers, unnecessary and frequent adjournments will be frowned upon and infractions dealt with seriously.

B) In fresh litigations where the Government is a Defendant or a Respondent in the first instance, a reasonable adjournment may be applied for, for obtaining instructions. However, it must be ensured that such instructions are made available and communicated before the next date of hearing. If instructions are not forthcoming, the matter must be reported to the Nodal Officer and if necessary to the Head of the Department.

C) In Appellate Courts, if the paper books are complete, then adjournments must not be sought in routine course. The matter must be dealt with at the first hearing itself. In such cases, adjournments should be applied for only if a specific query from the court is required to be answered and for this, instructions have to be obtained.

D) One of the functions of the Nodal Officers will be to coordinate the conduct of litigation. It will also be their responsibility to monitor the progress of litigation, particularly to identify cases in which repeated adjournments are taken. It will be the responsibility of the Nodal Officer to report cases of repeated and unjustified adjournments to the Head of Department and it shall be open to him to call for reasons for the adjournment. The Head of the Agency shall ensure that the Records of the case reflect reasons for adjournment, if these are repeated adjournments. Serious note will be taken of cases of negligence or default and the matter will be dealt with appropriately by referring such cases to the Empowered Committee. If the advocates are at fault, action against them may entail suspension/removal of their names from Government Panels.

E) Cases in which costs are awarded against the Government as a condition of grant of adjournment will be viewed very seriously. In all such cases the Head of Department must give a report to the Empowered Committee of the reasons why such costs were awarded. The names of the persons responsible for the default entailing the imposition of costs will be identified. Suitable action must be taken against them.

IV. PLEADINGS / COUNTERS

A) Suits or other proceedings initiated by or on behalf of Government have to be drafted with precision and clarity. There should be no repetition either in narration of facts or in the grounds.

B) Appeals will be drafted with particular attention to the Synopsis and List of Dates which will carefully crystallise the facts in dispute and the issues involved. Slipshod and loose drafting will be taken serious note of. Defaulting advocates may be suspended/removed from the Panels.

C) Care must be taken to include all necessary and relevant documents in the appeal paper book. If it is found that any such documents are not annexed and this entails an adjournment or if the court adversely comments on this, the matter will be enquired into by the Nodal Officer and reported to the Head of Department for suitable action.

D) It is noticed that Government documentation in court is untidy, haphazard and incomplete, full of typing errors and blanks. Special formats for Civil Appeals, Special Leave Petitions, Counter Affidavits will be formulated and circulated by way of guidance and instruction as a Government Advocates Manual. This will include not only contents but also the format, design, font size, quality of paper, printing, binding and presentation. It is the joint responsibility of the Drafting Counsel and the Advocate on Record to ensure compliance.

E) Counter Affidavits in important cases will not be filed unless the same are shown to and vetted by Law Officers. This should, however, not delay the filing of counters.

V. FILING OF APPEALS

A) Appeals will not be filed against ex parte ad interim orders. Attempt must first be to have the order vacated. An appeal must be filed against an order only if the order is not vacated and the continuation of such order causes prejudice.

B) Appeals must be filed intra court in the first instance. Direct appeals to the Supreme Court must not be resorted to except in extraordinary cases.

C) Given that Tribunalisation is meant to remove the loads from Courts, challenge to orders of Tribunals should be an exception and not a matter of routine.

D) In Service Matters, no appeal will be filed in cases where:

a) the matter pertains to an individual grievance without any major repercussion;

b) the matter pertains to a case of pension or retirement benefits without involving any principle and without setting any precedent or financial implications.

E) Further, proceedings will not be filed in service matters merely because the order of the Administrative Tribunal affects a number of employees. Appeals will not be filed to espouse the cause of one section of employees against another.

F) Proceedings will be filed challenging orders of Administrative Tribunals only if

a) There is a clear error of record and the finding has been entered against the Government.

b) The judgment of the Tribunal is contrary to a service rule or its interpretation by a High Court or the Supreme Court.

c) The judgment would impact the working of the administration in terms of morale of the service, the Government is compelled to file a petition; or

d) If the judgment will have recurring implications upon other cadres or if the judgment involves huge financial claims being made.

G) Appeals in Revenue matters will not be filed:

a) if the stakes are not high and are less than that amount to be fixed by the Revenue Authorities;

b) If the matter is covered by a series of judgments of the Tribunal or of the High Courts which have held the field and which have not been challenged in the Supreme Court;

c) where the assessee has acted in accordance with long standing industry practice;

d) merely because of change of opinion on the part of jurisdictional officers.

H) Appeals will not be filed in the Supreme Court unless:

a) the case involves a question of law;

b) If it is a question of fact, the conclusion of the fact is so perverse that an honest judicial opinion could not have arrived at that conclusion;

c) Where public finances are adversely affected;

d) Where there is substantial interference with public justice;

e) Where there is a question of law arising under the Constitution;

f) Where the High Court has exceeded its jurisdiction;

g) Where the High Court has struck down a statutory provision as ultra vires;

h) Where the interpretation of the High Court is plainly erroneous.

I) In each case, there will be a proper certification of the need to file an appeal. Such certification will contain brief but cogent reasons in support. At the same time, reasons will also be recorded as to why it was not considered fit or proper to file an appeal.

VI. LIMITATION : DELAYED APPEALS

A) It is recognized that good cases are being lost because appeals are filed well beyond the period of limitation and without any proper explanation for the delay or without a proper application for condonation of delay. It is recognized that such delays are not always bonafide particularly in cases where high revenue stakes are involved.

B) Each Head of Department will be required to call for details of cases filed on behalf of the Department and to maintain a record of cases which have been dismissed on the ground of delay. The Nodal Officers must submit a report in every individual case to the Head of Department explaining all the reasons for such delay and identifying the persons/causes responsible. Every such case will be investigated and if it is found that the delay was notbonafide, appropriate action must be taken. Action will be such that it operates as a deterrent for unsatisfactory work and malpractices in the conduct of Government litigation. For this purpose, obtaining of the data and fixing of responsibility will play a vital role. Data must be obtained on a regular basis annually, bi-monthly or quarterly.

C) Applications for condonation of delay are presently drafted in routine terms without application of mind and resorting to word processed “boiler plate.” This practice must immediately stop. It is responsibility of the drafting counsel to carefully draft an application for condonation of delay, identifying the areas of delay and identifying the causes with particularity. Drafting advocates who fail to adhere to this may be suspended/removedfrom the Panel.

D) Every attempt must be made to reduce delays in filing appeals/applications. It shall be responsibility of each Head of Department to work out an appropriate system for elimination of delays and ensure its implementation.

E) Belated appeals filed beyond the period of limitation cannot be approached merely from the point of view that courts have different approaches towards condonation of delay. Since some courts liberally grant condonation of delay, a general apathy seems to have taken over. The tendency on the part of Government counsel to expect leniency towards Government for condonation of delay must be discouraged. The question of limitation and delay must be approached on the premise that every court will be strict with regard to condonation of delay.

VII. ALTERNATIVE DISPUTE RESOLUTION

ARBITRATION

A) More and more Government departments and PSUs are resorting to arbitration particularly in matters of drilling contracts, hire of ships, construction of highways, etc. Careful drafting of commercial contracts, including arbitration agreements must be given utmost priority. The Ministry of Law and Justice recognizes that it has a major role to play in this behalf.

B) The resort to arbitration as an alternative dispute resolution mechanism must be encouraged at every level, but this entails the responsibility that such an arbitration will be cost effective, efficacious, expeditious, and conducted with high rectitude. In most cases arbitration has become a mirror of court litigation. This must be stopped.

C) It is recognized that the conduct of arbitration at present leaves a lot to be desired. Arbitrations are needlessly dragged on for various reasons. One of them is by repeatedly seeking adjournments. This practice must be deplored and stopped.

D) The Head of Department will call for the data of pending arbitrations. Copies of the roznama, etc. (record of proceedings) must be obtained to find out why arbitrations are delayed and ascertain who is responsible for adjournments. Advocates found to be conducting arbitrations lethargically and inefficiently must not only be removed from the conduct of such cases but also not briefed in future arbitrations. It shall be the responsibility of the Head of Department to call for regular review meetings to assess the status of pending arbitration cases.

E) Lack of precision in drafting arbitration agreements is a major cause of delay in arbitration proceedings. This leads to disputes about appointment of arbitrators and arbitrability which results in prolonged litigation even before the start of arbitration. Care must be taken whilst drafting an arbitration agreement. It must correctly and clearly reflect the intention of the parties particularly if certain items are required to be left to the decision of named persons such as engineers are not meant to be referred to arbitration.

F) Arbitration agreements are loosely and carelessly drafted when it comes to appointment of arbitrators. Arbitration agreements must reflect a well defined procedure for appointment of arbitrators. Sole arbitrator may be preferred over a Panel of three Arbitrators. In technical matters, reference may be made to trained technical persons instead of retired judicial persons.

G) It is also found that certain persons are “preferred” as arbitrators by certain departments or corporations. The arbitrator must be chosen solely on the basis of knowledge, skill and integrity and not for extraneous reasons. It must be ascertained whether the arbitrator will be in a position to devote time for expeditious disposal of the reference.

H) It is found that if an arbitration award goes against Government it is almost invariably challenged by way of objections filed in the arbitration. Very often these objections lack merit and the grounds do not fall within the purview of the scope of challenge before the courts. Routine challenge to arbitration awards must be discouraged. A clear formulation of the reasons to challenge Awards must precede the decision to file proceedings to challenge the Awards.

VIII. SPECIALISED LITIGATION

A) Proceedings seeking judicial review including in the matter of award of contracts or tenders.

Such matters should be defended keeping in mind Constitutional imperatives and good governance. If the proceedings are founded on an allegation of the breach of natural justice and it is found that there is substance in the allegations, the case shall not be proceeded with and the order may be set aside to provide for a proper hearing in the matter. Cases where projects may be held up have to be defended vigorously keeping in mind public interest. They must be dealt with and disposed off as expeditiously as possible.

B) Cases involving vires, or statutes or rules and regulations.

In all such cases, proper affidavits should be filed explaining the rationale between the statute or regulation and also making appropriate averments with regard to legislative competence.

C) PUBLIC INTEREST LITIGATIONS (PILS)

- Public Interest Litigations must be approached in a balanced manner. On the one hand, PILs should not be taken as matters of convenience to let the courts do what Government finds inconvenient. It is recognized that the increase in PILs stems from a perception that there is governmental inaction. This perception must be changed. It must be recognized that several PILs are filed for collateral reasons including publicity and at the instance of third parties. Such litigation must be exposed as being notbonafide.

- PILs challenging public contracts must be seriously defended. If interim orders are passed stopping such projects then appropriate conditions must be insisted upon for the Petitioners to pay compensation if the PIL is ultimately rejected.

D) PSU LITIGATIONS
- Litigation between Public Sector Undertakings inter se between Government Public Sector Undertakings is causing great concern. Every effort must be made to prevent such litigation. Before initiating such litigation, the matter must be placed before the highest authority in the public sector such as the CMD or MD. It will be his responsibility to endeavour to see whether the litigation can be avoided. If litigation cannot be avoided, then alternative dispute resolution methods like mediation must be considered. Section 89 of the Code of Civil Procedure must be resorted to extensively.

IX. REVIEW OF PENDING CASES

A) All pending cases involving Government will be reviewed. This Due Diligence process shall involve drawing upon statistics of all pending matters which shall be provided for by all Government departments (including PSUs). The Office of the Attorney General and the Solicitor General shall also be responsible for reviewing all pending cases and filtering frivolous and vexatious matters from the meritorious ones.

B) Cases will be grouped and categorized. The practice of grouping should be introduced whereby cases should be assigned a particular number ofidentity according to the subject and statute involved. In fact, further sub-grouping will also be attempted. To facilitate this process, standard forms must be devised which lawyers have to fill up at the time of filing of cases. Panels will be set up to implement categorization, review such cases to identify cases which can be withdrawn. These include cases which are covered by decisions of courts and cases which are found without merit withdrawn. This must be done in a time bound fashion.

Women in the Armed Forces : Misconceptions and Facts

2010-04-02T13:10:00.000+05:30

Women in the Armed Forces : Misconceptions and Facts

By Major General Mrinal Suman, AVSM, VSM, PhD

The recent debate about the induction of women in the armed forces has been highly skewed and shallow. An issue that critically affects the fighting potential of the armed forces has been reduced to ‘equality of sexes’ and ‘women’s liberation’. Many ill-informed observers have trifled such a sensitive matter by terming it as ‘conquering the last male bastion’. Sadly, stances have been taken more on the basis of personal views and mind-sets rather than on well evolved logic. Both military and non-military experts are equally guilty in this regard.
In the recent past, the nation was shocked to hear a retired senior Army officer recommending constitution of all women battalions in the Indian Army. There cannot be a more preposterous and perilous proposition. It is equally common to hear the argument that if the Naxalites and LTTE can have women fighters, why the Indian armed forces should be reluctant to do so. Often people quote the number of American women fighting war in Iraq and Afghanistan to question India ’s stance against allowing women in combat. This article endeavours to remove some common misconceptions and put all issues in their proper perspective.

To start with, it needs to be stressed that the services carry no male chauvinistic mindset. The very fact that daughters of service officers have excelled in all fields proves that service officers do not suffer from any gender bias and are very supportive of women’s advancement. However, the issue of women’s induction in the services warrants singular treatment.

It will be instructive to take a look at the genesis of the issue. Earlier, entry of women was limited to the Army Medical Corps, the Army Dental Corps and the Military Nursing Service. In the early 90s, a service Chief visited the United States and saw women participating in Guards of Honour. He was suitably impressed and wondered why India should lag behind in this aspect. Thus the decision to induct women was neither need-based nor well thought-through. The first batch of women Short Service Commission (SSC) officers joined in 1992. No attempt was made to study likely long term implications of multiple issues involved and their effect on the fighting potential of the services. In other words, a decision of colossal significance was taken in a totally cavalier, slapdash and hasty manner. As the other two services did not want to be seen as ‘male-chauvinists’ , they followed suit. Soon a race got underway between the three services to induct women in maximum number of fields. It is only now that a plethora of complex issues are getting thrown up with resultant adverse fall-out.

Presently, the Indian Army counts 2.44 percent women in its ranks, the Indian Navy 3.0 percent and the Indian Air Force 6.7 percent. The tenure of women SSC officers has since been increased to 14 years. The Government has also approved grant of Permanent Commission to SSC (Women) officers prospectively in Judge Advocate General (JAG) Department and Army Education Corps (AEC) of Army and their corresponding Branch/Cadre in Navy and Air Force, Accounts Branch of the Air Force and Corps of Naval Constructors of the Navy.

Common Misconceptions and Facts

Women must get equal opportunities in the services

The concept of equality of sexes is unquestionable. Its application should, however, never affect the fighting potential of the armed forces. Two points need to be highlighted here. First, the armed forces are constituted for national defence and there can be no compromise on that issue. Secondly, the armed forces are not a ‘Rozgar Yojana’ to provide employment to all segments of the society in equal proportion. As it is a question of nation’s defence, the best man or woman should be selected for every job. In other words, women should be inducted in the services only if they add value or at least not affect it adversely. No right thinking individual can advocate women’s induction at the cost of the fighting potential. That would be disastrous for the country.

Interestingly, demand for equal opportunities is selective in nature. Women want to join only as officers and not as soldiers. Additionally, the concept of equality is given a go-by soon after commissioning. Applications for peace postings and other special dispensations proliferate. They join the military on the plank of equality of sexes but this plank vanishes the day they join the training academy. Thereafter, they again become the weaker sex needing special privileges.

· Women can perform all physical tasks as well as men

Standards of physical fitness of women can never be the same as those of men. It is a biological reality and is true for all fields including sports. In the case of women officers, Indian army has lowered the standards to appallingly low levels. Even then many women fail to qualify during their pre-commission training. Whereas male cadets are required to run 5 km in 28 minutes, women are given 40 minutes. Similarly, males are required to jump across a 9 feet wide ditch with full equipment and personal weapon; women have to negotiate only a 5 feet wide ditch. Worse, most women fail in the test.

All male officers and soldiers are subjected to annual Battle Physical Efficiency Tests till they attain the age of 45 years. No such tests have been prescribed for women officers to avoid embarrassment to them in front of the troops. Concerns have also been expressed about the susceptibility of Indian women to frequent back problems, pelvic injuries and stress fractures.

A recent review conducted by the British army concluded that women have neither the upper-body strength nor the physical resilience to withstand intensive combat. Tests in 2000 respondents found that women were eight times more likely than men to sustain injuries other than wounds in action.

Physical fitness is of lesser importance in modern fighting

Need for physical effort is dictated by two factors - level of technological development and nature of military’s involvement. Requirement for physical prowess undoubtedly reduces as the armies advance technologically. In other words, quantum of physical effort needed is inversely proportional to technological progression. Thus, as an army evolves technologically, more high-tech jobs get generated where technically qualified women can be gainfully employed. In a high-tech army like the US , a woman sitting in the US mainland can effectively guide drone attacks in Afghanistan . India on the other hand is still a second generation technology force which is trying desperately to graduate to the third generation. Indian defence forces are man-power intensive needing physical ground effort. India has very few high-tech jobs.

As regards degree and extent of a military’s involvement in active combat duties, countries like Canada and Australia face no internal or external threat and their militaries are generally in peacetime mode with routine passive duties. They can certainly afford to have a larger percentage of women in their forces. Contrast this with India where the majority of Army troops are deployed on active combat duties in remote, inhospitable and uncongenial areas. Only physically fit and tough troops can survive. Worse, peace tenures are short and there are very few periods of comparative lull.

Therefore, the Indian services continue to be physical-power intensive and will remain so in the near future. Only the very fit can survive to deliver in India ’s hostile environment.

The US has deployed a large number of women soldiers for fighting wars in Iraq and Afghanistan

Although a large number of women have been deployed in Iraq and Afghanistan , their employment has been confined to support functions. Although till the end of 2009, the US and allies had suffered a total of 4689 casualties, there has not been a single woman war casualty. Similarly, despite the fact that the US and allies have suffered 1555 casualties, not a single woman has lost her life in the Afghanistan war so far. Many people tend to confuse casualties due to hostile action with combat casualties. The US has lost 19 female servicemen in Iraq to hostile activities like car bombs, IED blasts and helicopter crashes since the beginning of 2007, but there has been no combat casualty. It is simply because of the fact no women are deployed in combat duties. As a matter of fact, they are forbidden to be placed in direct ground combat with enemy. They generally perform medical, intelligence, logistic and traffic control duties. Women are thus kept sheltered in safe appointments, away from the risk of capture by the adversary.

Even in Israel which has conscription for women (as well as men), women are not allotted active battle field duties. They serve in technical, administrative and training posts to release men for active duty.

If BSF can have an all women battalion to guard border, why not the Indian Army

The Border Security Force (BSF) has certainly raised an all women battalion and deployed it on the international border. However, the following important facts need to be highlighted: -

· The battalion is led by male officers and subordinate functionaries.
· The battalion has not been positioned on the Line of Control where firing and infiltration attempts are frequent. Instead, it has been deployed near Ferozepur on the International Border (IB) which is totally peaceful and where Indian and Pak troops routinely exchange sweets on festivals.
· Even on IB no independent sector has been entrusted to the women battalion. It has been superimposed on an existing male battalion. Importantly, women perform no night guard duties – these are performed by males.

Earlier, village women were not allowed to go across the border fence to cultivate their fields as no women sentries were available to frisk them. It was a sore point with the border folks. The sole purpose of raising the women battalion is to redress this long standing grievance. Their task is akin to what CISF women have been carrying out at the airports for long – frisking of women. Therefore, it will be incorrect to call the BSF battalion a fighting force.

Women officers help overcome the shortage of officers in the forces

It is an erroneous impression that there is a shortage of male volunteers for the services. As per the report of the Union Public Service Commission for 2006-07, there were a total of 5,49,365 candidates for 1724 vacancies for all civil services examinations with an Applicants to Post Ratio (APR) of 319. On the other hand, 3,41,818 candidates applied for 793 vacancies in the National Defence Academy (NDA), maintaining APR at a healthy 431. It implies that for every seat in NDA there were 431 applicants. Therefore, it is a fallacy that male volunteers are insufficient. It is just that the services seek very exacting standards for males while women are accepted with abysmally low standards.

Short service commission for women has proved highly productive

As a matter of fact, short service commission (normally extended to 10 years) has proved to be a totally wasteful and counter-productive exercise. Women normally get commissioned at the age of 23 to 25 years. Within two to three years of their commission, they get married, mostly to colleague male officers. Soon thereafter they start applying for peace postings on compassionate grounds to be with their husbands. Every pregnancy means three years’ exemption from physical activities – one year pre-natal and two years post-delivery. With the standard two-child norm, a women officer remains physically inactive for close to six years. It implies that after the first post-commission tenure, a woman officer is rarely in a position to participate in field exercises and has to be exempted all out-door work. Thus the services gain little.

In an informal interaction, a senior Junior Commissioned Officer (JCO) questioned the rationale of granting SSC to women. “In the case of men, 25 to 35 years age span is most productive and grant of SSC is understandable. On the other hand, women have to raise their families during that period. By granting SSC to women, we have achieved nothing except increase the load on maternity wards of military hospitals,” he opined.

If women can fight as soldiers in LTTE and Naxalite outfits, why not in the services

Comparing irregular outfits with constitutionally created regular forces shows speciousness of the logic. In any case, even LTTE recruited women only after it fell short of male volunteers. Moreover, women held no high appointments and were generally used as pawns in indoctrinated suicide squads. If one was to carry the comparison forward, LTTE had recruited boys of 15 years to take up arms and act as human bombs. A lawfully structured formal organisation cannot be expected to follow suit.

Indian women officers have proved themselves and established their credibility as leaders

Not withstanding the public posturing of the services top brass, the experience so far has been highly discouraging. Superior male officers admire their enthusiasm despite the environmental difficulties, but are faced with the twin problems of their safety and useful employment. Additionally, as many duties (like night duty officer) cannot be assigned to women, male officers have to be given additional work load, which they resent. There are also concerns, based on Israeli studies, that soldiers first instinct may be to defend the women in their ranks rather than to fight the enemy.

Male officers also question the logic of having women only as officer. Indian officers pride themselves in the fact that they lead from the front and hence have to be better than their soldiers both physically and professionally. But, by having women only in the officer cadre an impression gets conveyed to the environment that officers’ duties are softer and can be carried out by women as well, thereby lowering their standing.

As per an informal survey carried out, 81 percent of the troops were convinced that women officers could never lead them in war efficiently. The balance 19 percent were unsure of their response. Acceptability of women as leaders was thus very poor. Another segment of respondents viewed the whole issue as a political gimmick which did not warrant serious attention. “How can the Government be naïve enough to think that a leader who cannot run, train and exercise with troops and lacks required physical fitness can lead them in war?” they query.

Women in Western forces are well accepted and adjusted

It is a fallacy. Acceptance of women in the military has not been smooth in any country. Despite efforts made to sensitise the environment, they continue to be confronted with social, behavioural and psychological problems at all levels. To date most countries do not allow women tank crews because of the cramped conditions and lack of privacy. There are also concerns about cramped living conditions on board submarines and dangers posed by fumes inside the submarine to a foetus if a woman becomes pregnant.

Sexual harassment and assaults of women soldiers is known to be blatant and quite prevalent in the US forces. A sexual harassment hotline set up at Aberdeen received 6,825 calls from women from all branches of the military in just two months. Hundreds of women are said to have complained of sexual assault in the forces since the beginning of Iraq war in 2003. Level of moral degradation can be gauged from the fact that ‘command rape’ has come to be accepted as a common phenomenon in the military - a superior official, under the might of his command authority, can force a subordinate woman soldier to accede to his sexual demands.
A joint survey carried out in 2006 in the UK by the Ministry of Defence and the Equal Opportunities Commission found that 67% of the respondents had experienced sexualised behaviour directed at them personally in the previous 12 months. Worse, over half of those who made a formal complaint stated that there had been negative consequences as a result of which 64% were considering leaving the services.
On the other hand, Indian armed forces can be rightfully proud of their record which is far better than that of any advanced nation in the world. Women are treated in a manner befitting their dignity and their safety is ensured.

India Needs to Exercise Caution

It is universally accepted that induction of women in the services should be dictated by the level of technology, prevailing security environment and the nature of likely deployment. Availability of adequate number of male volunteers is another major consideration.

India should follow a graduated approach. Women’s expertise, talent and competence should be profitably utilised in areas which are totally non-combat in nature. For the present, women must continue to play their established role in the medical, dental and nursing services, both as short service and permanent commission officers. However, they should not be granted short service commission in any other branch. The Government has rightly approved grant of permanent commission to women in legal and education departments of the three services, accounts branch of the Air Force and constructors of the Navy. Grant of permanent commission should also be considered for women in Survey of India, Military Engineering Service Militarised Cadre and Director General Quality Assurance.

The current policy of non-induction of women in combat arms should continue. Additionally, their entry into Engineers, Signals, Supply Corps, Ordnance and EME (Electrical and Mechanical Engineers) should be deferred till infusion of technology generates adequate number of high-tech jobs.

Finally, it should never be forgotten that the raison d'être for the constitution of the armed forces is to ensure security of the country. Decisions which have a far reaching effect on the defence potential of the armed forces must be taken with due diligence. Instead of replicating a model, India must chart its own policy. It has an experience of 18 years. Honest feedback must be sought to appreciate the true ground situation and initiate corrective measures. Most importantly, the military brass must show moral courage to admit that the present mess demands a holistic review of the policy, protestations of self-styled champions of gender-parity not withstanding. Decisions taken as a matter of political and populist expediency can prove disastrous for the nation in the long run. Defence matters cannot be treated as publicity gimmick to flaunt sexual equality.

How to Fight TECHNOLOGY ADDICTION

2010-03-24T11:31:00.001+05:30

Don't laugh.

Technology addiction is very real and very harmful.

It consumes thousands of people from every walk of life - even lawyers. Tech addicts report being RESTLESS when they're not sitting at a keyboard or holding their smart phones. And, when they're at the computer, they lose all sense of time. Their family and friends are often NEGLECTED.

Technology addiction is such a growing problem that experts have opened up the first residential treatment center in the United States. A $14,000 45-day stay at ReStart in Seattle can help people kick the habit of pathological computer and smart phone use.

Addiction Warning Signs

If you feel you have a handle on your technology use - think again. Just look at the TECHNOLOGY ADDICTION WARNING SIGNS:

■Preoccupation with thoughts of the Internet.
■Using the computer or smart phone longer than intended for increasing amounts of time.
■Repeatedly making unsuccessful efforts to control use.
■Putting time online before school or work.
Think about people - lawyers especially - who take calls, send text messages, or obsessively check their emails throughout the day and night. Maybe I'm describing you!

If you're teched-out lifestyle is wreaking havoc on your work-life balance, here are some ways to UNPLUG.

1. Restrictions

Put some restrictions on yourself when it comes to handing out your cell phone number. Give the number out to the most important clients and colleagues. This will cut down on the number of calls you receive, especially at night or during vacation.

2. Turn the smart phone OFF at home!

Emails come in on smart phones day and night. You DO NOT have to check them from home at 11 o'clock at night. Those emails will still be there in the morning.

Turn off your iPhone or BlackBerry at a set time every night. Remember, your nights belong to you - not your clients!

3. Set realistic email expectations.

You should not have to respond to client emails immediately. Instead, have your retainer agreement state that client emails will be responded to within "x" amount of time, unless the sender receives an "away" message. That message, in turn, should indicate how long you will be out of reach and whom to contact in an emergency.

These types of provisions will allow you to carve out more private time.

4. Unplug at work.

Many people get sidelined while preparing for important presentations or cases because they feel the need to respond to emails or browse the Internet.

Stop!

If there is a project that has to get done, turn off the email notification sound and pop-up window. Or, better yet, close Outlook so you aren't even tempted to wander from the task at hand. The same applies to smart phones.

Don't be chained to technology! Break the chains by setting your own hard and fast rules.

UNWIRE today before you become UNGLUED!

10 Common Networking Mistakes

2010-03-24T11:27:00.001+05:30

10 Common Networking Mistakes

The professionals who are admired the most by their peers, are the ones who are great career advisors to the people in their networks.

To become the "go to" professional in your network, take care to avoid the following mistakes:

1) The "WIIFM" Mindset.
Having a "What's in it for me?" mindset will no only brand you as an amateur networker, but will make a lasting negative impression.

2) Not recognizing potential leads for your network.
Most professionals, when asked, cannot describe their clients' ideal customers.

3) Expecting an immediate quid pro quo.
Avoid the mindset of, "This person owes me." Remember, networking is a long-term process - your good deeds will pay off in time.

4) Failing to thank both attempted and successful referrals.
Don't become so busy with the new project you just landed from the referral you received, to thank the one who sent it to you.

5) Making reckless or low quality referrals.
A low quality referral will reflect negatively on you. Don't forget to follow up with both parties to see if they were happy with the introduction.

6) Not proactively promoting other people's services.
When you see an opportunity for someone in your network, and they are unavailable, instead of thinking, "Too bad they aren't here for this." take the time to market their service for them.

7) Failing to take time each week to help others.
I'm not talking about attending more networking meetings. Instead, I'm suggesting you keep the mindset of "being of service" to those in your network. E.g., If you read an article about a new development in a clients' industry - take the time to send the article to them with a short note.

8) Thinking short-term.
Too often professionals think they should only join groups that will bring business quickly. Expand your horizons - join social groups that match your interests. If you love riding Harleys, join a Harley Owners' group.

9) Not forming cross-network alliances.
For example, a local attorney who is married to a foreign national was frequently asked if he knew any immigration lawyers. After some time, and several missed opportunities, he developed a cross-referral arrangement with a local immigration attorney.

10) Making no effort to help people manage their careers.
If you want to make a friend for life, just spend time with someone who is "in transition" from one job to the next.

The Coach's questions -
Think of your top ten clients, can you describe an "ideal" lead for their businesses?

Have you ever written an unprompted letter to benefit someone in your network?

Confusing Signals for Investors

2010-02-08T19:08:00.001+05:30

Confusing Signals for Investors
What a flood of confusing inputs for investors! It's the kind of time when you can build just about any hypothesis and find enough evidence to support it. Let me count off some of the major ones. In India, corporate results are better, but on a low base. The Reserve Bank of India (RBI) is going to tighten up credit because inflation is becoming a problem. But inflation won't respond to these measures. But the recovery has been robust. But credit off-take is slowing down. But the markets have spent a lot of time at these levels. But some sectors have run ahead of their real numbers. But the
PSU IPOs are great opportunities. But the PSU IPOs will suck money out of the secondary markets. But gold prices indicate a deeper problem. But all asset prices are inflated by the enormous gobs of liquidity that governments have dumped into their economies. But the global economy is through the worst. But there's a second wave of problems building up on the horizon - there was Dubai, now there will be Greece.
And that's not a comprehensive list by any means. As I said, there's enough evidence here to support just about any hypothesis. If you want to decide your course of action as an investor, then depending on who you are talking to, completely opposite things can be shown to be absolutely certain. However, it's the kind of time when, instead of getting confused by conflicting inputs, you should take the view that they are all wrong. Or rather, some random set of factors out of all these will turn out to be more important, but you won't know which ones till you can look back at them with 20-20 hindsight.
It would be much better to step aside and recognise that while all this is of great relevance to the talking heads and the editorial writers, the only reasonable course of action for investors would be something that doesn't involve dealing with this overload of information that falls well short if being useful. If you look back upon the last few years, it becomes absolutely self-evident that it's a complete waste of time trying to peer into this floating mess of tea leaves and try to predict the overall direction of the investment markets. However, what is not a waste of time for investors is to figure out which businesses are worth investing in.
Even if you had invested at the worst of times - say early in January, 2008 - but the investment itself was well-chosen, you would be fine today. Still a little down, but with no reason to be pessimistic. The converse is not true. And that's something that investors should take to heart. This vast fog of news is of little practical relevance, what really matters is choosing the right investments.

Islam Online: INTRODUCTION TO ISLAM (WHAT IS ISLAM?)

2010-02-05T21:10:00.001+05:30

Islam Online: INTRODUCTION TO ISLAM (WHAT IS ISLAM?)

Islam is a religion, which guides its followers in every aspect of their lives. It is a way of life. Islam is the modern or latest version of the message sent by God through Adam, Noah, Abraham, Moses and Jesus, Islam was sent to mankind through Prophet Muhammad (pbuh).
Islam is "modern" in the sense that it has come to complement the teachings, which were introduced through Adam, Noah, Abraham, Moses and Jesus. Islam is a religion, which seeks to give a meaningful purpose to our life on this earth. Islam seeks to guide us in fulfilling that purpose by creating harmony between Creator, our fellow human beings and ourselves. What you will read below are some of the basic features of Islam.
Islam Online: THE ONE and ONLY GOD
Islam is a monotheistic religion. It teaches that there is only one God who is the origin and creator of the universe. This is the foundation stone of Islam, and is reflected in the famous sentence, which says that, "There is no god but Allah" (Allah is the Arabic name of God). The belief in God relates us to our origin and guides us throughout our life. The belief in one God shows that man should not worship any material thing or person in this universe. By teaching that there is only One God for all humans, Islam promotes the sense of brotherhood and equality in human society, all are equally related to God in the same way. The Holy Qur'an, the holy book of Islam, says:
Say: He is God, the One and Only, God the Eternal, Absolute; He begets not, nor is He begotten. And none is like Him. Holy Qur'an (Chapter
112)
Islam Online: THE PURPOSE OF LIFE
Our life on this earth has a specific purpose; it is not the result of nature's accident, nor is it a punishment for eating the fruit of the forbidden tree. We are here according to God's plan: the worldly life is a test; it is a chance to prove ourselves as deserving of the eternal blissful life in the hereafter. God did not create us just for few years of this life. To be created just for this world's life would amount to a joke played by the Creator with the human species.
Muhammad (pbuh), the Prophet of Islam, said, "You have not been created to perish; on the contrary, you have been created for eternal life." According to Islam, the final destination of mankind is the life hereafter. At the end of time, all human beings will be resurrected and will be held accountable for their worldly life: The life in hereafter will be an eternal life. However, whether it will be blissful or full of sorrow depends on how we spend our present life.
It was to help mankind in achieving this objective that God sent various prophets and messengers to guide them. Muhammad (pbuh) is the last prophet; and Islam is the final and complete version of God's message.
Islam Online: STATUS OF HUMAN BEINGS IN ISLAM PRIME CREATION: Human being is the prime creation of God. He says, "We have indeed honoured the children of Adam; spread them in the land and the sea, provided them with good things; and preferred them in esteem over many things that We have created." Holy Qur'an (17:70) BORN SINLESS: Islam teaches that every human being is born sinless; no child carries the burden of his or her ancestor's sins. God says, "And a burdened soul cannot bear the burden of another and if one weighed down by burden should cry for (another to carry) its burden, not aught of it shall be carried, even though he be near of kin." Holy Qur'an
(35:18) Each human being is born with a pure conscience, which can absorb and accept the true message of God. It is only the social and familial influences, which take a person away from God's message.
ACCOUNTABILITY: Islam also emphasizes on the issue of responsibility and accountability of human beings, each person is responsible for his or her own actions. Although Islam teaches that God has predetermined the span of our life and time of our death, but this does not mean that even our actions are predetermined by Him. We surely are free in our actions and are, therefore, accountable for them. God only provides guidance for us to know what is good and what is bad. He says, "Surely We have created man from a small life-germ uniting
(itself): We mean to try him, so We have made him hearing, seeing.
Surely We have shown him the way: he may be thankful or unthankful."
Holy Qur'an (76:2-3)
RAGE: Islam very categorically rejects racial discrimination. It promotes the feeling of brotherhood and equality among its followers.
God clearly says, "O you men! surely We have created you of a male and a female, and made you tribes and families that you may know each other; surely the most honorable of you with Allah is the one among you most careful (of his duty); surely Allah is Knowing, Aware." Holy Qur'an (49:13) Therefore, no one can claim any superiority over others based on racial or tribal differences. A person is to be judged by his character, not by his colour or race. God continues, "Surely the most honourable of you in God's sight is the person who is most upright in character among you". Holy Qur'an (49:13)
GENDER: Even gender does not count as a criterion of superiority. In Islam, a woman is as human as men. They are not evaluated on basis of their gender, but on basis of their faith and character. Fourteen hundred years ago, the Holy Qur'an recorded God's clear statements on this issue. Out of the four verses, I will just quote one: "Whoever, be it a male or a female, does good deeds and he or she is a believer, then they will enter the Paradise." Holy Qur'an (4:124) So there is no difference in the degree or level of woman's humanity or honour in Islam. The only difference there exists is concerning the role which Islam has envisioned for man and woman. This has nothing to do with superiority or inferiority. In Islam, man and woman are equal in rights; but equality is not synonymous to similarity. Islam believes that man and woman are equal but dissimilar. Islam looks at their different roles in society not as superior or inferior but as complementary to each other.
Islam Online: ISLAM THE RELIGION OF PEACE:
Islam is a religion of peace. This is evident even from the name "Islam" itself. ("Islam" is an Arabic word.) The word "Islam" and the Arabic word for peace, "salaam" both come from the same root, "salima". Muslims are taught to greet each other by saying "salamun alaykum (peace be upon you)." The daily prayers also end with the same sentence. In Islam, one of the names by which God is known is "Salaam", which means peace. However, one must realize that peace can never be achieved in vacuum. It is inter twined with justice. One can have peace only on basis of justice. "Justice" means putting everything in its rightful place. If one starts putting things in the wrong places, then he disrupts the social harmony and disturbs peace.
Islam seeks to promote peace on two levels:
1. Peace Within One's Self: A person can achieve inner peace by creating harmony and balance between his main emotions (desire and
anger) and his spiritual self. In other words, between his emotions and his conscience. Human's spiritual power or conscience is not a static phenomenon: it has the ability of growth as well as decadence.
God swears by the soul of human being and says, "He inspired to it to understand what is good and what is evil. Prosperous is the person who purifies it, and failed is he who seduces it." Holy Qur'an (91:10) 2. Peace With Others: Islam very strongly emphasizes on the rights, which people have over each other. It seeks to preserve peace in society by training and urging its followers to fulfill the rights of each other. In Islam, salvation is not possible by just fulfilling the rights of God; one has to fulfill the rights of other human beings also.
Unfortunately, because of the Middle Eastern events of last three decades, Islam has been branded by the media as a religion of violence. In recent years, the word "Islamic" has become one of the adjectives of "terrorism." In this back-drop, firstly, one must realize that the events in the Middle East can be fairly and fully understood only in the light of the post world war I history of that region, in particular the promises given by the British to the Arabs.
Secondly, no fair-minded person would allow himself to blame the religion of Islam for the wrong-doings of those who call themselves as Muslims. It is just like saying that the Catholic Church promotes violence and terrorism because of the Irish Republican Army's activities!

Islam Online: INTRODUCTION TO ISLAM (ISLAM THE RELIGION OF PEACE)

Islam is a monotheistic religion (believing in only one God) originating with the teachings of Prophet Muhammad (pbuh). Islam is the second-largest religion in the world today, with an estimated 1.5 billion adherents, spread across the globe, known as Muslims. Muslims form the majority in more than 50 countries of the world. Today Islam is the fastest growing faith in the world - its beautiful message is reaching millions in the far corner of the earth. One more meaning of the word "Islam" means "submission", referring to the total surrender of one's self to God, and the word Muslim means "one who submits (to God)".
Muslims believe that God revealed the Holy Qur'an to Prophet Muhammad
(pbuh) in the course of twenty three years as the final and last message to mankind through angel Gabriel (on whom be peace). The Holy Qur'an and the traditions of Prophet Muhammad (pbuh), Sunnah are regarded as the fundamental sources of Islam. Muslims do not regard Prophet Muhammad (pbuh) as the founder of a new religion, but as the restorer of the original monotheistic faith of Adam, Noah, Abraham, Moses, Jesus, and other prophets. Muslims hold that part of the messages of these prophets became distorted over time either in interpretation, in text, or both. Like Judaism, and Christianity, Islam is also an Abrahamic religion.

Fear of Losses

2010-01-26T21:03:00.000+05:30

Fear of Losses

The latest issue of The Economist has an article about an experiment in behavioural economics. The management of a factory in China asked consultants to design a better incentive bonus system. Most of the consultants suggested fine-tuning the amount of bonus, but two behavioural economics researchers worked purely on the language of the letters through which workers were informed about their bonus.

As an experiment, one group was told that if they met certain targets, they would get a certain amount of money as a bonus. Another group was told that they had provisionally been awarded a certain amount of bonus based on their capabilities. However, if their work fell below certain targets, then they would lose the bonus. In reality, the two schemes were identical.

As researchers had suspected, workers who had been given the provisional bonus were much better at meeting the targets. The fear of losing something you already have is much stronger than the motivation to gain something new. This loss-avoidance urge is well-known to behavioural researchers in other areas like investments.

The loss-avoidance urge is not a fringe phenomenon. It is absolutely central to what makes a good equity investor. The idea that some of the money you have earned may go away at any point is difficult to accept. There's a friend of mine who has been a steadily successful equity investor over many years now. He has this mental concept of 'market ka paisa' and 'mera paisa'. He divides the total worth of his equity investments at any point into these two categories, and generally considers about a fifth of the value to belong to 'the market', which the market can take back whenever it wants to.

This has always enabled him to think clear-headedly about what he should be doing at any given time and has prevented knee-jerk reactions every time there's some volatility. In my experience, investors either have this kind of a mental framework or they tend to take wrong decisions under pressure. This is the kind of instinct that makes people sell off their investments after they have dropped and then not invest again till the climate has changed, thus making their losses permanent. As an investor, either one should have the self-awareness and the self-control to modify one's loss-aversion instinct, or one should go for investment products that are not prone to volatility. These can span conventional fixed deposit, or post office, type of products, or they could be products that have some type of equity elements. For example, there are some capital-protection oriented funds as well as funds that invest only gains from fixed income into equity.

Such schemes offer only a fraction of the gains that real equity products do, but they do earn more than pure fixed income while offering peace of mind, thereby catering to the loss-aversion instinct.

Predicting Markets

2010-01-05T14:00:00.001+05:30

Cocktail Theory : Peter Lynch

Peter Lynch has been one of the most successful investors and fund managers of all times and his book: ONE UP ON WALL STREET is a terrific and delightful book. Not only is the book a fine example of the wit, experience and knowledge; it is an easy read, and you can breeze through it.
Anyone who is serious about investing and can spare the cash must read it. This post discusses one delightful theory that Peter Lynch discusses, and I am sure if we look hard enough we can find similar examples from our daily life and relate to what he is saying.
Lynch calls it “The Cocktail Theory”. This theory is developed by Lynch for forecasting markets and has done so by standing in the middle of living rooms listening to what people have to say.
In the first stage of an upward market where the market has been down for some time and no one expects it to rise again people are generally not talking about the markets. When someone asks Lynch what he does for a living and he tells them that he manages a fund they nod politely and move away to talk to the dentist about plaque.
Lynch says that if people would much rather talk to the dentist about plaque than to a fund manager about stock it is likely that the market is going to go up.
In stage two, when the market has risen about 15 - 25 %, but still only a very few people have noticed it, the new acquaintances linger a bit longer with Lynch telling him how risky the market is before moving away to the dentist to discuss plaque.
In stage three with the market up 40-50%, Lynch says that he is surrounded by enthusiastic investors asking for tips, and even the dentist is looking for some tips from him, and everyone has their money invested at one place or the other.
In stage four Lynch is surrounded again, but this time people are not asking him what to buy, they are telling him what to buy ! The dentist has a tip or two of his own too, and in the next few days it’s likely that the dentist’s recommendation goes up.
This Lynch says is a sure sign that the market has reached the top, and is due for a tumble.
Lynch issues a caveat at the end of the theory saying that the key to investing is to buy great companies and not predicting markets.
In fact he categorically states that he does not believe in predicting the markets. Each one of us who has stayed in the market to witness at least one cycle would find a similar example to what Lynch gives and would easily relate to what he says.
I am sure you can use this simple, yet effective technique to find out what are the sentiments in the stock markets.
You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets
- Peter Lynch

Monetary Policy of Reserve Bank of India

2009-01-08T12:42:00.002+05:30

Monetary Policy of Reserve Bank of India

Like every country, India has its own central bank – RBI, which performs the following roles:
1. Conduct monetary policy
2. Monitor and regulate banks and financial institutions
3. Act as government’s bank

I will focus primarily on the first role in this article. Conducting monetary policy means that the central bank is in charge of making sure the country has the right amount of money by taking decision on how much money gets printed and how much get circulated into the economy.

What do we mean by money?
By money we mean currency, coins, deposits, saving accounts, travelers’ checks and short term deposits (less than 90 days). Credit cards are NOT considered as money because money is an asset while transaction on credit card is a liability i.e. credit.

Right amount of money
So how much is the right amount of money in an economy? Economists say that the right amount is just “enough money” that allows aggregate demand (AD) to grow at a rate that will let the economy expand at an acceptable rate without inflation. In layman’s language, right amount of money is just enough money to enable growth of GDP at a healthy rate without inflation. It is for the central bank (RBI) and/or the government to decide how much is a healthy GDP growth rate and how much inflation is acceptable.

Goals of RBI
The following quote comes from the RBI website and explains its goals:\"...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.\"

Tools and Policy
It is clear from RBI’s goal that its main role is to maintain low and stable inflation by regulating credit system of the country. To understand this we need to know what causes inflation in the economy. Inflation is an increase in the prices of goods and services in the economy. It is caused by excess demand of products and services by the population due to increased growth or income. Hence, an increase in aggregate demand (AD) causes inflation. To check inflation, RBI has to control growth in AD. The best way to influence AD is to influence interest rate because AD is interest rates sensitive.

Interest rates on home loans influence housing demand. Auto loan rates affect the plan of individuals to purchase automobiles such as cars, bikes and trucks. Banks loan affects the ability of corporate to borrow and hence, influence economic growth. Hence, if RBI or any other central bank has to control AD, it has to influence interest rates.

However, RBI does not decide interest rates directly i.e. it cannot decide the interest rates on home loans or auto loans or corporate borrowing. RBI simply does not have any direct control over them. It can only use its tools to influence key rates. Whatever these tools may be, always remember the common thing – Controlling the amount of money that flows into the economy.
1. By reducing the availability of money in the economy, RBI can reduce AD because lesser money will be there to buy things – decreasing demand
2. By increasing the availability of money in the economy, RBI can increase AD because individuals as well as corporate have more money to spend – increasing demand
3. To reduce AD, raise interest rates because people and corporate will borrow less money and hence spending will go down. This would in turn reduce the demand for goods and services.
4. To increase AD, just do the reverse i.e. lower the interest rates. Individuals and corporate would borrow more money at lower rates and consume more goods and services, increasing AD in the economy.

Changing the Cash Reserve Ratio (CRR)
Banks cannot loan out all their deposits because they may fail soon. RBI or central banks require banks to keep a small portion of their deposits as “banks reserves”, which the banks cannot lend out. The current value of CRR is ….

When RBI increases CRR, banks are required to keep a higher amount of money in their banks reserves. Hence, less money is available for individuals and corporate in the market. This causes AD to decrease (see point no 1 above) and thus reducing inflation. On the other hand when RBI decreases CRR, Banks have more funds to lend to people. To loan out these extra money, banks will reduce the interest rates and increase AD.

Changing the Bank Rate
This is the rate at which RBI lends money to other banks (or financial institutions). These loans are usually very short-term loans. The main idea is that if the central bank, RBI, has reduced this rate, it is a signal to banks that it is appropriate to borrow money from it in larger quantities. These banks then lend out this extra money to their customers. To loan out these money banks have to lower interest rates which in turn increase AD.

Changing the Reverse Repo Rate
The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system.

If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk). Consequently, banks would have lesser funds to lend to their customers. This helps reduce the flow of excess money into the economy.

Open market operations
This is the primary and most frequent way by which RBI control monetary policy. Open market operations involve buying and selling of short term government securities. This method may be different from others but the end result is the same – controlling money supply in the economy.

When RBI buys government securities from commercial banks, it gives them money and keeps those securities with itself. Thus, banks have now more money to lend out (see point 2). To loan out this extra money, banks lower interest rates on their products. We know how lower interest rates influence AD.

Current Rates Figures (as of Jan 6, 2009)
CRR = 5.0%
Repo Rate = 5.5%
Reverse Repo Rate = 4.0%

Final Few Words
Nobel Laureates Finn Kydland and Edward Prescott once wrote that policy makers should be time consistent i.e. stick to their good long-run policies and not have their attention diverted to short-term emergencies. Had our RBI and central government listened to his wise comments, they would not have made hasty short-term decisions to control liquidity to tame inflation even. They were aware of the fact that inflation was caused by supply side constraints and NOT demand side. Yet, short term decisions, which are more often politically motivated, affect long term growth of the country. The aggressive approach of RBI has now led to a severe credit crunch in our economy. Some may argue that it is caused by sub-prime crisis and not RBI’s policies. I partially agree to that. However, majority of liquidity issues were caused by increased CRR.

Option Strategies - Long Call

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Long Call
Purchasing calls has remained the most popular strategy with investors since listed options were first introduced. Before moving into more complex bullish and bearish strategies, an investor should thoroughly understand the fundamentals about buying and holding call options.
Market Opinion?
Bullish to Very Bullish
When to Use?
This strategy appeals to an investor who is generally more interested in the dollar amount of his initial investment and the leveraged financial reward that long calls can offer. The primary motivation of this investor is to realize financial reward from an increase in price of the underlying security. Experience and precision are key to selecting the right option (expiration and/or strike price) for the most profitable result. In general, the more out-of-the-money the call is the more bullish the strategy, as bigger increases in the underlying stock price are required for the option to reach the break-even point.

As Stock Substitute
An investor who buys a call instead of purchasing the underlying stock considers the lower dollar cost of purchasing a call contract versus an equivalent amount of stock as a form of insurance. The uncommitted capital is "insured" against a decline in the price of the call option's underlying stock, and can be invested elsewhere. This investor is generally more interested in the number of shares of stock underlying the call contracts purchased, than in the specific amount of the initial investment - one call option contract for each 100 shares he wants to own. While holding the call option, the investor retains the right to purchase an equivalent number of underlying shares at any time at the predetermined strike price until the contract expires.Note: Equity option holders do not enjoy the rights due stockholders – e.g., voting rights, regular cash or special dividends, etc. A call holder must exercise the option and take ownership of the underlying shares to be eligible for these rights.

Benefit
A long call option offers a leveraged alternative to a position in the stock. As the contract becomes more profitable, increasing leverage can result in large percentage profits because purchasing calls generally requires lower up-front capital commitment than with an outright purchase of the underlying stock. Long call contracts offer the investor a pre-determined risk.

Risk vs. Reward
Maximum Profit: Unlimited
Maximum Loss: Limited

Net Premium Paid
Upside Profit at Expiration: Stock Price - Strike Price - Premium Paid
Assuming Stock Price above BEP

Your maximum profit depends only on the potential price increase of the underlying security; in theory it is unlimited. At expiration an in-the-money call will generally be worth its intrinsic value. Though the potential loss is predetermined and limited in dollar amount, it can be as much as 100% of the premium initially paid for the call. Whatever your motivation for purchasing the call, weigh the potential reward against the potential loss of the entire premium paid.

Break-Even-Point (BEP)?
BEP: Strike Price + Premium PaidBefore expiration, however, if the contract's market price has sufficient time value remaining, the BEP can occur at a lower stock price.
Volatility
If Volatility Increases: Positive Effect
If Volatility Decreases: Negative Effect
Any effect of volatility on the option's total premium is on the time value portion.

Time Decay?
Passage of Time: Negative Effect
The time value portion of an option's premium, which the option holder has "purchased" by paying for the option, generally decreases, or decays, with the passage of time. This decrease accelerates as the option contract approaches expiration.

Alternatives before expiration?
At any given time before expiration, a call option holder can sell the call in the listed options marketplace to close out the position. This can be done to either realize a profitable gain in the option's premium, or to cut a loss.Alternatives at expiration?At expiration, most investors holding an in-the-money call option will elect to sell the option in the marketplace if it has value, before the end of trading on the option's last trading day. An alternative is to exercise the call, resulting in the purchase of an equivalent number of underlying shares at the strike price.

Options Trading

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Option trading has been very attractive among all the traders either new or old and experts. Here we are providing some well known and mostly used methods of option trading.

What is an Option?
An option is a contract to buy or sell a specific financial product officially known as the option's underlying instrument or underlying interest. For equity options, the underlying instrument is a stock, exchange-traded fund (ETF), or similar product. The contract itself is very precise. It establishes a specific price, called the strike price, at which the contract may be exercised, or acted on. And it has an expiration date. When an option expires, it no longer has value and no longer exists.
Options come in two varieties, calls and puts, and you can buy or sell either type. You make those choices - whether to buy or sell and whether to choose a call or a put - based on what you want to achieve as an options investor.

Buying and Selling
If you buy a call, you have the right to buy the underlying instrument at the strike price on or before the expiration date. If you buy a put, you have the right to sell the underlying instrument on or before expiration. In either case, as the option holder, you also have the right to sell the option to another buyer during its term or to let it expire worthless.
The situation is different if you write, or "sell to open", an option. Selling to open a short option position obligates you, the writer, to fulfill your side of the contract if the holder wishes to exercise. When you sell a call as an opening transaction, you're obligated to sell the underlying interest at the strike price, if you're assigned. When you sell a put as an opening transaction, you're obligated to buy the underlying interest, if assigned. As a writer, you have no control over whether or not a contract is exercised, and you need to recognize that exercise is always possible at any time until the expiration date. But just as the buyer can sell an option back into the market rather than exercising it, as a writer you can purchase an offsetting contract, provided you have not been assigned, and end your obligation to meet the terms of the contract. When offsetting a short option position, you would enter a "buy to close" transaction.

At a Premium
When you buy an option, the purchase price is called the premium. If you sell, the premium is the amount you receive. The premium isn't fixed and changes constantly - so the premium you pay today is likely to be higher or lower than the premium yesterday or tomorrow. What those changing prices reflect is the give and take between what buyers are willing to pay and what sellers are willing to accept for the option. The point at which there's agreement becomes the price for that transaction, and then the process begins again.
If you buy options, you start out with what's known as a net debit. That means you've spent money you might never recover if you don't sell your option at a profit or exercise it. And if you do make money on a transaction, you must subtract the cost of the premium from any income you realize to find your net profit.
As a seller, on the other hand, you begin with a net credit because you collect the premium. If the option is never exercised, you keep the money. If the option is exercised, you still get to keep the premium, but are obligated to buy or sell the underlying stock if you're assigned.

The Value of Options
What a particular options contract is worth to a buyer or seller is measured by how likely it is to meet their expectations. In the language of options, that's determined by whether or not the option is, or is likely to be, in-the-money or out-of-the-money at expiration. A call option is in-the-money if the current market value of the underlying stock is above the exercise price of the option, and out-of-the-money if the stock is below the exercise price. A put option is in-the-money if the current market value of the underlying stock is below the exercise price and out-of-the-money if it is above it. If an option is not in-the-money at expiration, the option is assumed to be worthless.
An option's premium has two parts: an intrinsic value and a time value. Intrinsic value is the amount by which the option is in-the-money. Time value is the difference between whatever the intrinsic value is and what the premium is. The longer the amount of time for market conditions to work to your benefit, the greater the time value.

Options Prices
Several factors, including supply and demand in the market where the option is traded, affect the price of an option, as is the case with an individual stock. What's happening in the overall investment markets and the economy at large are two of the broad influences. The identity of the underlying instrument, how it traditionally behaves, and what it is doing at the moment are more specific ones. Its volatility is also an important factor, as investors attempt to gauge how likely it is that an option will move in-the-money.

Benefits and Risks
Most strategies that options investors use have limited risk but also limited profit potential. For this reason, options strategies are not get-rich-quick schemes. Transactions generally require less capital than equivalent stock transactions, and therefore return smaller dollar figures - but a potentially greater percentage of the investment - than equivalent stock transactions.
Even those investors who use options in speculative strategies, such as writing uncovered calls, don't usually realize dramatic returns. The potential profit is limited to the premium received for the contract, and the potential loss is often unlimited. While leverage means the percentage returns can be significant, here, too, the amount of cash changing hands is smaller than with equivalent stock transactions.
Although options may not be appropriate for everyone, they're among the most flexible of investment choices. Depending on the contract, options can protect or enhance the portfolios of many different kinds of investors in rising, falling, and neutral markets.

Reducing Your Risk
For many investors, options are useful as tools of risk management, acting as insurance policies against a drop in stock prices. For example, if an investor is concerned that the price of his shares in LMN Corporation is about to drop, he can purchase puts that give him the right to sell his stock at the strike price, no matter how low the market price drops before expiration. At the cost of the option's premium, the investor has insured himself against losses below the strike price. This type of option practice is also known as hedging. While hedging with options may help you manage risk, it's important to remember that all investments carry some risk, and returns are never guaranteed. Investors who use options to manage risk look for ways to limit potential loss. They may choose to purchase options, since loss is limited to the price paid for the premium. In return, they gain the right to buy or sell the underlying security at an acceptable price for them. They can also profit from a rise in the value of the option's premium, if they choose to sell it back to the market rather than exercise it. Since writers of options are sometimes forced into buying or selling stock at an unfavorable price, the risk associated with certain short positions may be higher.
Many options strategies are designed to minimize risk by hedging existing portfolios. While options can act as safety nets, they're not risk free. Since transactions usually open and close in the short term, gains can be realized very quickly. This means that losses can mount quickly as well. It's important to understand all the risks associated with holding, writing, and trading options before you include them in your investment portfolio.

Risking Your Principal
Like other securities - including stocks, bonds, and mutual funds - options carry no guarantees, and you must be aware that it's possible to lose all of the principal you invest, and sometimes more. As an options holder, you risk the entire amount of the premium you pay. But as an options writer, you take on a much higher level of risk. For example, if you write an uncovered call, you face unlimited potential loss, since there is no cap on how high a stock price can rise. However, since initial options investments usually requires less capital than equivalent stock positions, your potential cash losses as an options investor are usually smaller than if you'd bought the underlying stock or sold the stock short. The exception to this general rule occurs when you use options to provide leverage: Percentage returns are often high, but it's important to remember that percentage losses can be high as well.

Option Dictionary

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Adjustments
Certain events such as a stock split or a stock dividend (e.g., a 3-for-2 stock split). An adjusted option may cover more than the usual one hundred shares. For example, after a 3-for-2 stock split, the adjusted option will represent 150 shares. For such options, the premium must be multiplied by a corresponding factor. Example: buying 1 call (covering 150 shares) at 4 would cost $600. See also Strike price interval

All-or-none order (AON)
A type of option order which requires that the order be executed completely or not at all. An AON order may be either a day order or a GTC (good til cancel) order.

American-style option
An option that can be exercised at any time prior to its expiration date. See also European-style option

AMEX / ASE
American Stock Exchange.

Arbitrage
A trading technique that involves the simultaneous purchase and sale of identical assets or of equivalent assets in two different markets with the intent of profiting by the price discrepancy.

Ask / ask price
The price at which a seller is offering to sell an option or a stock. See also Assignment

Assigned (an exercise)
Received notification of an assignment by The Options Clearing Corporation. See also Assignment

Assignment
Notification by The Options Clearing Corporation to a clearing member that an owner of an option has exercised his or her rights there under. For equity and index options, assignments are made on a random basis by The Options Clearing Corporation. See also Delivery and Exercise

At-The-Money
A term that describes an option with a strike price that is equal to the current market price of the underlying stock.

Averaging down
Buying more of a stock or an option at a lower price than the original purchase so as to reduce the average cost.

Backspread
A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.

Bear (or bearish) spread
One of a variety of strategies involving two or more options (or options combined with a position in the underlying stock) that can potentially profit from a fall in the price of the underlying stock.

Bear spread (call)
The simultaneous writing of one call option with a lower strike price and the purchase of another call option with a higher strike price. Example: writing 1 XYZ May 60 call, and buying 1 XYZ May 65 call.

Bear spread (put)
The simultaneous purchase of one put option with a higher strike price and the writing of another put option with a lower strike price. Example: buying 1 XYZ May 60 put, and writing 1 XYZ May 55 put.

Bearish
An adjective describing the opinion that a stock, or a market in general, will decline in price -- a negative or pessimistic outlook.

Beta
A measure of how closely the movement of an individual stock tracks the movement of the entire stock market.

Bid / Bid Price
The price at which a buyer is willing to buy an option or a stock.

Black-Scholes formula
The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

BOX
Boston Options Exchange Group L.L.C.

Box spread
A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. Example: buying 1 XYZ May 60 call, and writing 1 XYZ May 65 call; simultaneously buying 1 XYZ May 65 put, and writing 1 May 60 put.

Break-even point(s)
The stock price(s) at which an option strategy results in neither a profit nor a loss. While a strategy's break-even point(s) are normally stated as of the option's expiration date, a theoretical option pricing model can be used to determine the strategy's break-even point(s) for other dates as well.

Broke
A person acting as an agent for making securities transactions. An 'Account Executive' or a 'broker' at a brokerage firm deals directly with customers. A 'Floor Broker' on the trading floor of an exchange actually executes someone else's trading orders.

Bull (or bullish) spread
One of a variety of strategies involving two or more options (or options combined with an underlying stock position) that may potentially profit from a rise in the price of the underlying stock.

Bull spread (call)
The simultaneous purchase of one call option with a lower strike price and the writing of another call option with a higher strike price. Example: buying 1 XYZ May 60 call, and writing 1 XYZ May 65 call.

Bull spread (put)
The simultaneous writing of one put option with a higher strike price and the purchase of another put option with a lower strike price. Example: writing 1 XYZ May 60 put, and buying 1 XYZ May 55 put.

Bullish
An adjective describing the opinion that a stock, or the market in general, will rise in price -- a positive or optimistic outlook.

Butterfly spread
A strategy involving three strike prices that has both limited risk and limited profit potential. A long call butterfly is established by: buying one call at the lowest strike price, writing two calls at the middle strike price, and buying one call at the highest strike price. A long put butterfly is established by: buying one put at the highest strike price, writing two puts at the middle strike price, and buying one put at the lowest strike price. For example, a long call butterfly might be: buying 1 XYZ May 55 call, writing 2 XYZ May 60 calls and buying 1 XYZ May 65 call.

Buy-write
A covered call position in which stock is purchased and an equivalent number of calls written at the same time. This position may be transacted as a combined order, with both sides (buying stock and writing calls) being executed simultaneously. Example: buying 500 shares XYZ stock, and writing 5 XYZ May 60 calls. See also Covered call / covered call writing

Calendar spread
An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). See also Horizontal spread

Call option
An option contract that gives the owner the right to buy the underlying security at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a call option, the contract represents an obligation to sell the underlying stock if the option is assigned.

Carry / carrying cost
The interest expense on money borrowed to finance a securities position.

Cash settlement amount
The difference between the exercise price of the option being exercised and the exercise settlement value of the index on the day the index option is exercised. See also Exercise settlement amount

CBOE
The Chicago Board Options Exchange.

Class of options
A term referring to all options of the same type -- either calls or puts -- covering the same underlying stock.

Close
A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved.

Closing price
The final price of a security at which a transaction was made. See also Settlement price

Closing transaction
A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved.

Collar
A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation. See also Fence

Collateral
Securities against which loans are made. If the value of the securities (relative to the loan) declines to an unacceptable level, this triggers a margin call. As such, the investor is asked to post additional collateral or the securities are sold to repay the loan.

Combination
A trading position involving out-of-the-money puts and calls on a one-to-one basis. The puts and calls have different strike prices, but the same expiration and underlying stock. A long combination is when both options are owned, and a short combination is when both options are written. Example: a long combination might be buying 1 XYZ May 60 call, and buying 1 XYZ May 55 put.

Condor spread
A strategy involving four strike prices that has both limited risk and limited profit potential. A long call condor spread is established by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike. This spread is also referred to as a 'flat-top butterfly.'

Contingency order
An order to execute a transaction in one security that depends on the price of another security. An example might be: 'Sell the XYZ May 60 call at 2, contingent upon XYZ stock being at or below $59 1/2.'

Contract size
The amount of the underlying asset covered by the option contract. This is 100 shares for one equity option unless adjusted for a special event, such as a stock split or a stock dividend, or otherwise special by the listing exchange.

Conversion
An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly riskless profit. For example, buying 100 shares of XYZ stock, writing 1 XYZ May 60 call, and buying 1 XYZ May 60 put at desirable prices. The process of executing these three-sided trades is sometimes called 'conversion arbitrage.' See also Reversal / reverse conversion

Cover
To close out an open position. This term is used most frequently to describe the purchase of an option or stock to close out an existing short position for either a profit or loss.

Covered call / covered call writing
An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock. See also Buy-write and Overwrite

Covered combination
A strategy in which one call and one put with the same expiration, but different strike prices, are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and 1 XYZ May 65 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully 'covered' strategy because assignment on the short put would require purchase of additional stock.

Covered option
An open short option position that is fully offset by a corresponding stock or option position. That is, a covered call could be offset by long stock or a long call, while a covered put could be offset by a long put or a short stock position. This insures that if the owner of the option exercises, the writer of the option will not have a problem fulfilling the delivery requirements. See also Uncovered call option writing and Uncovered put option writing

Covered put / Covered cash-secured put
Cash secured put is an option stategy in which a put option is written against a sufficient amount of cash (or T-bills to pay for the stock purchase if the short option is assigned).

Covered straddle
An option strategy in which one call and one put with the same strike price and expiration are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and 1 XYZ May 60 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully 'covered' strategy because assignment on the short put would require purchase of additional stock.

Credit
Money received in an account either from a deposit or a transaction that results in increasing the account's cash balance.

Credit spread
A spread strategy that increases the account's cash balance when it is established. A bull spread with puts and a bear spread with calls are examples of credit spreads.

Curvature
A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock. See also Delta

Cycle
The expiration dates applicable to the different series of options. Traditionally, there were three cycles:
Cycle
Available expiration months
January
January / April / July / October
February
February / May / August / November
March
March / June / September / December
Today, equity options expire on a hybrid cycle which involves a total of four option series: the two nearest-term calendar months and the next two months from the traditional cycle to which that class of options has been assigned. For example, on January 1, a stock in the January cycle will be trading options expiring in these months: January, February, April, and July. After the January expiration, the months outstanding will be February, March, April and July.

Day order
A type of option order which instructs the broker to cancel any unfilled portion of the order at the close of trading on the day the order is first entered.

Day trade
A position (stock or option) that is opened and closed on the same day.

Debit
Money paid out from an account either from a withdrawal or a transaction that results in decreasing the cash balance.

Debit spread
A spread strategy that decreases the account's cash balance when it is established. A bull spread with calls and a bear spread with puts are examples of debit spreads.

Decay
A term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by theta.

Delivery
The process of meeting the terms of a written option contract when notification of assignment has been received. In the case of a short equity call, the writer must deliver stock and in return receives cash for the stock sold. In the case of a short equity put, the writer pays cash and in return receives the stock.

Delta
A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying stock.

Derivative / derivative security
A financial security whose value is determined in part from the value and characteristics of another security, the underlying security.

Diagonal spread
A strategy involving the simultaneous purchase and writing of two options of the same type that have different strike prices and different expiration dates. Example: buying 1 May 60 call and writing 1 March 65 call.

Discount
An adjective used to describe an option that is trading at a price less than its intrinsic value (i.e., trading below parity).

Discretion
Freedom given by an investor through his or her Account Executive to use judgment regarding the execution of an order. Discretion can be limited, as in the case of a limit order which gives the Floor Broker 1/8 or 1/4 point from the stated limit price to use his or her judgment in executing the order. Discretion can also be unlimited, as in the case of a market-not-held-order.

Early exercise
A feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.

Equity
In a margin account, this is the difference between the securities owned and the margin loans owed. It is the amount the investor would keep after all positions have been closed and all margin loans paid off.

Equity option
An option on shares of an individual common stock or exchange traded fund.

Equivalent strategy
A strategy which has the same risk-reward profile as another strategy. For example, a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread. See also Synthetic position

European-style option
An option that can be exercised only during a specified period of time just prior to its expiration. See also American-style option

Ex-date / Ex-dividend date
The day before which an investor must have purchased the stock in order to receive the dividend. On the ex-dividend date, the previous day's closing price is reduced by the amount of the dividend (rounded up to the nearest eighth) because purchasers of the stock on the ex-dividend date will not receive the dividend payment. This date is sometimes referred to simply as the 'ex-date,' and can apply to other situations; for example, splits and distributions. If you purchase a stock on the ex-date for a split or distribution you are not entitled to the split stock or that distribution. However, the opening price for the stock will have been reduced by an appropriate amount, as on the ex-dividend date. Weekly financial publications, such as Barron's, often include a stock's upcoming 'ex-date' as part of their stock tables.

Exchange traded funds (ETFs)
Exchange traded funds (ETFs) are index funds or trusts that are listed on an exchange and can be traded in a similar fashion as a single equity. The first ETF came about in 1993 with the AMEX's concept of a tradable basket of stocks -- the Standard & Poor's Depositary Receipt (SPDR). Today, the number of ETFs that trade options continues to grow and diversify. Investors can buy or sell shares in the collective performance of an entire stock portfolio - or a bond portfolio -- as a single security. Exchange traded funds allow some of the more favorable features of stock trading, such as liquidity and ease of equity style features to more traditional index investing.

Exercise
To invoke the rights granted to the owner of an option contract. In the case of a call, the option owner buys the underlying stock. In the case of a put, the option owner sells the underlying stock.

Exercise by exception processing
A procedure used by The Options Clearing Corporation as an operational convenience for it's clearing members. Under these proceedings, a clearing member is deeming to have tendered exercise notices for options that are in-the-money by threshold amounts, unless specifically instructed not to do so. This procedure protects the owner from losing the intrinsic value of the option because of failure to exercise. Unless instructed not to do so, all expiring equity options that are held in customer accounts will be exercised if they are in the money by a specified amount.

Exercise price
The price at which the owner of an option can purchase (call) or sell (put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.

Exercise settlement amount
The difference between the exercise price of the option being exercised and the exercise settlement value of the index on the day the index option is exercised.

Expiration cycle
The expiration dates applicable to the different series of options. Traditionally, there were three cycles:
Cycle
Available expiration months
January
January / April / July / October
February
February / May / August / November
March
March / June / September / December
Today, equity options expire on a hybrid cycle which involves a total of four option series: the two nearest-term calendar months and the next two months from the traditional cycle to which that class of options has been assigned. For example, on January 1, a stock in the January cycle will be trading options expiring in these months: January, February, April, and July. After the January expiration, the months outstanding will be February, March, April and July.

Expiration date
The date on which an option and the right to exercise it cease to exist.

Expiration Friday
The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month. Note: If the third Friday of the month is an exchange holiday, the last trading day will be the Thursday immediately preceding the third Friday.

Expiration month
The month during which the expiration date occurs.

Fence
A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation.

Fill-or-kill order (FOK)
A type of option order which requires that the order be executed completely or not at all. A fill-or-kill order is similar to an all-or-none (AON) order. The difference is that if the order cannot be completely executed (i.e., filled in its entirety) as soon as it is announced in the trading crowd, it is to be 'killed' (i.e., cancelled) immediately. Unlike an AON order, a FOK order cannot be used as part of a GTC order.

Floor broker
A trader on an exchange floor who executes trading orders for other people.

Floor trader
An exchange member on the trading floor who buys and sells for his or her own account.

Fundamental analysis
A method of predicting stock prices based on the study of earnings, sales, dividends, and so on.

Fungibility
Interchangeability resulting from standardization. Options listed on national exchanges are fungible, while over-the-counter options generally are not. Classes of options listed and traded on more than one national exchange are referred to as multiple-listed / multiple-traded options.

Gamma
A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock. See also Delta

Good-'til-cancelled (GTC) order
A type of limit order that remains in effect until it is either executed (filled) or cancelled, as opposed to a day order, which expires if not executed by the end of the trading day. A GTC option order is an order which if not executed will be automatically cancelled at the option's expiration.

Hedge / hedged position
A position established with the specific intent of protecting an existing position. For example, an owner of common stock may buy a put option to hedge against a possible stock price decline.

Historic volatility
A measure of actual stock price changes over a specific period of time. See also Standard deviation

Holder
Any person who has made an opening purchase transaction, call or put, and has that position in a brokerage account.

Horizontal spread
An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). See also Calendar spread

Immediate-or-cancel order (IOC)
A type of option order which gives the trading crowd one opportunity to take the other side of the trade. After being announced, the order will be either partially or totally filled with any remaining balance immediately cancelled. An IOC order, which can be considered a type of day order, cannot be used as part of a GTC order since it will be cancelled shortly after being entered. The difference between fill-or-kill (FOK) orders and IOC orders is that a IOC order may be partially executed.

Implied volatility
The volatility percentage that produces the 'best fit' for all underlying option prices on that underlying stock. See also Individual volatility

In-The-Money
An adjective used to describe an option with intrinsic value. A call option is in the money if the stock price is above the strike price. A put option is in the money if the stock price is below the strike price.

In-the-money option
An adjective used to describe an option with intrinsic value. A call option is in the money if the stock price is above the strike price. A put option is in the money if the stock price is below the strike price.

Index
A compilation of several stock prices into a single number. Example: the S&P 100 Index.

Index option
An option whose underlying interest is an index. Generally, index options are cash-settled.

Individual volatility
The volatility percentage that justifies an option's price, as opposed to historic or implied volatility. A theoretical option pricing model can be used to generate an option's individual volatility when the five remaining quantifiable factors (stock price, time until expiration, strike price, interest rates, and cash dividends) are entered along with the price of the option itself.

Institution
A professional investment management company. Typically, this term is used to describe large money managers such as banks, pension funds, mutual funds, and insurance companies.

Intrinsic value
The in-the-money portion of an option's price. See also In-the-money option

Iron butterfly
An option strategy with limited risk and limited profit potential that involves both a long (or short) straddle, and a short (or long) combination. An iron butterfly contains four options as is an equivalent strategy to a regular butterfly spread which contains only three options. For example, a short iron butterfly might be: buying 1 XYZ May 60 call and 1 May 60 put, and writing 1 XYZ May 65 call and writing 1 XYZ May 55 put.

ISE
International Securities Exchange.

Kappa
A measure of the rate of change in an option's theoretical value for a one-unit change in the volatility assumption.

Last trading day
The last business day prior to the option's expiration date during which purchases and sales of options can be made. For equity options, this is generally the third Friday of the expiration month. Note: If the third Friday of the month is an exchange holiday, the last trading day will be the Thursday immediately preceding the third Friday.

LEAPS® (Long-term Equity AnticiPation Securities also known as long-dated options)
In English, this means calls and puts with an expiration as long as thirty-nine months. Currently, equity LEAPS have two series at any time with a January expiration. For example, in October 2000, LEAPS are available with expirations of January 2002 and January 2003.

Leg
A term describing one side of a position with two or more sides. When a trader legs into a spread, he/she establishes one side first, hoping for a favorable price movement so the other side can be executed at a better price. This is, of course, a higher-risk method of establishing a spread position.

Leverage
A term describing the greater percentage of profit or loss potential when a given amount of money controls a security with a much larger face value. For example, a call option enables the owner to assume the upside potential of 100 shares of stock by investing a much smaller amount than that required to buy the stock. If the stock increases by 10 percent, for example, the option might double in value. Conversely, a 10 percent stock price decline might result in the total loss of the purchase price of the option.

Limit order
A trading order placed with a broker to buy or sell stock or options at a specific price.

Liquidity / liquid market
A trading environment characterized by high trading volume, a narrow spread between the bid and ask prices, and the ability to trade larger sized orders without significant price changes.

Listed option
A put or call traded on a national options exchange. In contrast, over-the-counter options usually have non-standard or negotiated terms.

Long option position
The position of an option purchaser (owner) which represents the right to either buy stock (in the case of a call) or to sell stock (in the case of a put) at a specified price (the strike price) at or before some date in the future (the expiration date). It results from an opening purchase transaction -- e.g., long call or long put.

Long stock position
A position in which an investor has purchased and owns stock.

Long-dated options
In English, this means calls and puts with an expiration as long as thirty-nine months. Currently, equity LEAPS have two series at any time with a January expiration. For example, in October 2000, LEAPS are available with expirations of January 2002 and January 2003.

Margin / margin requirement
The minimum equity required to support an investment position. To buy on margin refers to borrowing part of the purchase price of a security from a brokerage firm.

Mark-to-market
An accounting process by which the price of securities held in an account are valued each day to reflect the closing price, or market quote if the last sale is outside of the market quote. The result of this process is that the equity in an account is updated daily to properly reflect current security prices.

Market order
A trading order placed with a broker to immediately buy or sell a stock or option at the best available price.

Market quote
A quotation of the current best bid / ask prices for an option or stock in the marketplace (an exchange trading floor). This information is usually obtained by the investor from someone at a brokerage firm. However, for listed options and stocks, these quotes are widely disseminated and available through various commercial quotation services.

Market-maker
An exchange member on the trading floor who buys and sells options for his or her own account and who has the responsibility of making bids and offers and maintaining a fair and orderly market. See also Specialist / specialist group / specialist system

Market-maker system, (competing)
A method of supplying liquidity in options markets by having market makers in competition with one another. An alternative to a specialist system. They are similarly charged with making fair and orderly markets in a given class of options.

Market-not-held order
A type of market order which allows the investor to give discretion to the floor broker regarding the price and/or time at which a trade is executed.

Market-on-close order (MOC)
A type of option order which requires that an order be executed at or near the close of trading on the day the order is entered. A MOC order, which can be considered a type of day order, cannot be used as part of a GTC order.

Married put strategy
The simultaneous purchase of stock and put options representing an equivalent number of shares. This is a limited risk strategy during the life of the puts because the stock can always be sold for at least the strike price of the purchased puts.

Model
A mathematical formula used to calculate the theoretical value of an option. See also Black-Scholes formula

Multiple-listed / multiple-traded option
Any option contract that is listed and traded on more than one national options exchange. See also Fungibility

Naked Uncovered option
A short option position that is not fully collateralized if notification of assignment is received. A short call position is uncovered if the writer does not have a long stock or long call position. A short put position is uncovered if the writer is not short stock or long another put.

NASD (National Association of Securities Dealers)
The National Association of Securities Dealers is an industry association of broker/dealers in the over-the-counter securities business. The NASD is a self-regulatory body and administers the NASDAQ stock market.

NASDAQ (National Association of Securities Dealers Automated Quotation system.)
Dissemination of quotations from the NASD and/or members thereof.

Neutral
An adjective describing the belief that a stock or the market in general will neither rise nor decline significantly.

Neutral strategy
An option strategy (or stock and option position) expected to benefit from a neutral market outcome.

Ninety-ten (90/10) strategy
A conservative option strategy in which an investor buys Treasury bills (or other liquid assets) with 90 percent of his or her funds, and buys call options (or put options or a mixture of both) with the balance. The proportions of this strategy are subject to change based on prevailing interest rates.

Non-equity option
Any option that does not have common stock as the underlying asset. Non-equity options include options on futures, indexes, foreign currencies, Treasury security yields, etc.

Not-held order
A type of order which releases normal obligations implied by the other terms of the order. For example, a limit order designated as 'not-held' allows discretion to the floor trader in filling the order when the market trades at the limit price of the order. In this case, there is no obligation to provide the customer with an execution if the market trades through the limit price on the order. See also Discretion and Market-not-held order

NYSE
New York Stock Exchange.
Offer / offer price
In the options business this means the same as ask / ask price, or the price at which a seller is offering to sell an option or a stock.

One-cancels-other order (OCO)
A type of option order which treats two or more option orders as a package, whereby the execution of any one of the orders causes all the orders to be reduced by the same amount. For example, the investor would enter an OCO order if he/she wished to buy 10 May 60 calls or 10 June 60 calls or any combination of the two which when summed equaled 10 contracts. An OCO order may be either a day order or a GTC order.

Open interest
The total number of outstanding option contracts on a given series or for a given underlying stock.

Open outcry
The trading method by which competing market makers and Floor Brokers representing public orders make bids and offers on the trading floor.

Opening transaction
An addition to, or creation of, a trading position. An opening purchase transaction adds long options to an investor's total position, and an opening sale transaction adds short options. An opening option transaction increases that option's open interest.

Option
A contract that gives the owner the right, but not the obligation, to buy or sell a particular asset (the underlying stock) at a fixed price (the strike price) for a specific period of time (until expiration) . The contract also obligates the writer to meet the terms of delivery if the contract right is exercised by the owner.

Option period
The time from when an option contract is created by a writer of that option to the expiration date; sometimes referred to as an option's 'lifetime.'

Option pricing curve
A graphical representation of the estimated theoretical value of an option at one point in time, at various prices of the underlying stock.

Option pricing model
The first widely-used model for option pricing is the Black Scholes. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

Option writer
The seller of an option contract who is obligated to meet the terms of delivery if the option owner exercises his or her right. This seller has made an opening sale transaction, and has not yet closed that position.

Optionable stock
A stock on which listed options are traded.

Options Clearing Corporation
A registered clearing agency whose shares are owned by the exchanges that trade listed equity options, OCC is an intermediary between option buyers and sellers. OCC issues and guarantees all listed option contracts.

Options Clearing Corporation, The (OCC)
A registered clearing agency whose shares are owned by the exchanges that trade listed equity options, OCC is an intermediary between option buyers and sellers. OCC issues and guarantees all listed option contracts.

OTC option
An over-the-counter option is one which is traded in the over-the-counter market. OTC options are not listed on an options exchange and do not have standardized terms. These are to be distinguished from exchange-listed and traded equity options with NASD stocks as the underlying equity issue, which are standardized. See also Fungibility

Out-of-the-money
An adjective used to describe an option that has no intrinsic value, i.e., all of its value consists of time value. A call option is out of the money if the stock price is below its strike price. A put option is out of the money if the stock price is above its strike price. See also Intrinsic value and Time value

Out-of-the-money option
An adjective used to describe an option that has no intrinsic value, i.e., all of its value consists of time value. A call option is out of the money if the stock price is below its strike price. A put option is out of the money if the stock price is above its strike price. See also Intrinsic value and Time value

Over-the-counter / Over-the-counter market
A national association having many characteristics of an exchange. Rather than a floor or physically central market place, trading takes place via computer terminals.

Overwrite
An option strategy involving the writing of call options (wholly or partially) against existing long stock positions. This is different from the buy-write strategy which involves the simultaneous purchase of stock and writing of a call. See also Ratio write

Owner
Any person who has made an opening purchase transaction, call or put, and has that position in a brokerage account.

Parity
A term used to describe an option contract's total premium when that premium is the same amount as its intrinsic value. For example, when an option's theoretical value is equal to its intrinsic value, it is said to be 'worth parity.' When an option is trading for only its intrinsic value, it is said to be 'trading for parity.' Parity may be measured against the stock's last sale, bid, or offer.

Payoff diagram
A chart of the profits and losses for a particular options strategy prepared in advance of the execution of the strategy. The diagram is plot of expected profit or loss against the price of the underlying security.

PCX
Pacific Stock Exchange.

PHLX
Philadelphia Stock Exchange.

Physical delivery option
An option whose underlying entity is a physical good or commodity, like a common stock or a foreign currency. When that option is exercised by its owner, there is delivery of that physical good or commodity from one brokerage or trading account to another.

Pin risk
The risk to an investor (option writer) that the stock price will exactly equal the strike price of a written option at expiration; i.e., that option will be exactly at the money. The investor will not know how many of his/her written (short) options he/she will be assigned. The risk is that on the following Monday he/she might have an unexpected long (in the case of a written put) or short (in the case of a written call) stock position, and thus be subject to the risk of an adverse price move.

Pit
A specific location on the trading floor of an exchange designated for the trading of a specific option class or stock.

Position
The combined total of an investor's open option contracts (calls and/or puts) and long or short stock.

Position trading
An investing strategy in which open positions are held for an extended period of time.

Premium
Total price of an option: intrinsic value plus time value.
Often (erroneously) this word is used to mean the same as time value.

Primary market
For securities that are traded in more than one market, the primary market is usually the exchange where trading volume in that security is highest.

Profit/loss graph
A graphical presentation of the profit and loss possibilities of an investment strategy at one point in time (usually option expiration), at various stock prices.

Put option
An option contract that gives the owner the right to sell the underlying stock at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a put option, the contract represents an obligation to buy the underlying stock from the option owner if the option is assigned.

Ratio spread
A term most commonly used to describe the purchase of an option(s), call or put, and the writing of a greater number of the same type of options that are out-of-the-money with respect to those purchased. All options involved have the same expiration date. For example, buying 5 XYZ May 60 calls and writing 6 XYZ May 65 calls. See also Ratio write

Ratio write
An investment strategy in which stock is purchased and call options are written on a greater than one-for-one basis; i.e., more calls written than the equivalent number of shares purchased. For example, buying 500 shares of XYZ stock, and writing 6 XYZ May 60 calls. See also Ratio spread

Realized gains and losses
The net amount received or paid when a closing transaction is made and matched together with an opening transaction.

Resistance
A term used in technical analysis to describe a price area at which rising prices are expected to stop or meet increased selling activity. This analysis is based on historic price behavior of the stock.

Reversal / reverse conversion
An investment strategy used by professional option traders in which a short put and long call with the same strike price and expiration are combined with short stock to lock in a nearly riskless profit. For example, selling short 100 shares of XYZ stock, buying 1 XYZ May 60 call, and writing 1 XYZ May 60 put at favorable prices. The process of executing these three-sided trades is sometimes called 'reversal arbitrage.' See also Conversion

RHO
A measure of the expected change in an option's theoretical value for a 1 percent change in interest rates.

Rolling
A trading action in which the trader simultaneously closes an open option position and creates a new option position at a different strike price, different expiration, or both. Variations of this include rolling up, rolling down, rolling out and diagonal rolling.

SEC
The Securities and Exchange Commission. The SEC is an agency of the federal government which is in charge of monitoring and regulating the securities industry.

Secondary market
A market where securities are bought and sold after their initial purchase by public investors.

Sector index
An index that measure the performance of a narrow market segment, such as biotechnology or small capitalization stocks.

Secured put / cash-secured put
An option strategy in which a put option is written against a sufficient amount of cash (or T-bills) to pay for the stock purchase if the short option is assigned.

Series of options
Option contracts on the same class having the same strike price and expiration month. For example, all XYZ May 60 calls constitute a series.

Settlement
The process by which the underlying stock is transferred from one brokerage account to another when equity option contracts are exercised by their owners and the inherent obligations assigned to option writers.

Settlement price
The official price at the end of a trading session. This price is established by The Options Clearing Corporation and is used to determine changes in account equity, margin requirements and for other purposes. See also Mark-to-market

Short option position
The position of an option writer which represents an obligation on the part of the option's writer to meet the terms of the option if it is exercised by its owner. The writer can terminate this obligation by buying back (cover or close) the position with a closing purchase transaction.

Short stock position
A strategy that profits from a stock price decline. It is initiated by borrowing stock from a broker-dealer and selling it in the open market. This strategy is closed (covered) at a later date by buying back the stock and returning it to the lending broker-dealer.

Specialist / specialist group / specialist system
One or more exchange members whose function is to maintain a fair and orderly market in a given stock or a given class of options. This is accomplished by managing the limit order book and making bids and offers for his/her/their own account in the absence of opposite market side orders. See also Market-maker and Market-maker system, (competing)

Spin-off
A stock dividend issued by one company in shares of another corporate entity, such as a subsidiary corporation of the company issuing the dividend.

Spread / spread order
A position consisting of two parts, each of which alone would profit from opposite directional price moves. As orders, these opposite parts are entered and executed simultaneously in the hope of (1) limiting risk, or (2) benefiting from a change of price relationship between the two parts.

Standard deviation
A statistical measure of price fluctuation. One use of the standard deviation is to measure how stock price movements are distributed about the mean. See also Volatility

Standardization
Interchangeability resulting from standardization. Options listed on national exchanges are fungible, while over-the-counter options generally are not. Classes of options listed and traded on more than one national exchange are referred to as multiple-listed / multiple-traded options.

Stock dividend
A dividend paid in shares of stock rather than cash. See also Spin-off
Stock split
An increase in the number of outstanding shares by a corporation, through the issuance of a set number of shares to a shareholder for a set number of shares that the shareholder already owns. For example, a corporation might declare a '2-for-1 stock split.' This means that for every share of stock an investor owns, he/she will be given another, thus owning 2 shares instead of 1. There will be a corresponding reduction in equity value per share. In this case, the new shares (post-split) will be worth one-half their previous value but the investor will own twice as many shares. See also Stock dividend

Stop order
A type of contingency order, often erroneously known as a 'stop-loss' order, placed with a broker that becomes a market order when the stock trades, or is bid or offered, at or through a specified price. See also Stop-limit order

Stop-limit order
A type of contingency order placed with a broker that becomes a limit order when the stock trades, or is bid or offered, at or through a specific price.

Straddle
A trading position involving puts and calls on a one-to-one basis in which the puts and calls have the same strike price, expiration, and underlying stock. A long straddle is when both options are owned and a short straddle is when both options are written. Example: a long straddle might be buying 1 XYZ May 60 call, and buying 1 XYZ May 60 put.

Strike / strike price
The price at which the owner of an option can purchase (call) or sell (put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.

Strike price interval
The normal price differential between option strike prices. Equity options generally have $2.50 strike price intervals (if the underlying stock price is below $25), $5.00 intervals (from $25 to $200), and $10 intervals (above $200). LEAPS generally start with one at-the-money, one in-the-money, and one out-of-the-money strike price. The latter two are usually set 20%-25% away from the former.

Suitability
A requirement that any investing strategy fall within the financial means and investment objectives of an investor or trader.

Support
A term used in technical analysis to describe a price area at which falling prices are expected to stop or meet increased buying activity. This analysis is based on previous price behavior of the stock.

Synthetic long call
A long stock position combined with a long put of the same series as that call.

Synthetic long put
A short stock position combined with a long call of the same series as that put.

Synthetic long Stock
A long call position combined with a short put of the same series.

Synthetic position
A strategy involving two or more instruments that has the same risk-reward profile as a strategy involving only one instrument.

Synthetic short call
A short stock position combined with a short put of the same series as that call.

Synthetic short put
A long stock position combined with a short call of the same series as that put.

Synthetic short Stock
A short call position combined with a long put of the same series.

Technical analysis
A method of predicting future stock price movements based on the study of historical market data such as (among others) the prices themselves, trading volume, open interest, the relation of advancing issues to declining issues, and short selling volume.

Theoretical option pricing model
The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

Theoretical value
The estimated value of an option derived from a mathematical model. See also Model and Black-Scholes formula

Theta
A measure of the rate of change in an option's theoretical value for a one-unit change in time to the option's expiration date. See also Time decay

Tick
The smallest unit price change allowed in trading a security. For listed stock, this is generally 1/8th of a point. For a listed option under $3 in price, this is generally 1/16th of a point. For a listed option over $3, this is generally 1/8th of a point.

Time decay
A term used to describe how the theoretical value of an option 'erodes' or reduces with the passage of time. Time decay is specifically quantified by theta.

Time spread
An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). Also known as calendar spread or horizontal spread.

Time value
The part of an option's total price that exceeds its intrinsic value. The price of an out-of-the-money option consists entirely of time value.

Trader
Any investor who makes frequent purchases and sales.
A member of an exchange who conducts his or her buying and selling on the trading floor of the exchange.

Trading pit
A specific location on the trading floor of an exchange designated for the trading of a specific option class or stock.

Transaction costs
All of the charges associated with executing a trade and maintaining a position. These include brokerage commissions, fees for exercise and/or assignment, exchange fees, SEC fees, and margin interest. In academic studies, the spread between bid and ask is taken into account as a transaction cost.

Type of options
The classification of an option contract as either a put or a call.

Uncovered call option writing
A short call option position in which the writer does not own an equivalent position in the underlying security represented by his option contracts.

Uncovered put option writing
A short put option position in which the writer does not have a corresponding short position in the underlying security or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put.

Underlying security
The security subject to being purchased or sold upon exercise of the option contract.

Vega
A measure of the rate of change in an option's theoretical value for a one-unit change in the volatility assumption. See also Kappa and Delta

Vertical spread
Most commonly used to describe the purchase of one option and writing of another where both are of the same type and of same expiration month, but have different strike prices. Example: buying 1 XYZ May 60 call and writing 1 XYZ May 65 call. See also Bull (or bullish) spread and Bear (or bearish) spread

Volatility
A measure of stock price fluctuation. Mathematically, volatility is the annualized standard deviation of a stock's daily price changes. See also Historic volatility and Individual volatility and Implied volatility

Write / writer
To sell an option that is not owned through an opening sale transaction. While this position remains open, the writer is subject to fulfilling the obligations of that option contract; i.e., to sell stock (in the case of a call) or buy stock (in the case of a put) if that option is assigned. An investor who so sells an option is called the writer, regardless of whether the option is covered or uncovered.
XYZ / XYZ Corporation
A fictitious company used as the underlying stock throughout The Options Toolbox.

Fibonacci Retracement

2008-12-17T22:01:00.000+05:30

Fibonacci Retracement

A term used in technical analysis that refers to the likelihood that a financial asset's price will retrace a large portion of an original move and find support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

Fibonacci retracement is a very popular tool used by many technical traders to help identify strategic places for transactions to be placed, target prices or stop losses. The notion of retracement is used in many indicators such as Tirone levels, Gartley patterns, Elliott Wave theory and more.

How to Calculate & Use Pivot Points

2008-12-17T21:50:00.003+05:30

How to Calculate Pivot Points
There are several different methods for calculating pivot points, the most common of which is the five-point system. This system uses the previous day's high, low and close, along with two support levels and two resistance levels (totaling five price points) to derive a pivot point.
The equations are as follows:
R2 = P + (H - L) = P + (R1 - S1)
R1 = (P x 2) - L
P = (H + L + C) / 3
S1 = (P x 2) - H
S2 = P - (H - L) = P - (R1 - S1)
Here, "S" represents the support levels, "R" the resistance levels and "P" the pivot point. High, low and close are represented by the "H", "L" and "C" respectively.

How To use pivot points
Pivot points, floor levels, S/R values. Various labels for the same tools: a calculated formula for what should be "fair value" in a market to follow. Before the days of palm pilots, cell phones and the general wireless world, floor traders and market makers relied on hand-scribbled price points of where buyers / sellers should cluster their stops. The information age has arrived, but these valuable price points still retain their power over market action hence.

Interpreting and Using Pivot Points
When calculating pivot points, the pivot point itself is the primary support/resistance. This means that the largest price movement is expected to occur at this price. The other support and resistance levels are less influential, but may still generate significant price movements.

Pivot points can be used in two ways. The first way is for determining overall market trend: if the pivot point price is broken in an upward movement, then the market is bullish, and vice versa. Keep in mind, however, that pivot points are short-term trend indicators, useful for only one day until they need to be recalculated. The second method is to use pivot point price levels to enter and exit the markets. For example, a trader might put in a limit order to buy 100 shares if the price breaks a resistance level. Alternatively, a trader might set a stop-loss for his active trade if a support level is broken.

Conclusion
Pivot points are yet another useful tool that can be added to any trader's toolbox. It enables anyone to quickly calculate levels that are likely to cause price movement. The success of a pivot-point system, however, lies squarely on the shoulders of the trader, and on his or her ability to effectively use the pivot-point systems in conjunction with other forms of technical analysis. These other technical indicators can be anything from MACD crossovers to candlestick patterns - the greater the number of positive indications, the greater the chances for success.

Fundamental Analysis

2008-11-30T17:50:00.000+05:30

Fundamental Analysis
Today I got a query from one of my reader that he wants to know about fundamental analysis, and then I thought of posting the same answer on my site, so that others will also get benefited.

Fundamental analysis is the key and very prominent factor while buying and selling of stocks and securities. This provides a complete analysis of the company, industry and economy related news to the investors. Fundamental analysis can be best compared with our cloths, because while purchasing our cloths we always look at the quality, price and outlook of the cloth; brand value, goodwill and popularity of the company and finally, we start thinking whether it suits to the current season or not.Fundamental analysis of shares and stocks is a conservative and non-speculative approach based on the “fundamentals”. A fundamental analyst always looks at a three dimensional analysis instead of analyzing what is happening in the Dalal street. The three important dimensional factors are:The EconomyThe IndustryThe CompanyThe Economy AnalysisThe Economy analysis is a major factor stands behind the success of any investor. Economic analysis includes the study and understanding of various economic indicators and their possible impact on the stock market. Following are the economic indicators which has impact on the stock market movements:
GNPPrice ConditionsEconomyHousing ConstructionEmploymentAccumulation of InventoriesPersonal Disposable IncomePersonal SavingsInterest RatesBalance of tradeStrength of the Rupee in Forex marketCorporate Taxation (Direct & Indirect)

The Industry Analysis
Every industry has to go through a life cycle with four distinct phases
i) Pioneering Stage
ii) Expansion (growth) Stage
iii) Stagnation (mature) Stage
iv) Decline StageThese phases are dynamic for each industry.
You as an investor is advised to invest in an industry that is either in a pioneering stage or in its expansion (growth) stage. Its advisable to quickly get out of industries which are in the stagnation stage prior to its lapse into the decline stage. The particular phase or stage of an industry can be determined in terms of sales, profitability and their growth rates amongst other factors.

The Company Analysis
There may be situations where the industry is very attractive but a few companies within it might not be doing all that well; similarly there may be one or two companies which may be doing exceedingly well while the rest of the companies in the industry might be in doldrums. You as an investor will have to consider both the financial and non-financial aspects so as to form a qualitative impression about a company. Some of the factors are
History of the company and line of business
Product portfolio's strength
Market Share
Top Management
Intrinsic Values like Patents and trademarks held
Foreign Collaboration, its need and availability for future
Quality of competition in the market, present and future
Future business plans and projects Tags - Like Blue Chips, Market Cap - low, medium and big caps
Level of trading of the company's listed scripts
EPS, its growth and rating vis-à-vis other companies in the industry.
P/E ratio
Growth in sales, dividend and bottom line.

Children's Educational Planning/Educational Planning

2008-11-30T17:47:00.001+05:30

Children's Educational Planning/Educational Planning
Children’s Educational Planning/Educational Planning is one of the key elements in financial planning, which helps many people to give better education to their Childs in the right time. Unfortunately, in India most of us have not realized the importance and benefits of proper and timely educational planning. This is all because of lack of awareness, huge debts, low income, improper financial planning and lack of need based investment solutions. Till today, most of us have the misconception that educational planning can be done only through insurance plans. But, in this modern era there are hundreds of investment tools which match an individual’s need of educational planning.I am writing this article with the sole purpose of creating awareness in people by giving certain examples and calculations, which proves the importance and need of educational planning. Through this article, I am trying to give you the clear picture of educational planning, the reasons to plan your child’s educational needs, the different investment tools which facilitate your child’s educational planning and the steps to be fallowed to make your educational plan effective.
Like every parent, you too must be overjoyed to watch your child grow. All parents want to give the best possible upbringing to their children. This includes good education and security, in case of any eventuality. Soon, your little bundle of joy will grow up, and it will be time to provide for his or her higher education and wedding.
The purpose of Children's Future Planning is to create a corpus for foreseeable expenditures such as those on higher education and wedding, and to provide for an adequate security cover during their growing years.
Children's Future Planning acquires added importance because children's education and wedding are high priority life goals, which can neither be postponed nor can there be a compromise on the amount.
Good education has always been the passport to a secure future. Today, career opportunities have grown manifold, and there are many professional courses that your child can aspire for. However, costs of higher education have also increased exponentially.
Like most parents, you might be saving regularly to ensure a safe tomorrow for your child. However, savings alone is no longer enough. For ensuring adequate funding of your child's education, you as a parent need to do two things:
1. Invest appropriate amount systematically and at regular intervals
2. Provide for a financial security blanket to cover any eventuality
It is never too early to start saving and investing for your child's future especially in today's context. For example, the cost of a professional degree today is approximately Rs 2.5 lakhs. If your child is one-year-old today, after 17 years when he/she goes to college, you may require a sum of Rs 6.3 lakhs, assuming an annual rate of inflation of 6%.
There are many products which your Financial Planner can use to achieve the above objectives. For example, he could suggest a Children's Future Plan offered by any good insurance company, to build a corpus for your child's higher education, and provide for a security cover in the event of the parent's unfortunate demise
The reasons for educational planning 1. To provide better and dreamed education to your child in the right time.2. To secure your child’s future even in case of any uncertainties like death, disability, loss of job etc.3. To accumulate required amount of money for your child’s education over a period of time through systematic and flexible investment plans.The reasons and needs which prove the importance of educational planning are many. But, it all differs from person to person depending upon you annual income, dreams and aspirations.The Different investment solutions to plan your child’s education better……The investment tools to plan your child’s education includes,
life insurance plans,
mutual funds,
long term equities,
debts
NSC
Bank deposits, etc.
You need to consider your present financial status, age, family status, expected growth in your annual income, age of your child, your plans and dreams on your child’s future before choosing the right investment tool or before allocating your assets in different investment tools.I have already discussed about all the above investment tools in my previous articles. Therefore here I am just giving you a brief idea of how these can be matched to your educational plan.In our country, mothers start accumulating jewellery for their daughters’ wedding from an early age. However, that is not necessarily the best way to use money.
These days, insurance policies play a key role in the financial planning activity revolving around the children. I mentioned earlier that insurance companies offer children’s plans which help parents fulfil their most important financial responsibility towards their children even in their absence – and that is financing their higher education. Children's insurance plans have several variants, the important ones being:
Policies that provide a certain percentage of the sum assured during the closing years of the policy, or a lump sum at its maturity, or the entire lump sum at the early demise of the person whose life is assured (the parent). Reversionary and terminal bonuses are paid at maturity.Children’s endowment insurance plans under which, the life of the child is insured, and the sum assured is paid out at maturity (for example when the child attains the age of 18, 21 or 24 under different plans). Generally, these plans aim to support the financial requirements for higher education or marriage.
Unit-linked insurance plans allow the policyholder (parent) to choose their premium payment and investment options. The premium is invested in different financial instruments by the insurance company, and the accumulated sum is paid at the time of maturity.In the event of premature death of the policyholder, the assured sum is paid to the child and the insurance company will pay the premiums and continue the investments on the policyholder’s behalf until maturity.
Children’s plans are offered by both public and private insurance companies. Although the policies of different companies vary in the details, most of them have some common features like:a. Aiming at securing the educational/marriage needs of the child.b. Term period of 10-25 years.c. The minimum sum required is around Rs. 50,000.d. Most have no maximum sum limit.e. This investment is tax exempted under Section 80C and Section 10 (10D) of the Income Tax Act, 1961.Do not liquidate your savings:If you have successfully built a corpus to secure your child’s future, don’t succumb to the temptation to liquidate it to tide over other expenses.Without adequate financial planning, you might be able to fulfill your children’s needs, but not their dreams. A bit of foresight can help you achieve both.

Indian Money Market

2008-11-30T17:39:00.000+05:30

Indian Money Market
The market that borrows and lends short-term funds is called the money market. The instruments in the money market are short-term in nature and are highly liquid. Money market plays an important function of transferring funds to those economic units who have short-term requirements for funds. In money markets short-term debts instruments in particular are traded by individuals, corporations, government. The short-term instruments are with a maturity of one year or less is issued by those economic units that require short-term funds and lent by people who have surplus short-term funds. The need for money market arises due to the immediate cash requirements of people which do not necessarily match with their cash receipts.Participants in money market and their roles played
Government - Borrower/Issuers
Central Bank- Intermediary
Banks - Borrower/Issuers
Financial Institutions - Borrower/Issuers
Corporate Units - Issuers
MF’s, - lenders/Investors
Dealers - Intermediaries
Discount Houses and Acceptance House- Market makers
THE INDAIN MONEY MARKETThe Indian market can be classified into organized and unorganized sectors. The unorganized sector consists of money lenders, chit funds, and indigenous bankers. These people satisfy the credit requirement of a large section of the rural masses. The organized part comprises commercial banks in India both public sector and private sector banks and foreign banks. The Reserve bank of India the apex bank is the regulator of the money market in India. It regulates the flow of the credit and money in the economy. To influence the liquidity in the system the RBI intervenes in the money market from time to time either to augment or reduce the supply of credit. The open market operation of the RBI provides signals for other segments of the financial system regarding the future monetary and credit policy of the apex bank.
The weakness of the Indian money marketThe indigenous bankers and money lenders are still dominating the semi-urban and rural areas in India. In India the organized and unorganized money markets exist side by side. This is a major weakness to the Indian money market. The unorganized money markets follow its own rules and regulation of banking and finance so it does not come into the purview of RBI rules and regulations. In the recent days there are large number of Non-bank Financial companies (NBFC) have come up raising deposits from the public. These NBFC’s perform functions like lending, investing, hire purchase etc. these institutions are not effectively controlled by the RBI.There is an absence of a well-organized banking system. Though developed to some extent in the recent years their presence is insignificant in rural areas even today. The absence of banking facilities to the rural masses due to slow branch expansion in the country is a matter of concern.

Money Market Instruments

2008-11-30T17:37:00.000+05:30

Money Market Instruments
Money Market Instruments provide the tools by which one can operate in the money market. Common types Of Money Market Instruments are:
Treasury Bills: The Treasury bills are short-term money market instrument that mature in a year or less than that. The purchase price is less than the face value. At maturity the government pays the Treasury Bill holder the full face value. The Treasury Bills are marketable, affordable and risk free. The security attached to the treasury bills comes at the cost of very low returns.
Certificate of Deposit:

The certificates of deposit are basically time deposits that are issued by the commercial banks with maturity periods ranging from 3 months to five years. The return on the certificate of deposit is higher than the Treasury Bills because it assumes a higher level of risk.

Advantages of Certificate of Deposit as a money market instrument are
1. Since one can know the returns from before, the certificates of deposits are considered much safe.
2. One can earn more as compared to depositing money in savings account.
3. The Federal Insurance Corporation guarantees the investments in the certificate of deposit.

Disadvantages of Certificate of deposit as a money market instrument:
1. As compared to other investments the returns is less.
2. The money is tied along with the long maturity period of the Certificate of Deposit. Huge penalties are paid if one gets out of it before maturity.

Commercial Paper: Commercial Paper is short-term loan that is issued by a corporation use for financing accounts receivable and inventories. Commercial Papers have higher denominations as compared to the Treasury Bills and the Certificate of Deposit. The maturity period of Commercial Papers are a maximum of 9 months. They are very safe since the financial situation of the corporation can be anticipated over a few months.
Banker's Acceptance: It is a short-term credit investment. It is guaranteed by a bank to make payments. The Banker's Acceptance is traded in the Secondary market. The banker's acceptance is mostly used to finance exports, imports and other transactions in goods. The banker's acceptance need not be held till the maturity date but the holder has the option to sell it off in the secondary market whenever he finds it suitable.

Euro Dollars: The Eurodollars are basically dollar- denominated deposits that are held in banks outside the United States. Since the Eurodollar market is free from any stringent regulations, the banks can operate at narrower margins as compared to the banks in U.S. The Eurodollars are traded at very high denominations and mature before six months. The Eurodollar market is within the reach of large institutions only and individual investors can access it only through money market funds.
Repos: The Repo or the repurchase agreement is used by the government security holder when he sells the security to a lender and promises to repurchase from him overnight. Hence the Repos have terms raging from 1 night to 30 days. They are very safe due government backing.
Repurchase agreements - Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.

Federal Agency Short-Term Securities - (in the US). Short-term securities issued by government sponsored enterprises such as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association.
Federal funds - (in the US). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.

Municipal notes - (in the US). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.
Money market mutual funds - Pooled short maturity, high quality investments which buy money market securities on behalf of retail or institutional investors.

Tax benefits on Housing Loan

2008-11-30T17:32:00.000+05:30

Tax benefits on Housing Loan
Loans are very important for all of us to realize some of our major dreams in time. We all look forward different kinds of benefits from loans we take. Of course it may be less interest rate, low processing fee, easy documentation, time taken to release the loan and finally, the very important thing we expect from a loan is Tax Benefit.

Tax benefits from loans are in different types and even it depends on the nature of loan taken. We take loan for personal use or to fund for our children’s education or construction of our house. We don’t get any tax benefit from the loan taken for our personal use. But of course we can claim tax exemption on the loan taken for education and house construction. As I have posted an article on Tax Benefits on Educational Loan, now I am giving you the complete details of tax benefits which can be availed on Home loan or the loan taken to construct a house.Nowadays, it is very difficult to fund the entire amount for your house construction, because of skyrocketing real estate prices and construction costs. Therefore, we all take home loans from different banks at different rate of interest. It is again very difficult to repay the loan, but if you do your financial planning and tax planning properly, you can save a huge amount legally by considering the prevailing tax laws.According to the income tax laws applicable, the interest paid on the capital borrowed for the acquisition or construction of house property is eligible for deduction up to the maximum limit of Rs 150000 per annum. You also get a 20% rebate on repayment of principal of the housing loan per annum. While this was earlier subject to a maximum of Rs 10,000, it is now Rs 1,00,000 and people can avail this benefit under section 80c of the income tax Act.Points to be considered:You should be residing in the home for which the loan is taken. If you are residing in a city but buying property in your home town to prepare for retirement, this will not be applicable. The property has to be acquired or constructed before April 1, 2003. The money should have been borrowed to construct or acquire property on or after April 1, 1999. If it was prior to this date, the deduction is only valid up to Rs 30,000.You may find it more convenient and cheaper to finance the property out of your own resources. But do remember, you would be losing the tax shelter on account of the deduction available as well as the tax rebate. You can claim a rebate for housing loan only on producing the interest certificate from the lending institution. Taking a loan from a family member or a friend, who may get you a loan at cheaper rate of interest, or no interest at all, but will not qualify for such deductions. Only loans taken and interest paid thereon, to specified financial institutions which offer housing loans, qualify for deduction under the Income Tax Act, 1961.If the loan is jointly taken by you and your spouse, you both are entitled to tax benefits. Since both will be claiming the deductions and rebate, you will have to approach the financial institution and ask for a certificate. This certificate will state how much of the loan is your responsibility and how much you are contributing towards the repayment. Your tax deduction and rebate can be calculated based on this amount.

Home Insurance

2008-11-30T17:31:00.000+05:30

Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home.

The cost of homeowners insurance often depends on what it would cost to replace the house and which additional riders—additional items to be insured—are attached to the policy. The insurance policy itself is a lengthy contract, and names what will and what will not be paid in the case of various events. Typically, claims due to earthquakes, floods, "Acts of God", or war (whose definition typically includes a nuclear explosion from any source) are excluded. Special insurance can be purchased for these possibilities, including flood insurance and earthquake insurance. Insurance must be updated to the present and existing value at whatever inflation up or down, and an appraisal paid by the insurance company will be added on to the policy premium.
The home insurance policy is usually a term contract—a contract that is in effect for a fixed period of time. The payment the insured makes to the insurer is called the premium. The insured must pay the insurer the premium each term. Most insurers charge a lower premium if it appears less likely the home will be damaged or destroyed: for example, if the house is situated next to a fire station, or if the house is equipped with fire sprinklers and fire alarms. Perpetual insurance, which is a type of home insurance without a fixed term, can also be obtained in certain areas.

Reverse Mortgage

2008-11-30T17:27:00.001+05:30

Reverse Mortgage
My dear readers, today I am discussing on a very interesting and a new concept in the Indian economy i.e. Reverse Mortgage. As a financial consultant, I faced many situations where my clients were very eagerly planning to build a house at least before their retirement or immediately after their retirement so that they can enjoy retired life in their own house. But, as the real estate prices are in boom and house construction materials are becoming costly, it is very difficult to construct a house. Every one between the age group of 30 to 55 or 60 always dream of owing a house at least at their retired age, but it is very difficult as they will have to procure funds for their retirement also. In today’s scenario, no one wants to depend on their children at their retired age.Therefore, people think hundred times before constructing a house by using all their lifetime savings. If they do so, they will not be having any income to live.Now, there are two options before them. One is either to construct house from their savings, other is to go for a pension scheme. At this scenario he can avail benefits of only one option. But, both are very important as they are very much related to his financial as well as emotional status.The solution for realizing both is “The Concept of Reverse Mortgage”.Reverse Mortgage can be well defined as “a scheme under which a bank or financial institution permits the owner of a house to leverage the future value of the asset in to a steady source of income”. Reverse Mortgage allows elderly people to have a steady stream of income by mortgaging self occupied property to banks or eligible financial institutions while continuing to live in and hold the title of the house till he is alive or sells the house or moves out.The Reverse Mortgage is aptly named because the payment stream is ‘reversed’. Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to the borrower. In case of a regular mortgage, the borrower mortgages his existing property and uses the amount to finance the property or for any other purpose and is required to repay the loan amount in the form of Equated Monthly installments (EMI). The EMI would include the loan amount and the accumulated interest. The property mortgaged serves as a collateral security for the loan borrowed. In case of a regular mortgage the property is redeemed by repaying the loan amount within the permitted tenure during the lifetime, whereas in case of reverse mortgages the property finances a given tenure of life and is used to redeem the debt after the demise of the title holder.
In India, Reverse Mortgage is a new concept and hardly few people are aware of this. Recently, Union Finance Minister P Chidambaram in his Budget speech mooted the concept of reverse mortgage for people aged more than 60 years. This concept is new to India but quite popular in developed countries helping senior citizens to generate some cash flow. As a financial planner I personally recommend one to go for this. Because, it gives the satisfaction of living in the own house, moreover it helps to procure funds for retired life.

Asset Allocation

2008-11-30T17:18:00.000+05:30

Asset allocation plays a very important role in the success of any Investors portfolio. Proper asset allocation is the key factor which keeps an Investor as an Investor even after years. My dear readers, today I am here with the detailed discussion on various key factors to be considered for the proper asset allocation, which leads an investor to the success.Asset allocation can be defined as an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon.

In simple words, I can put it like this – Asset allocation is an investment strategy that seeks to balance risk and reward in your portfolio by spreading investments over several types of asset classes. The three main asset classes are equities, fixed-income, and cash and equivalents, and all have different levels of risk and return, so each will behave differently over time. I can call it as the primary tool for achieving an investor’s ideal balance of risk and rewards.
There is no simple formula that can find the right asset allocation for every individual. However, as a Financial Consultant, I can conclude asset allocation as one of the most important decisions that investors make. In other words, your selection of individual securities is secondary to the way you allocate your investment in stocks, bonds, and cash and equivalents, which will be the principal determinants of your investment results.
Asset-allocation mutual funds, also known as life-cycle or target-date funds are an attempt to provide investors with portfolio structures that address an investor's age, risk appetite and investment objectives with an appropriate apportionment of asset classes. However, critics of this approach point out that arriving at a standardized solution for allocating portfolio assets is problematic because individual investors require individual solutions.Strategies for proper asset allocation:As I discussed above we don’t have any standard rule for asset allocation, however as a financial consultant, I would like to give you the following suggestions out of my experience, which may help you to allocate your investments towards different asset classes successfully:-
Consider your investment needs as well as the amount can be invested.
Consider the term of your investments.
Consider the market movements and market research reports for that period as well as projections for the next few periods.
Understand the basics of different asset classes properly.
Look for long term and flexible asset allocation strategy.
Consult your financial consultant for more updates on the market and economy.
Finally, I would like to end up by saying asset allocation will yield you fruits if you review it on regular basis.

Adjustable Life Insurance

2008-11-30T17:11:00.002+05:30

Adjustable Life Insurance
I never sold any life insurance policy just because of doing some business but sold it with full of emotion and whole heartily as those policies are now securing the life of my clients.

Today, Insurance Industry brought lot of flexibilities to the people. One of such flexibility is Adjustable Life Insurance option. It is a type of insurance that allows the policy holder the flexibility to change the plan of insurance over the term of the policy. The policy holder, under adjustable life insurance can raise or lower the face amount of the policy, increase or decrease the premium and lengthen or shorten the protection period. The premium and length of time they are to be paid can be increased or decreased. Un-scheduled premiums can be paid on a lump sum basis. Premium paid on an adjusted basis can either lengthen or shorten the time of protection element will be in force as well as lengthen or shorten the period for making premium payments.

The Power of Compounding

2008-11-30T16:56:00.002+05:30

The Power of Compounding

Today I would like to share with you one of the interesting and heart breaking fact of investing. I am in financial Industry from quite a long time, and I have some good number of quality clients and their big accounts. When I met all these clients for the first time I shared with them the power of compounding. They were surprised and not ready to believe it at all, reason was the numbers.Now I will give you the same example, let me see whether you believe it or not:

If you start investing 20000 every year for the next 20 years, you will get 44, 80,511 at the end of 20th year, if your money gets compounded at the rate of 20% every year. The total investment is just 4 lac, but it has become 11 times of what you invested.Now tell me, Can you believe me?
Yes, little difficult but you have to, because this is the fact. You will get the clear idea if you go through the following illustration.

This illustration supports my example and now you have to agree with me.Investing – Make it a Habit:Investing is not a one time job, it is a continuous process and it requires your regular participation, contribution and review. You can’t assume anything in investing, because investing is one such job where assumptions, predictions won’t work. Therefore the only solution to become successful in investing is to become regular. The regularity in investing, tracking, evaluating and assessing the performance of different investments will help you to take the better decisions, which yields you better returns.Regularity doesn’t mean spend whole day for investing, it needs hardly 30 minutes to 1hour of your precious time. Of course, when you are spending whole day for earning some money, you have to spend at least 30 minutes to 1hour for the better management of your money. Even there are some wealth management firms and companies, who extend advisory and portfolio management services which really lessen your job a lot.Regularity in investment is very important, because the market up and downs (volatile nature) makes it very difficult to time the market. Nowadays, you can’t even think of choosing the right time to invest.Other factors support the power of compounding:You must be very careful while choosing the investment tools and even when assessing the performance of the same. You can become a successful investor by keeping the track of your investments and the market regularly.The Keys of Compounding:I would like to conclude this with; the compounding power of your investments is completely based on these 3 factors:
How much money you invest
How much time it spends growing
Its rate of growth
It's likely that the above example doesn’t reflect how you will actually do. You might start investing sooner or later. You might invest 10000 each year in your first two years, 30000 per year in later years, and more as you're able to. You might earn an average return of 15% over many decades, or perhaps your return will be 10% or 20%. You can't control every variable, but to a great degree, you can control how much you invest, how you invest, and how long you let your money grow.
One of the most important factors here is time, it's one thing that you always have to calculate, because you can invest more and expect better returns as well, but you can’t decide the time. You don't have to start investing today, or even this year. (And in fact, you shouldn't begin investing until you've got more knowledge under your belt.) But if you learn a few things now and get started soon, you can set yourself up to enjoy comfort and security for most of your life.Remember also that you can still enjoy your life while you're saving and investing. You can amass great wealth by regularly investing a portion of your income -- not all of it.
You can do it:
If you ever begin to doubt whether all this investing stuff is for you, remember these things:
You need a brain to do this -- and you have a brain.
You need time to do this, and you have time, too.
You won't have to sacrifice fun.
You won't have to save and invest every penny.
You won't have to spend hours and hours on investing every day, week or month.
You can take a small amount of money and make it a bigger amount in just a few years.
Try experimenting with compounding. You can do it the old-fashioned way, with paper and pencil, or the less old-fashioned way, with a calculator. You just start investing some money regularly that will be your spoon to taste the power of compounding.

Human Life Value

2008-11-30T16:49:00.000+05:30

Human Life Value

Like every material object, human life also has an “economic value”. It varies from person to person depends on their individual profile. But, in India most of us have not realized or calculated our own value. Human life value is becoming more and more familiar to us with the rapid growth of insurance sector. As the competition in the insurance industry is very high, the insurance companies are using Human Life Value as one of the marketing tool.Human life value is the capitalized value of the net earning of an individual for the rest of his/her working span.

In short, Human Life Value is the present value of the total income of the individual, which is lost to the family in the event of his untimely death.Let us take an example, Mr. A aged 30, earning a gross income of Rs. 300000 today, will retire at the age of 60. Out of his monthly salary of Rs.25000, he uses Rs.5000 p.m for income tax and personal expenses.
So, his per month salary is 20000 and annual salary is 240000. Assuming a 10% growth in his income each year, he would have a net earning of Rs.1, 76, 40,000 in the next 30 years till his retirement.
The present value of this net earning discounted @8% is Rs.44, 54,884.
If he doesn’t return home today, his family will lose this amount forever. Therefore Mr. A’s human life value is Rs. 44, 54,884.Above is one way of calculating human life value, the other way of calculating Human Life Value is;Suppose, an individual earns Rs.20000 pm, his personal expenses are Rs.5000. The income he provides for his family is 15000 pm, and the annual income is Rs.180000.
What is the amount his family should deposit in a bank to earn an interest of Rs.180000, if he is not there to earn it for them?
If the family deposits Rs.22, 25,000 in a bank, they would get Rs.180000 p.a. at 8% interest. Therefore the present human life value of the person is 22, 50,000.Please note, however that I have not taken in to consideration the future income growth of the person in the second method. This is therefore, not an exact way of calculating human life value. This is only a representation to get a clear picture of human life value and its importance.Finally, my advice is to have enough life insurance cover which matches your Human Life Value.

FINANCIAL PLANNING

2008-11-30T16:47:00.000+05:30

FINANCIAL PLANNING

Financial planning is the process of meeting life goals through a proper planning and management of finances. Financial planning helps us to translate our dreams and aspirations in to reality. It also helps us to provide meaning and direction to our financial decisions.

Financial planning has to be done in a proper way, so that it can be implemented effectively. The important steps to be followed while planning our finances are,

-Analyse your dreams and aspirations
-Establish the goals
-Analyse your financial status
-Analyse your emotional status
-Develop a plan for achieving the goals
-Implementing the plan
-Monitoring the plan

Analyse your dreams and aspirations
All of us have got lot many things to do in life, Moreover we are all dreaming of doing the same at the earliest .But normally we do not realise the possibilities of these dreams. In India most of the people have not analysed these dreams and the ways of realising the same.

Establish the goals
Now you have to translate your dreams and aspirations in to money. Define the time frame within which you should be able to realize your dreams. The time frame may depend on your personal goals or family goals or both together. If you think, it is difficult to meet all your goals within the specified time frame, prioritize your goals based on urgency and importance. All goals need not necessarily relate to wealth accumulation only. There could be protection goals as well.

Analyze your financial status
Analyzing financial status includes,
- An inventory of assets and liabilities (including securities holding, debts, insurance, etc)
- A description of the present arrangement for distribution of assets at death
- Estimates of your income and expenditure
- Details of your insurance coverage
Once you analyze all these relevant information of your own, you will come to know where you do stand and what your needs are.

Analyze your emotional status
Emotional status is very important, while designing a financial plan for you. It will decide your strength to take risk or not. It will throws light on your hopes, fears, values, attitudes, preferences, biases and non-financial goals.

Develop a plan for achieving your goals
The plan, which you design, should take your present financial situation to the achievement of the objectives. A comprehensive financial plan should contain an analysis of all pertinent factors relating to your financial status.

Components of a good financial plan
- your personal data
- your goals and objectives
- identification of issues and problems
- assumptions
- your balance sheet/net worth for the financial year
- cash flow management
- income tax planning
- risk management/insurance planning
- investments planning
- estate planning

A well drawn plan must be tailored to you specific goals, situation and circumstances. If additional expertise is required, you should consult with a specialist in that field to help you design the overall plan. There is more than one more way for your financial goals to be achieved. If you want to try with other ways, you can first analyze the advantages and disadvantages of each strategy. The plan should be specific. It should list what you have to do? When and with what resources?

The plan format should be such that you can easily understand and evaluate. Only once you decide that the plan well suits to your needs, you can go to the next step.

Implementing the plan
Merely designing a plan, no matter how sound, does not constitute financial planning. A financial plan is useful to you only if it is put in to action. You have to ensure that the implementation is carried out in the manner and in accordance with the plan designed.

Monitoring the plan
Periodic reviews are the best form of monitoring. Of course, you should keep flexibility for a review if circumstances warrant. Following are three aspects to look at in a review:-
- the performance of what has been implemented,
- changes in the personal and financial situation and objectives,
- changes in the environment (regulations, financial, economic)

If you are on track to meet your financial goals nothing else needs to be done. If that is not the case, a revision is necessary. Revision process will involve the same above discussed steps but will take lesser time.

Tax Benefits on Educational Loan

2008-11-30T16:37:00.001+05:30

Tax Benefits on Educational Loan
I always think of saving my readers money to the maximum through all possible ways. So, today I am trying to give you the complete details of tax laws applicable for educational loan and the interest payable on it. As I have posted articles on Tax Planning and Tax rates for Individuals for the Financial Year 2007-08, here I am not discussing those things again. I will concentrate particularly on the tax benefits, which can be availed on Educational Loan.

Educational Loan means the loan taken for pursuing higher education. The term "higher education" would mean graduate or postgraduate course in engineering, medicine, management or postgraduate course in applied sciences or pure sciences, including mathematics and statistics.
The educational loan must have been taken from a financial institution or any approved charitable institution for the purpose of pursuing higher education, so that it will be eligible for tax benefit under prevailed tax laws.
You will get the tax benefit on an education loan only if the loan is in your name and is taken for the purpose of higher education of yourself, your spouse or your children. Loan taken for the higher education of siblings (brother or sister) are not covered in this regard.
You can claim tax benefit under section 80E of Income Tax Act of 1961. The Finance Act, 2005 has substituted Section 80-E, whereby only the interest on loan taken for higher education is eligible for deduction as against the earlier provision which allowed deduction in respect of repayment of loan.
The tax benefit can be availed only on the interest paid not on the principal. Earlier, the lesser of the two amounts were eligible for tax deduction: total amount (includes principal repaid and interest paid) paid during the year or Rs 40,000. But now it has been changed and you can claim only the entire interest paid on educational loan from your taxable income without any limit. These deductions are available only for a period of eight years starting from the year in which you start paying the interest.
Do remember that you cannot claim tax deductions if you have taken loan from your employer or family, or friends. You can get tax benefits only if the loan is from a financial institution, bank or approved charitable institution. Do remember, repayments on your education loan are NOT covered under Section 80C. As mentioned above, they are covered under Section 80E of the Income Tax Act.
You can utilise the benefit of tax exemption under this Act to the maximum, if your Financial Planning is effective.
For more details on the same, mail me on aman1675@hotmail.com

Wealth Management - Make your money work for you

2008-11-30T16:36:00.000+05:30

Wealth Management - Make your money work for you
India’s rapid economic growth with the support of IT, BT, Manufacturing and financial sectors has provided an immense opportunity to Indians for investing their money in profitable ventures and to earn high returns. Nowadays getting 30 - 40 % return on the investment has become very common. But, for all of us choosing the right investment avenue has become very difficult. It’s all about doing lot of research work to get the complete insight of the particular industry or company or a fund and to allocate the right percentage of assets in different sectors after considering the risk and return ratios of all the sectors.Choosing the Right investment avenue does not depend only on the risk and returns ratios, but also on the individual needs of ours. Our needs may be to built a new house, accumulate money for children’s education or marriage, buy a new car, going for vacation or accumulating money for retirement etc. Accumulating funds for all these important needs are a very critical job, where in we have to consider lot of constraints and barriers. The constraints and barriers may be like low income, less period of time, low returns, high inflation rates etc. Therefore, to plan our financial needs in the better way we must have the knowledge of effective wealth management or an expert financial consultant who can help us.Wealth management is a term that originated in US during 1990s. It can be regarded as a sophisticated form of private banking that provides various types of investment, banking and insurance services which suits our individual financial needs.Wealth management can also be classified in to advanced form of financial planning providing individuals and families with services such as private banking, estate planning, asset management, taxation advice and portfolio management. Accordingly, wealth management encompasses asset management, client advisory services and the distribution of investment products.

Wealth Management helps us through:

1) It help us to manage wealth in a better way,

2) We need not to spend much time in managing our wealth; we can take the help of an expert wealth manager.

3) An effective wealth management and an expert wealth manager avoid us from complicated transactions and a lot of paper work of the banks.

4) It provides proper planning of estate or investment of the assets based on our personal criteria and financial goals.

5) It helps to develop an appropriate strategy to achieve financial goals.

6) It helps to analyze our financial position, balances and asset allocation, which lead to maintain track and is positioned for success.

Conclusion:

As I have discussed in my earlier articles - Financial Planning, Investment Planning, Investment Products - wealth management or financial planning can be done with different investment tools and instruments available in the market, but it will give us the better yield only when it is planned and allocated in the right proportion. In our busy mechanical life, we may not be able to spend more time for managing our wealth. Therefore it is advisable to take the advice, guidance and support of an expert wealth manager who can help us with his new and potential research based ideas and techniques.

Investment products

2008-11-30T16:27:00.001+05:30

Investment products

Investment products are the instruments, where one can invest his money to earn profits, interests, dividends and bonus depending upon the nature of the investment made. Investment products have got lot of demand in the market, because the inflation rate, GDP growth and economic growth of the country have made it a need of everyone.But unfortunately, most of us are not aware of all the investment products available in the market. I think this made the portfolio allocation improper. A portfolio will become effective and profit oriented, only when it considers all the investment avenues available in the market.

To give you a clear picture of different investment products available in the market, I am writing this article with lot of new stuffs and research I personally experienced.There are large numbers of investment products available for investment to you. These can be classified as:-a) Real Assets: bullion, real estate, paintings, antiques, gems etc.b) Paper Assets: equity shares, debt instruments, bank deposit etc.Following are the Investment products available in the market:1. Employee Provident Fund2. Public Provident Fund3. National Savings Certificate4. Long term Government Securities5. Bank Deposits6. Infrastructure Bonds7. Life insurance Products8. Pension Products9. Mutual Funds10.Stock Market11.IPO’s12.Commodity Market1. Employee Provident Fund (EPF):EPF take care need of fund for Retirement, Medical emergencies, House purchase, family obligations, education of children and buying an insurance policy. Your contribution in EPF scheme, which is 12% of basic salary generally, builds a fund available when you retire. The fund is available for some other specific purposes also like, purchasing land or house repaying loan for the same, children education and marriage etc. Employer contribution is also 12%, a part of which goes towards pension fund. An employee can contribute more than 12% also towards building up the fund.2. Public Provident Fund:Public provident fund or PPF offers good returns with safety and flexibility that is why it is one of the most popular tax saving product.PPF account can be opened with specified branches of post office or nationalized bank on self or family members’ name. Account has 15 years term that can be extended in the blocks of 5 years after completion of the term. It offers 8% per annum yearly compounded interest. Contribution can be minimum Rs.500 to maximum of Rs.70000 in a year; that can be deposited monthly or yearly.Apart from qualifying for section 80C, interest earned is free, maturity withdrawals are tax-free and it cannot be attached under the decree of any court of law.From PPF, Loan can avail from the third year to sixth year up to 25% of the amount available in the preceding second year. Partial withdrawals can be made once every year at any time after sixth year. The amount of withdrawal is limited to 50%of the balance at credit at the end of 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower.3. National Savings Certificate:National savings certificate (NSC) remains the on shelf tax savings product. Investment in NSC can be made at specified post offices, in denomination of Rs.100, Rs.500, Rs.1000, Rs.5000 and Rs.10000 without any upper cap on investment. The certificate matures in six years and pays 8% half yearly compounded interest. Maturity proceeds of NSC are completely tax free. Premature encashment of NSCs are not allowed, however these can be kept as security to avail loan from banks. Interest earned on NSC is also an investment under section 80C.4. Long Term Government Securities:Government securities (G-secs) or gilts are sovereign securities, which are issued by the Reserve Bank of India (RBI) on behalf of the Government of India (GOI). The GOI uses these funds to meet its expenditure commitments.Treasury bills are short-term money market instruments, which are issued by the RBI on behalf of the GOI. The GOI uses these funds to meet its short-term financial requirements of the government. The salient features on T-Bills are:These are zero coupon bonds, which are issued at discount to face value and are redeemed at par.No tax is deducted at source and there is minimal default risk.The maximum tenure of these securities is one year.
The different types of Government Securities are:
a) Dated securities: These securities generally carry a fixed coupon (interest) rate and have a fixed maturity period. E.g., an 11.40% GOI 2008 G-sec. In this case 11.40% is the coupon rate and it is maturing in the year 2008. The salient features of Dated Securities are:These are issued at the face value.The rate of interest and tenure of the security is fixed at the time of issuance and does not change till maturity.The interest payment is made on half yearly rest.On maturity the security is redeemed at face value.
b) Zero coupon bonds: These securities are issued at a discount to the face value and redeemed at par. i.e. they are issued at below face value and redeemed at face value. The salient features of Zero Coupon Bonds are:The tenure of these securities is fixed.No interest is paid on these securities.The return on these securities is a function of time and the discount to face value.
c) Partly Paid Stock:In these securities the payment of principal is made in installments over a given period of time. The salient features of Partly Paid Stock are:These types of securities are issued at face value and the principal amount is paid in installments over a period of time.The rate of interest and tenure of the security is fixed at the time of issuance and does not change till maturity.The interest payment is made on half yearly rest.These are redeemed at par on maturity.
d) Floating Rate Bonds:These types of securities have a variable interest rate, which is calculated as a fixed percentage over a benchmark rate. The interest rate on these securities changes in sync with the benchmark rate. The salient features of Floating Rate Bonds are:These are issued at the face value.The interest rate is fixed as a percentage over a predefined benchmark rate. The benchmark rate may be a bank rate, Treasury bill rate etc.The interest payment is made on half yearly rests.The security is redeemed at par on maturity, which is fixed.
e) Capital indexed bonds:These securities carry an interest rate, which is calculated as a fixed percentage over the wholesale price index. The salient features of Capital Indexed Bonds are:These securities are issued at face value.The interest rate changes according to the change in the Wholesale price index, as the interest rate is fixed as a percentage over the wholesale price index.The maturity of these securities is fixed and the interest is payable on half yearly rests.The principal redemption is linked to the Wholesale price index.
5. Bank Deposits:Bank deposits are the most popular among fixed income investors. Safety, liquidity and convenience are being the prime reasons for gaining the investors confidence in banks; apart from safety of deposits. Bank fixed deposits are new entrants in 80C league. These form part of overall limit of Rs.100000 for deposits tenure of 5 years or more. However, interest on such investment is not tax exempted.6. Infrastructure Bonds:These bonds are offered by various financial institutions. Lock in period of three years is one of the attractions for investing in these bonds. Institutions like ICICI, IDBI have been issuing these bonds regularly.Infrastructure bonds are essentially for those who do not care to study better investment avenues and would be satisfied with bank fixed deposits. Moreover, they being issued by infrastructure companies (and not the government) are quite unsecured. Some study in the financial markets can be well worth the effort.7. Life insurance Products:Investing in life insurance has got a new look with the launch of ULIP’s (Unit Linked Life Insurance Plans) in the Industry. Yesteryear's we had the conception that insurance is all about life cover, risk cover, death benefit. But, now the rapid growth evidencing the entry of private players in to the market has created the wave of ULIP’s, which now has become one of the major investment avenues for Indian Investors.Following are the broad categories of insurance plans available in the market:1. Whole life policies2. Endowment Policies3. Term policies4. Money Back Policies5. Specialized Policies6. Single Premium Policies7. Unit Linked PoliciesThe tax benefit on investments in life insurance up to Rs.100000 can be availed in a financial years.8. Pension Products:A pension is a long term savings plan. Monies saved build up a retirement fund. This fund provides a source of regular money to live on in your retirement. It is one of the most tax efficient ways to save money.When people are investing for the long term, it's important you have the freedom to choose how and where to invest your money - and the option to change your choice of investments you need or want to.Most people need a pension because:People are living longer: retirement could make up a third of your life.They'll need money for their increased leisure time during retirement.9. Mutual Funds:A mutual fund is a trust, which combines the investments of various investors having similar financial goals. The trust issues the units to the investors in the proportion of their investments. A fund manager then invests these funds in different types of assets, according to the objectives of the scheme. The investment provides return in the form of dividends, interests and capital appreciation. This is distributed to the various investors in the proportion of their contribution to the pool funds.Investment in mutual funds is advantageous for good number of reasons; Professional management of funds, diversification of investments, tax benefits, liquidity are few to mentioned here.When a new scheme is launched, funds are available to subscription at par value, known as NFO. Subsequent to NFO, units are available for selling and repurchase based on Net Asset Value or NAV. NAV is market value of all assets net of liabilities. NAV per unit is a common performance indicator of the fund.10. Stock Market:Actively investing in stocks is not as complicated or as expensive as it may seem. But it is not without its risks or its costs. It is not only the wealthy who can enjoy the benefits of investing in shares. In fact, you may already own shares indirectly through a unit trust, a life insurance policy, a retirement annuity or by being a member of a retirement fund. But if you have about R5 000 to invest, you can also invest directly in shares, in order to claim a stake in some of the wealth that is generated on our local stock market.The stock market can be a great source of confusion for many people. The average person generally falls into one of two categories. The first believe investing is a form of gambling; they are certain that if you invest, you will more than likely end up losing your money. Often these fears are driven by the personal experiences of family members and friends who suffered similar fates or lived through the Great Depression. These feelings are not ground in facts and are the result of personal experience. Someone who believes along this line of thinking simply does not understand what the stock market is or why it exists.The second category consists of those who know they should invest for the long-run, but don’t know where to begin. Many feel like investing is some sort of black-magic that only a few people hold the key to. More often than not, they leave their financial decisions up to professionals, and cannot tell you why they own a particular stock or mutual fund. Their investment style is blind faith or limited to “this stock is going up. We should buy it.” This group is in far more danger than the first. They invest like the masses and then wonder why their results are mediocre (or in some cases, devastating).Investing in stock market with long term vision and patience will always yield you the best.
11. IPO’s:In an IPO, or initial public offering, a company issues its shares to the public for the first time. Often the issuing companies are growing upstarts that have previously relied on venture capitalists to provide their funding.The investment bank managing the deal sets an offering price for the stock of the company. It then doles out almost all the available shares to institutions and other wealthy investors before the stock begins trading.Average investors have traditionally had a rough time obtaining parts of IPO allocations. They usually can't get in until the stock begins trading. And if the stock opens above its offering price, investors usually wind up buying the stock at the same time the institutions that originally received the stock are selling it.Investing in IPO’s is very profitable, if you have done enough research wok before buying an IPO of any company.
12. Commodity Market:Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodity exchanges, in which they are bought and sold in standardized Contracts. Commodity market is one of the upcoming investment avenues for Indian investors. One can expect huge profit from commodity market, if he is doing sufficient research work before investing in any commodities.

Investment products

2008-11-30T16:18:00.000+05:30

Investment products
Investment products are the instruments, where one can invest his money to earn profits, interests, dividends and bonus depending upon the nature of the investment made. Investment products have got lot of demand in the market, because the inflation rate, GDP growth and economic growth of the country have made it a need of everyone.But unfortunately, most of us are not aware of all the investment products available in the market. I think this made the portfolio allocation improper. A portfolio will become effective and profit oriented, only when it considers all the investment avenues available in the market.

To give you a clear picture of different investment products available in the market, I am writing this article with lot of new stuffs and research I personally experienced.There are large numbers of investment products available for investment to you. These can be classified as:-a) Real Assets: bullion, real estate, paintings, antiques, gems etc.b) Paper Assets: equity shares, debt instruments, bank deposit etc.Following are the Investment products available in the market:1. Employee Provident Fund2. Public Provident Fund3. National Savings Certificate4. Long term Government Securities5. Bank Deposits6. Infrastructure Bonds7. Life insurance Products8. Pension Products9. Mutual Funds10.Stock Market11.IPO’s12.Commodity Market1. Employee Provident Fund (EPF):EPF take care need of fund for Retirement, Medical emergencies, House purchase, family obligations, education of children and buying an insurance policy. Your contribution in EPF scheme, which is 12% of basic salary generally, builds a fund available when you retire. The fund is available for some other specific purposes also like, purchasing land or house repaying loan for the same, children education and marriage etc. Employer contribution is also 12%, a part of which goes towards pension fund. An employee can contribute more than 12% also towards building up the fund.2. Public Provident Fund:Public provident fund or PPF offers good returns with safety and flexibility that is why it is one of the most popular tax saving product.PPF account can be opened with specified branches of post office or nationalized bank on self or family members’ name. Account has 15 years term that can be extended in the blocks of 5 years after completion of the term. It offers 8% per annum yearly compounded interest. Contribution can be minimum Rs.500 to maximum of Rs.70000 in a year; that can be deposited monthly or yearly.Apart from qualifying for section 80C, interest earned is free, maturity withdrawals are tax-free and it cannot be attached under the decree of any court of law.From PPF, Loan can avail from the third year to sixth year up to 25% of the amount available in the preceding second year. Partial withdrawals can be made once every year at any time after sixth year. The amount of withdrawal is limited to 50%of the balance at credit at the end of 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower.3. National Savings Certificate:National savings certificate (NSC) remains the on shelf tax savings product. Investment in NSC can be made at specified post offices, in denomination of Rs.100, Rs.500, Rs.1000, Rs.5000 and Rs.10000 without any upper cap on investment. The certificate matures in six years and pays 8% half yearly compounded interest. Maturity proceeds of NSC are completely tax free. Premature encashment of NSCs are not allowed, however these can be kept as security to avail loan from banks. Interest earned on NSC is also an investment under section 80C.4. Long Term Government Securities:Government securities (G-secs) or gilts are sovereign securities, which are issued by the Reserve Bank of India (RBI) on behalf of the Government of India (GOI). The GOI uses these funds to meet its expenditure commitments.Treasury bills are short-term money market instruments, which are issued by the RBI on behalf of the GOI. The GOI uses these funds to meet its short-term financial requirements of the government. The salient features on T-Bills are:These are zero coupon bonds, which are issued at discount to face value and are redeemed at par.No tax is deducted at source and there is minimal default risk.The maximum tenure of these securities is one year.
The different types of Government Securities are:
a) Dated securities: These securities generally carry a fixed coupon (interest) rate and have a fixed maturity period. E.g., an 11.40% GOI 2008 G-sec. In this case 11.40% is the coupon rate and it is maturing in the year 2008. The salient features of Dated Securities are:These are issued at the face value.The rate of interest and tenure of the security is fixed at the time of issuance and does not change till maturity.The interest payment is made on half yearly rest.On maturity the security is redeemed at face value.
b) Zero coupon bonds: These securities are issued at a discount to the face value and redeemed at par. i.e. they are issued at below face value and redeemed at face value. The salient features of Zero Coupon Bonds are:The tenure of these securities is fixed.No interest is paid on these securities.The return on these securities is a function of time and the discount to face value.
c) Partly Paid Stock:In these securities the payment of principal is made in installments over a given period of time. The salient features of Partly Paid Stock are:These types of securities are issued at face value and the principal amount is paid in installments over a period of time.The rate of interest and tenure of the security is fixed at the time of issuance and does not change till maturity.The interest payment is made on half yearly rest.These are redeemed at par on maturity.
d) Floating Rate Bonds:These types of securities have a variable interest rate, which is calculated as a fixed percentage over a benchmark rate. The interest rate on these securities changes in sync with the benchmark rate. The salient features of Floating Rate Bonds are:These are issued at the face value.The interest rate is fixed as a percentage over a predefined benchmark rate. The benchmark rate may be a bank rate, Treasury bill rate etc.The interest payment is made on half yearly rests.The security is redeemed at par on maturity, which is fixed.
e) Capital indexed bonds:These securities carry an interest rate, which is calculated as a fixed percentage over the wholesale price index. The salient features of Capital Indexed Bonds are:These securities are issued at face value.The interest rate changes according to the change in the Wholesale price index, as the interest rate is fixed as a percentage over the wholesale price index.The maturity of these securities is fixed and the interest is payable on half yearly rests.The principal redemption is linked to the Wholesale price index.
5. Bank Deposits:Bank deposits are the most popular among fixed income investors. Safety, liquidity and convenience are being the prime reasons for gaining the investors confidence in banks; apart from safety of deposits. Bank fixed deposits are new entrants in 80C league. These form part of overall limit of Rs.100000 for deposits tenure of 5 years or more. However, interest on such investment is not tax exempted.6. Infrastructure Bonds:These bonds are offered by various financial institutions. Lock in period of three years is one of the attractions for investing in these bonds. Institutions like ICICI, IDBI have been issuing these bonds regularly.Infrastructure bonds are essentially for those who do not care to study better investment avenues and would be satisfied with bank fixed deposits. Moreover, they being issued by infrastructure companies (and not the government) are quite unsecured. Some study in the financial markets can be well worth the effort.7. Life insurance Products:Investing in life insurance has got a new look with the launch of ULIP’s (Unit Linked Life Insurance Plans) in the Industry. Yesteryear's we had the conception that insurance is all about life cover, risk cover, death benefit. But, now the rapid growth evidencing the entry of private players in to the market has created the wave of ULIP’s, which now has become one of the major investment avenues for Indian Investors.Following are the broad categories of insurance plans available in the market:1. Whole life policies2. Endowment Policies3. Term policies4. Money Back Policies5. Specialized Policies6. Single Premium Policies7. Unit Linked PoliciesThe tax benefit on investments in life insurance up to Rs.100000 can be availed in a financial years.8. Pension Products:A pension is a long term savings plan. Monies saved build up a retirement fund. This fund provides a source of regular money to live on in your retirement. It is one of the most tax efficient ways to save money.When people are investing for the long term, it's important you have the freedom to choose how and where to invest your money - and the option to change your choice of investments you need or want to.Most people need a pension because:People are living longer: retirement could make up a third of your life.They'll need money for their increased leisure time during retirement.9. Mutual Funds:A mutual fund is a trust, which combines the investments of various investors having similar financial goals. The trust issues the units to the investors in the proportion of their investments. A fund manager then invests these funds in different types of assets, according to the objectives of the scheme. The investment provides return in the form of dividends, interests and capital appreciation. This is distributed to the various investors in the proportion of their contribution to the pool funds.Investment in mutual funds is advantageous for good number of reasons; Professional management of funds, diversification of investments, tax benefits, liquidity are few to mentioned here.When a new scheme is launched, funds are available to subscription at par value, known as NFO. Subsequent to NFO, units are available for selling and repurchase based on Net Asset Value or NAV. NAV is market value of all assets net of liabilities. NAV per unit is a common performance indicator of the fund.10. Stock Market:Actively investing in stocks is not as complicated or as expensive as it may seem. But it is not without its risks or its costs. It is not only the wealthy who can enjoy the benefits of investing in shares. In fact, you may already own shares indirectly through a unit trust, a life insurance policy, a retirement annuity or by being a member of a retirement fund. But if you have about R5 000 to invest, you can also invest directly in shares, in order to claim a stake in some of the wealth that is generated on our local stock market.The stock market can be a great source of confusion for many people. The average person generally falls into one of two categories. The first believe investing is a form of gambling; they are certain that if you invest, you will more than likely end up losing your money. Often these fears are driven by the personal experiences of family members and friends who suffered similar fates or lived through the Great Depression. These feelings are not ground in facts and are the result of personal experience. Someone who believes along this line of thinking simply does not understand what the stock market is or why it exists.The second category consists of those who know they should invest for the long-run, but don’t know where to begin. Many feel like investing is some sort of black-magic that only a few people hold the key to. More often than not, they leave their financial decisions up to professionals, and cannot tell you why they own a particular stock or mutual fund. Their investment style is blind faith or limited to “this stock is going up. We should buy it.” This group is in far more danger than the first. They invest like the masses and then wonder why their results are mediocre (or in some cases, devastating).Investing in stock market with long term vision and patience will always yield you the best.
11. IPO’s:In an IPO, or initial public offering, a company issues its shares to the public for the first time. Often the issuing companies are growing upstarts that have previously relied on venture capitalists to provide their funding.The investment bank managing the deal sets an offering price for the stock of the company. It then doles out almost all the available shares to institutions and other wealthy investors before the stock begins trading.Average investors have traditionally had a rough time obtaining parts of IPO allocations. They usually can't get in until the stock begins trading. And if the stock opens above its offering price, investors usually wind up buying the stock at the same time the institutions that originally received the stock are selling it.Investing in IPO’s is very profitable, if you have done enough research wok before buying an IPO of any company.
12. Commodity Market:Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodity exchanges, in which they are bought and sold in standardized Contracts. Commodity market is one of the upcoming investment avenues for Indian investors. One can expect huge profit from commodity market, if he is doing sufficient research work before investing in any commodities.

Investor Servicing – Who will do?

2008-11-30T16:16:00.002+05:30

Investor Servicing – Who will do?
India being one of the fastest growing economies in the world has attracted even a tea shop vendor towards the capital markets and there are hundreds of investment options for each investor, moreover thousands of middlemen’s and brokers to go through. Of course it is not at all a bad sign, butAre they all investing in the right option? Are they all getting back their money in the right time? Are they all getting the expected returns on their investments? Are they all aware of the growth of their investments?

Every investor will think thousand times before investing even a single rupee as it is his hard earned money and he invests with a strong motive of creating wealth for his future and to accomplish all his personal and family goals.
An Investment Manager or a Relationship Manager has to give the maximum service to the client after the sales to keep him updated about his investments and its growth. I am in to the finance industry from quiet a long time and all my clients are happy with the services what I was providing and what my team is providing now.
After sales services for an investor is as important as medicines to a patient after operation. In Indian Investment market 95% of the business is happening through 5% of financial consultants and 5% of the business is happening through remaining 95% of the financial consultants.
I always feel that the mistake is not only from the sales people, even the investors are also the reason for this spoiling, baseless, futureless and misleading growth of the industry and for the growth of unprofessional finance people. Creating a rule takes years but breaking the same will not take even a minute as it can be started by even one individual.
This discussion can be continued in 100s of pages, but that will not give us the solution. All we need to do now is:

1. Investor Education and Awareness Programs has to be conducted

2. Manpower Management and Development Initiatives

3. Strengthening of Investor Grievance Cells

4. Strong Law and Order support to keep up ethics in the Industry

5. Initiatives has to be taken to increase transparency in all the transactions one does

6. Lot more has to be done to strengthens online investor support and compliance system

Above said things cannot be implemented by one or two. There should be a common Revolution by all the investors to kill the words like Miss selling, miss guiding and poor after sales services kind of activities. No body has to enter roads to do this; we can do this if we know how to face people. We spend 24*7 for money making but we don’t even spend few hours in a week to manage our hard-earned money effectively and profitably. Before making even a single investment decision, make sure that you are thorough with at least the basics of the concept/plan.
I wish you all the very best for all your future investments and I am open to receive your queries pertaining to investments anytime through
Mob – 09312958739

Email – aman1675@hotmail.com

CRR (Cash Reserve Ratio)

2008-11-30T16:12:00.000+05:30

CRR (Cash Reserve Ratio)

Banks are more familiar to people these days than food malls, shopping malls as every activity of maximum number of people is been controlled by banks. Banks play a significant role in ones life and the contribution of banks to the nation and the economy is immense. There are hundreds of things about banks which a common man does not know. One such concept is CRR. We all read in the news papers that RBI has increased the CRR limits and the interest rate will go up. But what is the correlation between CRR and the interest rates? What is CRR? Why do they increase or decrease it? Like this, there are many questions. Here is a small article to answer all your queries relating to CRR.

Cash Reserve Ratio mandates that all commercial banks maintain a certain percentage of their total demand and time liabilities with themselves or with the Reserve Bank of India (RBI). This could be in the form of cash reserves or by way of a current account with the RBI. The objective is to ensure the safety and liquidity of the deposits with the banks. The percentage upper limit of the CRR is 15% while there is no lower limit. What is a liability (like in time and demand liability)? Here, a liability is simply a deposit account with a bank. What we call a deposit is called a liability by the bank as the latter would have to repay us. In other worlds, our deposit is our loan to the bank (and hence the interest paid by the bank)
There are two kinds of liabilities (i.e. deposits)
1 Time liability A time liability is a type of account from which you can withdraw your money only after a specified period of time. Since this kind of an account has a specified term, it is also called a ‘term liability’. An example is a fixed deposit account.
2 Demand liabilityA demand liability is an account from which you can withdraw your money on demand. Example : saving account and current account
Every bank has to keep a said percentage of such liabilities with RBI. The current CRR is 6.5%. The RBI uses the CRR as an effective tool to increase or decrease money supply in the economy. This way the central bank can also control inflation. How does this work?
CRR as a tool to control inflationLet us say the RBI increase the CRR. This would mean that banks would have to keep more money with the RBI. This, in turn, would reduce the money available with them, thus bringing down the money supply in the market. A lower money supply would lead to an increase in interest rates.
Now look at the other side. A reduction in CRR would put more money in the coffers of the banks. As the money supply rises, interest rates decrease.
What do we do when interest rates are high?
Well, common sense would dictate that when the interest rates are high, we save, and not spend, money.
On the other hand, lower interest rates act as a disincentive to save money. So, in this case we would spend, and save.
Lower interest rates often boost demand for goods and services. In the short run , this would result in inflation as supply may not be able to match demand. Currently, to control the steeply rising inflation, the RBI twice raised the CRR in the recent past.
I hope you got the idea. The reason why the RBI controls the CRR is that it is an effective and important tool to control inflation.
To put in a nutshell, a higher CRR would mean that there is less money available in the market. So there will be less money with people. This would mean that their demand for goods and services would be low. So the prices would be low.

Tax Saving – What are the ways?

2008-11-30T16:07:00.000+05:30

Tax Saving – What are the ways?
March 31st is nearing; I have to make some investments somewhere. Do you know anybody, who can help me to invest in some investments?
This is what we hear in offices and houses in the time between October and March. We all work 24*7 to make money but we don’t even think of spending few minutes a day to manage our hard-earned money, which ends up with killing our own dreams and plans made for life. We shouldn’t invest our hard earned money just for the heck of doing it.

Tax saving helps us to reduce our tax liability up to certain limit only and proper tax planning help us to save considerable amount of money every year. We have different investment options which help us to save tax, but very few will help us to create wealth and have got less charge.
Below are the lists of few investment products which help us to save our tax:1. Employee Provident Fund2. Public Provident Fund3. National Savings Certificate4. Long term Government Securities5. Bank Deposits6. Life insurance Products7. Pension Products8. Mutual Funds9. ULIPs
1. Employee Provident Fund (EPF):EPF take care need of fund for Retirement, Medical emergencies, House purchase, family obligations, education of children and buying an insurance policy. Your contribution in EPF scheme, which is 12% of basic salary generally, builds a fund available when you retire. The fund is available for some other specific purposes also like, purchasing land or house repaying loan for the same, children education and marriage etc. Employer contribution is also 12%, a part of which goes towards pension fund. An employee can contribute more than 12% also towards building up the fund.
2. Public Provident Fund:Public provident fund or PPF offers good returns with safety and flexibility that is why it is one of the most popular tax saving product.
PPF account can be opened with specified branches of post office or nationalized bank on self or family members’ name. Account has 15 years term that can be extended in the blocks of 5 years after completion of the term. It offers 8% per annum yearly compounded interest. Contribution can be minimum Rs.500 to maximum of Rs.70000 in a year; that can be deposited monthly or yearly.
Apart from qualifying for section 80C, interest earned is free, maturity withdrawals are tax-free and it cannot be attached under the decree of any court of law.
From PPF, Loan can avail from the third year to sixth year up to 25% of the amount available in the preceding second year. Partial withdrawals can be made once every year at any time after sixth year. The amount of withdrawal is limited to 50%of the balance at credit at the end of 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower.
3. National Savings Certificate:National savings certificate (NSC) remains the on shelf tax savings product. Investment in NSC can be made at specified post offices, in denomination of Rs.100, Rs.500, Rs.1000, Rs.5000 and Rs.10000 without any upper cap on investment. The certificate matures in six years and pays 8% half yearly compounded interest. Maturity proceeds of NSC are completely tax free. Premature encashment of NSCs are not allowed, however these can be kept as security to avail loan from banks. Interest earned on NSC is also an investment under section 80C.
4. Long Term Government Securities:Government securities (G-secs) or gilts are sovereign securities, which are issued by the Reserve Bank of India (RBI) on behalf of the Government of India (GOI). The GOI uses these funds to meet its expenditure commitments.Treasury bills are short-term money market instruments, which are issued by the RBI on behalf of the GOI. The GOI uses these funds to meet its short-term financial requirements of the government. The salient features on T-Bills are:These are zero coupon bonds, which are issued at discount to face value and are redeemed at par.No tax is deducted at source and there is minimal default risk.The maximum tenure of these securities is one year.
5. Bank Deposits:Bank deposits are the most popular among fixed income investors. Safety, liquidity and convenience are being the prime reasons for gaining the investors confidence in banks; apart from safety of deposits. Bank fixed deposits are new entrants in 80C league. These form part of overall limit of Rs.100000 for deposits tenure of 5 years or more. However, interest on such investment is not tax exempted.
6. Life insurance Products:Investing in life insurance has got a new look with the launch of ULIP’s (Unit Linked Life Insurance Plans) in the Industry. Yesteryear\'s we had the conception that insurance is all about life cover, risk cover, death benefit. But, now the rapid growth evidencing the entry of private players in to the market has created the wave of ULIP’s, which now has become one of the major investment avenues for Indian Investors.
Following are the broad categories of insurance plans available in the market:1. Whole life policies2. Endowment Policies3. Term policies4. Money Back Policies5. Specialized Policies6. Single Premium Policies7. Unit Linked PoliciesThe tax benefit on investments in life insurance up to Rs.100000 can be availed in a financial years.
7. Pension Products:A pension is a long term savings plan. Monies saved build up a retirement fund. This fund provides a source of regular money to live on in your retirement. It is one of the most tax efficient ways to save money.When people are investing for the long term, it\'s important you have the freedom to choose how and where to invest your money - and the option to change your choice of investments you need or want to.Most people need a pension because:People are living longer: retirement could make up a third of your life.They\'ll need money for their increased leisure time during retirement.
8. Mutual Funds:A mutual fund is a trust, which combines the investments of various investors having similar financial goals. The trust issues the units to the investors in the proportion of their investments. A fund manager then invests these funds in different types of assets, according to the objectives of the scheme. The investment provides return in the form of dividends, interests and capital appreciation. This is distributed to the various investors in the proportion of their contribution to the pool funds.
Investment in mutual funds is advantageous for good number of reasons; Professional management of funds, diversification of investments, tax benefits, liquidity are few to mentioned here.
When a new scheme is launched, funds are available to subscription at par value, known as NFO. Subsequent to NFO, units are available for selling and repurchase based on Net Asset Value or NAV. NAV is market value of all assets net of liabilities. NAV per unit is a common performance indicator of the fund.
But in Mutual Funds only Equity linked savings schemes (ELSS) gives tax benefit.
Each of the above mentioned investment options have got their own advantages and disadvantages. But selecting the right one based on your needs and requirements are very important. I do not recommend one option as the best and the other as bad, But I suggest you to deeply analyse your needs before investing, so that the wealth creation process will be fruitful and profitable.

Who is a Broker?

2008-11-30T16:06:00.000+05:30

Investing has become very easy in these days mostly because of Brokers. There are two different types of Brokers:-1. Stock Brokers2. Insurance Brokers
1. Stock Broker:

A stock broker is a person who is licensed from the concerned authority to trade in shares. Brokers also have direct access to the share market and can act as an agent in share transactions representing his clients. For this service they charge a fee (which is also called as Brokerage). They can also offer additional services like advice on shares, debentures, government bonds and listed property trusts and non-listed investment options (cash management trusts, property and equity trusts).
In addition to the above said services, a stock broker can plan, implement and monitor his clients’ investment portfolio, conduct research and help them optimize your returns.
2. Insurance Broker:An insurance broker acts as an intermediary between his clients and insurance companies. Clients may be individuals, small and medium commercial business houses and organisations. Brokers use their in-depth knowledge of risks and the insurance market to find and arrange suitable insurance policies for their clients based on the needs and requirements of them. Insurance brokers, unlike tied agents, are independent and offer products from more than one insurer, to ensure that their clients get the best deal.
There are two different types of Insurance Brokers:1. Direct Broker2. Composite Broker
1. Direct Broker: Direct Broker deals with Both Life Insurance and Non Life Insurance Products offered by all the companies.
2. Composite Broker: Composite Broker deals with Life Insurance, Non-Life Insurance and Reinsurance.

Mutual Fund - A complete Analysis

2008-11-30T16:02:00.000+05:30

Mutual Fund - A complete Analysis
Definition:
A mutual fund is a professionally-managed firm of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.

Concept:
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

History:
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases

First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI.
The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.
At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

Types of Mutual Funds:
On the basis of their structure and objective, mutual funds can be classified into following major types:

Closed-end fundsOpen-end fundsLarge cap fundsMid-cap fundsEquity fundsBalanced fundsGrowth fundsNo load fundsExchange traded fundsValue fundsMoney market fundsInternational mutual fundsRegional mutual fundsSector fundsIndex fundsFund of funds

Closed-end Mutual Fund
A closed-end mutual fund has a set number of shares issued to the public through an initial public offering. These funds have a stipulated maturity period generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed.Once underwritten, closed-end funds trade on stock exchanges like stocks or bonds. The market price of closed-end funds is determined by supply and demand and not by net-asset value (NAV), as is the case in open-end funds. Usually closed mutual funds trade at discounts to their underlying asset value.

Open-end mutual fund An open-end mutual fund is a fund that does not have a set number of shares. It continues to sell shares to investors and will buy back shares when investors wish to sell. Units are bought and sold at their current net asset value.Open-end funds keep some portion of their assets in short-term and money market securities to provide available funds for redemptions. A large portion of most open mutual funds is invested in highly liquid securities, which enables the fund to raise money by selling securities at prices very close to those used for valuations.

Large Cap FundsLarge cap funds are those mutual funds, which seek capital appreciation by investing primarily in stocks of large blue chip companies with above-average prospects for earnings growth. Different mutual funds have different criteria for classifying companies as large cap. Generally, companies with a market capitalisation in excess of Rs 1000 crore are known large cap companies. Investing in large caps is a lower risk-lower return proposition (vis-à-vis mid cap stocks), because such companies are usually widely researched and information is widely available.

Mid cap funds Mid cap funds are those mutual funds, which invest in small / medium sized companies. As there is no standard definition classifying companies as small or medium, each mutual fund has its own classification for small and medium sized companies. Generally, companies with a market capitalization of up to Rs 500 crore are classified as small. Those companies that have a market capitalization between Rs 500 crore and Rs 1,000 crore are classified as medium sized. Big investors like mutual funds and Foreign Institutional Investors are increasingly investing in mid caps nowadays because the price of large caps has increased substantially. Small / mid sized companies tend to be under researched thus they present an opportunity to invest in a company that is yet to be identified by the market. Such companies offer higher growth potential going forward and therefore an opportunity to benefit from higher than average valuations.But mid cap funds are very volatile and tend to fall like a pack of cards in bad times. So, caution should be exercised while investing in mid cap mutual funds.

Equity Mutual FundsEquity mutual funds are also known as stock mutual funds. Equity mutual funds invest pooled amounts of money in the stocks of public companies. Stocks represent part ownership, or equity, in companies, and the aim of stock ownership is to see the value of the companies increase over time. Stocks are often categorized by their market capitalization (or caps), and can be classified in three basic sizes: small, medium, and large. Many mutual funds invest primarily in companies of one of these sizes and are thus classified as large-cap, mid-cap or small-cap funds.Equity fund managers employ different styles of stock picking when they make investment decisions for their portfolios. Some fund managers use a value approach to stocks, searching for stocks that are undervalued when compared to other, similar companies. Another approach to picking is to look primarily at growth, trying to find stocks that are growing faster than their competitors, or the market as a whole. Some managers buy both kinds of stocks, building a portfolio of both growth and value stocks.

Balanced FundBalanced fund is also known as hybrid fund. It is a type of mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds, to provide both income and capital appreciation while avoiding excessive risk. Balanced funds provide investor with an option of single mutual fund that combines both growth and income objectives, by investing in both stocks (for growth) and bonds (for income). Such diversified holdings ensure that these funds will manage downturns in the stock market without too much of a loss. But on the flip side, balanced funds will usually increase less than an all-stock fund during a bull market.

Growth FundsGrowth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks. They focus on those companies, which are experiencing significant earnings or revenue growth, rather than companies that pay out dividends. Growth funds tend to look for the fastest-growing companies in the market. Growth managers are willing to take more risk and pay a premium for their stocks in an effort to build a portfolio of companies with above-average earnings momentum or price appreciation.In general, growth funds are more volatile than other types of funds, rising more than other funds in bull markets and falling more in bear markets. Only aggressive investors, or those with enough time to make up for short-term market losses, should buy these funds.

No-Load Mutual FundsMutual funds can be classified into two types - Load mutual funds and No-Load mutual funds. Load funds are those funds that charge commission at the time of purchase or redemption. They can be further subdivided into (1) Front-end load funds and (2) Back-end load funds. Front-end load funds charge commission at the time of purchase and back-end load funds charge commission at the time of redemption.

On the other hand, no-load funds are those funds that can be purchased without commission. No load funds have several advantages over load funds. Firstly, funds with loads, on average, consistently underperform no-load funds when the load is taken into consideration in performance calculations. Secondly, loads understate the real commission charged because they reduce the total amount being invested. Finally, when a load fund is held over a long time period, the effect of the load, if paid up front, is not diminished because if the money paid for the load had invested, as in a no-load fund, it would have been compounding over the whole time period.

Exchange Traded Funds
Exchange Traded Funds (ETFs) represent a basket of securities that are traded on an exchange. An exchange traded fund is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index. The investment objective of an ETF is to achieve the same return as a particular market index. Exchange traded funds rely on an arbitrage mechanism to keep the prices at which they trade roughly in line with the net asset values of their underlying portfolios.

Value FundsValue funds are those mutual funds that tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. They invest in companies that the market has overlooked, and stocks that have fallen out of favour with mainstream investors, either due to changing investor preferences, a poor quarterly earnings report, or hard times in a particular industry.Value stocks are often mature companies that have stopped growing and that use their earnings to pay dividends. Thus value funds produce current income (from the dividends) as well as long-term growth (from capital appreciation once the stocks become popular again). They tend to have more conservative and less volatile returns than growth funds.

Money Market Mutual FundsA money market fund is a mutual fund that invests solely in money market instruments. Money market instruments are forms of debt that mature in less than one year and are very liquid. Treasury bills make up the bulk of the money market instruments. Securities in the money market are relatively risk-free. Money market funds are generally the safest and most secure of mutual fund investments. The goal of a money-market fund is to preserve principal while yielding a modest return. Money-market mutual fund is akin to a high-yield bank account but is not entirely risk free. When investing in a money-market fund, attention should be paid to the interest rate that is being offered.

International Mutual Funds
International mutual funds are those funds that invest in non-domestic securities markets throughout the world. Investing in international markets provides greater portfolio diversification and let you capitalize on some of the world's best opportunities. If investments are chosen carefully, international mutual fund may be profitable when some markets are rising and others are declining.
However, fund managers need to keep close watch on foreign currencies and world markets as profitable investments in a rising market can lose money if the foreign currency rises against the dollar.

Regional Mutual Fund
Regional mutual fund is a mutual fund that confines itself to investments in securities from a specified geographical area, usually, the fund's local region. A regional mutual fund generally looks to own a diversified portfolio of companies based in and operating out of its specified geographical area. The objective is to take advantage of regional growth potential before the national investment community does. Regional funds select securities that pass geographical criteria. For the investor, the primary benefit of a regional fund is that he/she increases his/her diversification by being exposed to a specific foreign geographical area.

Sector Mutual Funds
Sector mutual funds are those mutual funds that restrict their investments to a particular segment or sector of the economy. These funds concentrate on one industry such as infrastructure, heath care, utilities, pharmaceuticals etc. The idea is to allow investors to place bets on specific industries or sectors, which have strong growth potential. These funds tend to be more volatile than funds holding a diversified portfolio of securities in many industries. Such concentrated portfolios can produce tremendous gains or losses, depending on whether the chosen sector is in or out of favour.

Index Funds
An index fund is a type of mutual fund that builds its portfolio by buying stock in all the companies of a particular index and thereby reproducing the performance of an entire section of the market. The most popular index of stock index funds is the Standard & Poor's 500. An S&P 500 stock index fund owns 500 stocks-all the companies that are included in the index. Investing in an index fund is a form of passive investing. Passive investing has two big advantages over active investing. First, a passive stock market mutual fund is much cheaper to run than an active fund. Second, a majority of mutual funds fail to beat broad indexes such as the S&P 500.

Fund of Funds
A fund of funds is a type of mutual fund that invests in other mutual funds. Just as a mutual fund invests in a number of different securities, a fund of funds holds shares of many different mutual funds.Fund of funds are designed to achieve greater diversification than traditional mutual funds. But on the flipside, expense fees on fund of funds are typically higher than those on regular funds because they include part of the expense fees charged by the underlying funds. Also, since a fund of funds buys many different funds which themselves invest in many different stocks, it is possible for the fund of funds to own the same stock through several different funds and it can be difficult to keep track of the overall holdings.
Advantages of Mutual Funds
The advantages of investing in a Mutual Fund are:
Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value.

Professional Management:Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell.

Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud.

Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash.

Convenience:You can usually buy mutual fund shares by mail, phone, or over the Internet. Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index.
Transparency
Flexibility
Choice of schemes
Tax benefits
Well regulated
Drawbacks of Mutual Funds Mutual Funds have their own drawbacks and it may not suit the investment needs of all kinds of investors because of its limitations and the drawbacks. Following are the few drawbacks of Mutual Funds:
No Guarantees: No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money.
Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund.
Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.

Management risk: When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.

The Future
By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crore.The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double.

Some facts for the growth of mutual funds in India
1 . 100% growth in the last 6 years.
2. Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.
3. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required.
4. We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion.
5. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities.
6. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.
7. SEBI allowing the MF's to launch commodity mutual funds.
8. Emphasis on better corporate governance.
9. Trying to curb the late trading practices.
10. Introduction of Financial Planners who can provide need based advice.

Growth or Dividend

Yesterday one of my Relationship Managers called me from his client place and he told me, “My client is confused whether to go for a growth or a dividend option, please speak to him”. I did speak to him, but he was arguing with me that dividends are something extra, which he can avail from a fund. Therefore my dear readers, today I would like to discuss on various things related to the growth and dividend option of a mutual fund, so that you will not get confused while investing in a mutual fund.

What is the difference between growth and dividends?A mutual fund generally offers two schemes: dividend and growth.

The dividend option does not re-invest the profits made by the fund though its investments. Instead, it is given to the investor from time to time.
In the growth scheme, all profits made by the fund are ploughed back into the scheme. This causes the NAV to rise over time.
How does it affect on the NAV?The NAV of the growth option will always be higher than that of the dividend option because money is going back into the scheme and not given to investors.

How does it affect on you?You don't gain or lose anything by selecting any one scheme. Either you make the choice to get the money regularly (dividend) or at one time (growth).
If you choose the growth option, you can make money by selling the units at a high NAV at a later date.
If you choose the dividend option, you will get the money time and again as well as avail of a higher NAV (though the NAV here is not as high as that of a growth option).

Say there is a fund with an NAV of Rs 24. It declares a dividend of 40%. This means it will pay 40% of the face value. The face value of a mutual fund unit is 10 (its NAV in this case is 24). So it will give you Rs 4 per unit. If you own 1,000 units of the fund, you will get Rs 4,000. Since it has paid Rs 4 per unit, the NAV will fall from Rs 24 to Rs 20.
If you invest in the growth option, you can sell the units for Rs 24.
If you invest in the dividend option, you can sell the units for Rs 20, since you already made a profit of Rs 4 per unit earlier.

What you must know about dividends?The dividend is not guaranteed. If a fund declared dividends twice last year, it does not mean it will do so again this year. You could get a dividend just once or you might not even get it this year. Generally, funds whose NAV is above 10 are in a position to consider a dividend. Remember, though, declaring a dividend is solely at the fund's discretion; the periodicity is not certain nor is the amount fixed.

Which should you take?This depends on your overall investments and income. If you are looking at a long-term investment and are not interested in money being given to you at various intervals, the growth option is meant for you. If you are keen on receiving an income at various intervals, opt for the dividend option.

The tax impactDividends from a mutual fund are not taxed. When you sell the units of a mutual fund and make a profit, it is known as capital gain, which will be taxed under the prevailing income tax laws.

NAV and the Myths

Net asset value represents the value of each unit in the portfolio. It is the book value. NAV of a mutual fund always varying depends on the market fluctuations. NAV of any portfolio can be calculated after deducting all liabilities from the total asset value of the portfolio. NAV helps an investor to measure the performance of his investments very easily. Nowadays NAV is becoming very familiar to us with the rapid growth and expansion of mutual funds and insurance industry.The general formula for calculating NAV is…….NAV = Total asset value – Total liabilities
Total no of units

Yes, this is all about NAV. But my dear readers, today I would like to discuss on certain myths and misconceptions around the concept of NAV.I started my career with selling of insurance and Mutual Funds, and I faced many situations where the clients were very particular about NAV. And of course, they were very keen on investing in low NAV funds. Many a times I did convince them but the misconception what many of us have sometimes ends up with low returns or loss on investments. Even I got many queries from my readers as well as from my clients that -“Is low NAV cheap?”Is a fund with lower NAV a better investment option than a fund with a higher NAV? Since you can buy more units, is it cheaper? Should mutual fund schemes with a higher NAV be avoided?These are some other questions I faced from my clients and readers. The answer to these questions is that it is irrelevant how high or low the NAV of a mutual fund or a ULIP plan is. And, whatever may be the NAV you invested with, the amount you invested remaining unchanged. Because, high NAV means less number of units and low NAV means more number of units. I can prove the same with ‘N’ number of examples.Let us take an example, where there are two investment options –- One with the NAV of 10 and- Other with the NAV of 100.Ordinary investors always look at first option as the NAV is very low when comparing to option two. But if you look at it with little practicality, you will understand it better that both the option will yield you the same if the investment strategies of both are same. Please go through the below illustration which proves the same-Let us take the initial investment as 10000 and the NAV value as above. Then, an investor will get 1000 units in case of option one and 100 units in case of option two. If both the investment options yield 30% at the end of year, NAV of option one will become 13 and the second will become 130.Therefore, the total fund value of option one has become 13*1000=13000 and the second has become 130*100=13000. And, if one sells those units in both the investment options he will get the same amount.If you still have doubts, I can give you some more reasons to avoid measuring the funds in terms of its NAV. One of them is, low NAV schemes may be new to the market and it is very difficult to predict the future performance of the same as there are no past records to asses. But in case of high NAV funds which are in the market from long time will have their own performance records which help us to measure the performance in a better way.Therefore, as a financial consultant my advice is kindly stop looking at NAV before investing; instead look at the quality and other performance records.

SIP - Systematic Investment Plan

Today’s world has offered us with lot of attractive things, which leave us empty handed at the middle of the month itself. We have lot of needs to take care of, lot many things to buy, different loans and EMIs to repay and many dreams to plan as well. But it is very difficult to plan and realize those needs and plans successfully, because we may not be able to procure funds for these things in time. Even if you start saving money to serve these things right from the day one you dreamt of, the inflation and sky rocketing price hikes will ultimately let you down.

Therefore, we need to plan our savings and investments in a more structured and profitable way. Obviously, there are different investment tools available in the market which gives you good returns and flexibility as well. But, these investment tools may not develop the habit of regular investment in us. One of my ex-colleague was telling me that have a habit of buying one gram gold every month. Of course that is a very nice idea but it won’t help us to serve our short term needs as keeping gold is little risky and returns are very less in the short term.Now, I would like to introduce you all a well-known investment tool called SIP (Systematic Investment Plan) with its unique features.The Systematic Investment Plan allows investors to save a fixed amount of rupees every month or quarter for the purchase of additional units in a mutual fund. SIP helps us to plan our retirement, childrens education, wealth creation and finacial planning as well.
SIP mainly helps us to get addicted to an investment principle –Income – Savings = Expenditure, instead of following the principle of –Income - Expenditure = Savings.Investing through SIP can offer the following benefits:It helps to Build Wealth over the Long term – “the compounding effect”The key to building wealth is to start investing early and regularly. These regular amounts of savings, however small they may be, can possibly grow into a substantial amount of wealth over the long-term. Therefore, if you have to save regularly, it makes sense to pay yourself first and that is the only way to increase your savings.Look at the following example and you may be pleasantly surprised at the benefits of investing systematically over the Long-term:-An investment of Rs. 1,000 per month in an instrument yielding a net compounded return of 12% per annum, over a period of 30 years, can grow to over Rs. 35 lacs.It will take only 33 years to achieve Rs. 1 crore, if invested Rs. 1000/- per month and money grows at 15% p.a.It will take only 28 years to achieve Rs. 1 crore, if invested Rs. 2000/- per month and money grows at 15% p.a.It will take only 25 years to achieve Rs. 1 crore, if invested Rs. 3000/- per month and money grows at 15% p.a.In the short run a 1% differential in the rate of return may not matter as much, but in the long run it can be significant.
Make the volatility of the market work in your favour – the rupee cost averagingSecurities markets (equities and fixed income instruments) can be volatile and it is rarely possible to predict the future and time the market. We can seldom accurately predict when a particular stock will move up or where the interest rates are headed. Since the amount invested per month is a constant, the investor ends up buying more units when the price is low and fewer units when the price is high. Therefore, the average unit cost will always give the benefit of investing when the market is rising, falling, or fluctuating. This concept is called Rupee Cost Averaging.Load StructureMost of the Asset management companies had waived off entry load in equity mutual funds if the investor is investing through SIPs.Other Advantages
Investor is forced to save some amount if he wants to achieve a certain target amountAsset management companies had tied up with few banks for direct debit in their account of the investment amountMinimum amount to start with SIP is as low as Rs. 500/- per month.Conclusion:I hope all my readers will start investing through SIPs regularly as it is considered as one of the most important and popular investment tool across the world. Warren Buffet tells that he purchased his first share when he was 14, but still he feels that he was late, therefore don’t wait anymore, and get started with one or more SIPs, so that you will only start finding it very easy to realize all your dreams and plans in time.

SIP and SWP

My dear readers, I discussed on SIP in my earlier article. Today, I would like to give you the complete picture of different benefits, which can be availed from proper planning of SIP and SWP.As I discussed in my earlier article on SIP, systematic investment plan allows investors to save a fixed amount of rupees every month or quarter for the purchase of additional units in a fund.
SWP or systematic withdrawal plan allows an investor to get back his investment amount plus its returns in regular intervals over a period of time. In simple, I call it as a tool to avoid spending money, because SWP restricts an investor from withdrawing all his investments at a time and thereby, it helps an investor to avoid unnecessary expenditures.SWP works well in case of ELSS SIPs. If you are investing in ELSS schemes through SIPs, you can take back your first investment amount only after 36 months, 2nd after 37th month from the date of commencement and 36th month from the date of investment and so forth. Therefore, the investment you made over a period of 36 months can be taken back in lump sum only after 72 months. But if you register for SWP, your investment amount plus returns of respective installments will be credited to your bank account in regular intervals soon after completion of 36 months from the date of investment of each installment.I observed many of my clients that they have the misconception of making profits from the market movements through SWP. I can say that, it helps you to reduce the risk of redemption only. SWP will not maximize the returns in any situation.SWP works as a pension plan, where one can invest certain amount of money in regular intervals while earning and he can take back through SWP in regular intervals after retirement. Therefore it is one of the better option for retirement planning also.

INVESTING IN STOCK MARKET

2008-11-30T16:01:00.000+05:30

INVESTING IN STOCK MARKET

Everybody is asking whether it is the right time to invest in stock market. The argument in favor of investing right now is that Sensex is trading at an all time low and most of the stocks appear to be undervalued. So the enthusiastic buyers are in the favor of buying these stocks which have seen a fall of 40-90% in their values in the last one year. I do believe that a number of stocks are undervalued and will see a rise or bull run soon – probably after mid January 2009. I would recommend buying defensive stocks (Power and FMCG firms) at the moment while avoiding stocks with high volatility. The following article will help you understand, analyze and pick good stocks from those currently trading on the stock exchange.

Before we move further let’s think about this– why do we invest in stock? How to invest in stocks? Which stocks to buy? When to buy or sell? Most people do not do the required analysis before making their investment decision. They generally follow the herd principle i.e. follow the crowd and buy what others are buying. This is the single biggest mistake one can make while investing their hard earned money. Studies after studies have indicated that retail investors generally invest when market is already pretty high or over-valued. Hence, they risk loosing their investment before the market corrects itself. But don’t be mistaken that only normal and non-finance guys make such mistakes. Even highly trained, Ivy school business graduates end up doing the same thing!

The rule of a successful investment is both an art and science. One needs to do the required technical (financial analysis) of the stock before buying or selling it. When to buy or sell probably is an art that comes with age and experience. In this article I have tried to help you understand the things you need to keep in mind while doing your research and number crunching. Remember there is no short cut to the investment.

Step-1: Before you decide to invest in a company’s stock, find out how the company makes money.

This is probably the easiest of all the steps. Do your due-diligence honestly. Read company’s annual and quarterly reports, newspapers and business magazines to understand the various revenue streams of the firm. Stock price reflects the firm’s ability to generate consistent or above expectation profits/earnings from its ongoing/core operations. Any income from unrelated activities should not affect the stock price. For example- Unitech is second largest real estate firm in India. However, it has several other arms as well. It recently sold its wireless license to a foreign player. But it has not made a single penny from its telecom operation. Investors will pay for its earnings from its core real estate operations, which is its strength and stable operation, and not from the one-time sale of telecom license. Thus, you need to find out which operations of the firm are generating revenues and profits. If you do not know that you are bound to get a hit in future.

Warren Buffet once said that “if you do not understand how a company makes money, do not buy its stock- you will always end up loosing money”. He never invested even a single dime in technology stocks and yet made billions and billions of dollars both during tech bubble and bust.

Step-2: Find out which sector the company is in. Then, figure out what all factors affect the performance of the sector

First is to figure out which sector the stock is in. For example, Infosys is in IT services sector, NTPC is in Power sector and DLF is in Real Estate sector. Half of what a stock does is totally dependent on its sector. Hence, it is extremely important to understand the sector – good and bad factors for the sector. Simple rule-Good factors help stocks while bad factors hurt stocks. Let’s take an example of real estate sector. Factors that affect this sector are interest rates, economy and prices. If interest rates are high, buyers would not go for home loans and hence the demand for properties would be low. This would make the sector less attractive because there would be less scope of growth for the firms. Now let’s talk about the airlines industry. The factors that affect it are fuel prices, growth in air traffic and competition. If fuel prices are high, tickets would be expensive and hence fewer people will fly. This will hurt the airlines sectors and firms equally.

The idea is to find out the good and bad factors for the sectors and figure out how much they will affect the stock and how. What we are really looking at are reasons that will make stock price good or bad or a company look more or less valuable, even though nothing about the company changes. This will give you a broader view whether the stocks will do well or poorly in the future.

Step-3: Examine the recent as well as historical performance of the stock and the company.

By performance I mean both operational and financial performance of the company. Take out some time to find out how the company has done in its business over the years. Were there issues with its operations such as labor strike, frequent breakdowns, higher attrition or lagging deadlines? If any company has a history of serious problems, it does not make a good buy because chances are high it may have similar problems again. History is a good predictor of future! It is also extremely important to find out the historical financial performance of the company – growth in revenues, profits (earnings), profit margins, stock price movements etc. Use the following table to understand the stock movement.

Current Price
3-months back
6-months back
1-year back

You can get these data easily on www.moneycontrol.com or finance.yahoo.com. Just search for the companies names and fill the above table. However, just don’t make an investment decision based on this table itself. Always go through Step-4 and 5 before you decide to invest in them.

Step-4: Perform competitive analysis of the firm w.r.t. other major players in the same sector or business.

This is extremely important step in analyzing a stock. Unfortunately, most of the retail investors do not bother to do this. It takes time to do this step but it worth trying if you don’t want to loose your money. Many investors buy a stock because they have heard about the company or used the products or think companies have excellent technologies. However, if you do not evaluate or compare those features of the company with other similar firms, how will you figure out whether the firm is utilizing them effectively or is better/worse than others? We also need to find out whether company is growing rapidly or slowly or has no growth. I would like to cover couple of financial ratios here in brief and explain how to use them to figure out a good stock.

P/E:A stock with a high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to the overall market, as investors are paying more for today\'s earnings in anticipation of future earnings growth. Hence, as a generalization, stocks with this characteristic are considered to be growth stocks. However, P/E alone may not tell you the whole story as you see it varies from one company to another because of different growth rates. Hence, another ratio, PEG (P/E divided by Earnings Growth rate) gives a better comparative understanding of the stock.

I do not want to go into the calculation part as values for P/E are available on internet (www.moneycontrol.com) for most of the companies. What I want you to do is fill up the following table for every stock.

Stocks
P/E (1)
GROWTH RATE (2)
PEG (1/2)
X

Y

Z

AVERAGE
(X+Y+Z)/3

(X+Y+Z)/3

Calculate average value for P/E and PEG values. Compare the PEG values of stock X with its peers Y and Z. Also, compare X with the average value to find out whether it is over-valued or under-valued w.r.t. to the industry average. A PEG of less than 1 makes an excellent buy if the company is fundamentally strong. If it is above 2, it is a MUST SELL. If PEG for all the stocks are not very different, one with lowest P/E value would be a great BUY.

Step-5: Read and evaluate company’s income statement, balance sheet and cash flow statements.

This is the most difficult part of this process. It is generally used by sophisticated finance professionals, mostly fund managers who can understand different financial statements. However, there are few things that even you should keep in mind. There are three different financial statement- balance sheet, income statement and cash flow statement. You should focus only on balance sheet and cash flow statement.

Balance Sheet: It summarizes a company’s assets, liabilities (debt) and shareholders equity at a specific point in time. A typical Indian firm’s balance sheet has following line items:

Gross block is the sum total of all assets of the company valued at their cost of acquisition. This is inclusive of the depreciation that is to be charged on each asset.

Net block is the gross block less accumulated depreciation on assets. Net block is actually what the asset is worth to the company.

Capital work in progress, sometimes at the end of the financial year, there is some construction or installation going on in the company, which is not complete, such installation is recorded in the books as capital work in progress because it is asset for the business.

Investments: If the company has made some investments out of its free cash, it is recorded under it.

Inventory is the stock of goods that a company has at any point of time.

Receivables include the debtors of the company, i.e., it includes all those accounts which are to give money back to the company.

Other current assets include all the assets, which can be converted into cash within a very short period of time like cash in bank etc.

Equity Share capital is the owner\'s equity. It is the most permanent source of finance for the company.

Reserves include the free reserves of the company which are built out of the genuine profits of the company. Together they are known as net worth of the company.

Total debt includes the long term and the short debt of the company. Long term is for a longer duration, usually for a period more than 3 years like debentures. Short term debt is for a lesser duration, usually for less than a year like bank finance for working capital.

One need to ask - How much debt does the company have? How much debt does it have the current year? Find out debt to equity ratio. If this ratio is greater than 2, the company has a high risk of default on the interest payments. Also, find out whether the firm is generating enough cash to pay for its working capital or debt. If total liabilities are greater than total assets, sell the stock as the firm is heading for disaster. This debt to equity ratio is extremely important for a company to survive in bad economy. What is happening now-a-days should make this extremely important. Companies having higher debt ratio have got hammered in the stock market. Look at real estate companies- their stocks are down by almost 90%. This is because they have high debt level which means higher interest payments. In the current liquidity crisis and global slowdown, it would be extremely difficult for them to survive. Remember, a weak balance sheet makes a company vulnerable to bankruptcy!

Step-6: Buy or Sell

Follow all the steps from 1 to 5 religiously. It will take time but worth doing it. If you do it, you won’t have to see a situation where you loose more than 50% of stock value in a week! Buying or selling will depend on how you stock(s) perform on the above analysis.

Things to remember

· Do not buy or sell stocks just because your friends or relatives are buying or selling them – do your own research using above steps.

· Do not blindly believe what management says about their firm; most of them are always optimistic about their future- avoid being overly optimistic

· Do not buy a stock just because it is trading at its yearly low – the stock price might just drop even further

· Do not buy a stock just because it appears to be glamorous or media covers it regularly; look for fundamentals of the stock, the sector and the company

· Market sentiments affect stock prices to a great extent- even a good stock may not have enough buyers in an uncertain market. Trick is to buy them and hold on for a long period

· Last but not least, do not put all your eggs in the same basket i.e. have proper asset allocation- invest in both stocks and government instruments such as bonds, PPF and PF

Remember there is no short cut to investments in equity market. It is a place where you can make millions while loose all your money in a single day. You should think how hard it is to earn money at the end of the day. I hope you do not want to loose your savings in the market due to your laziness or lack of homework. So, I would request you to do some basic groundwork before investing in stocks. My model will just help you in doing so.
Good luck!

Foreign Exchange Rate

2008-11-30T15:59:00.000+05:30

The foreign exchange rates or Forex rate or FX rate between two currencies specifies how much one currency is worth in terms of the other. For example $1 is worth same as Rs. 50. If a currency appreciates with respect to the other currency it means the former can buy more of the latter i.e. if Dollar appreciates w.r.t. Rupees, it means $1 will buy more than Rs. 50 in the market. This also means that dollar has become stronger w.r.t Indian rupees. Currencies are traded in foreign exchange market, which is the largest and most liquid financial market in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions.
Types of exchange ratesThere are two types of exchange rate: Fixed exchange rate and Free-floating rate. A fixed exchange rate is a type of exchange rate regime wherein a currency\'s value is matched to the value of another single currency or to a basket of other currencies. For example China and Malaysia have pegged their currencies to US Dollar. A fixed exchange rate is usually used to stabilize the value of a currency, vis-a-vis the currency it is pegged to. This facilitates trade and investments between the two countries, and is especially useful for economies where external trade forms a large part of their GDP.
A free-floating exchange rate is determined by market forces of demand and supply and varies constantly in the market. India has a free-float FX rate where rupee varies almost everyday w.r.t. other leading currencies.
Volatility in exchange rateCurrency value is largely determined by macroeconomic situation such as inflation, interest rates and microeconomics factors such as demand and supply.
If the demand for a currency (X) w.r.t some the other currency (Y) is high, value of X appreciates w.r.t that of Y. Consider the case of US dollar and Indian rupees. A year back the conversion was 1$=Rs. 39 and now it is 1$=Rs. 49. This shows that dollar has appreciated w.r.t rupees or has become stronger. This happened because during the last few months there has been huge demand for dollars in Indian market. Foreign investors are heavily selling their investments (which were in rupees) in India and hence, creating huge demand for dollars (because they have to convert rupees to dollars so that they could take that back to the US). This has led to appreciation of US dollar while lower demand and excess supply of Indian rupees has led to its depreciation.
Interest rates in a country can also affect the currency value. Interest rate in India is very high compare to other developed economy such as US and Japan. So investors in these countries may want to invest their money in India to get higher returns. To invest in India they have to buy Rupees and invest in companies or equities or debt. This leads to high demand for rupees and hence, rupee appreciates w.r.t US dollar. However, currently there is less demand for Indian equities and more dollars are moving out of Indian economy. Hence, we see higher depreciation of rupees w.r.t. dollars. Interest rates vary from one country to another because of different economic growth and inflation.

WE THE PEOPLE

2008-11-30T15:56:00.001+05:30

WE THE PEOPLE

What is the value of \"We, the People\" It is the famous democratic saying. What is the value of it? Does anyone know or rather tried knowing?

Decades of Corporate marketing, Life style, Glamour, New products, Grand wedding, parties, Celebrity hypes etc. We in fact have just created a comfort zone which has indeed convinced too many of us to think of ourselves as passive consumers rather than participatory citizens. This thinking has brought with it numerous negative consequences. But if we work to restore our understanding that WE are \"the government\" we can start to see our state and country the way the founders intended. We can see that we are in control and can make decisions that increase the benefits we receive as citizens.

Many of us are known to blame others than blaming ourselves, Government is the problem, President is the problem, PM & CM’s are a problem, Boss is a problem, Company is a problem etc. When you look at that saying in this new way, \"We, The People are the problem.\" Doesn\'t that sound like expressing a profoundly anti-democratic sentiment? Is that really what we want our leaders to be promoting? Or do we want to change it.

What do we change? This question should arise in each one of us being individuals of our own rights. Living a life full of joy, fun, happiness, sadness, opportunities, expectations, regrets, etc., is a lesson taught by our own experience. When we broaden our mindset to think beyond things around us it becomes a dumb thing to break our head on it, that’s the basic human mentality.

For eg: Though people are the founders of Government, they hardly think of its management and that made them to fear about the word “Government”. They complain about \"big government\", they complain about \"government schools.\" But what happens when we substitute a phrase \"We, the People\" into their slogans? The whole meaning seems to change.

How could we judge our capability of making things better? First thing do we really want things to be better or just stay in the comfort zone created by each one of us? Government is created by us. We have certain rights, duties and responsibilities in building a good government. It is we who have given the name as Government. Life does not start by getting good education and end by making lump sum money in your lifetime its much more than what you and me think. This will say that we are obsessed with things which makes us comfortable than those which need us. Each one of us can ask a question what we want ultimately- is it our comfort and safety or is it the whole countries comfort and safety. We can make a difference by balancing our self with what ‘WE’ can be as a citizen for our country and a savior for our family. Let’s make it a point that we provide the best of us during our lifetime.

Its ‘WE, THE PEOPLE’ who give life for the word ‘The Government’.

Say what you mean and mean what you Say!

Remember actions speak louder than words! A distinguishing and differentiating feature of our quality of duties and responsibilities is that we should not just provided LIP SERVICE; we should plan and DELIVER the same
I would like to end the first part by quoting Stephen Covey’s lines “There are three constants in Life: Change, Choice and Principles”.

Change is inevitable, the only constant. You have to live by choosing to adhere to some principles. An honest person chooses to be honest in every situation not just being opportunist!

“What I have done will endure not what I have said or written” Mahatma Gandhi

Let us make a difference…

EX SERVICEMEN CONTRIBUTORY HEALTH SCHEME

2008-11-25T00:45:00.001+05:30

EX SERVICEMEN CONTRIBUTORY HEALTH SCHEME

BY
BRIG SC KUTHIALA (RETD)

In the early Fifties when the Central Govt Health Scheme (CGHS) was first conceived the armed forces were asked to join. Gen Carriappa the C in C declined stating that the Armed Forces were quite capable of looking after their retirees/dependants. This was a very noble thought then and should continue to be the guiding principle even today. However, we are now dealing with an unresponsive civil administration that would be perfectly willing to absolve themselves of any responsibility towards Ex Servicemen (ESM) who do not contribute to a vote bank.

Whereas the Armed Forces continued to care for their veterans for a considerable period the task became increasingly difficult because of the large gap between the AUTHORISED and ENTITLED persons availing medical facilities from Military Hospitals. Whereas the authorized manpower continued to remain static, person's entitled treatment ie wives, children, dependant parents, ex servicemen, their wives/ dependants etc continued to increase. A study was done in 1996 (which I was privileged to head) wherein the 'authorized to entitled' ratio was found to be in the region of 1:16. That meant that for every one serving soldier on the authorized strength there were 16 entitled persons getting medical treatment for whom the Govt did not provide a budget. A hospital staffed and equipped for 100 serving personnel was actually providing medical services to1600 persons. The system was bound to collapse. This gap should have more than doubled since 1996.The study in 1996 also brought out very clearly that despite reservations by Ex Servicemen regarding the care provided to them in Military Hospitals NOT ONE respondent in the sample (which was very large) wanted to hand over this responsibility to the Central Govt. NOT ONE respondent wanted to join the CGHS. I am sure that a study today would only reconfirm our trust in the ECHS vis a vis the CGHS. This study was the first step towards creation of the ECHS.

This article is not intended to be a critique but a sincere effort to correct matters before they get out of hand. We are all interested in setting an example in health care for veterans since each one of us is either already there or will reach there shortly.

3. Having said that, I am constrained to point out that because of shortsighted knee jerk reactions at numerous levels the basic ethos is being violated. The ECHS is for the benefit of Ex Servicemen; not for the staff at various HQ's handling this subject, from polyclinics right up to the AG; not for the medical staff in polyclinics and not for the Military Hospitals or empanelled hospitals. Every time a Commander or staff officer somewhere passes an order he needs to ask himself a few questions. Firstly, does it benefit Ex Servicemen, Secondly, can it be implemented by a widow in a remote village, Thirdly am I passing this order just to reduce my paperwork even if it increases the ground level problems faced by the lowest common denominator i.e. the jawan or his widow in a village, Fourthly will it be discriminatory in nature and Fifthly WILL IT STAND LEGAL SCRUTINY. The last question assumes importance because we in the Armed Forces are not trained to ask this question. The ECHS is NOT a Battalion Level institution where the Commanding Officer's order is sacrosanct. Outside the Armed Forces discipline is not a "NOT TO REASON WHY" issue. You are not planning a military operation. ECHS is a Service and in the service industry discipline implies SERVICE TO THE CLIENT. A very difficult attitudinal change for any one in the Armed forces but something that will have to be learnt by the staff in the ECHS, otherwise, I suspect a whole range of RTI applications and litigation in the very near future.

What I mean will be best understood by a perusal of para 7 on page (ii) of the brochure issued in Jan 2004. It says "IT SHALL REMAIN THE RESPONSIBILITY OF THE ECHS PATIENT TO ACQUAINT HIMSELF OR HERSELF OF THE LATEST ORDERS /INSTRUCTIONS-LACK OF KNOWLEDGE CANNOT BE CITED AS A REASON FOR WRONG ACTIONS OR MISUSE OF THE SCHEME"
5. The highlighted portion is familiar to all armed forces personnel. But passage of information within the Services and outside is a totally different matter. Would you be able to justify that Sep X in a village should know all orders pasted on the polyclinic notice board. Would you even be able to hold me guilty of not knowing the orders pasted on the polyclinic board in Noida. The above caveat is acceptable in the Army, nowhere else.

6. We are all aware that the ECHS was created to reduce the load on Military hospitals. Page 1 para 3 of the Brochure says "This in turn will reduce the load on Military Hospitals, since the exclusive Polyclinic facility will be located in nominated districts…………………." Page 2 para 5 lays down the Aim. "To provide comprehensive, quality and timely medical care………………………………………" through "out-patient" facilities at 227 all India Polyclinics, and "in patient" treatment through service hospitals and empanelled civil hospitals/facilities. 7. I have gone to some extent in elaborating that the whole purpose of the ECHS was to reduce the load on Service hospitals. The very inception of this scheme was to "enable the organization to commence sending ECHS members to empanelled diagnostic facilities, specialists and private hospitals" CHAPTER 3 PAGE 7 PARA 1 OF THE BROCHURE. And yet nearly all-good hospitals in the NCR are opting out of the Scheme. Apollo and Ganga Ram which were earlier on the panel opted out because they had no time to chase ECHS staff for clearance of their bills (running in to crores for very long periods) and Escorts has been removed for reasons and in a method that at best can be termed suspicious. 8. Now for the specifics. Since I am no longer in Service my views are obviously determined by my personal experiences in NOIDA.

9. ECHS members in NOIDA cannot be referred to hospitals in Delhi. On what basis has this demarcation been done? Is it for administrative control by the Station HQ or the convenience of patients? If it is okay for a Noida patient to travel to the RR then why the demarcation for empanelled hospitals? Is the intention to reduce the load on the better hospitals in Delhi or are ECHS members in Delhi a superior breed? Does this not amount to discrimination? Are you not violating your own rules? Page 45 answer to question 44 in the Brochure. "In case bed space is not available in the Service Hospital (in this case RR) the patient ONLY will decide the civil empanelled hospital of his choice, any where in India- cost of transportation of going there to be borne by him." Why is a Noida ESM not referred to a hospital of his choice in Delhi? Annexure 1A to MOD/GOI letter No. 22D (14)/07/US (WE)/D (Res) of
18th September 2007 very clearly gives a common list of EMPANELLED HOSPITALS AND NURSING HOME FOR ECHS in DELHI/GURGAON/NOIDA. Further the Regional Centre for these three regions of the NCR is also common. The inter formation boundary is obviously for staff convenience.

A recent letter issued by Stn HQs Delhi Cantt (245/Accts/Gen/ECHS of 25 Jun 2008) which is on the Noida polyclinic notice board states that the Station Commander is not happy with the fact that a very large proportion of patients are being referred to Batra Hospital as against a few others also in Delhi. He desires that this imbalance be evened out by referring patients equally to all hospitals. Does the Station Commander realize what he is saying? Is it his job to influence such decisions? Page 14 para15 k of the Brochure states "The ECHS member alone will have the right to make the selection of desired civil empanelled hospital and will NOT be influenced by any doctor"
Another instance of mindless arbitrary decision-making is the recent case of disempanellment of Escorts. It is obvious that there is or are some disputed bills between Escorts and ECHS. The Authority concerned in this case presumably the Station Commander has decided to "sort out" Escorts (in standard military fashion) and has therefore arbitrarily shut off referral to Escorts by issuing a departmental order, in violation of Govt norms. To ensure that the action is adequately covered Station HQ has conveniently not renewed the MOA, which had become due for renewal. By this method they have skirted the issue of disempanellment, which would have created legal complications. Who suffers because of such shortsighted actions? Obviously not the ECHS. Escorts is a big successful corporate house and can handle such issues. The sufferer is quite clearly the ESM. Did whoever ordered non-referral ask himself the questions recommended in para 3 above?
The relevant para of Govt of India Ministry of Defence New Delhi letter No. 24(9)/03/US (WE)/D (Res) dated 16 Jun 2004 reads as follows: -
"In case of unsatisfactory performance, unethical practices or medical negligence by any empanelled Hospital, Nursing home and Diagnostic Centre, a show cause notice will be issued to concerned empanelled facility by the Station Commander. Agreement/contract of empanelment will be terminated if charges are established, on approval from Ministry of Defence i.e. the appointing authority.

Empanelled hospitals provide emergency treatment to ESM on production of the ECHS card. Thereafter "Empanelled hospital will inform the nearest ECHS Polyclinic. On learning about admission OIC Polyclinic will make arrangements for verification of the facts. The onus of informing the OIC Polyclinic within 48 hrs lies with the Empanelled Hospital and not with the ECHS member/patient. However, the ECHS member may also convey the information on his own to ensure action. Thereafter, the OIC Polyclinic will initiate an emergency referral after verifying the emergency. He will also ensure that the Emergency referral reaches the Empanelled Hospital in time and that the Empanelled Hospital does not charge the patient, inadvertently or otherwise." Central Organisation (ECHS) letter No B/49774/AG/ECHS/Referral dated 01 Sep 04

A number of us have gone to empanelled hospitals in an emergency and recollect vividly the running around we have had to do on our own to get the referral from the Noida polyclinic. To resolve this issue all you have to see is the procedure followed by Third Party Administrators (TPA) of good insurance companies. The details are faxed by the empanelled hospital to the TPA who does a quick verification and faxes back an interim approval followed by a detailed approval later. Incidentally all good hospitals have a front desk dealing with corporate clients and TPAs. The Noida polyclinic does not even have a FAX machine. This also requires a change in mindset.
But what happens when an empanelled hospital is taken off the list without the Hospital or patients being informed and the Station Commander and OIC Polyclinic resort to Unit level modus operandii to place a shop out of bounds by a simple diktat.

We need to be aware that it is just these sort of actions that give rise to suspicions of mala-fide intentions on the part of ECHS staff involved with passage of Hospital and individual bills. One way of responding to this would be to state that it is just "loose talk" It may however be better to collect data on pending bills of hospitals in Noida and Delhi with amounts and periods thereof and carrying out a comparative study to determine which Hospitals are promptly paid and those whose bills are pending inordinately.

We have all been referred to RR on numerous occasions. We all know the number of visits a single referral means. First visit – Get Appointment, Second visit -Consultation, Third visit-Appointment for ordered investigation, Fourth visit- Collect investigation Reports etc etc. Now see the rules. "In Military Stations, ECHS members and their authorised dependents requiring hospital admission will, if the ECHS member desires, be referred to the Service hospital in the station. The Officer in Charge (OIC) Polyclinic will telephonically ascertain the availability of beds/facilities in the Service Hospital so as not to inconvenience the patients. When beds/facilities are NOT available in the Service hospital, this fact will be endorsed on the referral form, and the patient will be outsourced to an empanelled hospital of patients' choice for admission. The patient shall have full freedom to decide on which empanelled hospital he/she desires to go – ECHS staff will only act in an advisory capacity". Central Organisation (ECHS) letter No B/49774/AG/ECHS/Referral dated 01 Sep 04.

Polyclinics provide only "outpatient" treatment. But they also have very comfortable working hours. Authority: Central Org, ECHS letter No B/49760/AG/ECHS(R) dated 04 Jun 2007.
Broad guidelines for timings of ECHS Polyclinics have been laid in the referred letter. It states "It is reiterated that OPD registration in all polyclinics be stopped at 1430h daily. This would enable referrals to be generated up to 1500h. Thereafter the polyclinic would have one hour (i.e. from 1500h to 1600h) dedicated for its interior economy, which includes data entry, and processing of reimbursement bills submitted by hospitals and individuals. However all emergency cases will be handled till 1600h or till the polyclinic closes, whichever is later". Under the circumstances after 1600 hrs "outpatient treatment" is NOT POSSIBLE under the rules since Polyclinics are closed and empanelled hospitals are not permitted to provide 'out patient' treatment. ESM can only proceed without reference to an empanelled hospital under MEDICALLY DEFINED emergencies. Just one example from the list of emergencies is - (c) Cerebro-Vascular Accidents including Strokes, Neurological Emergencies including coma, cerebro meningeal infections, convulsions, acute paralysis, acute visual loss. If I were to twist my ankle after 4 PM I cannot go to even an empanelled hospital because I must have a "Life threatening Injuries including Road traffic accidents, Head Injuries, Multiple Injuries, Crush Injuries and thermal injuries." or "Any other condition in which delay could result in loss of life or limb." Since at the NDA I was given first aid training " In all cases of emergency the onus of proof (of the emergency) lies with the ECHS member." If however I did go to an empanelled hospital the Dr would not give me "out patient" treatment since that cannot be claimed. If he were wise he would admit me, order an X-ray followed by a CAT scan, followed by xxxxxxxxxx, and present a bill for "inpatient" treatment under emergency. This I am sure is happening all the time. Inflation of hospital bills, which is a recognised malaise of the system, is actually the fallout of hare brained rules.

As I said at the outset the purpose here is to suggest improvements and not just make irresponsible criticism. To my mind there is a very basic structural flaw in the concept.

ECHS has been designed to use the existing structure of the armed forces by augmentation of the Central organisation, Regional centres and 227 Polyclinics including 106 Military Polyclinics (Augmented Armed Forces Clinics). Entire manpower authorised to ECHS is contractual. Additional resources have NOT been authorised for ECHS purposes at MH (all types), Station HQs, Area HQs and Command HQs. Similarly additional resources for ECHS purposes have not been authorised for medical procurements including medicine at all levels of the logistics chain. The Scheme is running through essential supplements courtesy Army Welfare Funds and attachments/ postings of serving soldiers.
Army, Navy and Air Force are providing manpower and funds for these administrative organisations from within their existing resources.

Without going into too many details what this implies in a nutshell is as follows: -

MD ECHS is responsible for the functioning of the Polyclinics through the Regional centres; however the Regional Centres function under the Command/Area/Sub Area with which they are co located. Administrative control of funds, accounting/audit/passage of bills etc is through Station HQs, Area HQs etc WITHOUT ADDITIONAL MANPOWER AND IN ADDITION TO THEIR BASIC TASK. Medical cover is in the first instance through existing Services Hospitals without augmentation. Similarly additional resources for ECHS purposes have not been authorised for medical procurements including medicine at all levels of logistics chain.

Our Babus have again taken the gullible Services hierarchy for a ride. Our serving soldiers who are ever so keen to do good for their respected Veterans have accepted in true military style to continue to look after us from within their own resources including their welfare funds. A recent report on 'Peripatetic Check and Review of the ECHS-May-Aug 2008 has this amazing Finding: -
"Xxxxxxxxx the clientele is very satisfied with the Scheme and considers it to be a boon from the Govt, which was long awaited. IT IS CONSIDERED THAT THE SCHEME WOULD NOT HAVE BEEN SO SUCCESSFUL UNTIL THE THREE SERVICES HAD NOT SUPPORTED WITH THE FOLLOWING": - (SIC)

(a) Additional Medical Officers and Specialists from welfare funds.
(b) Huge clinical manpower which includes both the serving doctors and hired manpower from Regimental funds.
(c) Patient comfort by providing amenities from its regimental funds and creation of additional space at the Polyclinics.

Does all this sound even remotely like a sincere effort to reduce the load on the Services medical facilities???? Just one small example of how expecting the Armed Forces to provide ECHS cover from within existing resources man power and funds affects the system will be enough. Currently, after a reimbursement bill has been passed the cheque has to be collected by the ESM personally from Station HQs Delhi Cantt. Reason. The Station HQs are not authorised funds and therefore service labels to stick on the envelopes forwarding the cheques to the individuals, which have to be sent through the mail.

Whereas we have generally got used to being taken for a ride by our worthy politicians and babus the question that needs an answer is - how was the existing structure of the ECHS conceived? It does not take a genius to comprehend that such multiple channels of command will be a non-starter. Is it any surprise that no matter how hard the MD ECHS tries he will not be able to push Station HQs Area HQS etc who neither report to him nor have dedicated staff for ECHS purposes. The MD ECHS and the Regional Centres lack authority for exercise of functional controls over the Polyclinics and also the Station HQS controlling the polyclinics. No wonder good hospitals refuse to waste their time chasing their claims and we are left with poor quality health care.

The Army has adequate experience in such Schemes in the shape of AGIF, AWES and AWHO. Though these schemes are pure Army schemes without Government resources did we need to make a hash of the Command and Control structure of the ECHS. Unified Command is a well-known and recognised tenet of management within the Armed forces. MD AGIF manages all AGIF functions, MD AWHO manages all AWHO functions, then why the mess in the ECHS. Is it any surprise that things are not settling down even five years after inception of the Scheme?
As I said at the beginning the purpose of the ECHS was to reduce the Ex Servicemen load on Services hospitals and resources. Somewhere along the line this main thought has been lost sight of and the ECHS has fallen prey to the standard "building of its own empire" syndrome. We therefore have a recommendation from the Review Committee, which states: -

(a) Reduce referrals to civil empanelled facilities by augmenting Polyclinic/Service Hospital facilities by providing specialist cover within the authorised medical establishment
(b) Improve the system of drugs procurement and management by improving the policy for drug procurements by DGAFMS and Polyclinics and by authorising contractual manpower for better drug management.

The ECHS in the absence of clarity of a strategic vision, which envisaged outsourcing of ESM patients to existing civil facilities, has embarked on a course of creating more polyclinics, more dependence on Armed Forces infrastructure and funds without insisting that the Govt ensure the desired standards. The report on Peripatetic Check and Review of The ECHS says it all in just one sentence "IT IS CONSIDERED THAT THE SCHEME WOULD NOT HAVE BEEN SO SUCCESSFUL UNTIL THE THREE SERVICES HAD NOT SUPPORTED WITH THE FOLLOWING."

This is the philosophy that has prompted the ECHS to propose a shift of the Noida Polyclinic from its present location to Sector 52 in land owned by the Coast Guard (Defence Land) so as to raise a more spacious Polyclinic. The comfort and convenience of ESM "Comes Last Always and Every Time". I am strongly of the opinion that in Noida where there is such a large concentration of ESM the Arun Vihar RWA must get actively involved in all ECHS matters not as an authority but in a supportive role.

Improvement in the functioning of the ECHS is a continuing subject. This article is intended to make ESM aware so that they can demand what is justifiably theirs by right; and to make the ECHS more responsive to ESM requirements. To summarise what is required is as follows: -
· Refer patients to empanelled hospitals of the patient's choice anywhere in the NCR.
· Permit empanelled hospitals to undertake "out patient" treatment in emergencies to be determined by the Dr at the empanelled hospital.
· Appointments in RR to be arranged by the OIC Polyclinic. A methodology can quite easily be worked out.
· After investigation reports to be collected by OIC Polyclinic from the RR.
· All paperwork required after emergency "in patient" and "outpatient treatment" at empanelled hospitals to be handled between OIC Polyclinic and the empanelled hospital.
· OIC Polyclinic should keep a track of all individual reimbursement claims generated after emergency treatment at non-empanelled facilities, which should be cleared at various levels in a set time frame. Presently the ESM has to do the chasing of the claim after it leaves the Polyclinic.
· Reimbursement claims of individuals be sent to the Noida polyclinic from where they can be collected.
· The Polyclinic must continue in ArunVihar with the RWA getting more actively involved in its day-to-day problems without becoming a hindrance.
· The Polyclinic should be the one point contact for ESM. There should be no need for him to contact anybody else in the ECHS chain.
· Make arrangements despite staffing problems to ensure early clearance of pending bills of empanelled hospitals. This is the reason why all the good hospitals have delinked from the Scheme. An all out effort needs to be made to get the best hospitals on the ECHS panel.
· Reference to empanelled hospitals should be the norm. More and more dependence on Army Hospitals is violative of the very basis on which the ECHS was created.

· FINALLY AND MOST IMPORTANTLY THE ORGANISATIONAL STRUCTURE REQURES A VERY SERIOUS RELOOK. UNITY OF COMMAND IS A MUST. THE PRESENT FRAGMENTED AND FRACTURED STRUCTURE WILL COLLAPSE. IT IS ALREADY BEING CORRUPTED SINCE ARMY PERSONNEL AT STATION –SUBAREA –AREA AND COMMAND HQS ARE NOW DEALING WITH CIVIL HOSPITALS AND NUMEROUS CIVIL AGENCIES FOR EMPANELLMENT/ PASSAGE OF BILLS/PROCUREMENT OF MEDICAL EQUIPMENT AND STORES ON A DAY-TO-DAY BASIS. IN ANY CASE THEY ARE DOING ECHS WORK IN ADDITION TO THEIR OWN CHARTER WITHOUT ADDITIONAL MANPOWER AND WITHOUT ANY INCENTIVE. THE MD ECHS IS NOT IN THEIR CHAIN OF COMMAND AND HAS NO CONTROL ON THEIR FUNCTIONING.

Meaning of Rates used by Banks & RBI

2008-11-13T14:04:00.004+05:30

1. Repo (Repurchase) Rate

Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demands they are facing for money (loans) and how much they have on hand to lend. If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. Hence, if repo rate is increased, banks would hesitate to borrow money from RBI. Hence, there would be less cash and less liquidity in the market.

2. Reverse Repo Rate

This is the exact opposite of repo rate. The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system.
If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk). Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess money into the economy. Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks, while repo signifies the rate at which liquidity is injected.

3. Bank Rate

This is the rate at which RBI lends money to other banks or financial institutions. The bank rate signals the central bank’s long-term outlook on interest rates. If the bank rate moves up, long-term interest rates also tend to move up, and vice-versa.
Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate of interest. If the RBI hikes the bank rate (this is currently 6 per cent), the interest that a bank pays for borrowing money (banks borrow money either from each other or from the RBI) increases. It, in turn, hikes its own lending rates to ensure it continues to make a profit.

4. Call Rate

Call rate is the interest rate paid by the banks for lending and borrowing for daily fund requirement. Since banks need funds on a daily basis, they lend to and borrow from other banks according to their daily or short-term requirements on a regular basis. A lower call rate means banks frequently borrow money from other banks. A lower call also shows health and confidence of the economy and banking system.

5. CRR

Also called the cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation by tying their hands in lending money.

6. SLR

Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements. What SLR does is again restrict the bank’s leverage in pumping more money into the economy.

Aman

Concept of Bankruptcy

2008-10-13T23:57:00.002+05:30

REAL ESTATE
Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.
1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.
2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar. * The net asset of the country now = 3 dollars.
3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars. *A has a loan to C of 1 dollar, so his net asset is 1 dollar. * B sold his land and got 2 dollars, so his net asset is 2 dollars. * C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar. * Thus, the net asset of the country = 4 dollars.
4) A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar. * B loaned 2 dollars to A. So his net asset is 2 dollars. * C now has the 2 coins. His net asset is also 2 dollars. * The net asset of the country = 5 dollars. A bubble is building up.
5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A. * As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars. * B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars. * C loaned 2 dollars to B, so his net asset is 2 dollars. * The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.
6) Everybody has made money and everybody felt happy and prosperous.
7) One day an evil wind blew, and an evil thought came to C's mind. 'Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more.'
8) A also thought the same way.
9) Nobody wanted to buy land anymore. * So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars. * B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar. * C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating. * The net asset of the country = 3 dollars again.
10) So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B's net asset is still 2 dollars, his heart is palpitating.
11) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now. * A owns the 2 coins, his net asset is 2 dollars. * B is bankrupt, his net asset is 0 dollar. ( he lost everything ) * C got no choice but end up with a land worth only 1 dollar * The net asset of the country = 3 dollars.
************ **End of the story; BUT ************ ********* ******
There is however a redistribution of wealth. A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting -
(1) when a bubble is building up, the debt of individuals to one another in a country is also building up.
(2) This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.
(3) An over-damped system is assumed when the bubble burst, meaning the land's value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology.
*************##########*****************

EMPLOYEE RETENTION

2008-08-25T21:14:00.002+05:30

EMPLOYEE RETENTION

To design an effective retention plan, you need to first identify the reasons impacting retention in your organization. The most common reasons for attrition in organizations are: Compensation - Lack of external & internal equityBad bossesLack of growth opportunityLack of recognitionPoor fitmentLack of work-life balance These are reasons which can be addressed by the organization in the near team. Other reasons for attrition which may not be within the organization´s immediate control are overseas opportunity, location constraints, brand value of the organization, etc. Having identified the main reasons why your employees are leaving the organization, you now have a better perspective of what your retention plan should address. Let´s take compensation. Your organization´s compensation structure should not be too far divorced from the competitive labour market reference point. Appropriate source for competitive market rates are compensation survey reports. There are consultants who provide such reports. You could also commission a targeted survey. Another source is Jobsites. Many organizations while posting their jobs also communicate the salary details. Exit interviews are also a suitable source. Your job gets more difficult, if your organization´s compensation budget does not support external equity. In such a case, you may have to ensure that at least your key employees are adequately compensated. Besides external equity, lack of internal equity also causes immense dissatisfaction. For similar role, experience, and effort, employees expect certain parity. Identifying similar role and experience is the easy part, but most organizations fail miserably in communicating expectations and measuring individual effort. If your organization also falls in this category, it is advisable to avoid vast differences based on pay for performance programs. Do remember, Status & Fairness matter a lot to employees. Having said that, do not solve all your people problems with financial incentives. Pay may be the reason why employees leave the organization. But it´s not the reason why they stay. Bad bosses. Gallup in their survey report on attrition has identified bad bosses as the number one reason for the employee to leave the organization. There is an acute shortage of competent leaders. One of the unfortunate consequences of the rapid growth of Indian industry in the last couple of years is the fact that organizations have assigned employees with inadequate experience and competency to leadership roles. These leaders are poor role models for their direct reports and cause more harm than good. Training and coaching are suitable intervention to arrest this situation. Unfortunately, leadership skills cannot be learnt in classrooms. It has to be practiced. It´s important to have systems in place to identify future leaders in the organization and assign appropriate leadership responsibility. Besides classroom training, which provide useful tips, they should also be assigned mentors who can coach and provide timely feedback. Lack of growth opportunity is a major factor for employees to look for other employment options. Promotion is only one option to address this issue. You can´t promote everyone, but you can provide challenging tasks, greater responsibility and more learning opportunities. A suitable mix of OTJ and class room training should be provided. Employees view growth not only in terms of promotion but also in terms of increased knowledge and skill levels. Providing formal and informal feedback in a timely manner provides the employees necessary inputs to grow and succeed in their current roles. It´s a strong indicator to the employees that the organization cares about their growth. Lack of recognition. Recognition can be provided in many ways: Appreciating individual/team achievements. A word of appreciation from the immediate boss or peer has the most impact. Appreciation/recognition should be for a specific behaviour or achievement. Appreciation can be verbal or written. It can also take the form of a certificate or reward in cash/kind. Celebrating successes. Team get-together on successful project/milestone completion.Rewarding longevity. Prize and certificate to employees who complete 3/5/10... years in the organization.Birthday celebrations. Choices are: Card/Bouquet/Movie ticket/Cake cutting with team members in the cafeteria.Annual day celebrations. A word of caution. The organization´s Reward & Recognition (R&R) plan can be a double edged sword. It provides an immediate high to employees who are recognized and demoralizes those who don´t know why they were not considered. So, it´s important that the R&R plan is based on explicit criteria, well communicated and understood by the employees. Avoid programs such as "Employee of the month", based on round robin format. Poor fitment. Employees are more prone to leave the organization in their first year of employment. The main reason is their inability to adapt to the culture of the organization and expectation mismatch. During recruitment process, the recruitment team should evaluate the candidate for cultural fit. Some organizations have loose structures and require employees to have a high level of initiative to operate in an ambiguous environment. Employees who prefer a more structured environment and clear expectations may find it difficult to adjust. The recruitment team should also clearly communicate what the candidate can expect from the organization. It´s not uncommon for a candidate to be promised something which is not met when the candidate joins the organization. The candidate may have joined the organization based on the expectation that he may work on a specific project or technology, and when that expectation is not met, he may get disillusioned andleave the organization. The recruitment team should be sufficiently trained to identify appropriate candidates. Lack of work-life balance. In the race to stay ahead of the competition and satisfy unreasonable customer expectations, organizations are prone to bite more than they can chew. Management may bid for projects at extremely tight timelines. Employees are then expected to stretch themselves to meet these unrealistic timelines. Working late nights and on weekends becomes the norm rather than exception. This may lead to frustration, bickering, and in extreme cases - employee burn out. Providing training and introducing processes for better project estimation and assigning additional resources in projects may be some of the steps to address this issue. Providing stock option, concierge service, canteen facility, transportation for pickup and drop, group medical insurance (for employees and family members, including dependent parents), accident & disability insurance cover, flexi timing, free annual medical check up, subsidized loan, and option for young mothers to work from home are some of the benefits to ensure an engaged workforce. You could build on these ideas to create your retention strategy. It is important to understand that your plans only have a chance of success, if your CEO is convinced of your suggestions. This means that the CEO sets the example by practicing the process. If a culture of fairness is what the organization is professing, then the CEO should not only be fair in all his decisions, but also be perceived to be fair by all the employees. If you are suggesting a process for systematic recognition, then the CEO has to set the ball rolling by being the first practitioner of this process and the practice will automatically cascade down. HR function can only be a facilitator and trustee of the process. Retention is everyone´s responsibility.

6 CPC Calculators

2008-08-18T18:57:00.001+05:30

Some Calculators for you........

http://www.staffcorner.com/

http://www.gconnect.in/index.php?option=com_content&view=article&id=437:new-pay-and-arrears-calculators-based-on-approved-pay-commission-report&catid=63:6pc-matters&Itemid=125

SIXTH PAY COMMISSION REPORT FOR DEFENCE PERSONNEL

2008-08-15T23:58:00.000+05:30

IMPLEMENTATION OF THE SIXTH PAY COMMISSION REPORT FOR DEFENCE PERSONNEL.
The revised report as recommended by the Anomalies committee and as approved by the Union Cabinet is out.
What it means for the military is this:1. As reported months earlier on this blog, Colonels and Brigadiers are now to be shifted to Pay Band-4. But status wise this does not mean much for the forces since the equivalent (and lower) civil posts have also been shifted to Pay Band-4. To take an example, the post of Superintending Engineer (SE) in the Central Engineering Services, which is equivalent to a Lt Col, has also been granted Pay Band-4 as has been granted to a Full Colonel. Interestingly, the modified report with much fanfare announces that Colonels and Brigs have been shifted to PB-4 of Rs 39200-67000. But if we go on and read the fine print, we find that civilians of equivalent and lower grades have also been placed in the same grade. As described above, an SE of the Central Engineering Services or a Director Govt of India who were in the 5th CPC pay grade of Rs 14,300-18,300 have been put in PB-4 (Rs 39,200-67,000) while a Lt Col who was receiving more pay and was in a higher 5th CPC pay grade of Rs 15,100-18,700 has been placed behind them to languish in PB-3 (Rs 15,600-39,100). Same is the case with Addl Commissioners of Income Tax, Addl Commissioners of Central Excise and Scientists 'E', all of whom were drawing a lesser pay than a Lt Col - and all of whom have now been placed in PB-4 thereby not only bypassing our Lt Colonels in pay but also in status. Hence, service personnel need not be very happy by the illusory upliftment of the grades of Colonels and Brigadiers as far as status is concerned since the same has been applied to civilians too – nothing special has been done for the Army in this case. Of course, monetarily speaking, the figures are not bad since MSP of Rs 6000 and the respective grade pays would be added up into the pay of officers, it is only the status equation which has been disturbed. There are also indications that PB-4 is going to be rehashed and the starting figure (Rs 39,200) may be decreased by about Rs 2000.2. MSP for PBOR doubled to Rs 2000/-.3. Lt Generals overlooked for appointment as Army Commanders (GOsC-in-C) due to lack of residual service would now be granted the Army Commander’s Grade of Rs 80,000/- (fixed) that is also granted to Secretary to Govt of India. MSP of Rs 6000 to be taken into account notionally w.e.f 1-1-2006 while fixing the new pay of Maj Generals and Lt Generals. What is not highlighted is the fact that Directors General of Central Police Organizations who feature on Article 25 of Warrant of Precedence (WoP) have also been granted a scale of Rs 80000 which is more than the one granted to our Lt Generals who feature on Article 24 which is higher than Ds G CPOs. Directors General of State Police and Principal Chief Conservators of Forests also granted a higher scale of Rs 80000. Needless to say, both of these posts, i.e., DGP and PCCF do not feature at all in the WoP.4. Lower limit of Disability Pension raised to Rs 3100. War-Injury pension to be 60% of emoluments.5. SF Allowance for Army/IAF to be equivalent to Marine Commando Allowance of Navy.6. Assured Career Progression Scales in 8, 16 and 24 years for PBOR as opposed to 10,20 and 30 years on the civil side.7. No change in retirement age.
8. Revised scales effective from 1-1-2006 while allowances effective from 1-9-2008.
9. Arrears to be paid in two installments, the first (40% of arrears) this year and the second (60%) in the next financial year.
10. Annual increment to be 3%
11. Increase in Transport Allowance for all.No information is yet available on Grade Pays. Grade Pay recommendations would be very vital since it is now the only determinant of status vis-à-vis civil services.

12 MUST DOS TO REDUCE TAX FILING STRESS

2008-08-15T00:11:00.000+05:30

12 MUST DOS TO REDUCE TAX FILING STRESS

We all need to be congratulated for surviving another tax season. As in the previous years, many of us must have rushed in on the last day and somehow managed to submit the income tax return forms. And like before you would have told yourself "I won't go through all this again next year". But then the year will roll on, you will get busy, and tax matters will get pushed back as out of sight is out of mind. By 31 July 2009, when you would be filing tax returns for the assessment year 2009-10, advance preparation in this financial year 2008-09 itself can help you avoid the last-minute anxiety. Here are 12 must dos to reduce tax filing stress next year. Look out for refund Income tax authorities are supposed to send you the refund either electronically directly to your bank account, or by cheque to your address within 30 days of filing the return. Ideally, give 45-90 days for this to happen. Get in touch with the authorities in writing if the delay is longer. Estimate the tax bill For the current year, first estimate your tax liability. You may contact your account department to get a fix on the figure. Budget 2008 increased the income slabs, giving a relief of Rs 4,000 to every taxpayer. For an individual not a woman or a senior citizen, whose taxable income was Rs 800,000 in the previous year, the tax liability was Rs 1,94,670. Now, it is Rs 1,49,350. A net yearly savings of Rs 45,320. Reimbursements As a part of your salary, you may get a reimbursement of medical expenses incurred by you on yourself and your family - Rs 15,000 would be tax-free per annum. You need to give bills or other documents to claim the amount. Preserve them carefully. Leave travel allowance is paid every year, but it is tax-free only for two trips in a block of four years. The blocks are 2002-2005, 2006-2009 and so on. You may have to pay tax this year even after submitting the bills. Organise and keep documents handy Some investment-related proofs, such as statement of account of ELSS funds, can be stored electronically. Remember that interest income earned on all your savings bank accounts also needs to be disclosed and tax paid on them. Close dormant accounts and reduce tax liability. Collect all your bank statements and TDS certificates, if any. This will help you calculate your earning from bank interest. Deposit advance tax if required. If you are claiming deduction on interest paid on an educational loan, collect a certificate of repayment for this financial year in which the interest is stated separately. Do the same for your home loan. If you are claiming deduction for house rent allowance on actual rent paid, collect and keep the rent receipts. For any donations given to an approved charity, get a receipt and also a certificate that the trust gets deduction under Section 80G. If you are claiming a deduction for any medical disability under Section 80U, get a certificate of disability from the authorised doctor. If you got any gifts during the year, collect the gift deeds in your favour, which should clearly state that you received money without any consideration. Keep all the receipts of contributions made towards health insurance, or to schemes under Section 80C such as LIC [Get Quote] payment receipts, copy of the PPF pass book, and children's tuition fee receipts, among others. Health for all Even before thinking of any tax-saving investments, ensure adequate health cover for your family. Further, to the ded-uction of up to Rs 15,000, from this year you will get additional deduction of Rs 15,000 if your parents are also covered, and Rs 20,000 if they're senior citizens. Pay in advance If your employer does not deduct tax at source and your total tax liability this year is above Rs 5,000, you will have to pay tax in advance. Keep a copy of the challan safely for future reference. Use capital losses If you have sold any stocks at a loss, you can book a short-term capital loss, which can be set off against any capital gain - long- term or short-term. If you have made any short-term capital gain during the year, you can set off the loss against the gain. If you book a long-term loss, it may not be of much use as it can be adjusted only against long-term gains, which are not taxable for shares. Declare investments Send all the details to your accounts department in the form of an investment declaration. This document normally states all the tax- saving investment and expenses you plan to undertake this year. This will allow your account department to calculate your taxes. Based on this, tax will be deducted at source. Figure out the existing outgo Work towards bringing down your tax outgo. Before blindly investing in tax-saving avenues, figure out how much tax you are already saving. For salaried employees, 12 per cent of the basic salary goes towards Employees' Provident Fund, which qualifies for tax benefit. Life insurance premiums are also on the same list. Further, principal repayments up to Rs 100,000 on existing home loans get tax relief under Section 80C and interest payments up to Rs 150,000 qualify for tax deduction under Section 24. Another deduction could be on the tuition fees, up to Rs 100,000, that you pay for a maximum of two children. Add these figures to see how much of your tax liability is already covered. Get the old Form 16 If you have moved jobs anytime after 1 April 2008, take a copy of the Form 16 from your previous employer. If you don't, you will lose the advantage of tax exemption. Taxable income is the aggregate of all income received during the year. If your earlier employer has not deducted any tax from your salary, you may get a salary certificate from him indicating the amount received by you as salary during the financial year. Choose tax-savers Choosing your tax-saver heads under Section 80C should depend on its time horizon and your risk appetite. An increase in EMI or loan tenure is likely for floating rate home loans. Try to prepay the loan, either in parts or in a lump sum. These payments will also help you cut down your tax liability. For an equity-linked saving scheme, invest systematically to avoid a last-minute dash. The final moments Most employers ask for actual proof of investment and expenses by the first week of February. Once these documents are given, wait till May 2009 for the Form 16, based on which you can file your income tax return for the next year by 31 July 2009.

6th Pay Commission

2008-08-15T00:07:00.000+05:30

Today the Cabinet broadly accepted the recommendations of the Sixth Central Pay Commission with minor modifications. The jump in pay would be upwards of 30 per cent after taxes. The system of four Pay Bands with 20 Grade Pays recommended by the commission has been accepted.
The median salary for central government employees in India currently stands at Rs 250,092 per annum, while the same for those working with private sector companies is Rs 408,605. This will rise to Rs 352,611 per year — which would leave a small gap of Rs 50,000 compared with that of the private sector companies.
But, most private sector companies revise their pay scales after adoption of government pay commission reports, as has been the case in the past. This could again expand the gap between the salaries of private and public sector employees.
So far the highlights of the report are
Minimum basic Salary - Rs. 7000
Education Allowances for employees for upto two children - Rs. 1,000 (Earlier, it was Rs. 100)
Maximum Basic Salary - Rs. 90,000 (Cabinet Secretary)
National Holidays - 3
Gazette Holidays to be canceled
Pay hike will be implemented from January 01, 2006
Maternity Leave : 6 Months
HRA in A-1 Cities - 30% (Unchanged)
HRA in A, B, B-1 Cities - 20%
Incentive Schemes to be announced
New Medical Insurance Scheme to be launched for government employees
Market-driven pay for scientists and all other jobs that require professional skill set.
Total number of salary grades to be reduced from 35 to 20.
The wage hike would increase the financial implication for the Centre by Rs 17,798 crore annually and the arrears with effect from January 2006 would cost Rs 29,373 crore, Information and Broadcasting Minister P R Dasmunsi told reporters after the Cabinet meeting.
The government increased the minimum entry level salary of a government employee to Rs 7,000 against Rs 6,660 recommended by the Commission headed by Justice B N Srikrishna who submitted the report in March this year.
Consequently, it would push up the total emoluments of an employee at the lowest level beyond Rs 10,000 per month including allowances.
It also increased the rate of annual increment from 2.5 per cent to 3 per cent.
In the defence sector, it approved at least three assured promotions for all defence forces personnel and civilian employees under the modified Assured Career Progression scheme.
While civilians would get this after 10, 20 and 30 years of service, defence forces jawans would be promoted under ACP after 8, 16 and 24 years.
The hiked salary would be given to the employees beginning September this year and the arrears from January 2006 would be given in cash in two installments - 40 per cent this fiscal and 60 per cent in 2009-10.
The financial implication of Pay Commission on the General Budget would be Rs 15,717 crore and Rs 6414 crore on Railway Budget in 2008-09.
The government’s present salary bill is over Rs 70,000 crore and the pension bill is over Rs 30,000 crore.
Finance Minister P Chidambaram said the budget deficit target would be adhered to, despite the implementation of the Pay Commission recommendations.
The government for the first time approved Military Service Pay for armed forces personnel, under which officers would get Rs 6,000 over and above their pay per month.
The lowest limit of disability pension for defence personnel would be doubled to Rs 3100 a month.
No Cabinet Secretary rank for Intelligence Bureau chief, the three Service chiefs or the Chairman, Railway Board
Group D personnel to stay (peons in ministries and porters in Railways)
Military service pay for persons below the officer rank (POBR) would be Rs 2,000 per month
Significant hike in salaries of Brigadiers: they move to Pay Band 4 (Rs 39,200-67,000) from the suggested Pay Band 3 (Rs 15,600-39,100)
DIG-scale abolished in IPS and Indian Forest Service
The salaries of Brigadiers will be in Pay Band 4 (Rs 39,200-67,000) as against the suggested pay band 3 (Rs 15,600 - 39,100) previously.
It is expected that the actual pay-out would come in November after the monsoon session of Parliament in September passes the Finance Ministry’s supplementary Demand For Grant to fund the wage bill.

The 99 Club

2008-07-19T17:29:00.000+05:30

The 99 Club
Once upon a time, there lived a King who, despite his luxurious lifestyle, was neither happy nor content. One day, the King came upon a servant who was singing happily while he worked. This fascinated the King; why was he, the Supreme Ruler of the Land, unhappy and gloomy, while a lowly servant had so much joy.

The King asked the servant, 'Why are you so happy?'

The man replied, 'Your Majesty, I am nothing but a servant, but my family and I don't need too much - just a roof over our heads and warm food to fill our tummies.' The king was not satisfied with that reply. Later in the day, he sought the advice of his most trusted advisor. After hearing the King's woes and the servant's story, the advisor said, 'Your Majesty, I believe that the servant has not been made part of The 99 Club.'

'The 99 Club? And what exactly is that?' the King inquired.

The advisor replied, 'Your Majesty, to truly know what The 99 Club is, place 99 Gold coins in a bag and leave it at this servant's doorstep .' Done.

When the servant saw the bag, he took it into his house. When he opened the bag, he let out a great shout of joy... So many gold coins! He began to count them. After several counts, he was at last convinced that there were only 99 coins. He wondered, 'What could've happened to that last gold coin? Surely, no one would leave 99 coins! '

He looked everywhere he could, but that final coin was elusive. Finally, exhausted, he decided that he was going to have to work harder than ever to earn that gold coin and complete his collection.

From that day, the servant's life was changed. He was overworked, horribly grumpy, and castigated his family for not helping him make that 100th gold coin. He stopped singing while he worked.

Witnessing this drastic transformation, the King was puzzled. When he sought his advisor's help, the advisor said, 'Your Majesty, the servant has now officially joined The 99 Club.'

He continued, ' The 99 Club is a name given to those people who have enough to be happy but are never contented, because they're always yearning and striving for that extra one telling to themselves: 'Let me get that one final thing and then I will be happy for life .'

We can be happy, even with very little in our lives, but the minute we're given something bigger and better, we want even more! We lose our sleep, our happiness, we hurt the people around us; all these as a price for our growing needs and desires. That's what joining The 99 Club is all about.'

Morale of the Story People always have, what they need to have for a Happy Life. (Being content with what we have is an important key to lead a happy life)

Distinguishing Reversals from Corrections

2008-07-19T16:27:00.001+05:30

Distinguishing Reversals from Corrections
(2)Volatility Expansion 1b - 1) as evidenced by a sudden volatility expansion, against the trend:
A sharp break against the trend with greatly expanded single-period range. This type of action may (but will not neccessarily) follow-through with a succession of similar periods. Often caused by unexpected news which is perceived as being significant by the market.
This type of action is "tough-to-trade" because it can be followed by further volatile periods in either direction.
Trading Rules:
If carrying a large long position : cut back to more reasonable levels immediately "at market".
Place a limit order to exit the balance of any long position and establish a relatively small short position 2/3 of the way back to the top.
Place a "stop" order to exit the balance of any long position (without entering a new short position) if the immediate down-move extends by a further 1/3.
Note: The odds that the limit price will be reached before the stop is hit are probably worse than even, but the potential recovered-profit to potential additional-loss ratio is two-to-one. This makes it the rational decision to take provided that the additional loss would not be excessive: hence the necessity to cut back immediately if the position being carried is unusually large (the basic rules on the determination of position-sizing are discussed below).
1b - 2) as evidenced by a sudden volatility expansion, with the trend:
A sudden acceleration of the existing trend with greatly expanded single-period range. This type of action may also (but will not neccessarily) follow-through with a succession of similar periods. This is usually the final bull-market buying-panic during the course of which the "last fool" finally gets into the market. This type of move can provide spectacular profits to those who stay with it but frequently reverses as brutally as it proceeds. Generally referred to as a "blow-off or "spike" top (or bottom if the chart is reversed).
Trading rules:
If carrying a position against the trend: Get out immediately. It is very occasionally appropriate to panic. this is one of those times. For survival it is very important to be amongst the first (not last) so to do.
carrying a position in line with the trend: place an "exit-stop" just below the start of the acceleration (above if the move is down), and follow the move up with a trailing stop (see below). You may be stopped-out well before the final top: but that is much better than watching a massive profit wiped-out by staying with the move to the top, and then staying with the following collapse. There is absolutely no way to judge in advance where a "mass hysteria" move will end. When people start confidently to predict that a price which has already tripled is going to re-double might be a good time to sell.
If not already carrying a position: Stand-aside (watch and weep).
Regards,

Market Variables : Direction, Momentum, Volatility, Liquidity

2008-07-16T11:34:00.002+05:30

Market Variables : Direction, Momentum, Volatility, Liquidity
Direction : During any given time-frame a market can do one of three things : go up, go down, move sideways. Persistent moves in the same direction are generally referred-to as "Trends".
Momentum : Up and down-moves can be fast ("impulsive") or slow ("corrective" or "drifting") in nature (or in between).

Note: The most important aspect of "Momentum" is not any absolute measurement of its value, but whether it is constant or changing. the key questions (to be answered from direct observation of the price-charts) are:
Is the current price-move speeding up (in which case you want to stay with / get into it) or slowing down (in which case, consider taking a position against it)
Is the current price-move faster or slower than the immediately preceding move in the opposite direction (expect the on-going trend to be in the direction of the faster of the two).
Volatility : Can be low, with almost no price-swings away from and back to the underlying trend; high, with wide and erratic price-swings in both directions, or anywhere in between. Changes in volatility often signal changes in trend, often either in the form of either:
A sharp move against the direction of the current trend, or a reduction in activity and size of short-term price-swings.
Liquidity : Can be high, with thousands of transactions being carried out on a continuous basis; or low, with only intermittent price-quote updates and transactions. In general terms technical-trading is best suited to highly liquid markets because effective transaction-costs (bid-offer spreads and commissions) are lower, and large orders can be placed without adversely affecting the market.
All of these variables are directly dependant on the actions taken (or not taken) by the participants in the market : Technical Analysis is simply the observation of those actions, as shown on price-charts.
As stated above, technical trading is predicated on the proposition that the action of the market, which is the reflection of the sum of the actions of all participants, provides clues as to the most likely future evolution of prices. The clues are, however, frequently misleading (or mis-interpreted). This leads to the necessity for any successful trading strategy to provide in advance for the "avoiding action" to be taken to minimise the damage caused by bad positions.
Technical traders/investors take important decisions (risk their own and other people's capital) on the basis of very flimsy evidence: the direction prices are moving and the type of price-action. Successful trading is based on the following basic observations:
The current trend (up, down or flat) is more likely to persist than reverse.
The trend will be interrupted by corrections (counter-trend price-moves).
An accelerating price-move is likely to continue, a decelerating move is likely to reverse.
The direction of the next significant price-swing will probably be in the same direction as the stronger of the last two.
Minor supports / resistances to the current trend are more likely to break than hold.But:
Major supports / resistances are more likely to turn the market back than break.
Trend reversals are usually signalled by a clearly observable change in volatility (either a sharp break against the trend or its continuation at reduced momentum).
Notes:
Long-Term charts are reviewed only in order to observe major support and resistance levels.
Medium-term charts are reviewed in order to determine both the trend and intermediate support / resistance-levels.
Short-term charts are reviewed in order to evaluate current (and observe changes in) volatility and momentum.
Before amplifying the above statements and defining the terms used in detail, the following key points must be emphasised:
An "Investor" attempts to profit from major market swings which last many weeks / months (or even years). In monitoring his investments, and the general population of other investments into which he might switch, he should review monthly ("long-term"), weekly ("medium-term") and daily ("short-term") charts.
A "Position-Trader" attempts to profit from major market swings which last several days or weeks. In monitoring their trades, they also generally review monthly ("long-term"), weeky ("medium-term") and daily ("short-term") charts every day and with greater emphasis on the daily charts.
An "Intra-day Trader" attempts to profit from major market swings which last from minutes to hours, and always closes his positions overnight (or hands them on to a colleague in the next time-zone). In monitoring his trades, he should review hourly ("long-term"), 5-minute ("medium-term") and 1-minute ("short-term") charts.
That said, since price-charts are fractal in nature (ie self-similar irrespective of the time-frame being observed), there is absolutely no difference in the methods of analysis and decision-making to be applied. It is absolutely critical to success that which of these activities is being pursued is clearly understood and the appropriate actions consistently taken. Disaster frequently overtakes those who fail to take this simple but critical decision. The cynical definition of a "Long-Term Investment" is "A trade gone sour" ! (as when a trader buys a stock at 100, watches it go to 80, and then says "That's OK, it's a .........")

Regards

Role of psychology in trading

2008-07-06T20:00:00.002+05:30

One of the most important skills for a successful trader is separating emotions from trading. In order to succeed, a trader must be abstract in their trading. For example, if you are trading your Profit and Loss balance instead of your chart, you will panic during typical price fluctuations, causing you to exit your trades early -- only to watch as the market then resumes its original path. Why? Because you are emotionally vested with your money. You are watching your Profit ticks up and then you are watching as your profit ticks down, against you, resulting in a negative balance. Emotionally, you have created the perfect roller coaster ride in favor of the markets. Although, you know, intuitively that markets will not go straight up, you have don't like losing money and, therefore, with the trade against you, you will exit if you can just "break even".

During your trading, remember these simple guidelines:
� Every trade cannot be a winner. Negatives trades are inevitable.
� The closer you are to the market the more negative trades you will have.
� Always start your trading day with a clear slate. What happened yesterday is past. Today is a new day.
� If you have had several consecutive negative days, take a break from trading.
� Having a trading plan instills confidence in you, your indicators, and your trading. Don't trade without one.
� Know at any given moment what the potential risk is. If you cannot tolerate the risk, then do not enter the trade.
� Remember, trading is nothing more than probabilities. Ask yourself what is the probability that this trade will work out?
� Keep a trading journal so that you can mistakes and correct them.
� Trade what you see on your chart -- not the opinions of newscasters, friends, newsletters, or your own. Regards,

What is Short Selling

2008-06-24T20:38:00.000+05:30

Short Selling is a strategy in which a trader sells a commodity or security that he or she does not own in order to profit from a falling market invest money.? In this trader will borrow the commodity or security from his broker stock market, who usually in turn has borrowed the shares from some other investor who is holding his shares then immediately sell on to the buyer invest money. At a later date stock market, the trader must buy back the commodity or security from the market to close the position invest money.? If the value of the commodity or security has fallen during this period the short selling trader?s profit will be the difference between his original sale price and the buyback price invest money. Short selling is strategy to express bearish view point of trader towards a commodity or security invest money. Essentially this is another face of coin in any freely traded commodity where trader feel that current value of commodity is inflated and does not represent actual value invest money. This is exact opposite to more known buy and hold bullish strategy where investor buy the commodity or security feeling it be undervalued and will increase in price invest money. Short sellers need to be aware of three important aspects which can affect profitability of their short positions invest money. 1 invest money. Interest on Borrowed Security ? As the commodity or security is borrowed from broker or third part account so interest is required to be paid on that invest money. This is generally not applicable if you are settling your account on same day but can erode profits if kept on rollover for long duration invest money. Depend on brokerage firm it percentage can change but generally it?s around overnight interbank lending rate invest money. 2 invest money. Dividend Distribution ? If the security which is been shorted by trader gives out dividend then short seller need to short the dividend i invest money.e invest money. the dividend amount will be taken out from his brokerage account invest money. So it is very important to keep track of dividend date of security trader want to short invest money. 3 invest money. Short Squeeze - A short squeeze results when the price of the stock rises and investors who short-sold the stock rush to buy it to cover their short position invest money. As the price of the stock increases stock market, more short sellers feel driven to cover their positions and this result in further escalation of price in short duration of time invest money. Markets in all developed economies provide easy short selling procedures where individual shares can be shorted and rolled over for multiple days but currently in Indian Stock Market short selling of shares is only possible on intraday bases invest money. If traders who want to take bearish view of certain scripts for longer duration they can do it through futures market invest money. It is to be noted that availability of scripts in futures markets are very limited as compare to overall number of traded scripts invest money. When the underlying market is in downtrend stock market, short selling is the best strategy if implemented correctly in hands of Commodity stock market, Equity and Forex traders invest money. To be a successful trader one need to learn both long and short strategies as market itself goes through bullish and bearish cycles periodically giving plethora of opportunities to generate wealth invest money.
Regards

Nifty View - 23 Jun 08

2008-06-23T11:12:00.000+05:30

Dear Friends,
The inflation numbers or the WPI numbers on Fridays took the best of the Bear/Bull by surprise.The Nifty tanked immediately after the unexpected numbers and the markets took a 500+ points beating.The markets are expected to react to Bsp support withdrawal and the Left-UPA Nuke tussle stated for 25th of june starting tomorrow.Moreover the Repo or the reverse repo rate hike by Rbi should also be a matter of days now seeing the unacceptable levels of Inflation.The FOMC meet will have a strong view on Inflationary trends and the fall in dow can be related with the occurrence of the same event.The primary reason for the inflation as of now is Crude hike must have been the headlines of any newspaper.The truth remains in the fact that the present government did not take any measures to hike prices of fuel and to curb inflationary trend that was seen in last 8 months.I believe that traders should remember that markets react at a later stage to any economic event.What the ministers did was curbed the rise in prices of cement and metals without noticing the fact that there was a demand driven price rise.Once there is an external force that limits the functioning of a free market.The market breakdown is bound to happen.
With the hoarding of food grains and expectations of even higher inflation.Occurrence of higher inflation can not be unexpected as of now.Moreover the instability of the government in the centre will be the last nail in the coffin for tired bulls as of now.Tsr Research team expects elections to be held in next 6 months.We expect that the government will try and call early elections when the inflation will be manageable.Any snap polls before this outcome will lead to clean sweep by erstwhile NDA.Moreover even after support of S.P one cannot expect that the government will have a clear majority as it will fall short of 2 vital members (UPA-LEFT+S.P)
If there are announcement of any snap polls in next two months then it will be blessing in disguise for stock markets.We can expect a very sharp recovery as Poll pundits will predict a clear majority for NDA.Moreover the stock markets want reforms at the end of the day and the present government has been a Reform sans government.Stock markets wants divestments,Ipo and less interference of state in free market mechanism.If only the present government would had increased the prices as per the rise in international markets till last year.Inflation figures would had a higher base and the markets would had heaved a sigh of relief.The government is paying its own price by being associated with forces who are more committed to China being the only super power in Asia then India being one.
Coming back to Nifty the charts have become so ugly that its better to talk about the political scenario then talking about Nifty.The closing witnessed in nifty on Friday coupled with the weakness seen in the Dow .One can assume a weaker opening for Nifty.The million dollar question now is that whats next.For me i will try and give trade s on pivots coupled with the news flow to make the most of the Nifty moves this week.Going ahead support zonbe for Nifty will be 4231-4254 if 4194 holds on the downside one can expect an upmove in Nifty.We will face good amount of selling pressure and all leveraged trades should be limited to Intraday.One can go for value buying below 4200 levels.We had given 3 stocks(take solns,oswal chem and diamond cables) and booked 2 of them approx 10 days back with 12-15% capital appreciation in four days.One stock diamond cables is up 12% from recommended levels but is still a Hold as better rates are possible.

Weekly Nifty supports :- 4185-4205

Nifty resistances -4451-4538

A Positive Out of the Many Negatives

2008-06-09T15:31:00.000+05:30

A Positive Out of the Many Negatives

For anyone who plans to make money from investing in stocks and equity mutual funds, things look bad indeed. Since about 2003, whenever the stock markets have dropped, there have always been only one or two factors that have driven it down. This was also true when the first precursor to the current troubles appeared back in August last year.However, all that has changed now and everything appears to be going wrong simultaneously. The international credit crisis that looked like a local US problem hasn't really gone away. Oil prices and inflation have become a huge cr
isis. Corporate profits are under tremendous pressure. The once-invincible tech services industry is reeling from a weak dollar. Geo-political problems look worse than ever. And the Government of India has gone into full damage-enhancement mode wherein almost everything it is doing seems carefully planned to worsen the country's problems.In short, it's a great time to invest in equities and equity-backed mutual funds. That should be obvious, no? Here's an old Wall Street joke that would have been a PJ if it didn't ring so true. A newbie asks an old-timer, "How do you make money in the market." The wise man answers, "Nothing could be simpler: buy low, sell high." The beginner asks, "How can I learn to do that?" Comes the response, "Ahhhh…that takes a lifetime."But such a simple and obvious truth probably comes as a surprise to most of us. The reason is that the public discourse and media coverage about stock investing has become completely poisoned with the most extreme kind of short-termism. Every day, the business newspaper and TV channels come out and tell you that things were bad on the stock markets because prices fell. And that's the attitude that we absorb without thinking about it.So pervasive is this attitude that lots of investors I talk to are changing their investment plans, getting out of stocks and dropping all plans to invest in stocks. Surely, this makes sense only for traders who bought yesterday and are selling today or are buying today to sell tomorrow. For an investor who is investing for his and his children's future, plunging markets and all-round gloom and doom are good news. Since the way to make money is to buy low and sell high, low prices should make buyers happy, shouldn't they? To this, the traders' answer is that the markets could keep plunging. But that's even more good news. This is the time to start investing in a conservative mutual fund and going on doing so gradually for a long time. Of course this works only for long-term investors who are putting in money for five years or more.If stocks turn up from here onwards, then you will be fine because you would have invested at least some of you money at low levels. If they drop a lot from here on, then too you are fine if you continue investing at lower and lower levels. The only way you could actually be in trouble is if stocks keep dropping for years and years and don't recover for a decade or so even to today's levels. I'm not saying that that couldn't happen, but if it does, then it will be because we are in deeper trouble than we can even imagine today.Meanwhile, all of us who want to grow our money would do well to stop thinking of the current crises as being bad for the future of our investments.

Short term Calls

2008-06-09T12:57:00.000+05:30

Short term Buy at cmp for 1-2 months view

1. oswal chem cmp 32

2 take solutions cmp 625

3 diamond cables cmp 288

The Going Gets Tough

2008-06-09T11:15:00.000+05:30

The Going Gets Tough
Have you ever seen a road accident happen? You must have, since we generally drive like idiots and have a high accident rate. Whenever I see a road accident and later think about how it happened, I can't help feeling that while most of us drive like idiots, most of the time accidents happen when two idiots do something idiotic at the same time and at the same place. One guy is happily speeding, while trying to read an SMS and just then another one in front of him decides to turn right without revealing his intentions beforehand. Either one would have got away but the two in
combination becomes an event.
The stock markets are just like that. While one company or one industry may be driven by some particular factor, a prolonged bull market or a bear market only happens when many different factors come together. Sometimes, some of these factors may be related but at other times, they may be unrelated. It could just be a coincidence that they are happening at the same time.
Nothing is more confusing than trying to understand such a situation by taking only one factor into consideration. The weak stock markets that we are seeing now are happening because of a combination of factors.
Interest rates are rising, and corporates just aren't going to become more profitable while they are rising. There could be individual exceptions, but for all practical purposes, this is an inviolable rule. Most of the blame for high interest rates goes to high inflation.
If one reads the government's pronouncements and insinuations, then at various stages the blame for high inflation has been laid at the door of oil prices, steel companies, cement companies, foreign inflows, and others on a list of now-usual suspects.
As far as the stock markets go, all this coincidentally came at just the same time as the international credit crisis. By the way, there are some straws in the wind that indicate that we may soon be in for act two (or would that be act three) of the credit crisis. Apparently, over the last two weeks the cost of insuring oneself against a credit default by big Wall Street firms like Goldman Sachs, Lehman Brothers and JP Morgan has shot up. No one seems sure of what this means but this is unnervingly similar to the way things started to worsen the last time around.
There's a third part of this combination that I feel is the least recognised: after a few years of headlong growth, many Indian businesses are facing a natural pause as the easy part of their markets have saturated. Whether it's about selling phones or cars or clothes or fancy flats in the middle of nowhere, the low-hanging fruits have been picked. Their markets may be larger, but from here on, they'll be tougher to crack.
However, going forward, the kicker here is oil prices. In this entire combination of problems, oil prices are a test match scale crisis while the rest are mere Twenty20s. Permanently high oil prices could invalidate the business models and working methods of large swathes of the world's economy.
Make no mistake, we are in a tough situation. A momentary relief on any one of these negative factors may make good headlines, but they won't mean that the good times are back.
But being an optimist I can’t help recall the inspiring quote ‘When the going gets tough, the tough gets going’.

RCOM, MTN reportedly close to share swap deal

2008-06-09T11:09:00.000+05:30

RCOM, MTN reportedly close to share swap deal

Reliance Communications (RCOM) and South African telecom major MTN Group arereportedly close to finalising a reverse merger deal under which RCOM will become asubsidiary of the MTN Group and its chairman Anil Ambani will initially hold 28-30% inthe merged entity, which would make him the largest shareholder. The deal wouldcreate a telecom colossus with 115mn subscribers in 25 countries. Ambani, whoholds 66% in RCOM, may then buy another 4-6%, either through market operationsor from shareholders to reach a 34% shareholding in MTN through an all-cash deal.MTN's promoters will hold the remaining 65% stake in the merged entity. The dealalso requires MTN to make an open offer to RCOM shareholders to make it asubsidiary. Under Indian laws any company acquiring more than 15% has to make anopen offer. The specifics of the shareholding structure will depend on the share-swapratio, which is yet to be decided. Ambani is likely to be nominated the chairman of thecompany and current MTN CEO Phuthuma Nhelko will continue as the executivehead of the merged entity.In related news, in one of the largest-ever direct-to-home (DTH) set-top box contractsin the country, RCOM has placed an order for 5mn boxes with vendors from Korea,China and Taiwan to be delivered between July and December next year. Thevendors include Hyundai, UEC, Thomson, Hunmax, Homecast, Koship and KaonMedia. The current landed cost of an MPEG4-enabled set top box in the globalmarkets ranges between US $50-60 based on the size. RCOM is looking atinnovative ways to reduce the overall cost of set top boxes by up to 25%, therebyprocuring MPEG4 set top boxes at prices lower than the prevailing MPEG2 boxes.The company, which plans to launch its DTH services under the Big TV brand, hasalready placed orders for the launch, scheduled in a few weeks. RCOM has alreadyreceived stocks of close to 2.5lakh set-top boxes in its warehouse and anothershipment of 2.5lakh set-top boxes is scheduled to arrive in a week’s time. Potentialfor the DTH business is significant going ahead and this business is seen as a majorrevenue earner for RCOM in the future. Nonetheless, the company will face toughcompetition from Dish TV with around 3.2mn subscribers and Tata Sky with around2mn subscribers.

We maintain a Buy on the stock with a Target Price of Rs763.

Mutual Funds - Biggest Loser Kaun?

2008-06-09T10:24:00.000+05:30

Biggest Loser Kaun?
The 4th of June was yet another black day for the Indian stock markets. In what has been a series of misfortunes in the past few months, the markets have seen bad days followed by worse ones. 4th June figures right up there in this list. On that day, the Sensex fell by 478 points (2.81 per cent) and the Nifty by 130 points (2.76 per cent). The reasons behind this fall are the rising inflation, talks of a slowdown and the oil price hike.
Since its peak in early January, the Sensex has been down by 29 per cent. However, it is the mutual funds that have suffered mu
ch more. 42 equity funds hit their all time low on 4th June.
Some of these funds have slipped by 50 per cent from their peak values of January, earlier this year. The biggest losers have been: Principal Personal Tax Saver losing 61 per cent from its peak NAV of Rs 221.26 it hit on December 31, 2007, Birla Sun Life Tax Relief 96 which lost 50 per cent of its NAV of Rs 167.72 on January 7, JM HI FI which lost 47 per cent of its NAV of Rs 19.10 on January 2, ABN AMRO Tax Advantage Plan which lost 44 per cent of its NAV of Rs 22.70 on January 4, and Banking BeES, the ETF which lost 43 per cent of its NAV at Rs 1070.88 on January 14.
The slip in NAVs of most equity funds launched in the past one year can depress new fund investors. Today, 65 funds have slipped below their face value with the lowest being Kotak Indo World Infrastructure at Rs 6.9 and JM Agri & Infra fund at Rs 6.8. Both these funds were launched in December 2007. The new funds launched this year have had a tough time as well with 22 of the 25 funds slipping below their face value.
On a slightly brighter side, at least 28 equity funds lost less than 10 per cent through the market carnage. The list of these funds is includes Birla Sun Life Pure Value, Franklin Pharma, HSBC Small Cap, ICICI Prudential Focused Equity Inst I, ICICI Prudential Fusion S-III Retail, IDFC Small & Midcap Equity, JM Healthcare Sector, LICMF Systematic Asset Allocation, Lotus India Mid N Small Cap, Reliance ELSS Series I, Reliance Natural Resources, SBI Tax Advantage Series I, Tata SIP Fund II and UTI Pharma & Healthcare.
Well, it’s hard to predict what will happen in the future but it certainly doesn’t look too bright. But as always, what we investors can do is wait and be hopeful. It’s a repeated advise, we know, but it’s all we can give for now.

Story of Crude Oil

2008-06-09T10:19:00.002+05:30

By now it is becoming too obvious that theUnited States is playing the oil game all overagain. And this is the desperate gamble of acountry whose economy is neck deep introuble.Given this scenario, managing prices of oil iscentral to the US economic architecture.Expectedly, this gamble has been played in agreat alliance between the US government,US financial sector and the media.I have earlier written about: The impending collapse of the US dollar onaccount of the inherent weakness in the USeconomy caused by its structural weakness as reflected in the subprimecrisis; The repeated softening of the interest rates in the US that has thepotency to kill the US dollar; and How the fall in the US dollar suits the US corporate sector, especiallyits omnipotent financial sector.Naturally, since the past few years, the US financial sector has begun to turnits attention from currency and stock markets to commodity markets.According to The Economist, about $260 billion has been invested into thecommodity market -- up nearly 20 times from what it was in 2003.Coinciding with a weak dollar and this speculative interest of the US financialsector, prices of commodities have soared globally.And most of these investments are bets placed by hedge and pension funds,always on the lookout for risky but high-yielding investments. What is indeedinteresting to note here is that unlike margin requirements for stocks whichare as high as 50 per cent in many markets, the margin requirements forcommodities is a mere 5-7 per cent.This implies that with an outlay of a mere $260 billion these speculatorswould be able to take positions of approximately $5 trillion -- yes, $5 trillion! -- in the futures markets. It is estimated that half of these are bets placed on oil.

Oil price hike: Govt can't save you: PM

Readers may note that oil is internationally traded in New York and Londonand denominated in US dollar only. Naturally, it has been opined by expertsthat since the advent of oil futures, oil prices are no longer controlled byOPEC (Organization of Petroleum Exporting Countries). Rather, it is nowdone by Wall Street.This tectonic shift in the determination of international oil prices from thehands of producers to the hands of speculators is crucial to understandingthe oil price rise.Today's oil prices are believed to be determined by the four Anglo-Americanfinancial companies-turned-oil traders, viz., Goldman Sachs, Citigroup, J PMorgan Chase, and Morgan Stanley. It is only they who have any idea aboutwho is entering into oil futures or derivative contracts. It is also they who areplacing bets on oil prices and in the process ensuring that the prices of oilfutures go up by the day.But how does the increase in the price of this oil in the futures marketdetermine the prices of oil in the spot markets? Crucially, does speculation inoil influence and determine the prices of oil in the spot markets?Answering these questions as to whether speculation has supercharged thedemand for oil The Economist, in its recent issue, states: 'But that is plainwrong. Such speculators do not own real oil. Every barrel they buy in thefutures markets they sell back again before the contract ends. That mayraise the price of 'paper barrels,' but not of the black stuff refiners turn intopetrol. It is true that high futures prices could lead someone to hoard oiltoday in the hope of a higher price tomorrow. But inventories are notespecially full just now and there are few signs of hoarding.'On both counts -- that speculation in oil is not pushing up oil prices, as wellas on the issue of the build-up of inventories -- the venerable Economist iswrong.The finding of US Senate Committee in 2006In June 2006, when the oil price in the futures markets was about $60 a barrel, a Senate Committee in the US probed the role of marketspeculation in oil and gas prices. The report points out that large purchase of crude oil futures contracts by speculators has, in effect, createdadditional demand for oil and in the process driven up the future prices of oil.The report further stated that it was 'difficult to quantify the effect of speculation on prices,' but concluded that 'there is substantial evidence thatthe large amount of speculation in the current market has significantly increased prices.'The report further estimated that speculative purchases of oil futures had added as much as $20-25 per barrel to the then prevailing price of$60 per barrel. In today's prices of approximately $130 per barrel, this means that approximately $100 per barrel could be attributed tospeculation!But the report found a serious loophole in the US regulation of oil derivatives trading, which according to experts could allow even a 'herd ofelephants to walk to through it.' The report pointed out that US energy futures were traded on regulated exchanges within the US andsubjected to extensive oversight by the Commodities Future Trading Commission (CFTC) -- the US regulator for commodity futures market.In recent years, the report however pointed out to the tremendous growth in the trading of contracts which were traded on unregulated OTC(over-the-counter) electronic markets. Interestingly, the report pointed out that the trading of energy commodities by large firms on OTCelectronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron into the Commodity FuturesModernization Act in 2000.The report concludes that consequential impact on account of lack of market oversight has been 'substantial.'NYMEX (New York Mercantile Exchange) traders are required to keep records of all trades and report large trades to the CFTC enabling it togauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. In contrast, however, traders onunregulated OTC electronic exchanges are not required to keep records or file any information with the CFTC as these trades are exempt fromits oversight.Consequently, as there is no monitoring of such trading by the oversight body, the committee believes that it allows speculators to indulge inprice manipulation.Finally, the report concludes that to a certain extent, whether or not any level of speculation is 'excessive' lies entirely in the eye of thebeholder. In the absence of data, however, it is impossible to begin the analysis or engage in an informed debate over whether our energymarkets are functioning properly or are in the midst of a speculative bubble.

That was two years back. And much water has flown in the Mississippi since then.The link to the spot marketsNow to answer the second leg of the question: how speculators are able to translate the future prices into spot prices.The answer to this question is fairly simple. After all, oil price is highly inelastic -- i.e. even a substantial increase in price does not alter theconsumption pattern. No wonder, a mere 3-4 per cent annual global growth has translated into more than a 40 per cent annual increase inprices for the past three or four years.But there is more to it. One may note that the world supply and demand is evenly matched at about 85 million barrels every day. Only ifsupplies exceed demand by a substantial margin can any downward pressure on oil prices be created. In contrast, if someone with deeppockets picks up even a small quantity of oil, it dramatically alters the delicate global demand-supply gap, creating enormous upward pressureon prices.What is interesting to note is that the US strategic oil reserves were at approximately 350 million barrels for a decade till 2006. However, forthe past year and a half these reserves have doubled to more than 700 million barrels. Naturally, this build-up of strategic oil reserves by theUS (of 350 million barrels) is adding enormous pressure on the oil demand and consequently its prices.Do the oil speculators know of this reserves build-up by the US and are indulging in rampant speculation? Are they acting in tandem with theUS government? Worse still, are they bordering on recklessness knowing fully well that if the oil prices fall the US government will be forced toa 'Bears Stearns' on them and bail them out? One is not sure.But who foots bill at such high prices? At an average price of even $100 per barrel, the entire cost for the purchase of this additional 350million barrels by the US works out to a mere $35 billion. Needless to emphasise, this can be funded by the US by allowing it currency printingpresses to work overtime. After all, it has a currency that is acceptable globally and people worldwide are willing to exchange it for precious oil.No wonder Goldman Sachs predicts that oil will touch $200 to a barrel shortly, knowing fully well that the US government will back itsprediction.And, in the past three years alone the world has paid an estimated additional $3 trillion for its oil purchases. Oil speculators (and not oilproducers) are the biggest beneficiaries of this price increase.In the process, the US has been able to keep the value of the US dollar afloat -- perhaps at an extra cost of a mere $35 billion to its exchequer!The global crude oil price rise is complex, sinister and beyond innocent economic theories of demand and supply. It is speculation, geopolitics and much more. Obviously, there is a symbiotic link between the US, the US dollar and the oil prices. And unless this truth is understood andthe link broken, oil prices cannot be controlled.

Mkt View - 09 Jun 08

2008-06-09T10:11:00.001+05:30

Hi Friends,

The free fall observed in dow on Friday will have a cascading effect on the Indian stock Markets on Monday.To be very fair expect Nifty to have a fall range between 2.5% to 5.8%.4450 is an important support level from where markets should bounce.The bounce can be of 80-120 points.The better strategy will be to short the second break of 4450 with a sl of 30 points.In a synopsis i expect a vertical fall if 4450 is broken for the second time tomorrow or Nifty opens and remains below those levels.The million dollar question now will be that what should be the way to trade in the stocks going ahead.Should we short tomorrow or use the dips to make fresh purchases.I will personally not advise leveraging at any costs.Markets on a whole is under leveraged and this fall will be more because of oil and global cues then because of any Indian factors.In fundamental analysis there is systematic risk in everyones portfolio due to the movement of the stock markets and we will see the effect of the same tomorrow.If your portfolio is down between 3-5% don't be a bit surprised.My personal analysis says that Buying the next 25% of your free unleveraged (0% margin funding) funds should be the next step going ahead in the markets if Nifty does not break 4450.Stocks to Buy.Avoid real estate stocks for some more time.Use the stocks that give a 4.5-7% dividend yield on an average and have 15-20% growth prospect.The dividend yield will protect any further capital erosion for the same.

nifty supports 4450 and just 4450

Nifty Resistance : If holds 4450 then think of the same.

Calls - 04 Jun 08

2008-06-04T10:56:00.002+05:30

Buy PSTL (532791) intraday target 360, delivery target 460
Buy SEL MCL (532886) intraday target 525, delivery target 1000

Intraday
Buy GMR Infra around 128 Tgt 135 SL 124

High Crude Oil prices - Bubble???????

2008-06-04T10:22:00.002+05:30

High Crude Oil prices

It’s a bubble, for sure…because of the following:-
1. Consumption is almost stagnant
2. OPEC supply has infact increased this year
3. The increase in demand from Index Speculators is almost equal to the increase in demand from China!
4. Apart from crude, the Index Speculators have raided other major commodities too. Huge jump in future prices tell the real reason behind this “Super Spike” theory.

What do you say???????