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Gold investments yield higher returns than equity, property
Reebok India case: Corporate mismanagement led to scam
India may not attain $360 bn export target
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Coal blocks allocated on merit, says Jindal Steel
Tax Advice
personal finance
Higher returns mean bigger risk
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Gold investments yield higher returns than equity, property
Presently, price of gold is over Rs 32,000 per 10 grams against around Rs 15,000 per 10 grams about three years ago. Hence, giving more than double the returns on investments, it said. "Gold has really outdone other asset classes and it is likely to remain an attractive bet as long as uncertainty over the global economy stays," The Associated Chambers of Commerce & Industry of India secretary general D.S. Rawat said. He added gold is the safest bet for investments amid uncertainty in other investment avenues. The prices of yellow metal saw a huge jump due to high prices of gold across the world and a weakening rupee. The study said those who invested in property have also seen good returns. However, these are comparatively lower than returns from gold. Investments in real estate have yielded almost double returns in cities such as Delhi, Mumbai, Chennai and Gurgaon in the last three years, it said. However, the study said the equity market has been the "worst performer", with investors witnessing erosion in wealth during the period under review. — PTI |
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Reebok India case: Corporate mismanagement led to scam
Gurgaon, September 23 The revelation came after arrests and questioning of the key suspects, former MD Subhinder Singh Prem and former COO Vishnu Bhagat, who according to sources divulged systematic mismanagement of governance and operations, which made the scam possible. “A thorough questioning of the suspects and the evidence have revealed that contrary to our former hypothesis of a corporate scam it was nonadherence of rules as bills were inflated and in many cases not even recorded. There was no major borrowing or lending in company. There are instances of tax evasion and over valuation of goods of the firm. We suspect that some other officials of the firm for their well-planned ‘oversight’ in account books, which led to the alleged financial irregularities,” said a senior police officer. The investigative agencies, which are still to confirm the Rs 140 crore tax evasion in the case, will now work to ensure the company later does not claim any “bad debt”. A bad debt is that amount that is owed to a business or individual and has to be written off by the creditor as a loss. The Gurgaon police had recently arrested Subhinder Singh and Bhagat along with three others, Sanjay Mishra, Prashant Bhatnagar and Surakshit Bhat, for allegedly siphoning off company funds by creating ghost distributors across the country and generating forged bills over the past five years. |
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India may not attain $360 bn export target
New Delhi, September 23 According to FICCI, India’s external sector is once again amid a difficult situation owing to the global economic scenario and the same has also been revealed by the latest round of the export survey conducted for first half of the calendar year 2012. According to the survey (conducted in July-August 2012), current export conditions have deteriorated compared to the last six months. About 63% of the respondents in the current survey reported that the export conditions are same or have deteriorated vis-a-vis last six months. In the last survey 58% of the participating companies had reported likewise. India’s exports plummeted by 9.7% YoY in August 2012, a deceleration for the fourth consecutive month. As a result the government’s export target of $360 billion for the year 2012-13 seems difficult to achieve. Rising cost of raw materials and weak demand from overseas was sighted as primary factors that are bothering members of the Indian export community. Around 89% of the respondents have drawn attention to the rising cost of raw materials. As per the responses, raw material prices have gone up by 20-30% in the last three years. In fact the survey participants didn’t seem too optimistic about a possible improvement in the overall export conditions over the next two quarters of this fiscal.
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biz
talk
Q: What is your reaction to the CAG report citing losses of Rs. 1.86 lakh crore in allocation of coal blocks? A: The CAG has estimated likely gain to private companies and has said that a part of this amount could have accrued to the government. This gain would have accrued over of period of 35 to 40 years. The net present value (NPV) has not been calculated by the CAG which would be Rs. 35,000 crore only. In its estimate the CAG has not taken into account the following: Royalty for captive mining companies is an expense which itself would be more than Rs 90,000 crore; 33% of income tax will be payable to the government on the financial gain that would also be more than Rs 60,000 crore; and, the MMDR Bill has been introduced by the government in Parliament and as per this bill, 26% of the profit is to be given for the local development which also will be more than Rs 48,000 crore. After the above payments are taken into account, there will be not much financial gain left to private companies. The CAG has also not considered that there is going to be an investment of more than Rs 10 lakh crore in infrastructure projects and more than 2 million jobs will be created by allotment of these coal blocks. Q. JSPL’s name has also figured in the report and there have been allegations that the company gained from these allocations? A. To our knowledge there is no special mention of JSPL’s name in the CAG report. Our company has been allocated coal blocks based on the merit of our projects and our proven track record of implementing projects in the infrastructure sector and development and operation of coal mines. We are implementing mega steel and power projects in Chhattisgarh, Orissa and Jharkhand. We are also setting up a coal-to-coal to liquid project in Orissa. These projects are being set up with investment of over Rs 130,000 crore and all these projects are under active implementation. Q: There have been charges that Jindal Steel & Power is getting cheap coal and selling expensive power? A: Coal blocks allotted to Jindal Power Ltd were those which were rejected by Coal India as these coal blocks were situated in remote area having no access and coal is of inferior grade. We have developed the area and the coal blocks. We had tried our best to offer power to various power utilities but none of them was willing to enter into a long-term agreement. We have got financing of this project based on the balance sheet of our promoter company, JSPL. It was complete risk to set up a project of this magnitude having investment of about Rs 4,500 crore. We are selling power from this project to various power utilities through bidding and agreements of various tenures. We are operating this plant efficiently and it is running at plant load factor of about 98%. Whatever profit we have gained is from efficient operations of the power plant as well as coal mine. Q: Industry chambers have said that any en masse action on deallocating coal blocks will hurt sentiment? A: Coal blocks have been allocated for setting up various end-use projects in the core sectors of economy like steel, power, cement, etc, and a number of these projects are in various stages of implementation and a large number of people are already employed in these projects. Investments of lakhs of crores of rupees are planned on these projects which will generate employment to a large number of people in the backward and tribal regions of various states. Coal blocks allocated are also under different stages of development and en-masse deallocation of coal blocks is going to adversely affect such large investment in the country and job creation in the backward and tribal areas. Coal imports will increase draining precious foreign exchange of the country. Steel/power/cement prices will increase leading to huge inflation. Banks and financial institutions have disbursed about Rs 1 lakh crore as loans to these projects, which will become NPAs. Q: With so many controversies on allocation of natural resources are cropping up, what is the way to go about it? A: There will be controversies in any process of allocation. Even if competitive bidding/auction is not carried out properly, it can lead to controversies. The natural resources are allocated by the government for various projects as per state and central government policy objectives. The process adopted by the government needs to be followed strictly adhering to the criteria fixed by the government.
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Tax liability on interest from bank deposits
By S.C. Vasudeva Q: I am a government pensioner aged about 78 years. My sources of income are the pension funds and interest from bank deposits. The annual interest from the latter comes to about Rs 11,000. How should this amount of Rs 11,000 be classified in my tax returns for the year 2012-13. Will it be in order if I deduct Rs 10,000 from my total taxable income and add Rs 1,000 to it? In case not, what is the exact position with reference to the relevant regulations? — Surinder Singh A: You can claim deduction of Rs 10,000 from the total interest from a bank on a savings account under section 80TTA of the Income Tax Act, 1961. The taxable amount of interest on bank savings accounts would thus be Rs 1,000 only. I may add that this deduction will be available for fiscal 2012-13 corresponding to assessment year 2013-14. Q: I filed my income tax returns for AY 2011-12 with the CPC, Bangalore. In December 2011 I received a demand letter for Rs 2,000. This demand was raised because I had deposited advance tax of Rs 6,000 but the tax department considered only Rs 4,000, although on its website the advanced tax is shown as Rs 6,000. I filed the rectification the same month, giving all the details. But again in February 2012. I was again asked to deposit the Rs 2,000 demand. I then filed the rectification in March giving all the details. But again in July I received the demand. What should I do now? — Manjit Singh A: You should contact the assessing officer who has jurisdiction for your assessment for the purposes of due rectification. An application under Sec. 154 of the IT Act should be filed with the assessing officer for such correction before meeting him.
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Returns, liquidity, risk must decide asset allocation
A basic rule of wealth creation is investing across different asset classes, or what is called asset allocation. However different assets have different levels of risks and one can address these risks by investing over different investment horizons Sandesh Kirkire
A basic rule of wealth creation is investing across different asset classes, or what is called asset allocation. However different assets have different levels of risks and one can address these risks by investing over different investment horizons. The higher the risk associated with an asset class, higher is the return potential. Just because one is young does not mean one can alone take a higher allocation in risky asset like equities. What if the young person had to buy a house, in say the next two to three years. A large portion of investment into equities at that time may put him at risk. Therefore the investment horizon is a key while deciding the asset allocation. Types of assets The different assets that one considers while creating wealth could mainly be divided into equities, debt, real estate and gold. The least among these in terms of risk is debt, followed by gold, real estate and then equities. Look at it this way: When one is buying equities, one is actually buying a part ownership of the business, and that is the reason why one should look at equities as a long-term investment. However Indian investors tend to look at equities as a short-term investment. This is indicated by the fact that almost 90% of total trades in the secondary equity market segment are in derivatives, and out of the 10% trades in the cash segment, less than 5% are delivery trades. I do not think trading every time creates wealth, holding assets over the long term does. The equity markets have become wholesale in nature. A retail investor would find it difficult to undertake research on a company. A typical research of a company involves creating future assessment of the company's prospects through earnings models based on various assumptions, namely, growth prospects of the economy, of the sector that the company belongs to and that of the company, growth in expenses and consequent growth in profitability. That's where mutual funds come to the rescue. The retail investor can get an exposure to a portfolio with even small sums of money, instead of investing directly. One also needs to remember that mutual funds are really collective pass through investment vehicles and hence they would do as well as the market. All that mutual funds can produce is an alpha on the underlying market. So if the underlying market is negative (that is, the BSE Sensex and the NSE Nifty indices are negative) then mutual funds would also be negative. The one asset class that investors in India are absolutely comfortable with is debt. I think this is the only asset class where the investor himself goes and invests; while, for every other asset class there tends to be an intermediary who would persuade and push the investor into investing. This asset class possibly tends to be the among the safest investment avenues available to the retail investor; and hence offers lower return than the other asset classes. However, within debt there are other investment avenues like debentures. Debentures and bonds Debentures are interest bearing instruments with a finite maturity issued by companies. The risks associated with debentures and bonds are mainly that of a risk of default. Hence they offer better returns than other easily available debt investment options. Also, when interest rates fall the price of bonds or debentures rise and, when interest rates go up, the price of debentures decline. However, this market is wholesale in nature and one can access this market by investing through debt mutual funds. There are different types of debt mutual funds depending on the investment horizon and risk level. There are those, where one can invest for a short duration of say one day. Then there are those where one can invest up to one year. Typically, for investors with the investment horizons of more than one year, long dated debt schemes are recommended. The allocation in debt assets is dependent on many factors, but most important of them is the risk return profile and the investment horizon of the investor. The investor can use debt mutual funds to beat inflation led erosion of assets. Debt investments are also used to provide relative stability to a portfolio. Stability factor This stability factor is one of the reasons why the ratio of allocation in debt assets tends to increase with the person's age. This is because, as the person grows old, that individual's ability to take risk on investments for higher returns begins to diminish. At the same time, the need for regular income on investments also tends to increase as one grows old. These requirements have a corresponding match with the core features of debt assets and tend to be suitable for the investor profile in such an age group. Moreover, different asset classes such as equities, debt, gold etc, behave differently in different business cycles. In the recessionary or moderating environment, as what we are current going through, the debt asset class or gold as an asset class outperforms the other asset classes. In case of growth or high exuberance environment, as what we saw between 2004 and 2008, the equity and the real estate asset classes outperforms the other asset types. It is therefore important to diversify across all asset classes. In closing, successful investing requires will to save a substantial sum; a long term investment plan; the diligence to stick to, and modulate the plan according to times; to invest across the asset classes; and to utilize professional and competent portfolio management services (largely resolved through mutual funds). Therefore, it helps to reassert that a disciplined and systematic approach to investment will go a long way in fulfilling life's aspirations. Happy Investing! [Mutual fund investments are subject to market risks, read all the scheme related documents carefully] The author is CEO of Kotak Asset Management Co. The views expressed in this article are his own
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Higher returns mean bigger risk
You have to decide in the beginning what are your expectations from a particular investment. If you want safety than you will not get higher return and if you want higher return then undoubtedly there is risk inbuilt. The same holds true for returns on any investment in the products vis-à-vis liquidity. Higher liquidity will give you lower return and vice versa. Recently one of our clients came up with illustration of insurance plan and was seeking our advice whether he should buy it or not. He explained to us that he has to pay a premium of Rs 300 per day for twenty years and he will get Rs 2 crore at the end of term. It was very much clear from his discussion that he was not just impressed by the absolute number of Rs 2 crore but also was very much interested in buying the product as his retirement plan. We asked him as to whether he has calculated the annualized return, which he did not. We calculated the return and told him the annualized return is approx. 18% per annum which is too high to expect from an insurance plan. We added if he was expecting higher returns (say double) over bank fixed deposit, then there is undoubtedly higher risk attached to it. We also tried to explain to him and asked him to check the risks attached or any false promise given to him, which is never likely to be honoured. Another client came with a proposal of investment in real estate fund which was projecting expected rate of return of 30% p.a. Interestingly the hurdle was that the return given in the brochure was only 10% per annumand the minimum investment was Rs 25 lakh. The fund tenure was minimum 7 years. The fund was likely to invest funds in debenture and equity of unlisted companies. The presentation of the scheme clearly mentioned risk attached to the schemes. There were five risks mentioned in the presentation such as execution risk, developer risk, man management risk, regulatory risk and financial risk. Instead of looking at these risks, our client was more tempted to invest due to higher rate of return promised to him. One should note that real estate market in India is neither organized nor regulated. Real estate investment requires lumpy investment which is also not liquid. The expectation of higher return without understanding the risk involved mostly amounts to speculation and sometimes leads to big financial loss. Most of the investors invest without clearly knowing the features of the products and also the without evaluating the risk attached to that. You should also note that higher risk does not always mean higher return. Debt and gold are considered to be safer investment whereas investment in equity and real estate are more risky investment. Before finalizing any investment you should know your time horizon. You should avoid investments in equity or real estate if the time horizon is less than five years, and should go for debt instruments for a shorter duration of time. You should also look at tax implications on the profits made on such investments. Therefore it is always advisable to invest with proper study and take informed decisions. The author is head of financial planning at ApnaPaisa.com. The views expressed in this article are his own
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New Delhi, September 23
Leading industrialist and Congress party MP Naveen Jindal has been battling controversy over the allocation of coal blocks. Jindal is chairman & managing director of Jindal Steel & Power Ltd (JSPL), with revenues of US $3.5 billion in the areas of steel, power, mining and infrastructure. In an interview to Sanjeev Sharma, Jindal said the Comptroller and Auditor General of India’s estimate on losses due to allocation of coal blocks does not take into account several factors and that the company has got coal blocks based on its track record.
Wealth creation happens over the long-term and should not be at the cost of giving up one's current lifestyle. One needs to invest in such a manner that the overall return on investment is higher than the inflation. Only then can we see wealth creation. Or else, the inflation would erode away the wealth.
Investors always look for good investment opportunity, which not only gives good returns but at the same time want their investment to be safe and secure. Investors also want liquidity, that is, flexibility to withdraw the funds in case of emergency. It is important to know that you will not find a single product available in the market which will give you maximum of all three, that is, safety, liquidity and returns.
