Syndicate
| Weekly Update ending 14th August |
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India celebrates it's 60th Independence Day tomorrow. It's that time of the year when we take stock of our progress as a nation. Eminent writers will attempt to articulate whether we have made progress and what is the road map ahead. To my mind, we have made a lot of progress and considering the set of conditions we operate in (democracy, Indian philosophy and work culture), I am not unhappy with what we have done till now. And I'm sanguine about the road ahead. It is also a time when we should take a look at the financial sector reforms and progress we have made. Take a look at this informative article by Susan Thomas. Also at an individual level, our personal finance decisions can result in financial freedom or a bondage with debt. The most conspicuous example is credit cards. They promise freedom from carrying money and encourage spending. But they don't tell you whether it is within your means to do the spending. The interests can trap you in a vicious circle. So while we enjoy the freedom we have as a nation, are you as an individual, financially free? In this week's update, we have articles on Where to invest and why, Plan your Money Day, Picking up stocks in Real Estate sector, Where to find the best financial products in India and Will Corruption slow growth or will growth slow corruption. Let us take a look at the events and decisions in repect to your personal finance over the past week Stock Markets: The Indian markets did not remain immune to the sub prime mortgage mess in the US and as a result, the benchmark indices continued to edge lower during the week. For the week ended August 10, 2007, both the Sensex as well as the Nifty lost nearly 2% each.What is this sub prime quagmire? Sub prime mortgage are loans given to people in the US who don't have a decent credit rating. You wonder how such a thing affects the Indian markets ? Well, this is what I could gather. The lenders of sub prime mortgage pass off the risk by creating mortgage backed securities (MBS) and selling it to other Institutions and investors. Then they are mixed with other securities and can be bundled into a collateral debt obligation (CDO) instrument which are taken by Hedge funds. And Hedge funds have investments everywhere. So when they are having losses on the CDO front, there has been a loss of liquidity in the US/European markets. So they need to pull out money from investments elsewhere. That's where India comes in the picture. Anyway, here are the updates in other sectors. Mutual Funds The Asset uder management (AUM) zoomed from Rs 230000 crore in March, 2006 to Rs 486000 crore at the end of July, 2007. SEBI feels that there is a need for a review in the organisation model which mutual funds currently follow as the industry was witnessing rapid growth in assets under management. Currently, mutual funds in the country operate in 20-year old three-tier structure. In the pyramid structure, there is a sponsor at the top, followed by a trustee body and then the asset management company. Insurance IRDA is considering reduction of commission for selling ULIPs. IRDA has accepted wide spread misselling of ULIPs by insurance agents. But they woke up only when some enterprising agents tried to sell them some ULIPs by showing fantastic returns calculations. IRDA stipulates the ceiling for benefit illustration at 10%, while the agents had charts showing 25% and above. Credit cards Are you aware that the interest rate charged by your credit cards are in the range of 35-60%? Well they tell you 3-5% which is the monthly rate and the effective annual rate is arrived at by multiplying it by 12. And there has been another round of increase. The press release tells you about the 0.25% increase which actually translates into an increase of 3%. Banking The fixed deposits in banks increased by over Rs 100000 crore in the first quarter ended June 30, 2007. Now flush with funds, it is likely that the banks would lower the deposit rates to keep their margins intact. And before we end, the wholesale price based inflation stood at 4.45% as on July 28, 2007. And the country's foreign reserves stand at more than $229 billion. |
