Shriram Transport Finance Corporation - NCD - FAQ

Q1. What is the Issue Size?

Ans: Base issue size of ` 300 Crore, with an option to retain oversubscription of ` 300 Crore, aggregating to a total of ` 600 Crore

Q2. What is the face value of this NCD?

Ans: The NCDs will be issued at a face value of ` 1,000/‐ per NCD

Q3. What is the frequency of interest payment?

Ans: Series I and Series II NCDs will carry an interest payment to be made on annual basis. Series III and IV NCDs are for cumulative interest options, where the interest will be paid on maturity period of three or five years.
Q4. What is the minimum application size for investment?

Ans: An investor needs to apply for a minimum of  Rs.10,000 or 10 NCDs and in multiples of  Rs.1,000 or 1 NCD thereafter

Q5. Is there any reservation for individual investor investing in this issue?

Ans: Yes. Individual investors in this issue have been classified under two categories, i.e.

Reserved Individual Portion (investment up to ` 5 lakhs) and Non Reserved Individual Portion

(investment above ` 5 lakhs). 40% of the issue is reserved for Reserved Individual Portion and

40% for Non Reserved Individual Portion

Q6. Is demat account necessary for Individual Investors to invest in these bonds?

Ans: The demat account is not necessary for investing in these NCDs. But having demat account would be advantageous.

Q7.Who is NOT eligible to invest in the issue?

Ans: Minors without a guardian name; Foreign nationals; Persons resident outside India including without limitation any Foreign Institutional Investors, Non Resident Indians, Qualified Financial Institutions and Overseas Corporate Bodies

Q8. What is the time period between date of allotment and date of closure of the issue?

Ans: Allotment of NCDs offered to the public shall be made within a time period of 30 days from the date of closure of the Issue.

Q9. Which stock exchange are the bonds proposed to be listed on?

Ans: The NCDs are proposed to be listed on NSE and BSE


Q10. What are the new features introduced in this Issue?

Ans:

(a) Market Making
(b) Reserved Individual Investors have the option to apply for NCDs in physical form
(c) If Individual Investors (Reserved Individual Investors and Non Reserved Individual Investors) hold the NCDs on any record date, they shall be eligible to additional incentive in terms of interest in case of Series I and II and redemption premium amount in case of Series III and IV respectively


Q11. What are the benefits received by investors falling under Category I, II, III & IV as individual investors?

Q12. What is the interest on application money on allotted amount?

Ans: @ 9.00% on application money on the amount allotted, subject to the deduction of Income

Tax under the provisions of the Income Tax Act 1961, as amended, as applicable, to any

applicants to whom NCDs are allotted pursuant to the Issue from the date of realization of the

cheque(s)/demand draft(s) or 3 (three) days from the date of receipt of the application (being the date of presentation of each application as acknowledged by the Bankers to the Issue) whichever is later upto one day prior to the Deemed Date of Allotment


Q13. Who can invest in to these NCDs and what is the basis of allotment?

Q14. What is the issue period and timing?

Ans: Issue opens on July 26, 2012 and closes on August 10, 2012.


Q15. What is the tax treatment of these NCDs?

Ans: For resident NCD holder, interest received would be subject to tax at the normal rates of tax. Long‐term capital gains arising on the transfer of listed debentures would be subject to tax at the rate of 10% of capital gains calculated without indexation of the cost of acquisition. Short term capital gains on the transfer of listed debentures, where debentures are held for a period of not more than 12 months would be taxed at the normal rates of tax.

However, investors are advised to consider in his own case the tax implications in respect of

subscription to the NCDs after consulting his tax advisor.


Q16. Will there be TDS on the coupon interest paid to these NCDs holders?

Ans:

Interest received by the NCD Holders would be subject to tax at the normal rates of tax.

No tax is deductible at source on any interest payable on securities issued by the Company in dematerialized form and listed on a recognized stock exchange in India

In case of NCDs held in physical form, tax will not be deducted at source from interest payable on such NCDs held by the investor (in case of resident Individuals and HUFs), if such interest does not exceed ` 5,000 in any financial year. If interest exceeds the prescribed limit of ` 5,000 on account of interest on the NCDs, then the tax will be deducted at applicable rate. Interest on application money and interest on refund of application money, shall be subject to TDS.

However, investors are advised to consider in their own case the tax implications in respect of subscription to the NCDs after consulting their tax advisor.

Q17. Are the NCDs secured?

Ans: The principal amount of the NCDs together with all interest due on the NCDs, as well as all costs, charges, all fees, remuneration of Debenture Trustee and expenses payable in respect thereof are secured by way of first and exclusive charge on an identified immovable property and specified future receivables of the Company as may be decided mutually by the Company and the Debenture Trustee.

Q18. What happens when an Individual buys the NCD from a Non Individual in the secondary market? Will the new Individual investor get higher interest coupon/redemption premium?

Ans: Yes, the new Individual will get higher interest coupon/redemption premium if the new

Individual is a holder of the NCD on the relevant record date.Irrespective of the trading history of the NCDs, the Individual will be entitled to the additionalincentive in terms of interest in case of Series I and II NCDs and redemption premium amount incase of Series III and IV NCDs respectively, if the Individual is a NCD holder on the relevant record date.

Irrespective of the trading history of the NCDs, the Non Individual will not be entitled to the additional incentive in terms of interest in case of Series I and II NCDs and redemption premium amount in case of Series III and IV NCDs respectively, if the Non Individual is a NCD holder on the relevant record date.

Advantage(s) of Investing in NCD's:

The term NCD stands for Non-Convertible Debenture. It is a form of loan raised by corporates raise to meet their expansion plans and businesses.  NCD is not new for Indian Investors. Many of us are used to investing in them in the past. But the fact is most of us have been looking at NCD as pure fixed deposit. There is a smart way of Investing in NCD. Before understanding the smart way, let us understand some of the basic features of NCD:

• NCD's offer fixed interest for specific duration like 3 years or 5 years. 
• Just like IPO's, NCD's are issued by the company for short period of time. Unlike IPO's, NCD's are issued only at face value. There is no premium. 
• Though there is option to get the NCD in physical mode or demat mode, demat mode is better from 'smart' investment point of view. 
• NCD's on allotment are listed on stock exchange like NSE/BSE. 
• On the stock exchange the listed price of this NCD may keep changing depending on prevailing interest rate conditions. If this prevailing rate is lesser than the rate at the time of allotment  of NCD, then the NCD starts trading at premium. For Instance, Rs.1000 face value NCD may trade at Rs.1100 if Interest rate is reduced. Vice versa is true in a rising interest rate conditions. 
• Investors who hold these NCD's will get the investment value, apart from periodic interest payments. 
• In the mean time, if the NCD's market price is more than the allotment price, Investor can sell them in the market and encash the market premium. 
• Interest is paid only if the NCD's are held on the book closure date for interest payments.

Now the Smart Way of Investing:

• For instance if you invest Rs.100000 in NCD, if the face value is Rs.1000 per NCD, you would have got 100 NCD's alloted.
• If this NCD offers 11. 5% interest rates, then you would get Rs.11,500 as interest once in a year.
• In the mean time if RBI reduces interest rates ( for lending and deposits), then this NCD offering higher interest rates start trading at a premium.
• If interest rate is reduced by 1%, Against its allotment price of Rs.1000, this NCD may trade at Rs.1050. It makes sense to sell this NCD now - since the investor gets 1050*100=105000, fetching him straight profit of Rs.5000 (5%).
• If this investor is smart enough to get his first interest rate and then sell it, then he would get Rs.11500 as interest and Rs.5000 as capital gain. In total he would have got Rs.16500 (16.5%) to be precise.
• Like wise, the below mentioned table would indicate the extent of capital gain on existing bonds, when interest rates fall.

• Above all, unlike Fixed deposits, NCD investors can always exit their investments at any time. They can sell their NCD's either in full or in part and liquidate their investments.

• All these facts make NCD an interesting proportion to invest. When equity market is stagnating and investors donot find anything interesting, Investing in NCD's can be rewarding.

Currently Shriram Transport has come out with a NCD offering 11.4% interest. Probably it may take one to two years for interest rates to get reduced. By then your investment would have appreciated apart from the interest you receive !

Origin of Term "Bull Market" and "Bear Market".

In stock market, a rising market is refered to "Bull Market" and a falling market is sited as "Bear Market". Bull's and Bear's have got nothing to do with stock market. Hence we digged deeper to understand these two terms.

The precise origin of the phrases "bull market" and "bear market" are obscure. The Oxford English Dictionary cites an 1891 use of the term "bull market". In French "bulle spéculative" refers to a speculative market bubble. The Online Etymology Dictionary relates the word "bull" to "inflate, swell", and dates its stock market connotation to 1714.

The fighting styles of both animals may have a major impact on the names. When a bull fights it swipes its horns up; when a bear fights it swipes down on its opponents with its paws. When the market is going up, it is similar to a bull swiping up with its horns. When the market is going down it is similar to a bear swinging its paws down.

One hypothetical etymology points to London bearskin "jobbers" (market makers), who would sell bearskins before the bears had actually been caught in contradiction of the proverb ne vendez pas la peau de l'ours avant de l’avoir tué ("don't sell the bearskin before you've killed the bear")—an admonition against over-optimism. By the time of the South Sea Bubble of 1721, the bear was also associated with short selling; jobbers would sell bearskins they did not own in anticipation of falling prices, which would enable them to buy them later for an additional profit.

Another plausible origin is from the word "bulla" which means bill, or contract. When a market is rising, holders of contracts for future delivery of a commodity see the value of their contract increase. However in a falling market, the counterparties—the "bearers" of the commodity to be delivered—win because they have locked in a future delivery price that is higher than the current price.

Some analogies that have been used as mnemonic devices:

Bull is short for 'bully', in its now somewhat dated meaning of 'excellent'.

It relates to the speed of the animals: bulls usually charge at very high speed whereas bears normally are thought of as lazy and cautious movers—a misconception because a bear, under the right conditions, can outrun a horse.

They were originally used in reference to two old merchant banking families, the Barings and the Bulstrodes.

The word "bull" plays off the market's returns being "full" whereas "bear" alludes to the market's returns being "bare".

"Bull" symbolizes charging ahead with excessive confidence whereas "bear" symbolizes preparing for winter and hibernation in doubt.

In describing financial market behavior, the largest group of market participants is often referred to, metaphorically, as the herd. This is especially relevant to participants in bull markets since bulls are herding animals. A bull market is also sometimes described as a bull run. Dow Theory attempts to describe the character of these market movements.

International sculpture team Mark and Diane Weisbeck were chosen to re-design Wall Street's Bull Market. Their winning sculpture, the "Bull Market Rocket" was chosen as the modern, 21st century symbol of the up-trending Bull Market.

Is "Investing = Equity Investing" ?

There is a huge difference in the investment duration during a bull market and a bear market. Investors who have invested during the recent bull market (2003 to 2007) have been spoilt. They expect a repeat of 2003-2008 now. But the period since 2008 had been a complete contrast in emerging markets. Emotionally, invesors tend to conect with the former much more than the later, though the later may be more important. And many investors think that equity is the only way to beat the street and keep ignoring other asset classes like Gold, Bonds etc. Many investors "Equate Investing with Equity Investing."

Investors need to step back from this kind of madness and take more measured approach. Ideally they need to invest in multiple assets. SENSIBLE INVESTING :

• Does not require ultra fast decision making.
• Requires patience, reflection, intelligent reading.
• Willingness to look at all asset classes with an open mind at times, proper asset allocation.
• Understanding of importance of staying on the side line and
• A determination to pay no heed to 'frenetic activity' of media views on investing.

Ideal time frame for equity investing is till such time market recovers back to deliver positive returns. Remember "Markets can remain wrong, longer than you can sustain". Hence invest that part your investment, which would not worry you, in equity-so that you could wait for markets to recover and deliver positive returns.

Murky Waters - by Mr.Sathish Ramanathan

Mr.Sathish Ramanathan is Head-Equities, Sundaram Mutual Fund. He opines that the Indian Equity Markets is Murky. Hence the chance of quick revival is a distant dream. Experts of his views are:

• No One wants to take "Hard Decisions".
• Policy makers wish to look into "Soft Options".
• Combination of factors : Slow Project Approval, Weak Global Environment, High Inflation and Poor sentiment took toll on India's GDP Growth. It dropped to 5.3% in March 2012 Quarter, which is lowest in nine years.
• Despite correction in Global commodity price, depreciating rupee has put inflation pressure.

What resulted in Rupee Depreciation & Trade Deficit:

• It all started with high oil price. With India being Oil Hungry Nation (importing 78% of our oil needs), government regulated (rather-dictated) fuel price though was precived as populistic - backfired badly. India was selling Oil at price lower than its import price.This resulted in mounting fiscal deficit, along with few other factors like Coal import and Gold import mentioned below. As a result of mounting deficit, Indian currency started to fall against almost all currencies. 
• For instance, Power Plant came up faster than coal capacities could expand, resulting in record import of coal,
• Our diesel consumption is high due to high subsidies in diesel and shortage of power.
• Consumption has led to rupee depreciation : Looks confusing : Higher government spending on higher salaries and lower taxes have impacted in higher consumption. It was so unfortunate that majority of these consumption have been of imported items, resulting in rupee depreciation and hiking trade deficit.

On Consumption:

• Rising agri output and increased support price have further fuelled consumption.
• Real estae price, Higher Gold price and Increased income indicates that the new found richness have been channalized into consumption sectors like Cars, Mobiles and Homes.
• Record trade deficit indicates that India's consumption NEEDS to slow down on some sectors like consumption and simultaneously increase capital expenditure to debottleneck and create capacities.

On Infrastructure:

• Bank's have loaned One-Fifth of their loan book to infrastructure projects, which are typically of long gestation. Delay in these projects execution are likely to delay repayment and hence impact bank's profits.

On China's Slowdown:

• Global weakness was known and it was widely expected that China's exports would suffer.
• But domesting slowdown was not expected.
• A debt surge of US$ 1.7 Trillion for local government and $ 380billion investment in railways have resulted in strong capital expenditure demant to unprecendented levels.
• China is also experiencing the pains of rapid credit growth as India.

On Euro Zone:

• Post Lehman Crisis the epicentre of financial trouble has shifted to Euro Zone.
• Once talked to be an alternative currency to US Dollar, Euro is now being rattled.
• 5 countries among the 17 country which form part of the Euro Zone are in trouble.
• They are PIIGS : Portugal, Italy, Ireland, Greece and Spain.
• So far only Greece and Spain have surfaced.
• The total debt of Greece is US$ 236 Billion, Spain is US$ 1.16 Trillion, Portugal is US$ 286 Billion, Ireland is US$ 867 Billion and Itally is US$ 1.4 Trillion.
• Clearly the problem in Euro zone is bound to continue.
• And there has been concrens raised by countries like Finland which are not happy to pay for other nations debt and mismanagement. They have voiced their preference to break away from Euro Zone and Euro Currency if needed.
• In case of curency breakup, Germany will stand to lose the most, since its currency will appreciate pushing German Companies into recession.
• And also there is a liquidity crisis among European Banks with people pulling out money from Spanish and Greek Banks and putting into stronger German Banks. This trend is continuing and straining the banking system.

To sum up:

• It is hard to be cheerful these days.
• Dramatic Global Slowdown could actually help reduce the inflationary pressure.
• A dramatic fall in commodity price could ease the trade deficit and fiscal deficit.
• Since India is facing election by 2014, there is unlikely to be a thrust towards growth.
• Corporate earning have been marginally negative.
• Lact of corporate initiative to increase capacities due to weak gobal sentiments and domestic clearance issues implies that domestic capacities will not increase, even if required.
• The inevitable slowdowna nd grind downwards would be the long term outcome.
• On Invesment side, money continues to move away from equities.
• Within equties, money is moving from high leaverage companies to free cash flow companies.
• Investors needs to keep in mind : Quick rebound may not take place. They need to understand, appreciate and implement the merits of investing gradually .
• As corporate India reduces debt, improves efficiency and builds for next leg of growth, Investors should be ready to participate in these growth stories.

Ten Golden Rule on "How to avoid stocks with hidden traps"

by Mr.Arjun Parthasarathy, Author of "The Rich Investor"
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A long bear market helps separate the ugly from the bad. Over the last four to five years, investors have seen many of their investments decline by 70-90 percent and above. Many of the stocks that have fallen sharply are likely to have fallen due to over valuations at peaks of market cycle.

However, there are stocks that have fallen sharply due to factors such as corruption scams, insider trading and price rigging, bad accounting practices and low corporate governance standards.Table 1 gives some of the stocks that have fallen due to factors other than the factor of valuations.

All the companies listed in Table 1 have seen high investor interest before the bad news hit the stocks. As an investor, how do you identify such companies? Investing in such companies, where you are ignorant of the hidden risks but get attracted to them, is like swimming in calm waters ignorant of the strong undercurrents.

Investing in such companies, where you are ignorant of the hidden risks but get attracted to them.

Ten golden rules

Follow these rules when making an investment in a stock and you will avoid being caught in traps where you capital is wiped out.

Rule 1:

Check whether the management’s focus is on pleasing analysts, rather than creating shareholder wealth. Pleasing analysts help companies raise funds through qualified institutional placements (QIP). They can prop up share prices by giving out sensitive information to analysts and institutional fund managers.

Rule 2:

Is the company growing revenue and profit but lacking free cash flows to show for the growth?

Rule 3:

Those companies that show a hunger for funds and take any route — debt or equity — are to be studied harder. Such companies will announce grandiose plans for the future but will not have the management bandwidth to handle the planned growth.

Rule 4:

Companies, which figure in the news excessively, spend more time talking to the market than to run businesses effectively. Press conferences, media interviews, analyst meets, and TV appearances all take up the management’s time. Unless the company has a deep management pool, it will hamper the effectiveness of the top executives.

Rule 5:

Does the management have a history of political links? Does it depend on government licenses and policies for revenues? Avoid such stocks as changing political climate affects the fortunes of such companies.

Rule 6:

Always be suspicious of subsidiaries. The more subsidiaries a company has the more the chances of inter-corporate transactions, leading to a wealth erosion of shareholders of the listed company.

Rule 7:

Be wary of high-growth companies in sectors that are the market’s favourite. For example, if there is boom in the IT or infrastructure sectors, there will be many companies trying to ride the boom at the cost of investors’ wealth.

Rule 8:

Diversification into other businesses should be viewed with caution. Companies diversify without having the bandwidth for diversification and they pay the price when diversification eats into their primary business. Fraud companies diversify to get funds through debt and equity and use the funds for other purposes.

Rule 9:

Watch out if the company’s moto is growth, growth, growth. Such companies will falter as they try to grow as fast as possible in the shortest span of time.

Rule 10:

Extra analysis is required when investing in companies that appear to promise the earth. If you are not capable of that extra analysis, forget it. The pain of investing and losing money is much more than the pain of not investing and not making money.

One-time misdemeanour:

One or two bad apples can destabilise even a well run company. BEML, a government owned company, is one such case, as the bad apple was the Managing Director who was suspended on suspicion of corruption. However, the role of the board is questionable in such companies. Investors pay the price for the wrongdoings of one or two employees and the indifference of the board. It is always good to see professionals in corporate boardrooms. But even then one can make mistakes, for example Rajat Gupta, the Mckinsey head who was convicted for insider trading in the US. Such cases one has to live with.

FMP : Confusion about DTC

Fixed Maturity Plans are one clause of Mutual funds which was seen as 'Safe', 'Tax Efficient' Investment option by investors. Thanks to the simple product structure, almost every investor understood and appreciated it. To brush up:

·         Fixed Maturity Plans are those mutual funds which invest in Fixed Interest earning securities.

·         FMP’s differ from other Debt Mutual funds in the sense: The securities invested actually mature on the specified time period and the principal and returns are distributed among investors after deducting the fund management expenses.

·         The advantages of FMP’s are:

o   There is Fixed Tenure of Investment

o   Returns from FMP’s are consistent since there is no speculation involved

o   Dividends distributed are net of Dividend distribution tax (13.7%)

 

Now a new tax proposal under Direct Tax Code seems to be creating some confusion about the taxation of FMP. Let us understand this DTC issue bit deeper.

• Earlier, under Income Tax Act 1961, any asset held for more than one year (365 days) was classified as Long Term Holdings. Accordingly these assets were eligible for Long Term Capital Gain Taxation after indexation benefit.
• But now DTC classifies Assets as Long term, if they are held for more than a year from the end of the financial year when the assets were acquired. For example, if the investments are made in 1st July 2012, it will be considered for indexation benefit, only if it held till March 2014.
• Earlier if the asset is was held till next year 1st July 2013, it was considered as Long term, and hence was eligible for indexation benefit.
• Long Term taxation has been 10% flat or 20% after indexation.
• Short Term taxation is at prevailing tax slab under which the investors income tax account is treated - it could be 10% or 20% or 30%.

Following illustration would make things bit more clear:

8th CII Mutual Fund Summit 2012 : Evolution and not Revolution

Inspite of managing close to 5,50,000 crores of money ( ofcourse down from 7,00,000 crores an year back), Mutual funds donot have any big identity like stock exchanges. AMFI which calls itself as an association of Mutual funds does not come up with any forum to discuss, debate or analyze the MF Industries Growth and progress.

Hence the Confederation of Indian Industry's Mutual Fund Summit is the SINGLE Biggest Annual event for Mutual Fund Industry. PriceWaterhouseCooper Private Ltd (PWC Ltd) has been customarily publishing a report on the MF Industries progress - outlining the growth path for next few years.

Few of their observations are:

• Asset under management shrank by 16.5% from Rs.7,03,669 Crores to just Rs.5,87,659.
• Sensex rose from 14000 ( Feb 07) to 21000 (Jan 08), plunged to 9000 (Mar 09) despite the fact that GDP grew by 9.3% in FY 07-08 and 6.8% in 08-09.
• Between 2007-2009 many funds have delivered positive returns which many investors are not aware of. Inspite of this fact, the AUM has shrunk.
• After the compensation norms have been altered ( abolition of entry load ), the push for MF product has weaked.
• Number of mutual fund has grown from 32 to 44 in last six years, where as the number of schems have grown from 779 to 4473.
• 18 new joint venture or acquisition has happened : which include Nomura, KBC, L&T, Goldman Sachs, Natixis Global, T Rowe Price, Pramerica. This demonstrates that there are many significant global and local players that consider the Indian MF Industry to be attractive.
• Top five cities (Mumbai, New Delhi, Bangalore, Kolkota, Chennai) contribute 71% of AUM with Mumbai alone accounting for 42%.

Key Challenges of MF Industry:

• Unlike LIC model where in the agents were well compensated for their deep penetration, MF Industry operates on OPEN ARCHITECTURE. Here the bond between the AMC and Distributor is relatively weak. An AMC didnot spend beyon a cretain level, since the distributor could then easily use these improved skills to sell other competing products.
• Average size of retail investor folio has been about Rs.35000. And an average corporate Investor folio is about Rs.59 Lakhs. Hence a distributor will need to reach around 170 retail investor to get the same AUM of a corporate folio.

Product Relevance:

• Most investors look at product catering to the following needs : Protection, Retirement, Returns, Upside. Typically Insuarance is for Protection, Bank FD's.PF schemees cater to retirment needs. Hence a MF product is looked purely from returns and upside point of view.
• Following are few aberations which have occuredin connection with products:
• Lack of through analysis of investors needs leads to inappropriate response in term of investment recommendation.
• Preception that long term refers to a period of two to three years, as opposed to more rational view of long term means FIVE to TEN Years.
• An overlap among products make MF's appear that while MF's carry an element of risk, the returns are not differentiated enough from the returns of Fixed Deposits of Banks. The communication by MF Industry has lacked on clear cut differentiators between product classes.
• A commission structure that places MF products at a disadvantage when compares with some other investment products.

Conclusion:
"EVOLUTION and NOT REVOLUTION"served by adopting a cluster of key initiatives in the areas of cost efficiency, productcapacity creation.

• The Indian asset management industry has answered existential questions.
• However, the present scenario demands vigorous innovation and reinvention.
• Wholesale or drastic changes may not be warranted;
• Instead, the purpose may be better
• design and positioning, alternative distribution models, revenue diversification and
• We believe a sensitive regulatory environment will support the evolution going forward.
• Mutual fund products are a natural component of options for all class of investors and will remain so.
• The evolution is more towards gaining a larger mindshare with all key stakeholders including, most importantly, the investors.

Global Rate Cuts : Are we facing another crisis ?

On 5-July-2012, In a span of 45 minutes, the European Central Bank and People's Bank of China cut their benchmark borrowing costs and the Bank of England raised the size of its asset-purchase programme. Their actions came two weeks after the US Federal Reserve expanded a programme lengthening the maturity of bonds it holds. US Fed Chairman has indicated that more measures will be taken if needed.

A Rate cut in these economies would lead to cheaper funds - fuelling up price of commodities and assets. No doubt commodity prices have crashed by 20% to 30% be it Gold or oil or iron ore. Though we are not sure why these economies are so agressive in rate cuts, we asume it is primarily to pull up the demand.

But the problem for India is : rising commodity price will keep the inflation higher preventing any possible rate cuts by RBI. No doubt it is going to be TIGHT ROPE WALK

Bonus Shares

Small Drops Make a Big Ocean:

Many of us imagine that investment starts with big sum of money. No doubt, BIG investments yield BIG maturity value. But let us not under estimate the power of small investments. Following calculations would clearly prove this point:

As you would see, same investment of Rs.9,00,000 spread over a long duration yields higher returns than on shorter period. This is because of compound interest, which Sir Albert Einstein suitably called it as “Eighth Wonder”. The longer you invest / stay invested, higher is the returns.

For the same 20 year period, Rs.15,000 monthly investment would have yielded Rs1.5 Crores. But investing 15,000 monthly for such a long duration could be challenging. Rather than committing huge monthly investments and breaking the process inbetween, it is wiser to opt for lower monthly investment, but for longer duration.

This small, disciplined, automatic, long term investment needs to be apart from active, adhoc  investments which we normally make. Every investor should definitely have SIP's as part of their portfolio. Wealth creation is often a product of discipline.