Asset Classes in India

The world of investing may sound like a jungle or another world to a new person entering this field with so many financial terms and products and features. But, at the most basic level there are only as many as 5 different asset classes to invest in. They are:
1. Equity
2. Fixed Deposits/Bonds
3. Gold
4. Real Estate
5. Exotics (Futures and Derivatives on stocks, commodities, currencies and Alternative investments like Wine, Art, etc.)

The products which we hear can all be classified into one of these 5 categories or are a combination of these 5 categories. The marketing departments in financial firms put in a lot of effort to create more combinations of these existing asset classes and sell them as a new differentiated product suited for your need. Stripping them out of the unnecessary jargons, you will essentially flesh out these 5 categories.
Further, if you remove all the cacophony of the noise produced by these marketing, you have to just think and concentrate on 4 key dimensions of investing. These are mentioned in the post here:
http://ajitjagan.blogspot.in/2013/10/know-4-dimensions-of-investing.html

So, dont let fear of the unknown get the better of you when you are discussing or buying a financial product. Just ask them the questions on basics and force their hand to reveal the truth.

Innovations in the washrooms

There have always been television ads on italian/porcelain bathroom fixtures usually showcasing the shininess of the products. And print ads containing attractive females to add to the fixture.

How come none of these bathroom fixture makers ever advertises on the benefits of using their products? Like, the commode whose design enables waste to be cleared with the least amount of water usage per flush? Or the tap which is rust proof/drip proof?

Even after all these years, it is difficult to see why innovations in the washroom space have not yet become common in India. Why cant I have a shower that shows me the temperature of the water coming out of it? Which brand do I have to see if I want commodes that heat up the seats during winter? Do I have a commode that does make sound while flushing? Do I have toilets made of anti-bacterial material? How about a special geyser that not just heats water, but also has an option to make steam so that I can have a sauna bath in my bathroom.

Where are the innovations in the bathroom? I demand euphoria in the most private of spaces to start the day off!

Know the 4 Dimensions of Investing

Investing and analysing investment options can seem burdensome, tiring, boring, confusing, hair-splitting to know everything about it before committing your money to it. Irrespective of what the brokers, sales guys, agents try to push to you as an excellent opportunity for you and your loved ones, it is important to know that they have an inbuilt interest in selling things to you and you have to do your own due diligence. Doing your own due diligence is often spoke about, but some of you may wonder what does this mean and how do you do it.

There are essentially 4 dimensions to understand any investment:

1. Return/Potential Return

I say return/ potential return and not just return so that you are not overly swayed by the superb past returns of an investment, but realise that not all investments will repeat their super duper track record time and again. There may have been a time and environment where something really made great returns, but this time and environment may well be very different. 

A plot in a far away village may not give you a great return on your investment without nothing new happening. But, once it is known that an international airport will be coming in the area, the investment may have great returns. And once all the development is done, the return on investment may not follow the run you saw during the days when the news of the airport was coming. Similarly with stocks. There are good times and great times for companies depending upon a myriad of factors such as demand for the product/service, cost of making things, saturation of product usage, etc.

2. Risk & Return

Each investment has a certain risk to it. Even Govt. owned companies and their shares/bonds have some risk in it. Nothing is risk free. Sometimes the risk is on the return, while on some others, the risk is on the capital deployed itself. One has be aware of the risks and consider the return on the investment proportionately to the risk involved. Derivatives are more riskier than Stocks which is more riskier than fixed deposits/bonds/gold.

Do remember that sometimes even a less risky investment can cause a major loss compared to a higher risk investment.

3. Liquidity

This involves multiple things and is very important but unfortunately not given much importance by many people. Liquidity refers to how fast can you to convert the investment to cash whenever you need it. Another related aspect to liquidity is whether the investment can be used as a collateral against which you can get a loan. Certain investments cannot be given as collateral and no loan can be obtained against them. E.g. Bonds, Fixed deposits in some NBFC (Non Banking Financial Company)s. Some investments may have a lock in period which will limit the ability to sell the investment. Certain bonds have a lock in period before which you cannot trade it in the market. Sometimes, holding a stock/bond that is not widely traded also brings about liquidity problems while trying to sell it.

4.  Tenor

The length of the investment period. At the end of the day, you will need to match the investment tenures to the life's various goals. No point in investing in a 20 year investment that is locked if you don't have money for your other urgent goals.

All investment avenues would have the above mentioned 4 characteristics. You should know these 4 aspects of your investment and competing investments before you make a decision to invest in one based on your life's goals and risk apetite.

All hail the projections!

Bigger image available here: http://epaper.timesofindia.com/Repository/getimage.dll?path=ETM/2013/09/30/17/Img/Pc0170800.jpg

Today's economic times report has an article titled "How clouded is our financial forecasting?"

The picture above gives the GDP growth prediction according to RBI's survey of professional economists sitting in the same financial year and making a prediction of the GDP growth at the end of the current financial year.

The numbers are shocking! If this group can get it so wrong, how will analysts of equity research and other analysts work on their assumptions, which are further derived in some way or another on this data.

I think it is time to employ monkeys to predict data as they have amply demonstrated their skills in the monkey funds.

http://www.gizmodo.com.au/2013/04/monkeys-make-better-stock-market-traders-than-people-study/

Political war of words

Over the last 2 months or so the war of words between Congress-BJP and BJP-JDU have increased, even more so after Modi has been named as the chairman of the election campaign committee. The politicians have been bickering between bad, worse and worst with their rhetorics and idiotic statements which are nowhere near ground realities (A meal at Rs.12/Rs.5/Rs.1). They have tried to compete with each other in making more outrageous and stupid remarks. Probably, the noise in the media (read television news channels, digital newspapers and printed newspapaers) will get even more and become unbearable as the elections due next year come closer.

But, what I am wondering is how much of all this noise actually reach the majority of the voters in the rural areas. How much of it will they hear and how much will they read/hear about and consider it considering the following factors: illiteracy, availability of newspapers, power for viewing televisions, interest in national politics, considering that in villages the head of the village or the head of the house decide which party to vote to power, big political parties throwing money and liquor at the villagers to buy their votes.

Is all the noise generated worth it?

A couple of strong uses for using credit cards

It is advisable for people and their spouses to have credit cards. Either on individual basis or as an add on. There are quite some reasons to it:

1. In case of a medical emergency, the credit card comes in handy for making payments at the hospital. It is true that a debit card will also serve your purpose, but only to a certain extent. An extent to the maximum per daily swipable amount at a Point of Sale (POS). Usually, this is around Rs. 40,000 per day even if you have more money lying in your savings bank account. On the other hand, the whole credit limit of the credit card can be used for making the hospital payment. This limit varies with how premium a customer you are with respect to the bank. At the minimum it will give you some Rs.20,000 worth of limit and can run into a few lakhs too.

2. Having a credit card has other uses also. The free credit period and reward points as mentioned here in this link.

http://ajitjagan.blogspot.in/2011/10/how-to-save-more-by-using-credit-cards.html

The very needed attitude of verifying

In today's fast paced and ruthless world, people usually tend to agree with the stated without any questioning of the fact. When the sales guy in the saree shop shows a 9 yards saree and says it is 9 yards, you trust his word and choose the design and colour to buy. When the investment deposit form says Rs.25000 invested at 13.32% p.a. gets you Rs. 41650 in 5 years, you trust the calculation. When shop sales guy says the table I am interested in is 4 by 3 feet, one tends to strike a match with our requirements in mind and move to other factors.

But, in days of ignorance, marketing and plain lies, you should not trust what you hear on the face of it. In the first instance, when my mom came home and tried the saree, it was 8 yards, not the nine the shopkeeper confirmed it was. His defence on returning, everything we sell is 8 yards as 9 yards. Do look at the below picture: a part of the deposit form from Shriram Transport Finance Company Ltd.: 

Turns out the actual rate of interest in the cumulative option of 5 years is 10.75% p.a.compounded annually, not the high 13.34% p.a. by which I was actually attracted to the scheme (13.34% is simple interest and why would any sane person look for simple interest in a cumulative scheme?). In the third case, the table shown to be was actually 4 by 2.5ft and not 4 by 3 ft. It looked suspicious measuring it by my eye and I asked for a tape to measure it. It was only 2.5 ft by width. The sales guy only had a sheepish smile to respond with.

Such are the various cases of buying in today's world. It usually was in finance, a phrase called "Buyers beware", but in today's case, almost every single fellow is up to tricks fooling customers.

The concept of trust cannot be blindly held. A more sane logic of he is the expert of things and we should trust him also does not find meaning nowadays. The shopkeeper knows that the worst case for him is that he will have to reverse the sale or better, exchange it when they complain. There is a perverse upside to the seller at the cost of the buyer. There are not many ways to get over it as of now, except to be aware and verify things, however untrustworthy you may seem to be.

A mandatory pain in their arse sanity check is necessary before buying to prevent a pain in your arse at a later point in time.

Government's lack of application of mind

The government of India does not seem to apply its mind thoroughly these days. It makes half baked implementation policies. Not many months ago, in the middle of the financial year when the government decided to reduce the subsidies on lpg, it said 6 subsidized cylinders per household, without mentioning whether it was calender year or financial year and whether the subsidy would be provided on a pro rata basis or fresh starting from that month. 

This lack of clarity caused a lot of confusion and harassment to the customers and the sellers of the lpgs (the big 3 Oil Marketing companies). Now, the government has yet again gone the same in another place. Applicability of Service tax on air conditioned high end restaurants from April 1, 2013.

As mentioned here, http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/new-service-tax-from-april-1-ambiguous-on-host-of-entities-like-home-delivery-chains-take-away-joints/articleshow/19313468.cms

the tax is actually to be levied on service, but where is the service element in take aways/canteens/mess, etc.? In the absence of this, many chains including McDonalds have started applying service tax on the bills on the safer side. If the government later clarifies that they are out of the ambit of the service tax and refunds the service tax collected to the companies, as there is no way to return the money back to the customer, the companies would end up making a good profit as they sieze on it.

On another angle, most restaurant business run a scam/sham of getting the customer's money by charging service charges and a service tax on the whole bill which is itself a fraud (by design or ignorance). More on this here:

http://www.business-standard.com/article/pf/how-restaurants-can-overcharge-you-113032600554_1.html

The lack of government's application of mind is helping the people give away more of their money to the already crooked restaurants.

Ironic visions of Companies

It is very rare to see companies these days with the kind of vision that is actually required for the betterment of the humans. Say, a vision of a company in the healthcare industry "We intend to understand, find solutions, eradicate the disease and close down by 2030"

The true purpose of a specialised healthcare company would ironically be the successful conquest of the diseases in the area and shut shop when it is done. Any other reason for its existence raises a stink about its real purpose. Unfortunately, today, most companies are only profit oriented and they actually have the ability and the audacity to slow down the solutions to the market giving out incremental solutions despite having a full solution that can save many lives. And what can anyone do about it as long as these are shareholder and employee friendly instead of being society friendly.

The nature of some of these companies should be more on the lines of UN peacekeeping missions where once the task is done, the mission is closed and the people move on to the next role. Sure, companies can even encourage employees to find one stop solutions and reward the employees with life time salaries and shut the shop. The prize of attaining full lifetime salaries for all employees in the next few years may help the employees reveal such solutions to the market. But, the shareholder/management too needs to be of the idea to support the ironic vision.

Opportunist

If you want to be successful, "You must want the opportunities to come to you all the time!"

The future of missiles

With every almost big country having Missiles and if not, at least RPGs and shoulder deployable ones like stinger missiles, and ever major country developing/deploying an anti-missile shield (with Israel and US leading them), the next generation of weapons needs to be developed. My guess or rather a way to it is developing missiles which can detect incoming anti-missile and rapid change trajectory/direction randomly more than once to shake off the incoming anti-missile. The one who does this can avoid the missile shield successfully. Though it may not be possible to hit the targets which are protected by the anti-aircraft/anit-missile guns (these have a very high rate of fire, and create something more like a wall which blocks the incoming missile; the closer the missile gets to the target and maintains its trajectory, the easier it is for the gun to stay stable and fire at the missile).