ABOUT GOLD PRICES VIS-A VIS STOCK PRICES

Today my batch mate put up a query :"Why the gold prices are going up when the Stocks are also high".

Following is my reply.

I’m actually flattered that someone asked me something except why the M/E scavenge temp is going up.

About the gold ? Well.. ahem!!!

Is it actually linked with stock prices??

It’s never been.

1. Being a scarce commodity , it’s price is only linked to one thing – DEMAND.

2. This demand can come from:

a) Consumer demand like India for festival season.

b) Investor demand like bullion.

c) Shifting of investment avenues from World currencies to commodity.

d) This can happen in case of war- like it happened during Iran –Iraq war, Kuwait occupation etc.

e) Economic uncertainties like at present.

f) If you earned in a particular currency and did not have faith in it like US or EURO- then where will you keep it- obviously in a mode which is reliable, current and is small to hold- you have gold and platinum is catching up.

Just out of the context but if you are earning in USD it makes sense to keep about 5% of yr savings in GOLD ETFs. This mode will help it stay in gold form and not be converted to jewellery ( when you are not watching).

I am also certain that Silver and platinum are also to be held but I do not know how I can take delivery of it in cash and hold on to it till I want.

So you see it is back to MFs.

A Learning Experience

Yesterday my daughter Leo started her own blog.
It's called
http://leoadreamer.blogspot.com/

The first post started with the Preamble of the Constitution India.
The post officially raises her own questions which I have not been able to answer.
Even though she is preparing for her engineering entrances , frankly I would think that she would be a loss of the free thinking world to the fixed thinking world of the engineering/science students .
During her 24 months stay in Jaipur , preparing for her engineering entrance , she had her moments of frustration for her fellow students who just blindly solved questions to get into the colleges since that would get them a "good package".
It is actually to call upon such good minds and be aware of their responsibility to the nation- that she seems to have started her blog.
I hope that she carries on the good thinking and it does not turn out like one of the many blips on the radar of a teenager entering her grown up years.
I wish her the very best....

WHAT HAPPENS WHEN A MUTIUAL FUND AMC IS SOLD OR TAKEN OVER

This is a question that I am asked very often.
Pls follow the link
http://new.valueresearchonline.com/story/h2_storyview.asp?str=101343

>If it does not open then go to home page of valueresearchonline.com and read the article.
This website , in any case must form your daily read for very valuable information on not only investments but a long view of economy as well.
This could very well be the best and most useful site that you would have ever visited.

THR RIGHT TO EDUCATION (RTE) AND us

Yesterday I got a mail from the Principal of my daughter's Alma Mater, proudly stating that te director of the school- a certain Mrs.Jayshree Periwaal has been quoted in the Wall Street Journal.
The understatement that she was the only other person to be quoted beside the PM was also shouted from the roof top. The statement of Ms. Periwaal is as follows:
Quote---
It's not just difficult but impractical from the point of view of providing quality education," says Jayshree Periwal, director of Step by Step High School, a private school with 1,500 students in the western Indian city of Jaipur. "Admitting students randomly without considering their age and academic level disturbs the atmosphere of the classroom," Ms. Periwal says.
---- Unquote.
What a statement indeed!
Firstly , as we know the directors of schools are largely the owners with the pursestrings but not the requisite qualification.
But our Ms.Periwal actually started Step By Step play school in Jaipur and later with Political patronage and otherwise raised (not razed) it to a multiboard (CBSE,GCSE AND IB). She is indeed a gifted teacher and is quite a popular figure amongst her students.
Secondly, the school uses the state property as it's playground and it was basically located in it's prsent form for that reason. Hence her objections are largely unfounded since the state has already subsidised the school indirectly.
I was quite perturbed by her statement and tried to circulate the following message amongst the parents.
QUOTE==
Dear Principal, Parents and students of SBS High

It was indeed a proud moment when the Parliament passed the RTE .
It gives each and every child born in the country (whether rich OR poor, citizen or illegal immigrant who declares herself as the citizen) the right to ask to be educated.
It might come as a surprise to you but even a beggar in the country is a tax payer as (s)he pays the VAT/Sales tax when she purchases any item of consumption. This tax she cannot avoid paying like the millions of rich and affluent businessmen of the country who avoid Income Tax to drive their Benzes. Hence even the children of that beggar has the right to be educated.
It is also a matter of pride that the passage of this important legislation has been applauded by world bodies and government who have pledged support to the Indian Government.

At such a time it seems very sad that the Director of our great school has a different opinion, even if it is in her personal capacity.
It may come as a surprise to all of you that Mahatma Gandhi IB School , Ahmadabad has as a policy matter, 20% of the seats reserved for the children economic weaker section.
In another 5 years we will be having 65% of our population as the youngest in the world.
This population will not be coming out of public OR international schools. In fact a large part of this young population may not be even educated sufficiently.
Hence this the time has come that not only we follow a policy of EACH ONE TEACH ONE , we must persuade the children of our support staff like drivers, domestic help, gardeners, cleaning staff to get education.
In my last 2 years of stay in Jaipur I have witnessed a plethora of excellent social initiatives by the people. These initiatives are either absent in rest of the country or started very reluctantly.

However in this initiative the students of SBS have been largely absent.
Now that the board exams are over for class X and XII- you can take time out from your busy social schedule and help in this noble initiative.
This step of the government is not only noble but will prove to be historic like the economic liberalisation of 1991 or the nuclear tests of 1998.

Be a part of this initiative and be proud of yourselves.
Whatever be the cost of educating this generation it must be borne by us – the few fortunate ones.
Let the Wall Street Journal keep interviewing whom they want- this is our country and we will change it.

Sorry Madam Principal there is nothing in the statement that makes any Indian feel proud. The director has still not earned to be mentioned in the same line as the Prime Minister.

Sincerely Your’s
Rajeeve Kaushik
+91 9799844929
+91 9997704691

==Unquote.

All the readers of this message are requested to kindly pass on this message to as many people as possible so that this noble act meets with some success.

SAVINGS PHILOSOPHY- 4 THE WORKS

Before I embark upon the options of savings and investments, I must clarify one thing.
In the previous 3 postings related to the subject - I have tried to stress upon fulfilling one's basic needs and obviating any risks in terms of health and wealth. No matter what is the quantum of investment or saving one makes.In case of any contingency in terms of life or property the dependents will be left in a lurch causing an outgo from the savings corpus.
Once all these are taken care of , then one must create a emergency fund equal to about at least 3 months of expenditure. This can be taken along with the SWEEP IN facility of a fixed (term) eposit offered by banks. This will allow you to earn a higher interest at the same time as enjoy the flexibility of a savings account.
Once all this has been taken care of then one can set off to the savings and investment phase.
I have taken this as last because this will require your maximum corpus and minimum attention.
No matter what one may say and what you read in the papers or watch on the idiot box. Investment is exactly that "INVESTMENT." - For future.
Before embarking on any savings/investment mode you must decide WHAT are you saving it for. e.g. For your marriage (if you are single), child education if married, home down payment, higher education of self or children or simply retirement.
Taking the last item (Retirement) as first I would suggest you start as early as possible.
This is because the earlier you start- the higher is the corpus that you will be able to build.

SANJIV PANDIYA

Sanjiv Pandiya is a Corporate head of a CFL company in Delhi.He writes well on topics which are contemporary but have strong bias towards predicting bthe immidiate future. He was very right about the economic meltdown and the Sugar crisis. Here is another piece from him that appeared in Mutual Fund Insight:

The probability of the current economic situation producing a mass-scale catastrophe is huge. But there are pockets of sunshine that carry the potential to save the Earth.
Well, for starters, let us rule out ‘consensus forecasts’. The world will not grow on steroids; a second Troubled Asset Relief Program (TARP) in the U.S. will have dramatically different consequences, possibly triggering a currency crisis of unimaginable proportions.
Deflation, Depression
A bond market collapse looks imminent, if a second TARP is announced. Recently, long-t
erm spreads in U.S. government bonds spiked up to 300 basis points (bps), reflecting inflationary expectations. This could accelerate the U.S. dollar (USD) depreciation pressures, exporting various asset bubbles to emerging markets.
The wrong bubble bursting could trigger mayhem all over again, this time from the currency markets. The last time equity markets were collapsing because banks were going bust, this time it will be currency markets collapsing because countries are going bust. The wrong-est bubble would be China, which is already in trouble-making territory. If China hits (asset-price) deflation, it will be new territory for the giant, and also the last straw for a beleaguered world, looking for some peg to pin its growth on. Five years of deleveraging will create such a serious growth freeze, that there can be no orderly withdrawal.
Most certainly, if such a scenario pans out, oil prices will melt down. Iraq is recommencing production, and there are new assets coming online, so there will be more than enough oil to absorb. Capital flows into the Middle East have already eased, after the Dubai fiasco, so they will have to replace them with oil surpluses. This will trigger ‘cheating’ on production, which is more bad news for oil producers.
Low oil prices are not an unmitigated blessing for India. While the current account deficit (CAD) will come down, so will ‘invisible flows’ from the Middle East. More important, it will start carry trading, if the balance of payments (BoP) turns surplus, which will result in fast appreciation of the rupee. This would cause a bubble in domestic assets, especially in stocks and real estate.
The rupee under attack is one of the scariest scenarios that I have for the coming year, at least as far as India is concerned. I am a big believer in the Reserve Bank of India (RBI), but on the other hand, I have also seen how Australia and then Brazil have seen their currencies appreciate.
Gold looks sure to hold firm, with very little to bring it down, even though its nominal valuations look high. All in all, a pretty downbeat forecast, in the face of high equity market valuations. The joker in the pack would be a second bad monsoon for India, in what is predicted to be the hottest year on record. That would create something like a food crisis in India; anyway, the country better get used to precipitation levels that are much lesser than the 95 per cent of the long period average that we have had, in the last 20 years.
Hyperinflation, Recession
This is the second scenario. Inflation skyrockets in the U.S., the USD depreciates and money supply explodes. Bad for equity markets as well as the domestic budgets, but we will survive.
India may not be so badly off, especially if the monsoons hold up. The real problem would be if the rains fail and food prices continue with their upward trajectory. Bar that, we should survive pretty well.
Virtuous Growth
This cannot be my short-term expectation, but over the medium term, I am hoping that something good can happen. Mostly, I am hoping that the clean energy bandwagon will take off. Last year, very quietly, more money was invested in clean energy ($155 billion) than fossil energy. So, the world as a whole has already crossed the Rubicon of the big trend, of clean energy taking over from fossil fuels. With so much awareness floating around, India too will pick itself up and start to trundle towards a clean energy future. Not that it will impact the world as a whole, but in many small ways, very large industries are coming up in the clean energy space and its applications. A Rs 1,000 crore desalination project is coming up in Chennai, the second in the city. A sewage treatment plant is coming up in Delhi, and two water recycling plants have been announced.
Water is an application of energy, not energy itself. In little ways, you can see it already. The McDonald’s Noida outlet has a waterless flushing system, which recycles urine through bacterial degradation. It saves 10,000 litres of water per annum, and uses no energy in waste disposal.
Water is already an issue, centre-stage. If government support for a water market is forthcoming, we will see a very large recycling and conservation industry come up.
I am not so optimistic about energy trends in India but the energy sector as a whole will drive a lot of growth in the capital goods sector. More important, it will be an accelerator for Asian domestic consumption, which could revive at least the Asian economies. China knows it, but India, as usual, is taking its time to understand the clean energy opportunity.
Clean energy itself will shrink gross domestic product (GDP) directly, but it will act as an accelerator for inclusive growth. Take solar as an example: apart from the extra cost of capital expenditure, the variable cost of solar will drop to near zero; once the capital cost is recovered (or subsidized) from the rest of the economy, the direct cost of energy will drop dramatically. This will reduce nominal gross domestic product (GDP), but as the real cost of energy drops, it will draw in such a huge chunk of poor people into the real economy that it will act as a multiplier to the rest of the economy. This is not well understood by governments who think that clean energy is expensive. Just think what free energy will do for water recycling, sewage treatment and water transportation. And in turn, once these are huge, ubiquitous industries, what that will do for agriculture and the rural economy. And therefore build own operate transfer (BOOT) demand. That is one way. Another may be biotech manufacturing.
The End of the World As We Know It
Japan is already bankrupt, so are nine countries in the European Union (EU). The U.S. is on its way, with the EU struggling on. Lots of savers have to lose their savings, and earn it back again. So, people all over the world will save, the velocity of money will fall and nominal GDP will drop. Unemployment rates will spike up, and lots of older people will quietly die in their homes. If nature punishes us and monsoons fail, lots of poor people need to quietly die in their homes.
I limit myself to economics, and I am confused about politics and sociology. If these people choose not to sit quietly in their homes, then the picture gets fuzzy. What (and who) will survive, why and in what form, is something I cannot guess.
I know for sure that water could trigger mass scale riots in India, followed by unprecedented human losses, which will make Partition look like a party. We need a water recycling industry as soon as possible, and more important, a water conservation culture. In a country where even Priyanka Chopra argues that water should be free, it will take some time to get home the point that something can be ‘free’ only when it is provided by nature. Clean water is no longer provided by nature; even if it is, it has to be treated and moved to the point of consumption. That is an application of energy, and has to be paid for. The costs can be managed, but only if the industry becomes exciting, a lot of smart people are driven into the industry and then innovation drives the real costs down. None of this will come free.

SAVINGS PHILOSOPHY- MUTUAL FUNDS

After you have taken the insurances and covered yourselves against unforeseen risks, now is the time to save for an emergency.
Try to have about 3-6 months of expenses in in a savings or SWEEP in account.
Do not touch this saving till you need in case of quitting a job or losing one.
Now is the crux of the entire story that I have been unraveling.
We must use the path of mutual funds for all the savings that we intend NOT to use for long time.
The experts will tell you that 3-5 years is a LONG time- not I'll say till the important stages for which you are savings have been achieved.
The Mutual fund that I'm talking and the ones that I've tried out are the Open Ended DIVERSIFIED EQUITY ones.
Their advantages being:
1. You can invest as much and as less (as Rs.500) you like.
2.You can invest systematically (ever month , every week or even EVERYDAY).
3. You will not need to withdraw without needing - as there is no maturity.
4. You can use it as a pension plan , Child education or any other purpose as you like- even repatriating it if you've invested as a NRI.
5.There is no entry load (commission) on these investments now.

The mutual funds invest it in the stocks of various companies. As the no. of companies is fairly large your risk is quite spread with the various companies and sectors.
One must invest in a maximum of 7 funds.
Few axioms that I give to my colleagues on board ships is:
1. Never invest in a NFO (new fund offer).
2. The fund that you select must be at least 3-5 years old and a proven track record.
3. Avoid Sector funds and invest in diversified equity type.
4. Invest with a second applicant (being a close family member) on EOS(either or survivor)basis.
5. Use the option of nomination.
6.Put a common email address while filling the forms of all the mutual funds.
7. For dividends or redemption use the DIRECT CREDIT TO BANK option. This will expedite the process of getting your money.

For more learning on the subject, visit valueresearchonline.com - it is the virtual bible of the mutual fund industry and will be very helpful for selecting your funds.

SAVINGS PHILOSOPHY- 003 INSURANCE

SAVINGS as a definition that I read somewhere, means , a deffered consumption.

So once you have a job and before you have your first pay in hand, the first requirement as per Abraham Maslow's pyramid you will have to pay for the "ROTI"-yes even before the first pay check.

Then after the first paycheck comes to the bank it will be the "KAPDA", unless of course papa has been generous.

It is from the 3rd constituent, that's right, THE MAKAAN, that starts our vicious cycle of savings and the same being never enough.

So let us first understand that to save we must always start from our very first pay check as that will instill in us the determination of our purpose.
You might ask me that there will be taxes to be paid, insurance to be done, etc. etc.


We'll take all of them into consideration.


First , if your remaining salary allows you and your employer does not provide for your insurance- go ahead and take a TERM INSURANCE of AS MUCH sum assured as possible.


As you must have found out by now- term insurance is the cheapest insurance of securing your income for your parents or dependents at this stage.


It is important to understand that any other form of insurance is expensive and even if you are assured money at the end of maturity - it is your own money that is being returned at a very very less appreciation. We will soon see that this excess premium that you will save will earn more for you than from the insurance.


So go in for a moderate amount of coverage (the premium that you can afford) but for maximum duration that is offered- later you can take an additional policy when your salary goes up.


The beneficiary at this stage can be your parents/dependents and can be changed later to your wife/children etc.


Second type of insurance that you must goin for is a health insurance (that is if your employer does not cover youin some form),You can take a floater policy soas to cover your dependents.


Third insurance that one must go for is a householder's policy if (and when) the house is your own.





After doing the above you have covered all the risks,eventualities, emergencies that could have led to any outgo of your limited resources. You can keep adding to these 3 types of insurances as your income and responsibilities grows.

You can take specific health insurances for cancer, diabetes, specific women insurances.

There are also health insurance products from some life insurers where you have a very large amount as sum assured and the policy premium remains constant for the entire period of the policy.

It is important to understand that the premium is a factor of your age hence it is best to secure yourself early in life- that is the philosophyof planning- always for long term.So that you have more money to spend at the most important juncture of your life.

SAVINGS PHILOSOPHY- 002 MY DISCLAIMER

In the world that we exist it is difficult to do anything with a noble intention without raising doubts about ones own interests. Hence I must, prior to commencing my 'odyssey' , make a few disclaimers so that you can rest easy while you read :

1. I am not a certified adviser for the purpose of any investments , as such I do not work in this field for myself or any company.

2. From the above it follows that I will at any stage be not directly or indirectly rewarded for any of your investment decisions if you share them with me.

3. My endeavour is simply to raise awareness about different financial products available in the market as I understand them and the plans that you can adopt.

4. I will use simple mathematical tools to explain why we must chose one product over the other. Final decision and plan must be your own.

5. I will not reveal to you the investment schemes that I hold so that you do not get influenced by my decisions - after all you must be responsible for your own decisions and be credited with the gains that you make or the losses that you incur.

Shall we start?
Light , Camera ,Action.... Roll over to 003

SAVINGS PHILOSOPHY- 001 MY AXIOMS

There are a lot individuals and companies making money by making money or seemingly attempting to make money for other people.
This reminds me of a very old saying " Fool and his money are soon separated."
Then where does that leave us in the complex maze of financial world today.
With the goverment offered hi interest products being out of the market since last 7-8 years, today one has to fend for oneself.
I have spent past 23 years getting the jist of this maze and trying to get to the other end of the entangled thread (the cliche'that I will use very often on this blog), after all providing the means to one's family is the first step to being holistic.
If you are a well versed individual who has made a big buck in the field of stocks- THEN THIS POST IS FOR YOU.
If you are a recluse, happy contented person with the savings in a nice FD with a nationalised bank -THEN THIS POST IS FOR YOU.
If you are a rational person trying to make modest returns on your hard earned money and also provide for your age old pension-THEN THIS POST IS FOR YOU.

I ENUMERATED MY REQUIREMENTS AS FOLLOWS:
1. The process of savings must be simple and assured by the law of the land.

2. The savings must be able to be build slowly and steadily in form of a SINGLE corpus, so that you can account for HOW much money you put WHEN and how much is it worth NOW.

3. You should be able to save as much as you HAVE, or want to without any commitment or penalty.

4. You should be able to withdraw AS MUCH as you NEED, WHEN you like- in the easiest and safest possible way- with least possible running around. With NO TDS or penaalty.

5. Your savings must be able to grow MORE than the inflation and in keeping with the times ( I should not be disadvantaged in the sunset years of my life with having saved less than my requirements).

6. You should be able to get the flexibility to terminate or switch the savings if the return in future do not give you expected return.

7. You should be able to put any windfall gains into the same channel of your savings that you have been following.

8. In case of being an NRI you should be able to invest on a REPATRIABLE basis.

PROFILE IN COURAGE- BABAR ALI

Very often we come across people and news about people that inspires us.
Sometime it happens that the ideas of these people also make us feel insignificant and sometimes stupid .We think that we always wanted to do this but never could.
Babar Ali is one such teacher and a 16 (yes it is 16)year old head master in Murshidabad district of West Bengal.
Himself from a very poor family , he started teaching the poor and deprived children of his village who could not travel 16 kms. that he travels to reach his own school.
From the age of 12 , he started teaching his very own age group and peers, in the way that he was taught and by making some improvements in the methodology.
Rest of the story you can read on the net by searching"Babar Ali School."
What is important is that it is something you and me thought of doing all this time but did not do it.
Probably because I was afraid of missing the world go past while I served in wilderness.
It is such a simple idea- that any of us could have carried on.
...however I'm happy a teenager with everything stacked up against him has taught me that the simplest of the ideas have the power to become most efficient .
Thank You Babar!

I wandered lonely as a cloud....

At the start of the last winters , circumstances conspired in such a way that I was once again came across some 'daffodils'.
It unfolded in a particular form of lifestyle (that I will not name- so that people do not develop a prejudice to it because of the prejudice they may have towards me).
However this particular form helped me another step in trying to tie up the ends of my HOLISTIC beliefs.
I have always believed that for a person everything that he thinks and does is linked to the outcome of his daily and even immediate happenings.
What he thinks when he gets up and eats for breakfast definitely has link to his performance during the day.
Sorry, I made a mistake - with 2 ladies at home I have to be politically correct and say HER instead of HIS.
Our sudden attack of sinusitis or migraine is definitely linked to what we ate in the morning, which side of the bed that we got up from, how we cringed at the site of that gruesome murder reported in the paper... this all this ends up on our desk for problem solving at 11:00.
Then again the small signals that we ignore in our daily life are the ones that make up our final 'WHOLE' .
Being the son of a dexterous homoeopath- I was introduced to the various human body constitutions , quite early in life - I learnt how just one medicine can treat the person of various ailments that one may not even know that existed.
It was so shocking to learn that my destiny was taking me to work in an environment (physical) which would actually treat my chronic cold . The salty air , I was told by my father was actually the medicine for my cold.
It happened!!!
Now to be back to the experiment that I mentioned in the beginning.
This skill or exercise that I learnt- taught me to treat the 2 sides of the coin 'just the same'(Kipling again). However this was not in the philosophical sense- not those big talks of treating good and bad times equal etc.etc.
This was actually about treating the physically opposed things as same. Painful and good sensations were to be treated equal in actual physical and metaphysical sense.
Then I thought that if this were true then I must try out this theory immediately .
Hence the idea came to try out the opposite in the winter season that was ensuing.
Starting from taking bath in cold water and sleeping with the same type of covering as in summers I tried out the theory.
I would like to emphasize that this was not to show off and the element of 'tolerating' the cold was not to be there.
The results surprised me. Not only I was comfortable in Dehradun , in a T-shirt in the month of December - my famous 45 year old cold also kept away from me. The nagging headache that I used to have after exposure to low temperatures was missing.

Now that the summers are looking up here in Jaipur- I'm still comfortable in the same clothes and 'treating' the environment just the same.
I know Girish is laughing- since he's been in a T-shirt for last 40 years and teasing me.

HAPPY HOLI!!!

THE ANNUAL FESTIVAL

No I'm not talking about Holi or BARAWAFAT- was referring to the presentation of the Union Budget.
Not only does it give a perpetual topic to the "aam" gentleman "aadmi" of the country who decide everything from the India cricket team to the Indian Foreign Policy (except the mundane matters of bringing up the family). It give the Print-Media to fill up the unending pages of the ONE RUPEE newspaper (that costs Rs.12 to print).
It also gives an opportunity for the electronic media to fill those unforgiving minutes (as Kipling said) and invite tuppenny brokers, economists and politicians to their channel.
So strong is the attraction and presence of this annual festival that even my hair dresser asks if he should invest now or after the budget.
In fact a close friend from Dehradun asked the same question yesterday.
Today after the budget was nice and properly out and printed- people were not lauding the extra tax savings that the FM gave them- they were lamenting the rise of fuel prices by Rs 2.76.
Even my father-in -law mourned on the 4800 rupee rise of the vehicle that he's buying.
Did anyone hear a word when everyone's salary's were rising 40% after the 6th pay commission.
But then a person like me who's never paid a paisa as income tax has no right to comment.

However being a strongly democratic country (especially in terms of asserting our rights)- guess it is alright to celebrate this secular festival in times when wishing someone a Happy Holi becomes a risky considering the husband and wife may hail from different beliefs and it may be politically incorrect ( and hazardous) to do so.