World Bank should help India, says Chidambaram

Frankfurt: Finance Minister P Chidambaram has said that the World Bank should enhance assistance to India to help tide over the fallout of the global financial crisis on his way to the G-20 summit in Washington.
''The World Bank can step up lending to India from the present level of three billion dollars a year for Central and State projects and programmes. It is very important that the few countries that are able to drive economic growth and other countries which are put on the bandwagon of development, should not suffer in the period during which we grapple with the world crisis. Resources must be made available to developing countries, including India, so that they can continue to grow,: Chidambaram said.
Chidambaram and Prime Minister Manmohan Singh made a brief stop in Frankfurt, on their way to Washington where the Finance Minister made the appeal.
World leaders are meeting in the Washington to discuss ways to tackle the global financial meltdown.
Manmohan Singh is likely to demand a bigger say for India in financial bodies such as the International Monetary Fund and the World Bank.
He is also likely to express India's desire to cooperate with China, South Africa, Mexico and Brazil with regard to monetary and fiscal policies.

Source: http://ibnlive.in.com/news/world-bank-should-help-india-says-chidambaram/78145-7.html

SIP it or leave it: Take stock of your investments

FALLING markets have turned investors jittery. Even those with systematic investment plans (SIPs) are stopping fresh investments and even redeeming units. Investors are confused over whether to make the best of an opportunity or to stop throwing good money after bad. According one of Mumbai-based certified financial planner, “Investment returns are a function of price and this could be the best price you could get. Any SIP works best when markets are going lower. So, if you have a good scheme, continue with the SIP.”
Although investors are worried about further losses, liquidating units is an absolutely wrong strategy in such situations. What you are essentially doing is buying low now (so you get more units and hence lower average cost). Your returns will be substantially higher when the market turns around. The periods that we are witnessing now are the best to just buy low as these are prices that one cannot expect everyday.
So, what would happen if you hold or quit your SIP? Let’s understand with an example. Let us assume you have been doing a SIP of Rs 2,000 per month through October 2007 to September 2008. The cost incurred by you would be Rs 24,000. But the market value (what you would get if you redeem the units) of these investments would be roughly Rs 15,000 as of now. That simply means you would lose Rs 9,000 or more if you were to divest immediately.
“If you stop the SIP but not divest, the holdings would be worth Rs 18,000 after a year (with 20% growth from here). Instead, if you continue investing through another one year, at the end of one year from now, the investments would be Rs 48,000 at cost and Rs 50,000 at market value. Hence, instead of a loss of Rs 6,000, you would be breaking even,” So, if you have decided to contribute Rs 1,000 for a goal on a monthly basis, and now that you can get more units for the same cost, why would you stop it or rather why should you stop it? Markets could test further lows in the coming days or weeks. However, one thing that we must do is to continue to buy during such tough times because the purchases done in such times deliver the best returns. In fact, this is the time to increase investments. If you are a first time buyer, you need to know your goals, time horizon, how much returns do you need and your risk profile. It’s far more important to know yourself first than to know the investment. Once you know yourself, then you should look out for schemes with a good track record and also the potential to do well. You should not look for a scheme with the highest return, but with a scheme which is consistent in its performance. Also, look at the fund management team and its stability.

ICICI Pru shows the way, ups exit load on FMPs

In order to plug redemptions, ICICI Prudential Mutual Fund has increased the exit load on some of its fixed maturity plan (FMP) schemes for prospective investors from two per cent to as much as five per cent.

Most debt fund managers, industry sources said, are likely to similarly increase the exit load on their FMPs in order to stem mass withdrawals in the future.
“We have done this to ensure that only genuine long term investors are attracted to our scheme and existing investors are protected,” ICICI Prudential Managing Director and CEO Nimesh Shah said.
According to existing regulations of the Securities & Exchange Board of India, fund houses cannot charge more than six per cent to investors who want to exit before the maturity of the scheme. Most of them had opted for an exit load of 2 per cent. The market regulator is also mulling steps to block exits from FMPs.
The move follows the heavy redemption pressure on the debt portfolios of mutual funds in October. The average assets under management (AAUM) of FMPs stood at Rs 1,27,080 crore at October-end, down Rs 10,718 crore since September. Over 25 per cent of the entire AAUM of mutual funds lie in FMPs.
According to another top debt fund manager, a high exit load can be effective in covering losses whenever there is mass withdrawal in any scheme. “Five per cent is enough for a fund manager to ensure that existing investors do not bear the brunt if he has to sell some debt papers at a discount in case of redemptions,” he added.
ICICI Prudential has increased exit load in its Annual Interval Plan series I, II, III and IV. Apart from this, it has also pushed up exit load to 4 per cent in its Half Yearly Interval Plan series I and II. Its Annual Interval Plan II (Institutional Dividend Option Scheme) and Annual Interval Plan II (Institutional Growth Option Plan) witnessed over 75 per cent redemption in the month of October.

Source: http://www.business-standard.com/india/storypage.php?autono=340166

The Rupee and your investments

For some time now, Indians have been warming up to the idea of investing overseas and diversifying their portfolios across geographies. Over the last few years, many international mutual funds were launched to cater to this growing market, which has a combined asset-size of Rs 6,598 crore. Besides, Indians already have a big appetite for universal commodities like gold and silver. And many investors are also increasingly dabbling in commodities such as crude oil and copper. While this is good for your portfolio as it gives you the benefit of diversification across asset classes, and across geographies, it also exposes you to the vagaries of the currency movements. In recent times, rupee-dollar rate has gained significance because of the rapid decline of the Indian currency against the greenback since the beginning of this year.
Says Ramchandran Krishnan, Director and Chief Investment Officer, Barclays Wealth: “When you invest overseas, a part of your returns is linked to currency movements. You can’t be indifferent to these fluctuations.”

The Rupee factor

Currency movements can adversely affect your returns even if your underlying investment has performed well. Here’s how the rupee movements can make a dent on your returns: Suppose, you invest in a US company that pays a dividend in US dollars. Also, assume that during the time you are holding the stock, the US dollar appreciates against the Indian rupee by 10 per cent. If the US-based company declares dividends, it will now be worth 10 per cent more in rupee terms, due to the appreciating dollar. Even if you assume that your company declares no dividend and its stock price remains constant during the same period, you will be richer by 10 per cent in rupee terms. Any appreciation of the foreign currency of the country that you are invested in increases the rupee rate of return. Likewise, any depreciation in the currency of the country that you are invested in, will result in a loss.
Since the beginning of this calendar year, the dollar has appreciated 23 per cent against the rupee as the demand for dollars has increased. Foreign investors began to sell their holdings, and higher crude prices forced oil companies to buy more dollars to fund their imports and repatriate their investments. Had you invested in a dollar-denominated investment (assuming its capital value was constant), your investments would have appreciated in rupee terms in the same period.
But, of course, predicting where the rupee will go against the dollar is a tricky business. Yet, the basic tenet about investing in other countries or international commodities, apart from the fact that the assets should have a strong future, is to be invested in an appreciating currency. If the rupee is going to be strong against the US dollar, it’s better to remain invested in rupee assets such as local stocks.

Twin-edged gain
If you invest in commodities that have universal demand like gold (either in physical form or through an exchange traded fund) or silver, your returns are linked not only to the price of the underlying asset but also to the rupee-dollar value. A depreciating rupee will increase your rupee returns on your gold investments. In fact, many investors have gained despite a fall in the price of gold. While the price of gold decreased 12.3 per cent from $846 per ounce on January 1, 2008 to $730 per ounce (London PM fix) on October 31, 2008, the rupee price actually increased from Rs 33,389 per ounce to Rs 36,136, due to the decline in the rupee against the dollar as per statistics from the World Gold Council.
But not many Indian investors are following the price of gold in international markets or comparing it to the rupee-dollar movements. That’s because Indians have held a traditional fancy for gold that extends beyond just investments—it’s also a sentimental buy. Besides, many Indian buyers are sensitive to the rupee rate of gold. Says Lakshmi Iyer, Head, Fixed Income & Products, Kotak Mutual Fund: “There’s a rupee correlation for gold prices. But Indians buy gold more due to its sentimental value. At very high prices, there’s a stiff resistance to buying gold.”

The overseas game plan

Overseas mutual funds, on the other hand, are mostly dollardenominated, and, hence, their returns are linked to the rupeedollar movement. While there has been a global sell-off in emerging market funds, international funds, too, were affected in the financial meltdown. But a back-ofthe-envelope calculation suggests that in the last one year (till November 3, 2008), the average returns of international funds (with an exposure of over 65 per cent in the overseas markets) were down 43 per cent. This is despite many foreign stock market indices being harder hit, when compared to the Sensex, which is down 47 per cent over the same period. The downside was in part cushioned by the dollar appreciating against the rupee.
The rupee-dollar rate may remain volatile till the global economic situation stabilises; so, investors will do well to keep an eye on the currency market. Savvy investors, particularly high-net worth investors and those who are clued in to currency movements, can also take a hedge against the dollar in the Indian market—which were recently allowed in the country— although currency futures is for the moment restricted only to the US dollar. Says Krishnan: “If you are comfortable with a currency, then you may want to take a hedge.”
However, investors should put on hold investments in foreign equity or other assets such as real estate for now. Says Krishnan: “The global slowdown will affect the performance of overseas asset classes. Investors can look at other emerging markets instead.”
Over the next few months, the currency markets could become more volatile as the global economy goes through the after-effects of the financial crisis. Your portfolio may not necessarily be directly affected if all your assets are denominated in rupees. If you have gold and other overseas assets in your portfolio, keep a close watch on currency movements, unless you are extremely confident of your asset class.

The paradox of rupee returnsHow rupee fluctuations affect your investment.
• If the rupee falls in value, the rupee returns on commodities such as gold increase, (assuming that international gold prices remain constant)
• If the rupee appreciates in value, the rupee returns on gold decline
• An investment in overseas assets will fall in value if the underlying currency depreciates, and investors will tend to lose out
• But a strengthening currency will result in gains for investors in overseas assets such as property and bonds (assuming that asset prices remain constant)