Wednesday, November 29, 2006

Invest in gold for good reasons

Ashok Mittal of Karvy Comtrade and Sunil Kashyap, managing director of Scotia Mocatta give their perspectives on how to trade in gold now and on where gold prices are headed.

Ashok Mittal expects the upward movement in gold to continue for some more time. He feels that this is the ideal time to invest in gold as people will make some good money in it. He does not expect the rupee to strengthen further hence there is not too much currency risk on the downside when the investment in gold is converted into rupee terms.

Sunil Kashyap expects gold to be rangebound for the rest of the year. He says that in the medium term, continued dollar weakness could bring some amount of strength for gold.

Excerpts from CNBC-TV18's exclusive interview with Ashok Mittal and Sunil Kashyap:

What have you been observing on the gold front and what kind of opportunities do you see in the local market to trade that commodity?

Mittal: I think like the equity market, gold, silver and crude oil are also going up. We have seen a good amount of rise in the last week in gold when it went up about USD 612 to about USD 637-638.

We expect this upward momentum to continue for some more time in gold and we are targeting international levels like $646 and $655 to come.

How would you translate that into a strategy in the local market?

Mittal: I think if somebody has to invest in gold, now he has to invest in the February contract, which is running approximately around 9380-9390 levels. So current levels or maybe some dips towards 9320 levels or so should be bought for a target of about 9460 and 9600.

The major reason behind this is that we do not expect the rupee to strengthen so much because RBI has been holding up the rupee from appreciating too much. So the currency risk is not much on the downside, when we convert  the investment in gold into rupee terms.

Gold has weakened against Euro in the last one week by about 300 points or so and the data, which has come in US is not really supporting too much in terms of US economy being improved a little bit. So the outlook on US economy remains a little bit of a concern for most of the economists as well as their own Central Banks.

So I think, it is good to invest in gold, to buy and hold it for some period of time and wait for those levels to come. I think people will definitely be able to make some good money in this.

Gold has fallen from its 11-year high, what is your expectation now, where will it find its range?

Kashyap: It is still looking for some level of support. We have seen some move back and we are seeing some support this morning coming in from the fiscal markets. So we will be moving up slowly from here but it will basically be range bound, going forward for the rest of the year.

What is the expectation going forward from the dollar particularly considering the fact that there is always synergy in the kind of movement that both these commodities see, going forward?

Kashyap: The dollar has been obviously under attack for the last 5-6 sessions and there is continued dollar selling going on. Going forward, the dollar may recover somewhat as there is some technical pullback. But the medium term scenario will see continued dollar weakness and therefore some amount of strength for gold.

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Invest shares in Sobha Developers (SDL)

 Sobha Developers (SDL) is among the leading real estate developers in Bangalore and it is expanding into other markets like Kochi, Chennai and Pune. The company is tapping the market with an issue of 8.89 million shares in a price band of Rs 550-640. At the higher end of the price band, the issue will add up to Rs 570 crore.

The company will utilise the proceeds of the issue to acquire land and complete some of its projects currently under execution. The company hopes to scale up its operations manifold over the next few years. Given the company’s prospects and high interest in the real estate sector, investors can consider subscribing to the issue.

Profile: SDL has two major lines of business — real estate development and contractual business. As a real estate developer, the company acquires land, builds commercial and residential projects and sells them.

As a contractor, the company’s primary role is to construct buildings for others. So far, the bulk of SDL’s contractual business has come from Infosys. SDL developed 4 million sq ft of space last year; of this 1.6 million sq ft was as a real estate developer, while the remainder was on contract.

Since its inception in 1995, SDL has developed and built close to 2.98 million sq ft of space as a developer and built another 8.42 million sq ft on contract. Of the contract business, almost 90% has been for Infosys.

The company also has a manufacturing business that includes furniture and interiors. This accounted for sales of Rs 88 crore in HY07. The company recorded a net profit of Rs 89 crore in FY06 and Rs 54 crore for the six months ended September ’06.

SDL recorded a total income of Rs 628 crore in FY06, up from Rs 205 crore in FY04. For the first half of FY07, it posted an income of Rs 533 crore. The real estate and contractual businesses accounted for 80% of its turnover — this was split in the ratio of 2: 1 between own projects and contractual projects.

Prospects: SDL holds land reserves of 2,593 acres and has entered into agreements to purchase reserves of 3,456 acres. The owned reserves translate into development rights of over 118 million sq ft — the company hopes to complete these over the next 7-10 years. But execution could be a cause for concern, especially since the company plans to expand to other cities.

Valuation & Recommendation: A real estate consultancy has valued SDL’s land bank and land arrangements at Rs 6,200-Rs 7,300 crore. Based on the issue price, SDL is valued at Rs 4,660 crore at the higher end of the price band.

For the first six months of FY07, the property development business accounted for just over 50% of the company’s turnover. This will increase significantly, given its expansion plans. The realty business enjoys higher EBITDA margins of 30%, against 18% for contractual business. This could result in improvements in profitability.

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Review of buying shares of Plastiblends Plastic company

 Plastiblends is India’s largest producer of masterbatches for plastics. The Rs 92-crore company is part of the Kolsite group formed in 1962, which also makes plastic extrusion machinery. The latter business is carried out through a separate company called Kabra Extrusiontechnik. Masterbatches impart colours and special properties to plastic raw materials and end products.

At the current market price of Rs 170, the company is quoting at a P/E of 9.2. Its P/E is less than that of its competitor, Poddar Pigments, which quotes at 10.9 times. The company’s valuations look attractive on various financial parameters. It is a near debt-free company and its share price is quoting at a dividend yield of 3.8%.

It has grown its topline at a CAGR of 10.4% over the past five years, in line with the long-term growth rate of the plastics business. Its PAT has grown at a CAGR of 18.2% over the past five years. The company expects to grow its earnings at historical rates, going forward. EBITDA margins have stayed above 10% in the past three years.

The masterbatch business is set to grow at 10%-plus rates and Plastiblends will benefit from this growth. But the key challenge will be ‘product obsolescence’. Over 80% of its sales are from new grades of masterbatches, while the rest are more than three years old. So, there’s a need for innovation and R&D. The company has a track record of making 450 types of active grades of masterbatches and has developed 1,125 grades till date.

Business: The company produced 15,652 tonnes of masterbatches in FY06, compared to 15,385 tonnes in the previous year. Its capacity, at 24,000 tonnes a year, had a capacity utilisation of 65.2% in FY06 compared to 70% in FY05. The company has embarked on an expansion plan.

The capacity at Daman is being increased from 24,000 tonnes to 35,000 tonnes in phases by March ’07. A new unit at Uttaranchal will be operational by April ’07. Its customers among polymer producers are Reliance, IPCL and Gail, while its customers among polymer processers are Supreme Industries, Haldia Petro, Cosmo Films, Garware Polyester and Max India.

Industry: The masterbatch segment is growing faster than the plastic industry, at a CAGR of 15%. The plastics industry has been growing at a CAGR of 10% over the past 10 years.

The industry consists of two major segments — white, black, colour and additive masterbatches and antifibrillation masterbatches. Plastiblends has a market share of 12% in the white, black, colour and additive masterbatches segment.

This is a high-value segment with a market size of 60,000 tonnes, valued at Rs 600 crore. Its user industries are packaging, plastic products, pipes and films. In the antifibrillation masterbatches segment, Plastiblends has a market share of 10%.

This is a low-value segment with a market size of 1,00,000 tonnes, valued at Rs 250 crore. Demand in this segment has risen over the past 1-2 years due to increase in polymer prices and a rise in percentage loading of filler masterbatches from an average of 5% to 15-20%.

Financials: The company posted sales of Rs 92 crore for FY06. Its topline grew by only 2.8%; PAT grew 31.1% to Rs 10.4 crore in FY06. For the half-year ended September ’06, sales rose 30.9%, while PAT grew 47.5% to Rs 8.4 crore. Exports rose by 50% to Rs 15 crore in FY06. The US and Europe present outsourcing opportunities in masterbatches.

Investing in Private equity funds

 Private equity (PE) investors are becoming increasingly active in the domestic secondary market. While earlier, private equity was often intended for unlisted companies 1-5 years away from an IPO, these days, there are quite a few private equity funds who mainly concentrate on only listed equity. A PE investment in a company may make the firm more attractive for ordinary retail investors as well.

PE funds typically enter a company through preferential allotments. Listed companies are allowed to issue a small portion of new equity to a select group of investors, without having to do a public issue. You may well ask — if a PE fund has to buy listed equity, why not buy directly from the market? After all, it is possible to quietly amass 5% or even more stakes in listed equity without too much impact cost, if done astutely.

PE funds avoid secondary market purchases, in line with their basic philosophy. They prefer a deeper involvement in companies they invest in, compared to other large investors who invest through the secondary market, like mutual funds (MFs).

PE funds say they like to invest in companies ‘which are in break-out stage’ — or likely to increase sales at a very rapid stage over the investment horizon of the PE fund. Since PE funds typically look at a 3-5-year holding period, they look at companies which will grow in size by 2-3 times during this period. In other words, they look for aggressive growth stories.

The other part is — these companies should also be available cheap, otherwise the PE fund doesn’t make its target return. The target rate of PE funds is typically higher than MFs. PE funds look for 25% or more annual return, whatever the state of the primary market.

MFs, on the other hand, will be happy with a return of 15% per annum. Don’t confuse this with the returns we have seen in the past 2-3 years. This is an exceptional period. The Indian equity market, in general, will give 15-20% returns. In other words, PE funds are looking for above-market returns.

How does a private placement enable this better than a secondary market purchase? The answer to this is simple — information. While even MF managers talk to companies, PE fund managers have much better access to information.  They are shown growth plans in detail, including internal financial projections. Often, the PE fund manager works together with the target company to make a business plan, approves the funding required, and then participates in the funding.

The PE fund manager thus has access to private information on listed public companies. However, MF managers or ordinary retail investors do not have access to that sort of information.

PE fund managers also typically take a board seat, and are deeply involved in running the company. So, there is greater oversight.

This also serves to increase corporate performance. These days, there are PE deals every week, if not every day, in listed equity. If you get to buy at the price the PE fund manager is buying, theoretically, you increase your chances of beating the market.

However, there are caveats. Not all PE deals make money, and perhaps not all PE funds make the desired return. Data from the US clearly shows this. The Indian market is too nascent, and we haven’t come across studies of performance of PE funds which invest in secondary markets.

However, at a practical level, retail investors may want to keep an eye on PE deals. There should be a higher proportion of companies likely to give above-market returns there, compared to the overall market.

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Tuesday, November 28, 2006

Be safe when shopping online

Marsha Colliers only shops online during the holidays. And she doesn't limit her purchases to socks: In past years she's bought $800 worth of mink coats, a yellow Chevrolet SSR shipped from Rochester, NY, to her house in Los Angles and a timeshare in Miami Beach, Fla. "I'm never that guy who stood all day in line to get the sale," she says. Colliers has also never been scammed.

Colliers, author of Santa Shops on eBay, says she can land online deals without getting ripped off because she's an extra-cautious cybershopper. "I work hard for my money, and I don't want to be at risk," she says.

Holiday season is bonus time for Internet thieves, who troll the Web for credit card numbers and passwords. Last year consumers spent $30.1 billion holiday shopping online, a 30 per cent increase from 2004, according to Nielsen/NetRatings' Holiday eSpending Report.

Analysts expect online sales to grow even more this year. Yet according to new data by Forrester Research, only 45 per cent of Americans believe online shopping is safe and even fewer trust Internet retailers.

Their instinct is correct: Customers looking for holiday deals may be most at risk, as budget brands and lesser known retailers are more likely to trade off security for low prices. Hackers embed malicious software into insecure sites, designed to steal customers' financial information. More online shopping means more credit card numbers to steal.

As more consumers do their holiday shopping online, the thieves are bound to follow. But there are things shoppers can do to reduce their risk. Here's how to avoid getting more than you asked for this holiday season.

Before you even start shopping, update your computer security. Shopping online without protection is like wearing your ATM code and bank account number on your shirt. Fend off thieves by installing firewalls, anti-virus software and security updates to your browser.

Make sure you're shopping from trusted sites, says Steve Salter, vice president of the Better Business Bureau's online division. "General purpose search engines don't filter results for quality," he says. Do that homework yourself, Salter suggests, by researching sellers on the Better Business Bureau's Web site and reading feedback left by past buyers. Look for clues on the site itself, like certifications from companies that audit online vendors like TRUSTe and Hacker Safe.

For particularly expensive purchases, Colliers will even call the store. When she found a good price for a refurbished Rolex watch, she called directory assistance to get the seller's phone number. The seller turned out to be a family-owned Florida jewelry store. Colliers talked to the owners about her purchase. "You need to know what you are buying," she says.

Ask a lot of questions, advises Megan Howie, programming director for Time Warner's AOL Shopping. If a site doesn't seem legit to you, it's probably not. No one's forcing you to buy a $1,500 computer at Go to a more established vendor.

If the amazing deal seems too good to be true, it probably is. It's important to remember that you're not guaranteed to save money online. Hot--and scarce--holiday items like Sony's new PlayStation 3 or Mattel's Elmo TMX can cost more.

Even items that aren't in high demand still shouldn't sell at unreasonable discounts. Software that's discounted 75 per cent is usually counterfeit, says Neil MacBride, vice president of legal affairs for the Business Software Alliance. In general, expect online prices should be closer to 10 per cent or 20 per cent off retail stores' pricing.

Before nabbing that great deal, make sure you read the fine print. Understand the seller's return, exchange and delivery policies, and read the privacy policy to learn how the site will share your personal information.

Now that you've done your homework, it's time to spend. Never, ever send cash to anyone, no matter how good the deal. As soon as the bills are out of your hands, they're gone forever. If sellers don't offer an online payment service, like eBay's Paypal, pay with credit card, not a debit card, if possible: Credit cards give you a chance to review the charges before you pay and dispute them if necessary.

When paying, look for a sign that the website is secure. Encrypted sites show special icons, usually locks, in the browser URL window or the URL changes from http to shttp or https.

After buying save all records relating to the transaction. This way, if there's a problem, you have documentation.

All theses warnings shouldn't discourage customers from shopping online, caution experts. If you shop safely, the risks are minimal, says Howie. "Online has really grown up quickly," she says. "There's really no reason to fight the crowds."

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The Plan for Union Budget 2007-08

With the Union Budget for 2007-08 less than 14 weeks away, North Block is full of Budget talk. A new team is in place in the finance ministry to steer the Budget work.

Officers are busy compiling the revised estimates of expenditure for various Central ministries. The real work on the next year's taxation proposals and the budgetary support for Central expenditure has not yet begun.

Which is why this is also the time when finance ministry mandarins have the luxury of stepping back to take a detached look at the budgetary exercise in recent times and reflect on what direction it might take in the future.

For Palaniappan Chidambaram, this will be his fourth Budget as the finance minister in the United Progressive Alliance government. If one includes the two Budgets he presented in 1996 and 1997 as the finance minister in the United Front government, his tally in Budget presentation would go up to six.

Most officers are unanimous in their view that Chidambaram would be most remembered for slashing the income-tax rates to 30 per cent - a level that all finance ministers succeeding him have acknowledged as the benchmark rate for taxing incomes of individuals and corporate bodies. Minor tinkering has happened, but the basic rate has remained stable at that level since 1997.

Chidambaram would be remembered for yet another achievement of sorts. He has brought into the statute book the largest number of new taxes in the five Budgets that he has presented so far. He started with the minimum alternate tax in 1996 to tax the companies, which were using various exemptions to report zero tax liability.

Then there was the securities transaction tax - a levy that was imposed on the sale and purchase of securities, including shares and mutual fund units. The third new tax he introduced was a levy on withdrawal of cash from banks above a specified limit. And his fourth initiative was the fringe benefit tax.

Each of the new taxes he introduced was controversial. They evoked sharp reactions from different sections of society. He made some modifications to the original proposals, but at no point did he consider dropping them in view of the criticism.

Over time, all these taxes have come to stay. In fact, these new taxes provide him handsome revenue every year. So, even while slashing tax rates, he has managed to levy new taxes to plug the revenue gaps or leakages.

This year revenue collections have been good and some officers believe that the finance minister may not be under any pressure to look out for new revenue sources. But an apparently innocuous statement from his advisor, Parthasarathi Shome, has set every officer in North Block thinking.

It is an open secret that Chidambaram and Shome enjoy a very good equation and all the key Budget proposals are largely discussed and decided by the two of them. Officers come in only to work out the details and examine if their implementation would create any procedural problems.

What Shome stated at a public meeting, therefore, cannot be ignored. The reference was to the rising flow of foreign investments and the need to look at this from the taxation point of view.

Considerable importance is being attached to this reference, as indeed there is fresh thinking on whether any tax incentives are required to attract foreign capital. There are recent World Bank papers that argue that the case for tax incentives to attract foreign investment is not compelling.

It has also been argued that tax incentives neither affect significantly the amount of direct investment nor do they determine the location to which investment is drawn.

Foreign investment inflows in India have been rising steadily in the last few years. Last year, foreign direct investments were estimated at $3.7 billion, in addition to $12 billion of foreign portfolio investments.

This year, there is a slowdown in foreign portfolio investments, but FDI flows are expected to double. With a finance minister, who has never shied away from exploring new avenues for taxation, officials in North Block are wondering if a new tax will be mooted again next February and whether that will pertain to foreign investments. If that happens, Chidambaram's tally will be five new taxes in six Budgets.

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Create a Diversified Portfolio in India

George Hoguet is managing director and chief investment officer at State Street Global Advisors. State Street is the world's largest money manager. Hoguet looks into the future to plot where the global financial markets and India could be headed over the next 12 months. 

He feels, "I think that Indian stocks are richly priced relative to their emerging market peers, but nonetheless long-term strategic investors should have some exposure to India."

Excerpts from an interview given to CNBC-TV18

Running as much money as you do in the emerging markets, how do you feel about the whole asset class right now after the turbulence of the last few months?

There is no question that emerging markets are facing a more difficult environment in the months to come, particularly given the uncertainties surrounding the economy and by extension the world economy. But I think the secular forces driving world economy returns are dominating, and will continue to dominate the cyclical factors.

So when you look forward to next 2-3 years, do you expect to see liquidity flows remaining robust into some of these emerging markets?

They are definitely hostage to the global economic cycle. And should we have a recession in the United States, which then adversely impacts the export volumes coming out of Asia and particularly China, which then would back up on the rest of North Asia suppliers like Taiwan, Hong Kong and so forth, that would dampen enthusiasm.

But the secular impetus is quite strong and emerging markets, which have historically been an exotic asset class has become more mainstream.

During the start of this asset class in the late 1989-90, emerging markets actually sold at a P/E premium to developed market. Now they sell at 20 per cent discount. There is scope for that price-earning multiple discount to actually be further reduced.

But we have to say that it is all subject to the evolution of the global economy and in particular what happens to the US and also commodity prices. We don't think that we will have recession in the United States but the U curve is becoming more inverted day by day.

How susceptible are emerging markets' performance to a commodity meltdown?

There is no question that it would have a negative impact on return of equity to emerging markets. Return on equity now is about 19 per cent - actually in excess of developed markets' return on equity. A lot of this has been driven by commodity prices.

So, if you look at Brazil for example, which is a major supplier of iron ore to China. India and China's demand for oil of course is well-known and other commodities like nickel are in short supply. So, the global boom that we have had which has been lead in parts by Asia and India and China has fueled this rise in commodities.

So, the question is that, as the US economy slows down will commodity prices fall sharply? We don't think so. But it is also true that there is a speculative element currently in commodity prices. We have seen the unwind that has just taken place in the past month in the United States' oil market.

If expectations were to change rapidly and there was a rapid liquidation of speculative positions in commodity prices, then it could potentially impact risk appetite with regard to emerging markets and also at a more fundamental level, should these prices remain more strained - it  would effect earnings prospects for many of the companies in emerging markets.

Do you see much lower metal prices in the future? Would you be short in those stocks?

I don't think so. I think that what we have determined here is that here there is both a supply element and a demand element and there was under-investment basically in the 1990s and it takes a while to bring on new capacity and both the demand and supply curves are relative elastic, and it takes a while for these effects to pass through.

But I think one also has to be discriminating and look at each commodity in terms of its own fundamental dynamics, its global patterns of use and where demand and supply is likely to manifest itself in the months to come.

Do you find India less susceptible to these kind of commodity swings or will we behave pretty much in line with the other emerging markets?

India is what's known as a low beta market, so it is less volatile in relation to the world market portfolio - for example in relation to Turkey. So, whenever emerging markets go up one Turkey goes up two and when emerging markets fall as they often do in violent sort of moves, then Turkey goes down very rapidly.

What makes you most optimistic about India?

I actually think India is expensive in a global context. I think that the earnings growth that is expected is quite high - over 16 per cent - over the next couple of years and also there is a lot of interest in the technology sector because even though the TMT stocks (tech/media/telecom) got absolutely clobbered in 2000 selloff, this technology wave is continuing throughout the world and IT spends are growing, and is likely to grow for many years to come.

And ofcourse outsourcing is in its infancy and India is not only going through business process outsourcing but also knowledge process outsourcing and moving up the value added chain.

I think that Indian stocks are richly priced relative to their emerging market peers, but nonetheless long-term strategic investors should have some exposure to India.

You wouldn't put any fresh money into India at these prices, would you?

Emerging market equities are 6 per cent of the world's investable capitalisation measured by Morgan Stanley Capital International. Within an emerging market portfolio, I would be structurally underweight on India, by probably about 2-3 per cent simply because one can buy Brazil at seven times forward earnings and Russia is only about 11 times forward earnings, but India looks expensive. All the same, I would have some money in India based on its weighting in the emerging markets indices as a whole.

Over the next 3-4 months, do you expect to see the kind of heightened volatility that we saw in the middle of the year?

I think volatility is going to go up because there is a great deal of disagreement with regard to the Federal funds rate. Two of the most prominent securities houses on Wall Street, one of them has Fed Fund Rates at 4.25 by the end of September '07 and one of them has it at 6 per cent.

So, when you have that type of disagreement, there is potential for surprise one way or the other. We have also been in a period of extreme low volatility and after the spike we had in May-June, it came back in and the spreads came back in.

But I think, it's likely that unbalanced volatility will rise. It will take some precipitating news - if we have some shock - like some sort of confrontation with Iran or a series of terrorist events. But even in the absence of that, some economic news might raise volatility.

What would you own in India?

I would own a broadly diversified portfolio. We continue to think some of the energy stocks and (raw) material stocks are of interest, but I would be broadly diversified at this particular juncture.

Between India and China you would put more money to work in China right now?

Yes.  I think the Chinese economy is more resilient to external shocks and to a change in an investor's sentiment. Chinese reserves now are close to a trillion dollars. The Chinese economy is growing more rapidly than India. China is attracting a great deal of FDI and I think the environment that we are facing, it is quite likely that China will be able to withstand strains in the global economy should they materialize, better than India. 

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Protect all your money risks

While risks are a part and parcel of one's life, most individuals live under the false impression thinking 'It won't happen to me.' And hence do not take adequate measures to prepare themselves against the uncertain future.

Know that simple planning can go a long way in protecting you and your family from several hardships that life can spring up. Of course, the emotional and mental trauma of an event can never be quantified or protected but you can definitely protect yourself against the financial hardships that usually accompany such situations.

1. Risk of ill-health

While advances in science and technology have been able to save lives from innumerable diseases and thereby increase the average life expectancy, change in lifestyle has resulted in several new medical problems coming up. Cases of heart attack, diabetes among others has gone up considerably and so have the expenses associated with them.

Therefore, a Mediclaim policy is a must for everyone. Know that even a minor hospitalisation could be equivalent to three to five years of premia you pay. Besides, there are group covers too wherein you can cover the entire family under one policy.

Another associated risk is that of disability, either temporary or permanent. This risk can be covered through an 'Accident Insurance policy' which is quite cheap and won't hurt your finances much. Additionally you can also avail of tax benefits for the premiums you pay.

2. Risk of untimely death

Terrorism, natural calamities, accidents and so on, resulting in the untimely death of the breadwinners is a traumatic experience for the family of the dependents.

You can secure your family by buying adequate life insurance. Two things are important here -- how much insurance you buy and which policy?

As far as the type of policy goes, get a term cover only. This is the cheapest life insurance cover available to cover pure risk. Don't look for returns from your life insurance policy. Hence don't buy investment-inefficient policies such as endowment, money back or ULIP (Unit linked Insurance Policy).

As regards the amount of cover, just estimate how much amount you would have earned till retirement and calculate the 'present value' of that amount. This would be the approximate amount you need to insure for. (Don't worry -- calculation of present value is a very simple formula).

3. Risk of loss of income

Another common risk today is that of losing one's job and hence the earnings. This, together, with the increase in life expectancy would mean increase in the non-working years. Hence, financial security becomes increasingly important.

There are no insurance policies against such a risk. You would need to build your own protection plan that suits your circumstances through proper financial planning by moving from 'saving' to 'prudent investing'.

Starting from emergency funds to short-term needs to long-term dreams, we need to design our financial road map ourselves. Therefore, goal setting, asset allocation, investment selection and investment monitoring become very important. (Again don't worry -- the terms may sound big, but it is all very simple planning).

4. Risk to physical assets

Fire, terrorism, theft, earthquakes among others expose your physical assets to risk. Such risks can easily be protected today by way of 'Home Insurance Policies'. However, take care to read the terms carefully, to see what is insured and what is not.

5. Risks related to your home loan

In the last few years, we have seen an explosion in the number of people buying homes, which are mostly financed by way of home loans. The amounts run into several lakhs and the repayment term is around 15-20 years.

These huge amounts as well as the long repayment periods pose a risk. Should anything go wrong and you are unable to repay your loan, you could risk losing your house. To take care of such risks, you can opt for a suitable 'Home Loan Insurance' and protect yourself.

It is true that the above mentioned protection will involve some cost. But then these costs would not add-up to more than what you annually spend on weekend dinners/movies or your vacations. Moreover, they are essential given the increased uncertainties in life.

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Earn high profits from stock market

What is stock market, is it speculation den or place to invest and create wealth?

The answer to this lies in how we deal with it. If we consider stock market as place to make fast/quick money, it is speculation den. When equities rise most of us feel that to make money we should follow 'high risk, high return' strategy.

In reality we are following 'high return, high risk' strategy. If we push our mind we will find subtle but important difference.

Does high-risk mean high return?

If we are feeling that by taking high risk we will 'necessarily' get high return, we are kidding ourselves. Word risk means probability of loosing money. High risk means high probability of loosing money. Therefore if you are willing to accept high probability of loosing money, you 'may' get high returns.

In long run -- over a period of 7/9 years -- equity markets are place to get high return with low risk. On the other hand any kind of speculation is high risk, low (no) return game.

Are you a speculator?

Another litmus test to find out whether we are considering stock market as speculation den or place to create wealth is the way we get anxious about our investments. If our investment horizon is more than 7/9 years away, we will not panic even if equity market falls for 7 months.

On the other hand if we are speculating, 7 bad days/weeks will give us anxieties. If 7 days/weeks fall give us anxiety, we are in speculation mode.

Lastly, if we start asking anyone who even remotely uses letter 's' of stock market, his/her views on near term movement of equity market, we are in speculating mode. We want to inquire about the near term movement because - irrespective of what we say - we have purchased equity for short term.

This is giving anxiety and we want someone - whom we want to consider as an expert - give us assurance. The way no one can predict the outcome of speculation, in near term no one can predict movement of equities.

Reason to discuss above behavior is because as human beings, we are intelligent breed and we do not allow ourselves to admit we are speculators. Therefore it is important to consider above and verify whether we are considering stock market speculation den or place to create wealth.

How to earn high returns?

Rome was not built in a day. No matter how hard we try, we will not be able to create wealth quickly. It will take decades before 'stable' wealth is created.

Invest in equities if your financial goals are more than 7/9 years away.

You may either invest directly into equity markets, if you have the skill and time. Alternatively consider equity mutual funds. In last couple of years we have got equity mutual funds with varied investment philosophies e.g. index funds, large cap funds, mid-small cap funds and contrarian funds.

Soon we will have global equity funds. Mutual funds allow ease of operation, diversification, professional approach etc. You can invest in these funds either lump sum or you may also consider investing in a systematic way over a period of time.

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