Investment of Money

What do you mean by investment of money?

Any source where we put our money to get a better return in the future is called investment of money. These investments give value to our money as if we keep our money in home, we do not get any return.

We invest our money in the following sources

·         Land- According to me, investment in the land is the most profitable option specially in the emerging and developing markets because we would take a good return from it in the future if, the area surrounding of that land will become developed.

·         Share market – Investment in this market would be beneficial when we will do that investment for the long term .This market is very uncertain and it is very risky for short term investors specially the intraday traders.

·         Bonds & Debenture – Bonds & Debenture of governments and good companies are safer investment options. Investors get a fixed return from this.

·         Life insurance: - It is also a good investment to secure the future of our loved one in the case when we will not present with them.

·         Mutual Fund: - Mutual Fund companies hire professionals for the investment of their client’s money in the market.

·         Other options are deposits in banks, deposits in post offices, Jewelry and so on.

Investment is very required for all people because it gives us a good return to fulfill our needs & requirements.

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Difference between futures and options and connected risk factor

Present market condition of the world is not good. So, Traders prefer options than the futures because in the case of future, there is an unlimited upside and downside for both buyers and sellers.

Example of nifty

Activity in index futures has hit a near six-year low in August as fewer derivatives traders are using Nifty futures to bet on the benchmark these days.

 You can understand it  better from the difference between futures and options

ü  In case of future contract there is an agreement to buy or sell a specified quantity of an underlying asst on a price agreed upon by the buyer and seller on or before a specified time and obligation to buy or sell a specified quantity of underlying asset does exist where as in the case of option the buyer of an option enjoys the right but not the obligation to buy and sell the underlying asset.

ü  In case of future contract there is unlimited upside & downside for both buyer and seller where as there is a limited downside and unlimited upside for the buyer. For the seller the profits are limited where as losses are unlimited

ü  In case of futures contract prices are affected primarily on the basis of the price of underlying asset whereas in the case of options the price is affected by

·         Price of underlying asset

·         Time remaining for expiry of the contract

·         Volatility of underlying asset

              As the price of option is affected by more factors so, the risk is also low in this.

Advance Pricing Arrangements (APA) & its benefits

Government of India is planning to come with the APAs rules.

APA is Advance Pricing Arrangements, an agreement between taxpayer & tax authorities to compute transfer prices in advance for transaction within a group company. To reach this agreement, Company submits its detailed information about costs and margins to the tax authorities’ .Based on the comparison of the submitted information with the similar arms length transaction, tax authorities give their decision.

Benefits of APAs for taxpayers

·         APAs give taxpayers certainty about their prices for their related party transactions.

·         It reduces the litigation and trouble for the taxpayer.

How corporate raises funds from the Market?

When any company needs fund, it raises it through the issuance of shares, debentures, by public placement, bonds etc.

Share :- When any company issue its share first time in the market for the public ,it is said to be Initial Public Offering(IPO).First time companies issue its share through the primary market and after that these share are traded in the secondary markets. To trade its share in any of the stock exchange, company must have to register it to these exchanges. Second time, when companies issue fresh share to raise fund, it is said to be the follow- on Public offering (FPO).

Another method to raise fund through share is private placement in which companies directly deal with the institutional investors, It is a cost effective method to raise fund.

Issue of Bond and Debenture: - Companies also issue Bonds and Debenture to finance its needs. Bond and debenture holders are treated as the Creditors and Companies must have to pay their fixed interest even when the company is in loss.

As an idle debt equity ratio is said to be 2:1 and if the ratio of debt is greater then this then, it is said to be dangerous for the company & its shareholders.

Risk and Return Relationship for the Investors

Companies hire underwriters and these underwriters take the remaining shares in case of under subscription.

Good companies get a very good response from the market during its public offering and its share also goes for oversubscription. Companies with good business get better response in secondary market also because of the confidence of public and stakeholders.

Real Estate Sector in India

Indian Real estate sector is on the boom. As India is a developing country, development of infrastructure is the first priority for the Government to attract more and more foreign companies in the country,on other hand, higher income or middle class population want to shift itself in the metro cities or in the industrially developed towns.

Now the availability of land in the big metro cities is very less and it is also very expensive. These expensive lands made the flats unaffordable for the middle class.

So, now companies in real estate sector started to target industrially developed towns to develop colony and societies. Flats in these societies are affordable for the middle class and in this way they also get a good environment for the development of their children.

Main reasons behind the lower price of these flats are as follows:-
1. Land is available at lower price
2. Labor cost is also very low.

So, we can say that, India is trying to going in the right direction to become a developed nation. Any country becomes developed only when all parts of the nation are developed. It is a very good trial for the development of the whole country.

Current Position of World’s Manufacturing Sector

Worlds manufacturing sector dips down because of lower demand from the market and poor economic condition of countries. Manufacturing of euro zone fell to a 37 month low of 44 from 45.1 in June. Position of manufacturing sector is also not good in China, India’s manufacturing grows slowest pace since November.

Position of euro-zone nations is the worst. Now the investors who want to keep their money in safer place going to the emerging market as these markets are safer than the market of the developed nations.

I want to give the example of India. FIIs invest Rs.10.2K cr in July despite of High inflation, lack of policy initiative and weak Monsoon. As investors see India as one of the safest place for the long term investment as most of the problems of the market is coming because of the local policies.

I think strong policy reform and a big bailout amount will be required to take out the European nations from the crisis, where as emerging markets have to improve their economic policy & have to solve their local problem to increase the growth rate.

Joint Venture: a less risky way to enter into a new market.

When any company wants to enter into a new market (country) for the expansion of its business, at that time, management of that company do not know much more about that particular market.
Before entering into the new market, Company has required to know a lot of thing about that market such as: choice and preference of the citizens, geographical and political conditions, different rules and tax policies of that country. It is not easy for any company to know these things from itself.
To know about the different conditions present in that particular market, companies often hire local research agency to get a broader report based on conditions given by them to get success in their business expansion. But many times, these reports are not proven good for the company to start its business in that particular new market.
So, According to me Joint venture is less risky way to enter into the new market. Joint Venture is an arrangement in which two or more companies called joint venture partners contribute to the equity capital of a new company called joint venture in pre-decided proportion.
From the following reasons Join Venture is less risky way to enter into a new market

• Risk is shared between the partners
• Managing Cultural Bridge because, of the name of home country’s company.
• Dealing with Government becomes easy because home company easily handles the legal requirement of the local Government.
• It gives competitive advantage.

As it gives a lot of advantage, it also gives some disadvantages.
Example: As both of the companies shared their expertise with each other, it might  happens that the local company after taking a precious expertise from the foreign one, break the Joint venture and starts  its own company with its own brand name. And in this game, local company become the winner as the emotions of local people is with the local company.
Some of the successful examples of Joint venture are

• Maruti Suzuki in India, a joint venture among Maruti ,India and Suzuki, Japan.
• Japan Nuclear Fuel  Ltd. (JNF), a joint venture among General Electric Company, Toshiba Corporation and Hitachi Limited.

Derivatives and Its Use

Section 2(ac) of Securities Contract Regulation Act (SCRA) 1956 defines Derivative as “a contract which derives its value from the prices, or index of prices, of underlying securities”

The underlying asset may assume many forms:
• Commodities including grain, coffee beans, orange juice.
• Precious metals like gold and silver.
• Foreign exchange rates or currencies.
• Bonds of different types, including medium to long term negotiable debt securities issued by Governments, companies, etc.
• Shares and share warrants of companies traded on recognized stock exchanges and Stock Index
• Short term securities such as T-bills and
• Over- the Counter money market products such as loans or deposits.

Participants in Derivatives Market
• Hedgers: They use derivatives markets to reduce or eliminate the risk associated with price of an asset. Majority of the participants in derivatives market belongs to this category.
• Speculators: They transact futures and options contracts to get extra leverage in betting on future movements in the price of an asset. They can increase both the potential gains and potential losses by usage of derivatives in a speculative venture.
• Arbitrageurs: Their behavior is guided by the desire to take advantage of a discrepancy between prices of more or less the same assets or competing assets in different markets.

Benefits from the use of derivatives are:
• Management of risk: Effective use of derivatives can save cost, and it can increase returns for the organizations.
• Efficiency in trading: financial derivatives to be a more attractive instrument than the underlying security. This is mainly because of the lower transaction costs associated with trading a financial derivative as compared to the costs of trading the underlying instrument in cash market.
• Price discover: It is used for the price discovery which means revealing information about future cash market prices through the futures market.
• Price stabilization function: derivative reduces both peak and depths and leads to price stabilization effect in the cash market for underlying asset.
• For tax avoidance
• To reduce the cost of debt and increase the debt capacity

Monetary Policy of RBI

As India is suffering  from stagflation, a situation of the economy when the rate of inflation is greater that the growth rate. So, the central bankof the country i.e. Reserve bank of India governer Duvvuri Subbarao left interest rate unchanged. Repo rate, the rate at which RBI lends money to the banks, is unchanged at 8% and Reverse repo rate, the rate RBI pays banks for their deposited money, remains unchanged at 7%.
But, for increasing the money supply in the market, Reserve bank of India lowered Statutory Liquidity Ratio (SLR), the proportion of deposits banks have to hold in government bonds to 23% from 24%. Through this action, banks can lend more to the institutions and manufacturing houses.

RBI has also lowered the growth forecast for the India as the economic condition of the world is not good and the inflation rate is also high in comparison to the growth rate of the country. One of the reasons behind the higher inflation is the lower monsoon in the country as the agriculture of India, mostly dependent on it.
So, the decision of governor is good according to domestic and foreign condition.

I think , government should have to take action to control the trade deficit of the economy, to control the devaluation of Rupee and to increase the growth prospect for India.

Central Banks, Stock Exchanges, and Credit Rating Agencies

Central bank of different countries: Central Banks play very important role in the development of economy. Main roles of central banks are making monetary policy for the country, lending the government, setting the key rates for the banking sector and overall, controlling the supply of money in the market.

• Central Bank of India Reserve Bank of India
• Central Bank of America Federal Reserve
• Central Bank of Russia The Central Bank of Russian Federation
• Central Bank of the United Kingdom Bank of England
• Central Bank of Australia Reserve bank of Australia
• Central Bank of Japan Bank of Japan
• Central Bank of Brazil Banco Central do Brasil
• Central Bank of South Africa The South African Reserve Bank
• Central Bank of China The People’s Bank of China

Stock Exchanges of Different countries: A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Companies must have to list their share in these exchanges for the purpose of trading.
 Stock Exchanges of India

• National Stock Exchange of India NSE
• Bombay Stock Exchange of India BSE

Different stock Exchanges of the USA

•    The NASDAQ Stock Market
•   Website of New York stock exchange

Stock Exchange of China    Website of Shanghai Stock Exchange
Stock Exchange of Russia    RTS Stock Exchange
Stock Exchange of United Kingdom   London Stock Exchange
Stock Exchange of  Japan          Tokyo Stock Exchange
Different Credit Rating Agencies
A credit rating evaluates the credit worthiness of a debtor, especially a business, company or a government. Credit rating agency evaluates the debtor’s ability to pay back the debt and the likelihood of default.
Different International credit rating agencies are Moody’s, Standard & Poor’s and Fitch

• Website of Moody’s
• Website of S&P
• Website of Fitch

BRICS Nations

What do you mean by BRICS nations?

BRICS i.e. Brazil, Russia, India, China and South Africa; are the emerging nations .These economies are developing very aggressively to become the developed economy.
Emerging nations are those developing nations which are going to become the new destination of the business houses and emerged as the industrial nations.

As in the emerging market; local governments provide a lot of facilities easily to the new companies. These emerging markets make their policies to attract more and more foreign investment.

Benefits to the company from the investment in emerging markets

·         Land is easily available at appropriate place and price.

·         Labor cost of these countries is also very low.

·         Tax rate is low for the investment in industrial areas.

·         As the growth rate of these countries are higher, so purchasing power of the population is increasing day by day.

Benefits to the nation from the foreign investment

·         Development of Infrastructure

·         Transfer of technology

·         Employment generation

·         Increase in the stock of foreign currency

·         Living standard of the population is improved

If we want talk about the GDP growth then, it is found that growth of these emerging nations is better than the GDP growth of the developed one. As the growth of these emerging countries is also affected by the euro zone crisis but effect is less in comparison to developed countries.

These emerging markets are also ready to give better return to their stock and bond investors.

We can take the example of India: Good ‘A’ Grade corporate bond in India is ready to give 9% yield, which is much better than the yields on the bonds which are issued by the developed countries.

So, BRICS nations are advisable for the investment purpose.

Life Insurance

From a legal angle insurance is a contract. The contract is between insurance company and the person getting insurance cover, beneficiaries of insurance would include

• The policyholder
• The insured person
• Dependent of the insured person

Life insurance is usually taken by the earning member(s) of the family to ensure that in case of their death, and hence their source of income ceasing to exist, the dependent family members would have a lump-sum amount to fall back on. So by paying a small amount every year the earning member of the family can ensure that the future of their loved ones is absolutely secure from a financial point of view. So in the event of death of an insured person, the nominee of the policy would receive an amount called the sum assured which can then be used effectively to plan for their future.
Benefits of taking a Life Insurance Plan

•   Provides for Loss of Income
•   Protects your Asset
•   Financial Planning
• Tax Savings

As we know that our life is full of risk and anything can happen at any time. So, we must have to take life insurance cover at the right time. It gives the real protection to family member in the event of the death of the earning person of the family.

Regulatory authorities of insurance sector in different countries are:

• The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.
• Insurance regulatory authority in India is IRDA
• Regulatory authority of Insurance in Russia is Central Bank of Russian Federation

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Globalization

After the globalization, the whole world has become a small village and the economic growth and slow down of one country affects all over the world. A decision taken by the government of one nation affects the business of all over the world.

According to the data, IMF shaved its 2013 forecast for global economic growth to 3.9% from 4.1% it projected in April. As euro zone crisis affected the whole world’s manufacturing and service sector growth.

Now, euro zone nations are trying to come out from this debt crisis and they are also busy in making the reform policy for their country. So that, they would become able to reduce their debt burden and increase the growth of their country. We can take the example of Spain where government is planning to raise 56.4 b Euro from deducing the spending, increase in the tax rate and adding new power and environment tax. As these steps are very much required for the country to take out itself from the burden of debt. But, when the tax rate will be increased and the government will cut the job then the demand for good and services will be reduced by the people and it will affect the whole world. Such as if the US has export goods and services to Spain then the demand of US goods and services will be automatically decreased.

We can take another example i.e. related to India.

As India has allowed 100% FDI investment in single brand retail but it has put a lot of restriction such as the company which will entered into the market has to mandatory sourcing minimum 30% of their goods from local small and medium sized enterprise. Now many companies want to enter into the Indian retail market but they require some liberalization on this law.

This type of decision affects the growth of both countries, firstly from where the FDI is coming and secondly where these investors want to invest. As every FDI investment increase the employment in both foreign and Home country.

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FDI in single brand retail

India is one of the emerging nations of the world. It is the part of the BRICS and without it, this word has no meaning.

It attracts a lot of investors around the world. As the labor cost of India is very low, many companies have already made it the export hub and others are also planning to invest in this country.

A few years ago India was known for the Agriculture and nearly 80% of its population was depending on it. But now this percentage is decreased and this country is known for the software development, innovations and export hub of different motor car companies.

According to population, India is the second largest country of this world after China. So, It becomes a very attractive market for the retail investors around the world.

India has allowed 100% FDI in the retail but they had applied a lot of conditions on it. These conditions put a lot of hindrance in front of the companies which want to enter into this market. It proves as weakness for the retail sector in India. If the full fledged environment will not be provided to the retail Investors then we can say that we put up hurdles in the development of our own countries.

When we take the example of China where shops are also exist with the big retail outlets.

FDI provides a lot of advantage to the country such as it gives employment, development of infrastructure, knowledge transfer etc.

So, Government should clarify the rules & regulations. It should be easy to get more foreign investment in the economy so that it will help in the development of our country.

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Decrease in the trade deficit in the month of June

The outlook for the global demand for the goods and services are continually decreasing as the major markets such as Europe, the US, China, and Japan are in the grip of uncertainty.

As I discussed in my previous blog that the trade deficit of India was 4.2 % in the fiscal year 2011-12 and Indian government & Reserve bank of India are continually trying to control the trade deficit in the fiscal year 2012-13 means they want to increase the export and decrease the export of the country.

Now the new data of the government shows that India’s export dropped down but the decline in import was even sharper. Which is good news for the economy as the Indian rupee is depreciate nearly 20% in the past one year due to the increased trade deficit and imports.

This depreciation in the value of the rupee harms a lot to the economy. We can understand this from the following example:-

The price of crude oil is decreased at its lowest but Indian did not able to take its advantage.

So, A wider trade deficit is never proven good for any economy.

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Trade deficit, its effects and solution

Government and Reserve bank of India are trying to control the trade deficit as it was 4.2% of the GDP in 2011-12 .And because of the wider deficit; Indian currency has regularly fallen down. Main reason behind the broader trade deficit of the country is the higher import of gold and crude oil.

Demand of Gold is very high in this country because of these two reasons.

1.       Indian loves a lot to this precious Yellow metal and likes to wear its ornaments. They also give a lot of gold ornament to their child during their marriage and also gift it to their relatives.

2.       Gold gives highest return to its investors.

The consumption of crude oil is also higher as government provides a huge subsidy on diesel and LPG which is also used by the industrial houses.
Now, Reserve bank of India is considering the financial products which can mimic the returns on Gold. Government had already increased the tax on the import of Gold to control the fall in rupee. Main reason behind this fall is the increased demand of dollar by the importers.

It is also expected that the price of diesel and LPG will be increased after the presidential election to control the trade deficit and the fall in rupee.

Economy has expected a reform from the governments side because it may happens that Reserve Bank of India will not decrease the key rates as the inflation of country is higher than its growth.

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Banks raises $10 through NRE deposits

Since August 2011 the Rupee has regularly fallen because of the wider trade deficit. This trade deficit is regularly increases due to the high import of crude oil , Gold and other products  and lower exports of the Indian products. For controlling the import of Gold, Government has increased the tax on it but there is no strong policy is made to decrease the consumption of crude oil.
As the demand of dollar is regularly increasing because of higher imports, it started to depreciate the value of rupee. To tackle this problem Reserve Bank of India liberalized the interest rate on NRE deposits. Now, banks are offering 9% or more for one year deposit on NRE or non resident rupee deposit. As the result of this, Banks raises $10b through NRE deposits.

This time whole world is facing the economic uncertainty and so, the local market such as USA and Europe offer negligible returns for NRIs.

AS the value of rupee is regularly falling from 1 Year and The government is thinking about various economic reform policies to improve the status of its currency. Some of the steps are already taken by the government such as the increase in the investment limit in the Government and infrastructure bonds and decrease in the lock in period for it.

So, It is expected that value of rupee will appreciate in near future and it will give a good benefit to the NRE deposit holders.

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Expectations of economic reform

When the Indian Prime Minister Manmohan Singh had taken the additional charge of finance ministry, Indian economy had expected a lot from him. He is a financial reformist for India as He had done the economic reform in 1991 when he was the Finance Minister of India. But now as all the politicians are busy in presidential election so, the reform is expected after this election.

At this time whole world wants to come out with the effects of euro zone crisis. As central bank of china had cut the key rates so that more customers will become able to take loan from the banks. Inflation rate of China is also goes down which will help the government to give the stimulus package to increase the consumption.

But, for the Indian central Bank it is not an easy task to decrease the key rates because the growth for the March quarter is 5.3% where as the inflation rate of the of the country is 7.6%.For controlling the inflation some of the important steps must be taken by the  central  government . These steps may be to reduce the subsidy on diesel, make policy to increase the investment in FDI, control the fall of rupee etc. 

On other hand euro zone is also trying flesh out plans to reinforce the single currency i.e. euro. Central to euro zone leaders’ plan is to give European Central Bank a central role in supervising banks’ which would then allow the permanent rescue fund.

So,A positive ray is seen ,When the whole world is trying to come out from the economic crisis and  they are also busy to take steps to recover from this crisis according to economic condition of their countries.

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FDI Vs FIIs

Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin. The parent enterprise through its foreign direct investment effort seeks to exercise substantial  control over the foreign affiliate company. Example - An American company taking a majority stake in a company in India.

Factors affecting the FDI

·         Financial incentives (Funds from local Government)

·         Fiscal  Policy / Tax incentives (Exemption from import duties)

·         Indirect incentives (Provides land and other resources)

·         Political stability

·         Market potential & accessibility

·         Large economy

·         Market size

Advantage of FDI

·         Economic growth

·         Trade

·         Employment and skill levels

·         Technology diffusion and knowledge transfer

·         Linkages and spillover to domestic firms

·         Improved technology.

·         Management expertise.

·         Access to international markets

Foreign Institutional Investors

An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing with a sole motto of investment and repatriation after the specified period. Institutional investors include

·         hedge funds,

·         insurance companies,

·         pension funds and mutual funds

·         Any other category specified by regulatory authority

Advantage of FIIs

·         Unavailability of Corporate Debt

·         Increase Forex Reserve

·         Increase Domestic Savings and Investments

·         Large Availability of Capital

Disadvantage of FIIs

·         Problem of inflation

·         Reduces flexibility of Policy makers

·         False representation of Economy

·         Can’t be used for long term

·         Problems for small investors 

FDI is better than FIIs if, we want the long term development of country because by foreign direct investment Infrastructure, employment, living standard of the people becomes better and it helps the developing economy to become developed.

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GDP Measurement and its weakness

Gross domestic product measures the aggregate production of final goods and services taking place within the domestic economy during a year. GDP is the measure of the growth of any economy.We treats higher level of GDP of a country as an index of greater well-being of the people of that country.

But there are some of the weaknesses present in the GDP measurement.

• GDP measures the growth of the economy not the growth in the income of the individuals. As when the increase in the production of the industries, increased the GDP but it may happen that, for the rest population income will be same or fallen.

• As GDP measures the monetary exchange. When any exchange taken place in non monetary term then it is not calculated in the GDP. These types of non monetary exchange are taken place in the developing countries.

• Externalities: - Externalities refers to the benefits (or harm) a firm or an individual cause to another for which they are not paid (or penalized).When a factory is set up then the value added of that factory is counted as part of the GDP but when Carbon Dioxide is emitted in the environment by this factory which harms the surrounding environment such as it harms the production of the plant but the factory owner do not paid any cost to the plant owner, it is called externalities.

So, according to me there is some improvement is required in the way by which GDP is calculated because it gives all results in an average.

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Inflation and its effect on economic growth

When the price of goods is increased and the value of money is decreased then it is said to be inflation. A moderate inflation is good for the economy but due to high inflation, purchasing power of the people decreased. It also decreases the demand for the goods. As the demand decreased, corporate housed stars to decrease their production. At that time Labour union demands the increase in the wages due to increase in the price of goods where as company wants to decrease the labour force due to decrease in the demand of  their goods.

The group which is most affected by inflation is the farmers and the poor population of the country because Government & Private sector companies increases the salary of their employees in the proportion to the increase in inflation but income of the above mentioned population is not increases in the same ratio.

Any Government and central bank do not want higher inflation for their country. Central Banks increase the key interest rates to control the inflation. Due to this, Commercial Banks increase the different types of loan rates for their customers. So, the supply of money is decreased in the market.

As we know that when supply of money is more in the country then it increases the competitiveness in the market and also increases the inflation. We  can take the example of Indian Central Bank ,Reserve Bank of India had continually hiked the key interest rates 13 times i.e. from March 2010 to October 2011 to control the inflation.

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Tips for Intraday Trading

Trading in which traders want to take the advantage of intraday ups and downs of the stock price is called intraday trading. Intraday trading is not easy because as it gives a good return but the risk is also very high and it may also give a big loss.

There are some very interesting facts available in the market; if you will take care of the following facts then you can take a good return from intraday trading.

•   Some of the stocks take positive response from the market, means when the market goes up then price of these stocks also increases and when market goes flat then share price also declines. On other hand some shares take a negative response from the market, it means that  when the market goes up then share price decreases and when market goes down then price of these stocks goes up.
•  According to my point of view the stocks take a hike of 3% or more become good for intraday trading. As I saw that the stocks which take such a hike, grows continually up to 4.5% to 6%.

•  If the price of stock is increasing continually for 3 to 4 days, then its price can take a decline after these 3 to 4 days and at that day it will become harmful for intraday trader. To escape from this trap  you must have to see the historical data of the stocks which is available on the websites of different Stock Exchanges.

So, I think that if you want to do intraday trading then you must have to take care of the above things.

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Problems of MFs and its solution by Indian Government

A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase security. Company hired fund managers to choose the right portfolio of securities, so that the risk factor should be decreased and return should be increased in the future. Mutual fund companies feel restricted because of the strict policies of the government .As government also want more transparency for the investors.

Now Indian Mutual Fund companies demands some most required things from the government to make their products more lucrative.

These demands are as follows :-

• 25bps increase in total expenses.
• Greater flexibility in the use of expenses levied on schemes.
• Shift the incidence of service tax on to the investors.
• Permission to MFs to launch pension plans
• Extension of Rajiv Gandhi equity saving
• Distributers want entry load to be brought back.

Government may soon take the first second and third steps.These steps are taken to strengthen the distribution network and to give flexibility to the Mutual Fund companies to manage the total expense.Expense ratio is the fee charged by a fund house to manage and operate the fund.The charges includes, management fees , administration fees and other operating costs.

As at present , MFs  are allowed to charge up to 2.25% as expense ratio and in which fund houses are allowed to take only 1% as asset management charge, the remaining 1.25% has to meet recurring expenses.
It is expected that after giving the flexibility.
It is expected that if the expense ratio will be increased from 2.25% to 2.50% then it will help the industry to boost. And Greater flexibility in the expense ratio will help the  to give more commission to the brokers who leave the industry in absence of right brokerage.

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Insuranse sector and its present condition in India

Life Insurance is the fastest growing sector in India till 2010. Private companies started their business after 2000 as Government allowed Private players and FDI up to 26%.The first private company which had entered into this sector was HDFC Standard Life and now it is known as the HDFC Life. Good insurance companies of the world enter into the market with the partnership of Indian companies. These foreign companies entered into India because of the lucrative potential market. When we see the P/L account of these companies then we get that most of them regularly faces the loss in last 2-3 years. The Indian companies which have entered after 2005 want to pump out their money from this sector. As the limit of FDI investment is 26 %, so foreign companies are not very committed towards their work and when they feel that the market is not good they leave the market after selling their share to another company. Increase in FDI limit is necessary so that foreign companies will enter into the market with their own past experience & more commitment to get success in the new market. As the IRDA regularly intervened these companies because it doesn’t want to give lose to the policy holders.

LIC of India is winner in this sector and running its business successfully because it is the oldest life insurance company of this country and as the Indian people believes more on PSUs. I don’t think that LIC’s plans are better than these private sector players and it also don’t give better return than these companies. But, I do agree that Premium allocation charge (initial charge) & policy administration charge of these private players are more and it should be reduced to provide customer better return. 

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Biggest losser in the share market

Most risky investment for a person is to invest his/her money in the share market. There are many types of players’ trade in this market such as corporate houses, insurance companies, Mutual fund companies, FIIs & retail investors. Corporate houses purchase shares of other companies to take its benefit in future, if the price of these shares will increase or to get benefit at the time of merger or acquisition. Mutual fund & insurance companies purchase shares for their client to give them a good return in the future .FIIs (Foreign Institutional Investors) are the foreign companies which want to invest their money in companies of emerging economies with friendly investors’ policies to get a good return.

 The retail investors are those who buy the share for their own. Some of the retail investors purchase share in higher quantity to keep it for 10-12 years. But most of these are small investors who invest their money to get a regular return from their investment. But, when the market condition becomes worse then the price of share goes down and at that time companies also becomes unable to give any return (means dividend) to its shareholders. So, the purpose for which the retail investors bought their share didn’t fulfilled and because of that they become the biggest looser in the worst market condition.

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Expectation of economic reform

Prime Minister Manmohan Singh has taken the additional charge of finance ministry; in response of this news Indian Market looks bullish. As the rupee, after going to its lowest value taken a come back.Manmohan Singh which was the finance minister in 1991  had brought the economic reform in India with privatization, liberalization and Globalization. When he was the finance minister, the stock market was goes up nearly by 167%.So, the investor’s sentiment is positive towards the market and they expect the economic reform from him. Government has reduced the price of petrol and its positive effect is also seen in the market. It is expected that Stock Market will open in positive on Monday. As  many of the economists said that the position of India currency  in BRIC nation  is the poorest and its GDP growth is also not good but The data shows that the average GDP growth of India for last 8 years is better than Average GDP of  Brazil and Russia.Now we expect that market will take a turn and reach a higher position as the investors expect.

 

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Fall in Indian Currency.

Indian currency, rupee is falling down day by day. It is expected that it may also fall in near future. The main reason behind this fall is the increasing Current Account Deficit or Trade Deficit. Current Account Deficit or Trade Deficit means the excess of import over the export.Current Account Deficit increases problems for the economy when it becomes more than 2.5% of the GDP.It becomes the main reason for the devaluation of the money.It becomes good for the export but bad for the import.

The import limit of India is increased because of the day by day increase in the import of crude oil and Gold.Government has increased the tax on Gold to reduce the consumption.But Government can't do any thing to reduce the consumption and demand of crude oil.If government will increase the price of diesel then it may become one of the solution to reduce its demand.

The policies which government has announced on 25th June to stop the devaluation of money such as increase in the limit of different types of bond purchased by foreign investors, reduce the lock in period

for the foreign investor which invest in bonds ,increase in the limit of debt which Indian companies  take from foreign etc.I think that these steps are not the permanent solution because all the steps are much more related to increase the dollar reserve means to increase the FIIs. To bring the stability in the economy ,Government has to make good policies to increase the FDI investment.

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Importance of financial planning

Financial planning is very required for all people, what so ever his/her income is. A habit of saving must be necessary for all people because no one in this world know about his/her future. As we all know that future of a person is very uncertain. So, take the right step at the right time.

 If you do not know about the plans and policies of different companies, their interest rates and feel difficulties to decide about your investment then you can take the help of a financial planner. We can define financial planner as the professional who will help you to put your money in the safest place and earn a good return from your investment.

 You can easily understand the requirement of saving and financial planning with the help of following figure.

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Advantage and disadvantage of service based economy

I want to discuss some of the advantage and disadvantage of service based economy and whether it is good for an economy to be fully based on service sector?

Later I shall introduce the service based economy USA and at last, like to conclude this discussion.

  

ADVANTAGE OF SERVICE BASED ECONOMY

•      It can give faster and more flexible adjustment in times of economic crisis or downturns.
•       It minimizes environmental degradation from heavy industry
•        It allows for faster economic development than that which follows the traditional pattern
•       Reduce the material & energy consumption.
•       Enhancement of Knowledge.
•      More customer oriented product for their satisfaction.

DISADVANTAGE OF SERVICE BASED ECONOMY

•     More dependability on other country for goods.
•     Trade deficit is increased because of more import and less export of goods.
•     manufacturing jobs  have been lost to outsourcing of products
•      More skilled employees & workers are required.

USA Economy is an example of service based economy because nearly 80-90 % of the GDP comes from the service sector.

The US is the largest and most technologically powerful economy in the world. Most of the US population is well educated and their spending power is better than other parts of the world. But, increasing trade deficit is slowing down the growth of U.S. economy as hundreds of billions of dollars are going to the rest of the world. Imported oil accounts for about 60% of US consumption. Long-term problems include inadequate investment in deteriorating infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits.

Conclusion

• An economy cannot be totally reliant on services alone. However a service-economy is a sign of economic growth and development of the country and it shows the strength of the economy.

•  US is service-based economy. It means that they have highly skilled and competent workforces who work in the tertiary sector.  US also has primary and secondary sectors- but they're not that dominant as compared to tertiary sector

•  A service-based economy will be reliant on other countries for manufacturing products and import goods to fulfill the demand of primary and secondary sectors.

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