Fund Talk: Expose only surplus to market risks :: Business Line

Invest in fixed income products for regular cash flows.

I am 59 and run my own business. I have surplus funds which are at present invested only in bank FDs at 9-10 per cent interest. As the returns from FDs are eaten away by tax and inflation, I have been thinking about diversifying into other avenues, but not directly into equity. My risk appetite is average and I expect my investments to earn around 15 per cent annually. My investment horizon is up to 10 years. Please suggest a strategy.

Kamal Laddha

You are right in observing that inflation and taxes eat into returns of fixed deposits. So, the price paid for safety seems to be pretty high. Again, you do not want to venture into equities directly. A mutual fund investing in a basket of stocks is expected to reduce risk and provide adequate diversification across sectors. Though not as much as direct equity, equity mutual funds too can be risky, as a manager is expected to take active calls in containing the downside and choosing a portfolio that participates well in rallies. Earning 15 per cent is possible over 10 years. But paradoxically, you cannot achieve such returns unless you invest in equity mutual funds, which may be risky given your age and average risk appetite. A more realistic target would be around 10 per cent over 10 years, something which is likely to be accomplished by investing in balanced funds, which entails taking lower risks.

Invest in Tata Balanced, Birla Sun Life 95 and ICICI Pru Balanced. If you can take above-average risks, large-cap funds such as Quantum Long Term Equity, ICICI Focused Bluechip and Franklin India Bluechip may offer reasonable alternatives.

Given that you run a business, we hope you have regular cash flows. If your inflows are volatile, stick to fixed income products such as FDs, FMPs, RDs and NSCs. You should ensure that you receive a regular income from your fixed deposits and only surplus amounts which you may not need should be exposed to market risks.

***

NHPC tax free bond details - Oversubscribed 1.6x on Day 1

About NHPC Ltd NHPC Limited (NHPC) is a Mini Ratna Category-I hydroelectric power generating company dedicated to the planning, development and implementation of an integrated and efficient network of hydroelectric power projects in India.

Key Points: Rating "AAA" by CARE, ICRA & IRRPL. Allotment 1st Come 1st Serve Issue Size Rs.500 Crores with an option to retain oversubscription up to Rs.500 Crore Issuance Both in Physical & Dematerialized form Tentative Coupon Rate: Options Series of Bonds For Category I, II & III Tranche - I Series 1A Tranche - I Series 2A Tranche - I Series 3A Tenure (in Yrs.) 10 15 20 Interest Rate(%)p.a 8.18% 8.54% 8.67% Options For Category IV only Tranche - I Series 1B Tranche - I Series 2B Tranche - I Series 3B Interest Rate(%)p.a 8.43% 8.79% 8.92%

Checkmate the fraudster :: Business Line

Zero tolerance towards fraud, corruption and bribery can help mitigate their occurrence at the workplace.

Eliminating corporate fraud and corruption seems an impossible task in India, a country where they are often seen as an inevitable cost of doing business. But like any other business risk, these ills can be managed and controlled through appropriate strategies.

An ethical culture of “zero tolerance” towards fraud, corruption and bribery, training programmes, implementation of a whistle-blowing mechanism and timely disciplinary action are a few prerequisites of any plan to effectively mitigate fraud and corruption risks, according to a new report jointly published by research and consultancy firm Deloitte Touche-Tohamatsu and FICCI.

The key element in mitigating fraud is an appropriate system of governance that dictates monitoring objectives, accountability and performance management, says the report, titled “Corporate Resilience: Managing the growing risk of fraud and corruption”.

CONTROL MEASURES

Corporate governance needs to include “high level controls” that span the organisation, rather than being specific to processes and functions.

These controls need to clearly communicate to all employees, including senior management, that fraud will not be tolerated. Emphasis must be placed on compliance with laws, ethical business practices, accounting principles and corporate policies.

The report says while it is rare to have a foolproof system or process, timely preventive measures can combat fraud and be a good safeguard. In this regard, a holistic approach is necessary. Above all, such exercises should not be reduced to merely putting a tick in a box or be recommendatory in nature.

According to the report, the four critical aspects of fraud and corruption risk management are assessment, prevention, detection and response.

Want to be a privileged bank customer? :: Business Line

The last time you clicked on your bank’s Web site, you stared wistfully at the ad showcasing the special benefits of being a privileged customer.

Yes, being a privileged customer provides some benefits that aren’t available to other customers of the bank, but unless your banking transactions are numerous or frequent, there is nothing much to gain from being one. Here’s why.

WHAT ARE THE BENEFITS?

In banking transactions, benefits take the form of lower charges on lockers, credit and debit cards, and services such as forex, Internet banking, ATM withdrawals and bill payments. Also loans, demat accounts, and other bank products like travel cards could be priced lower.

That essential cheque is also tagged with benefits – in most cases, limitations on at-par cheques and chequebooks issued in a quarter or year are lifted, cheques will be picked up for free, reduced or no charges for cheque return or stopping payments and so on.

Other advantages are that withdrawal caps at ATMs and limits on the amount you can swipe on the debit card are higher. Kotak Mahindra Bank’s privilege offering, for example, sets limits of Rs 2,50,000 withdrawing at ATMs and purchases on a daily basis.

Next, you will have separate queues or special service areas when you visit your bank, to shorten the time you spend waiting.

Banks assign Relationship Managers who are supposed to process your requests. Also, on offer are wealth management services.

Lifestyle privileges, the other form of privileges, are usually higher reward points on spending – whether debit or credit, discounts on hotels and dining, access to exclusive airport lounges and so on.

WHO DOES IT SUIT?

Is the privilege account worth going for?

The answer depends on the number of banking transactions you undertake. If you frequently issue or receive cheques, use the transfer and payment services on Internet banking often, then the lower charges these carry certainly help.

But most of us don’t carry out too many transactions in a month, apart from bill payments, the occasional transfer or two, or opening deposits. Further, the need to actually visit your bank is lower with banking available online or through the ATM.

The extra reward points and benefits too are available aplenty with the debit or credit card itself, independent of your bank account status. Next, while wealth management services are provided for free, your bank may not always be the best advisor around. You may find better ones if you look around.

What’s more, it gives your personal banker access to data on your investments and savings.

You may have to deal with frequent calls of marketing executives looking to sell you products. In such cases, being a privileged customer doesn’t hold much weight. Other benefits too, may sound better on paper, but don’t turn out to be very beneficial in reality.

For instance, with travel card charges already relatively minimal, lower charges on these are unlikely to amount to much. Similarly, the quantum of discounts on exchange rates may change and is not actually specified. Getting preferential treatment for lockers too, is subject to your meeting the eligibility criteria for hiring the lockers, which may range from buying insurance products to the amount of fixed deposits you hold with the bank.