Know the firm's management before investing

The quality of management is also an important factor while buying a stock.

In the story on mid- and small-cap stocks, you have mentioned two firms, Temptation Foods and SKM Egg Products. I have recently found that both of them face a corporate governance issue with Sebi. While writing about such companies, please mention the quality of their management so that small investors can take informed decisions.
Satyajit Mukherjee, Kolkata

Our focus was on the stocks that are available at rock-bottom prices but whose companies have strong business models in place. Both Temptation Foods and SKM Egg Products featured as they were available at PE multiples of less than 4 times. While there are issues specific to the companies, the then stock prices discounted most of the negatives. But, as you have rightly pointed out, the quality of management is also an important factor while buying a stock. In future, we shall try to provide more such information.

Apropos of a section of the cover story in the previous issue, I wish to point out that one can save tax through proper planning of investment for children. Capital can be accumulated for the child from the day he is born. The cash gifts that are received from relatives and friends on various occasions can be credited into a bank account in his name. When the child is 18 years old, this capital can be invested and the profit is then taxed as his personal income.
Mahesh Kapasi, e-mail

You are correct that one can save tax through proper planning of investments. But there is no benefit in investing in the name of your children because of the income clubbing provision of the Income Tax Act. It is better and more convenient for a parent to invest in his or her name and transfer it to the child after he attains maturity. If somebody still wants to invest in the child’s name, he can choose from several tax-efficient options, such as the Public Provident Fund and unit-linked insurance policies, even mutual funds, because the income is taxed only at the time of withdrawal.

This pertains to the story on volatility index. The article stated that "the VIX value for 19 February was 42.91, which means investors expect the Nifty to move 42% by 19 March." This statement is incorrect as the VIX is quoted in terms of percentage points on an annualised basis (not monthly) and is roughly translated to the expected movement in the index in the next 30-day period.
Harsh Kumar, e-mail

Thank you for pointing out the error. The volatility index (VIX) is indeed the annualised value of the expected change in the Nifty over the next 30 days. The monthly figure can be derived using the following formula: MV = [(1+AV)^(1/12)-1]X100 where MV=monthly volatility AV=annualised volatility The error is regretted.