Look at percentage, not points

Absolute returns, when it comes to investments, are misleading. So why go into a tizzy when the BSE Sensex tanks 615 points, as it did on 1 August?

Print Edition: August 23, 2007

When an investor walks up to a bank counter to open a fixed deposit account, he asks about the returns that his savings would give him in percentage terms and not in absolute ones. Absolute returns, when it comes to investments, are misleading. So why go into a tizzy when the BSE Sensex tanks 615 points, as it did on 1 August? The index has seen dips of greater magnitude.

Word's worthOn 28 April 1992, the first trading day after the Harshad Mehta Scam broke, the Sensex crashed 570 points. But despite apparently greater magnitude, 1 August had less impact than the 1992 slide. In reality, the 2007 loss was far less. In April 1992, the Sensex was at 4500-levels. In 2007 it was at 15,700. Over 12 % of market value disappeared in one session in April 1992 compared with just under 4% loss in August 2007.

Without knowing base levels and percentages, there is no way to put a market move into perspective. Unfortunately the media itself often refuses to make these simple calculations and as a result, volatility is blown out of proportion by hype. Before reacting to media reports and market rumours figure out why you have invested.

If it is to create a corpus for a distant future, stay invested. Selling during a slide is selfdefeating. As has been proven, for consistently high returns there is nothing to beat equities. The Sensex has delivered a compounded annual growth rate of over 19% since inception—despite all that scary volatility, that is an excellent long-term return. However, if you need ready cash in a short term, it is advisable to cut losses by booking profits.

Your reaction to market volatility will also depend on your financial instruments. If you are directly investing in equity you need to be on a constant watch and react. There may be reasons to exit if you have invested in a particular sector. The same holds true if you have invested in a sectoral fund. Otherwise mutual fund investors have little to worry in the short run.

It may take courage to stick to long-term investment goals in the midst of panic. But it is the only sensible action. In earlier times, the average Indian “investor” was really a trader, trying to leverage short-term resources. Conditions and investor-profiles have changed. In 2007, retail investors have held their nerve. The April recovery saw strong retail action and so far, August has seen more institutional selling than retail angst.

This may be since retail investors are sitting on profits and hence, prepared to ride out volatility. But mutual fund data also suggests that a significant percentage is now committing savings for the long haul. Are Indian equity investors maturing as a class? Let’s hope so!


Conflict of interest

What’s Rs 396 crore? It is the turnover of a medium-sized company. It is the total value of online air ticket sales in India. And it is the amount sponged from unsuspecting home buyers by way of interest by the Haryana Urban Development Authority (Huda). Antimonopoly watchdog, MRTPC, has issued a notice to the agency for taking undue advantage of the scarcity of housing plots in urban areas. In one scheme alone, HUDA collected Rs 9,850 crore from 14,67,638 applicants, earning an interest of Rs 310 crore in six months. The MRTPC claims this is illegal and against HUDA’s social responsibilities.

Conducted by the Director General of Investigation and Registration (DGIR), the investigation spilled the beans on two new housing schemes by HUDA that over a period of six months was earning interest from the money deposited by applicants for its housing schemes while denying them benefits.

Even successful applicants were denied any benefit of the money deposited by them for three years— the delivery time for the plots. Should the allotted plot come under litigation, the allottee is not entitled to an alternate plot and can only seek refund of the amount paid by him without any interest. Also, in both the schemes, the date for accepting applications was extended, with the “intention” of earning interest without the liability of paying anything to unsuccessful candidates.Telling figures

If MRTPC wins this fight, other housing agencies too will shy away from making a quick buck by unfair means.


Net on the move

Can’t bear to skip surfing while travelling? Just pick up a mobile Internet data card and turn your laptop into a wire-free mobile office.

With an eye on the growing laptop segment, likely to hit 11 million by 2011, Reliance Communication (RCOM) is offering free data cards to Reliance NetConnect customers, but only if you subscribe to the one-year Freedom plan or the 24-month Swift 40 plan. The monthly rental for the former is Rs 650 but you get to download up to 1 GB for free.

The Swift 40 plan comes for Rs 400. Or you can buy the card by paying Rs 2,850 upfront for a USB data card or Rs 2,990 for PCMCIA card. RCOM has also tied-up with laptop manufacturers like HP, HCL, Acer, etc to bundle their cards.

The other players in the CDMA/GSM data card market are Tata Indicom, Airtel and Hutch. Fuelled by the wide choice of tariffs offered, India now has the world’s highest data card penetration of the laptop base—16% against 6% in the US.


Protection for life

Ahealth crisis can throw your budget off course, not to forget the trauma of battling a disease. With the growing need for medical care, there’s an increasing demand for healthcare insurance. The Crisis Cover from ICICI Prudential, for one, covers 35 critical illnesses. Says Shikha Sharma, managing director and CEO, ICICI Prudential Life: “Health-care needs defined benefit insurance plans and we see this policy as an extension to our stand-alone critical cover.”

With a cover of Rs 3 lakh to Rs 20 lakh available for up to 75 years of age, the policy covers disease, disability and death. The 35 illnesses are segregated into two groups and there is additional defined benefit with a policy of over Rs 10 lakh.

So if a person with a Rs 15-lakh policy is diagnosed with a disease from Group 2, that has a continuous cover advantage, he gets a Rs 10 lakh benefit and the policy will continue at a reduced premium for the remaining Rs 5 lakh, covering the balance illnesses. The annual premium payable is a small price for a move that will save you both stress and money.


What’s in a card?

It’s old news that money promises exclusivity. But now, belonging to an exclusive club will ensure more rewards than ever before. The recently launched super-premium Jet Airways Citibank Platinum Card has upped the ante for co-branded travel cards.

The new card may be an extension of an existing partnership between the airline and the financial institution but it offers one of the richest rewards programme in the country. The platinum card offers eight reward miles for every Rs 100 spent on buying tickets online at www.jetairways. com apart from four reward miles for every Rs 100 spent across categories, be it shopping for groceries or dining at a five-star hotel.

Members are also given a free ticket for every ticket purchased at pvrcinemas.com, in addition to regular features like lounge access, seat upgrades, fuel surcharge waiver, a chance to accrue extra reward miles on renewal and excess baggage.

Commenting on the launch, said TR Ramachandran, business managercards, Citibank, NA, “This is, today, the most sophisticated airline partnership in the industry. With Jet Airways as our partner in this co-brand, we are confident that this new and enhanced product suite will take the proposition of customer “spending and flying” to the next level.” As the tagline goes, this is the fastest way to fly free.


Mobile bookings

At last count there were over 185 million Indians with a mobile phone. So it was only a matter of time before online travel aggregators tapped this gold mine. Taking the lead is yatra.com after tying-up with its sister concern, Reliance Communications.

Now Reliance mobile phone owners just need to provide basic details like date of travel and the number of tickets required through Reliance Mobile World and Yatra executives will call them back, providing a choice of over 1,500 hotels and resorts as well as flight options. Besides, Yatra is offering this facility on a “cash-on-delivery” basis in 15 cities.

One can also pay by credit or debit cards. Given the fierce competition, other travel portals are likely to follow suit. And the biggest impact will be in the field of flight bookings. So far, only 15% of all air tickets sold for domestic travel are done online, but with the reach being extended to mobile telephony, the sky is the limit.


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