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By Babar Zaidi with Priya Kapoor     September 21, 2007

Free entry

It’s a fee you pay whether or not you use the service. Every time you invest in a mutual fund you pay an entry load of 2-2.5% of the invested amount.

The fund houses pass on this fee as commission to distributors— agents, brokers or banks through whom investors normally route their applications. Of late, a small but growing number of investors have started directly investing in fund schemes, without using the services of a distributor. But these investors had to pay the entry load, nonetheless.Word's worth

Last fortnight Securities and Exchange Board of India (Sebi) proposed waiving off the load for investors who apply directly to a fund house. Online investments too would be eligible for waiver. The rationale for charging entry load is simple: a distributor spends resources to educate the investor and rope in investment so he should be paid for his services. In the past six months, retail investors have put in nearly Rs 6,000 crore into equity-based mutual funds.

That’s almost Rs 150 crore paid in commission. You may not have bothered about entry loads till now because the returns from equity-based funds were so huge. Why care about 2.5% when profits are about 50-60%? After all, it is just about 5% of the gains.

But those days of phenomenal returns may be over now. Experts believe equities will give about 15-20% returns this year. Some even say the returns could be negative. So a 2.5% load will pinch more.

“In rising markets, the losses of returns due to entry loads were hardly visible but in falling markets, loads would add to the losses,” says Devendra Nevgi, CEO and CIO of Quantum Asset Management Company. A pioneer of the direct-toinvestor approach, Quantum Mutual Fund does not charge any entry load and does not use distributors to sell its schemes.

Sebi’s proposal, however, does not mean that distributors will get completely bypassed. After all, the 6,000-odd mutual fund distributors and one lakh agents have been instrumental in making mutual funds the popular investment choice of small investors. The move is meant to only cut out the distribution fee for those who don’t use distributors.

Though the proposal will surely lower cost for fund investors, but for it to really benefit large number of investors it will have to be followed by a few more initiatives. Most fund houses offer online facilities. But not every investor has access to a computer or even a Net banking account. And visiting the fund’s investor centre is not always convenient.

Since a lot of investors will be looking to avoid the entry load, fund houses will have to find ways to make the direct channel easy. Or else retail subscription to mutual funds could fall, defeating the very purpose of the proposal. Often distributors push products that offer them high commissions, regardless of their suitability.

This mindless and costly churning could end if there is no one pushing the investor into a decision. Sebi has invited responses to its proposal. You can send in your opinion to ruchic@sebi.gov.in by 12 September.

Babar Zaidi with Priya Kapoor

Profiling investors

Planning to shift to an online brokerage to better manage your investments? What are the factors to keep in mind before you zero in on your stock-trading partner? According to a survey of investors by media buying firm Starcom, the main factors considered by Indians are security, brokerage charges, research and analysis provided by the portal, and accessibility. The online option was exercised by almost half of the 10,000 respondents.

Furthermore, it is still a man’s world when it comes to stock trading—85% of the estimated 8 million investors are men. However, more women seem to rely on research (71% against 63% for men). Younger investors are more cost-conscious, 52% in the 18-22 age group said brokerage is the prime factor compared to 25% in the 58-plus bracket.

Rakesh Rai

Realty freebies

For a prospective property buyer these are the worst of times and also the best. Worst, because property prices have risen rapidly in the last few years and interest rates are at a high too. And it’s the best of times because in a depressed market like this you also stand a good chance of landing up a good deal—in a resale as well as the primary real estate market.

As developers face the danger of their projects finding no takers, they are extending freebies like easy finance, free parking, bearing of the registration cost, to lure customers.

While some like Nirmal Builders in Mumbai are ready to pay stamp duty charges, others are willing to dish out free furniture, bathroom fittings and consumer durables, and some are even willing to negotiate on prices.

Traditionally, a 5-7% discount was offered on lump-sum payments but now, developers have resorted to giving discounts on the rate per sq ft of the property, further reducing its cost.

Some builders are going to town advertising, “No EMI till possession”. What it means is that the developer is ready to pay either the entire EMI or a part of it (the interest component) of the home loan that the buyer has taken, right till the possession of the house. Exemption of preferential location charges (PLC) are also offered in some cases.

If these sops aren’t exciting enough, try this one. A high-rise tower coming up in Mulund, a Mumbai suburb, has two rates: one quoted by the developer and the other by agents. If that is not too unusual, hear this: there is actually a difference of Rs 1,000 per sq ft between the two rates. How is that? “In many of these upcoming buildings in the suburbs, the developers are selling properties through agents at a lower rate. The agent just tells interested buyers that it is a distress sale,” explains Sandeep Sadh of mumbaiproperty-exchange.com, an online consortium to help bring the city’s buyers, sellers, builders and brokers together.

But how long will the party last? “Large developers may hold on to their rates for some more time. But smaller ones have already started offering lower rates in some areas. After sometime, even big developers may be forced to offer lower rates,” says a senior banker. The moral of the story: bargain hard if you are buying a house.

Rakesh Rai

Conned into paying

It’s one of those tricks that many restaurants are pulling off on their customers and getting away with. Take a close look at your bill the next time you dine out and you’ll realise that the restaurant has pre-empted your tip by including it in your bill already as service charge. Most of us, unknowingly, leave a tip on the top of the 8-10% already billed for “services rendered”.Telling figures

The issue is that unlike the West where the management makes it a point to inform guests that they have paid twice if they add a tip to the bill—there are enough examples of restaurants revoking the tip added by those unaware about the service charges —Indian restaurants tend to quietly rake in the extra income.

A tip (meaning “To Insure Promptness”) depends entirely on the guest’s discretion to reward good service by the staff. On the other hand, a service charge is an amount determined and imposed by the house before the service is rendered. If the charge is printed on the menu, irrespective of how illegible the font size, there’s an implied contract: by sitting down to eat, you are agreeing to pay.

The mandatory charge is fast gaining appeal among Indian restaurateurs. But for consumers there is an inherent problem: what if you go to a restaurant where the service is appalling? Do you still have to pay this charge? Unfortunately, yes claim restaurant owners. There lies the crux of the problem. Says Sunil Tickoo of Qba, a Delhi restaurant: “The service charge is not reversible under any circumstances. However, if there is a complaint, we try to compensate in other ways.” He might as well be speaking for most restaurants in the city; because that was the identical response we got from everybody we spoke to.

Is there a legal recourse available? Says Bijon Mishra, editor of Consumer Voice, an online consumer awareness magazine: “Only if the menu does not clearly state that prices are not inclusive of VAT and a service charge can a consumer rightfully refuse to pay up.” However, Nakul Dewan, who practises law at the Delhi High Court, says: “As a consumer you cannot refuse to pay the service charge and you cannot get a recourse from a consumer court. But legally speaking, you cannot be charged for a service uncalled for, or unsatisfactory so you can take the matter to court by filing a writ petition.” So check your bill twice before you pay the tip.

Sushmita Choudhury

Two-in-one

Tired of lugging around two phones—one for personal use and another for work? Ease your load by going in for the dual SIM mobile phones recently introduced by Spice Mobile. These phones provide you the option of inserting two different SIM cards in a single instrument. Which simply means you can have two different numbers from any service providers of your choice within the same phone.

You can use just one number at a time or switch between either number as per your need. Said Kunal Ahooja, CEO, Spice Mobile, “It is estimated that about 8% of mobile subscribers already own two numbers and we do foresee this trend to grow.”

There are two variants available. The D-88, which supports both GSM and CDMA, will set you back by Rs 9,849 while the D-80, a clamshell model, supports two GSM numbers. Both phones have a 1.3 mp camera, 262k colour screen, integrated music and video player and expandable memory. One needs to be careful about the usage of battery in these phones though. Talk time is longest in the GSM mode and is cut down to nearly half if you keep both your numbers switched on permanently.

Namrata Dadwal

Money-back policy

If you are one of the 53 million Indians with a Visa credit or debit card, here is a reason to smile, at least till the end of the year: online travel portal www.travelguru.com is offering up to 50% cash-back on airline and hotel bookings done through them.

Visa Signature cardholders can enjoy 50% cash-back on airline bookings and 25% cash-back on hotel bookings, Visa Platinum cardholders will get 25% discount and for Visa Gold cardholders there is 15% cash-back on airline and 25% on hotel bookings. All other Visa cardholders can enjoy 7.5% cash-back on airline bookings and 15% for hotels.

Says Ashwin Damera, CEO, Travelguru: "We are offering this scheme on more than 4,000 hotels and three premier airlines, Indian, Jet and Kingfisher.” Business trips or holidays will now pinch less.

Sushmita Choudhury

Net gains

How about an ISD call at just Re 1 per minute? The recent launch of voice over Internet protocol (VoIP) services by MTNL, in partnership with Aksh Optifibre, has made that possible. Now calling the US is as cheap as an STD chat. Internet telephony is cheaper still. Unfortunately, the service is limited to MTNL broadband subscribers.

To avail of the facility you need to have a broadband connection even if you do not own a PC. You will also have to invest in an analog telephone adaptor (ATA). This device connects your broadband connection to your phone instrument and voila…you can call anyone, anywhere. The ATA costs Rs 1,460 under a lifetime plan.

Alternatively, you can have one for a quarterly rental of Rs 243 and a refundable deposit of Rs 1,000. The VoIP service has two tariff plans at present. Under VoIP 200, for a monthly rental of Rs 200 you get 400 minutes free calls from one VoIP phone to another. With VoIP 400, the rental increases to Rs 400 but you get 800 minutes of calls free. Over this limit, calls cost 20 paise and 10 paise a minute respectively.

For international calls to a landline or mobile phone, you can buy prepaid cards of denominations varying from Rs 100 to Rs 1,000. This service will also be available at all MTNL PCOs. “With the launch of VoIP we have managed to create a cheaper platform for international calling without compromising on the voice clarity,” says Kailash Choudhari, managing director, Aksh Optifibre.

International calls to the US, UK, Canada and Australia will be priced at Re 1 per minute while for Japan and Malaysia, it will be Rs 2 per minute. Calls to the US and UK from your landline phone otherwise cost about Rs 6 per minute. It is higher for other countries. But what if you have a different broadband connection but an MTNL landline? “We are studying consumer feedbacks and racking our brains to come up with more user friendly solutions,” says Choudhari. Till then, hit an MTNL PCO if you aren’t an MTNL user.

Namrata Dadwal

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