The invisible hole
November 6, 2007
There’s a hole in your pocket and you haven’t got a clue about it. Even if you are the most careful, canny and aware investor, there’s a silent erosion of your wealth and there’s really nothing you can do about it. It’s called inflation.
Are you nodding wisely and saying that you’ve been keeping an eye on the inflation rate? And are you feeling smug about the fact that the rate of inflation had fallen to 3.07% in the first week of September, its lowest level in five years? Allow us to puncture that bubble of happiness. Because what you are being told about is the rate measured by the wholesale price index (WPI).
Like the name says, it’s all about inflation affecting wholesale prices. What should interest you because that’s what affects most of us is the CPI or consumer price index. And that tells a different story. The CPI for urban non-manual employees (CPI-UNME) was at 5.7% in September, down from January when it had breached 7%. Yes, it’s been coming down, but far too slowly to really matter.
Then there are other measures of consumer price inflation that are still running at levels as high as 8.8%. Your consumption basket is much closer to these indices than the WPI. Even if we go by the lowest of the three CPI inflation rates (CPIUNME), every rupee in your pay packet has lost 6% of its value in the past year.
Your savings bank account (which gives you a 3.5% interest) is worth 2.2% less than it was last year. And if you think that your debt instruments, which offer 8-9.5% interest, will cushion you, there is more bad news.
If the CPIbased inflation rates do not come down at a faster pace than at present, these instruments will generate hardly more than 2.3-3.8% returns. Inflation is a tricky beast it makes a mockery of your savings and investment efforts of the past, and it eats into your ability to invest or save for the future. So how do you ensure that it doesn’t catch you unawares?
When you choose your investment instruments, factor in the rate of inflation. For your money to grow by 10%, look for an asset class that can generate at least 16% returns (assuming an average annual rate of inflation of 6%). Ideally, of course, break down inflation estimates for specific goals.
If, however, you find that too complex, stick to a higher overall estimate for the long term. Once you’ve done that, review the effect of inflation on your investments at least once a year. While that may not help you beat inflation entirely, it will at least ensure that your savings remain respectable and have not all fallen through a hidden hole.
Bus tickets online
Air tickets, train tickets, cruise tickets… so why should bus tickets be excluded from the online mania? Answering that question are three new portals, launched within weeks of each other this year www.redbus.in, www.ticketvala.com and www.abhibus.com.
While the first two portals have limited reach as of now, Redbus concentrating on the south and Ticketvala on the west coast, Abhibus is more pan India since it caters to over 200 cities. Bus ticketing system is a largely unorganised sector and we saw a clear gap that we could address.
To reach the non-English speaking customers, we have launched call centre services in local languages too, said Haranath Lokanadham, CEO of Ticketvala. All three portals have tied up with travel agents and private bus operators to ensure greater connectivity. What’s more, none of them charge a booking fee. Accepting both cash and plastic, the portals redefine convenience.
Should you not have a Net-enabled computer at home, Redbus will even home deliver tickets. So will Ticketvala, but the service is limited to Mumbai. And though it’s early days yet, the portals are attracting sufficient business. Says Phanindra Sama, one of the founders of Redbus, We have had 6,00,000 hits since our launch.
Now Indians will have information at their fingertips, be it a cost comparison, bus routes or timings. One can even book at the last minute without wasting time in queues. All in all, bus journeys are becoming easier. Even before you embark on one.
Global bankingImagine taking your bank account with you no matter where you go, no matter for how long. HSBC India has recently launched its global personal banking service, which will help HSBC customers take their account, credit history and banking relationship when they travel abroad. Credit card and wealth management are also part of the service.
With this move, HSBC hopes to tap the high networth segment of 1.4 million Indians and 22 million mass affluent NRI consumers. HSBC Premier customers those who have an aggregate engagement of at least Rs 25 lakh with the bank will now be able to bank across 35 countries, including India, US, UK, Australia, Canada, UAE and China.
Other services include free fund transfer between self-named HSBC accounts, emergency cash facilities and double reward points on credit card spendings. According to the bank, globally the number of mass affluent class (individuals with liquid assets between $100,000 and $2 million) are growing at 20% annually.
Says Naina Lal Kidwai, group general manager, HSBC India: These consumers are highly mobile, sophisticated and knowledgeable. We could provide the seamless international service they need.
Insure by SMS
You’re out of town, and out of the Internet loop and the date to pay your life insurance premium is just around the corner. Panicky? Don’t worry; just reach for your mobile phone. Now you can not only receive latest updates about your policy but also pay your premium via SMS.
This move also addresses concerns over lapsed policies due to nonpayment by the due date. ING Vysya introduced this facility in June 2007. It has a tie-up with mobile payment gateway PayMate, but this service is so far limited to Citibank and Corporation Bank customers. Max New York Life followed up with a similar facility in October. It has tied up with ABN Amro Bank and IDBI Bank for mobile payments.
Betting on maths
Can you take the manager out of the fund management? And yet aim to be one of the better performing equity mutual funds? That’s exactly what mutual fund house Lotus India will do with the launch of a quant (for quantitative) fund. Instead of a fund manager deciding which stocks to buy, and when, a sophisticated mathematical model takes these decisions.
So discretion will now be replaced by clearly defined rules guiding investment strategy. That lowers the margin for human error and increases pure performance indicators The first quant fund to be launched in India, the scheme is called AGILE (Alfa Generated for Industry Leaders) Fund. A majority of the corpus will be invested in 11 stocks, all chosen through the model, with the Nifty as the performance benchmark. The fund is open for subscription and the NFO closes on 23 November.
The policy, unlike other pension plans, allows the policyholder to taper and reduce premium outgo from year two in case the policyholder is unable to pay the premium for any unforeseen reasons. Says Bhargav Dasgupta, executive director, ICICI Prudential Life Insurance: Flexibility is the key in this product as it is targeted at those who do not have a fixed income or source.
And as the policy offers holders choice to review premium amount, it allows top-ups in subsequent years making it possible for the insured to tinker with the policy while retaining its core offering. And with relevant tax benefits thrown in, the product fills the much needed space for those who do not have a fixed source of income or are part of a pension scheme.