Finally, get your money's worth when you invest - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Finally, get your money's worth when you invest 

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In this issue:
» Mutual funds can't snip your money at the gate
» China behind the crude oil rally?
» Deflation for the 1st time in 30 years
» Drive Jaguar and Land Rover in small town India
» ...and more!

Barely a couple of days after Mr. Bhave, the SEBI Chairman outlined the need for greater investments by the retail investor in the domestic mutual fund industry, there comes a fresh diktat from the watchdog, which will go a long way in turning that dream into a reality. We are talking about the fee that fund houses charge from an investor before they invest the latter's money in an MF scheme. As per the latest guideline, the fee, popularly known as the entry load now stands abolished. In other words, fund houses will no longer be allowed to deduct any money out of the amount than an investor invests in a scheme.

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While on the surface, the entry load of 2.5%, which most funds charge looks small; it does have very significant long term implications. Just to put things in perspective, Rs 50,000 invested per year for a period of 10 years and compounded at 10% would yield more than Rs 100,000 less if an entry load of 2.5% is charged every year! In other words, SEBI has gifted every such investor a small car like the Nano, just by coming out with this directive. We at Equitymaster indeed welcome such a step as we believe that expenses like marketing, sales and research, for which the entry load is typically charged, has to be borne by the fund houses themselves and should not come out from the pockets of retail investors, who put their hard earned money into the schemes. Adding further, if an investor is looking to invest through an MF distributor or an advisor, then the investor will himself have to pay an appropriate fee for seeking the latter's advice.

Perceptions about the future of captive BPO companies (those run by MNC companies to cater to their own customers worldwide) have turned jittery. Some global corporations, especially those from the investment banking space, are winding up such operations in India. European major UBS is one of them.

The bank, which has centres in Poland and Hyderabad, is in talks with Indian IT companies such as Infosys and Wipro to hand over its captive BPO/KPO centres, which are together valued at around US$ 200 m.

In fact, after Citigroup sold two of its captives in 2008, this is the second time a global bank would be hiving off its captive BPO arm. Citi had sold its BPO captive, Citigroup Global Services, to TCS in October last year for US$ 505 m and Citi Technology Services to Wipro in 2008.

Apart from slowing business, recent statements from US President Obama ending tax incentives on overseas income of US corporations has also seen some industry players predicting further exit of captives from India. But then, we wonder if these the only reasons for such exits? What about the non-competitiveness of such captives vis--vis third party service providers that have been looking at all means of cutting costs and becoming all the more competitive over the years?

Crude oil prices this year
Source: CNN
Crude oil has made a smart recovery since the beginning of this year. And there are 2 explanations that are commonly offered: signs of recovery (or green shoots) in the US and Chinese economies. While the jury is still out on when the US economy will rebound, the China story is easier to read as per an article on Bloomberg. The Chinese stimulus package, some believe, will boost both Chinese as well as global economic activity. But in reality, all China is succeeding in doing is building up huge stock piles of inventory. There is no upturn in the final domestic demand or in exports. Hence, it is unrealistic to expect a Chinese boom to take oil to US$ 250 per barrel in the short to medium term.

However, on a long term basis, we at Equitymaster expect the demand for crude oil to remain robust. There are simply no major mass market commercial alternatives to hydrocarbons. We also believe, much of this secular demand will still come from the US, as and when it recovers.

Wholesale Price Index (WPI) based inflation has fallen into the negative territory for the first time in 30 years. For the week ended June 6, the number stood at -1.61%. Negative inflation (deflation) is considered worrisome if it is caused by a slowdown in economic demand. However, in India's case, the deflation is on the back of a high base effect of high crude prices last year. It may be noted that inflation is measured on a YoY basis. Economy watchers believe that the current deflation is a temporary phenomenon and the number will be back in the positive territory in the next few months. In fact, inflation in the prices of food items like cereals and pulses continue to be high: 13.6% and 16.8%, respectively. Hence, 'deflation' at the WPI level still brings no respite to the common man. The Consumer Price Index (CPI) is more relevant for him.

As per a leading business daily, Tata Motors plans to launch the Jaguar and Land Rover brands in India on June 28. Interestingly, it plans to set up exclusive showrooms in the smaller towns as well. The company will bring the entire range of models to India, although tweaked for Indian conditions. They will be priced in the range of Rs 3.5 m to Rs 9 m. For now, the company is aiming at establishing its presence in India and not looking at huge volumes. In fact, its targets are more in the range of 100s and not in 1,000s. It is interesting to note that luxury car brands are not necessarily great businesses from the investors' viewpoint. It takes a great deal of time, effort and money to maintain the brand image and the space is highly competitive. However, most luxury car brands now want a piece of the action in India. In this light, it would be interesting to watch how Jaguar and Land Rover fare in the days ahead.

Though the Indian markets remained volatile through the day, they managed to close on a positive note with the BSE-Sensex ending higher by around 260 points (1.8%), and the NSE-Nifty ending higher by 62 points (1.5%). Most of the Asian markets ended the day on a strong note as well. At the time of writing, the European markets were trading in the green.

04:54  Today's investing mantra
"I only need to be right a few times and can let thousands of ideas go by." - Warren Buffett
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5 Responses to "Finally, get your money's worth when you invest"


Jun 20, 2009

please suggest one stock on a trial basis to believe you.



Jun 20, 2009

Does that mean if we invest in mutual funds online through netbanking (like HDFC bank's), we will not be charged entry load which othewaise bank used to do so????



Jun 19, 2009



siddharth bhati

Jun 19, 2009

its really good...



Jun 19, 2009

I am disappointed at the quality of reporting - am not sure who your target audience is - Just copying newsclips from other magazines and posting it on 5 minute wrap adds no value

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