Power Finance Corporation - Tax Free Bonds 2012

Power Finance Corporation – Tax Free Bonds – Dec’12                                                  Subscribe

Power Finance Corporation is a “Navaratna” company of Government of India.  It is engaged in the business of lending and advisory services from project conceptualization to post commissioning for clients in the power sector.

Issue Details:

PFC is issuing “Tax Free Bonds” , which are secured, redeemable and non-convertible debentures to an extent of Rs1000 crores, with an option to retain up to Rs4,590 crores of oversubscription. 

Face Value	Rs1000 per Bond	Minimum Application	Rs 5000 or 5 Bonds
Interest Rate	7.69% for 10 years option 7.86% for 15 years option	Mode of Allotment	Dematerialised and Physical Form
Credit Rating	Crisil  - AAA; ICRA – AAA	Listing	Bombay Stock Exchange
Issue Open	14th Dec 2012	Issue Closes	21st Dec2012

Financial Details of PFC:

·         Existing profit making PSU – FY 2011-12 profits of Rs3031.74 crores

·         EPS – Rs23.41 for FY 2011-12

·         Loan Assets at Rs140,819.21 crores as of 30-Sep-2012

·         Consistent growth in loan assets and profits over the last 5 Financial Years

Tax Benefits:

·         Tax Free Bonds – Interest income fully exempt

·         No Wealth Tax applicable

·         Since it is a listed bond, benefits of indexation available in case of sale in stock exchanges

Investment Recommendation:

 The PFC tax free bonds are an attractive investment opportunity for resident individuals who are in the highest tax slab.  With the interest rate expected to move southward from 2013, the tax free rate of 7.69% for 10 years and 7.86% for 15 years is on the higher side. 

This issue has a highest credit rating from Crisil and ICRA indicating sound credit quality and prudent asset recognition norms, which lends a high degree of security to the investors. The listing of the shares on the stock exchanges provides an excellent window for exiting the investment if need arises in the future. 

On the downside, committing funds for a minimum period of 10 years is required.  There is a possibility of interest rates moving against the investor is there, though the chances of it are very low over the next 10 years.   The asset book is skewed towards power sector, which is going through a difficult phase all over India.  The State Electricity Boards which are one of the primary borrowers of PFC is in doldrums across many states in India.  Considering that there is a major reform process initiated in the power sector recently by the Central Government and most of the state electricity loans are guaranteed by the respective state governments, the possibility of default is limited.  But the risk is definitely there.

Verdict:

Considering the overall risk profile of PFC and its good performance over the last several years, we think it is an attractive opportunity to lock-in some money at the current rates.   This is a good quality debt instrument with add on benefits like tax free status, easy liquidity through stock exchange listing. 

Couple of caveats is that you should have exhausted your Provident Fund and Public Provident Fund contribution limits before you are looking at this.  Secondly, you should remain in the tax slab of 30% during the entire tenure of the investment.  That is, it may not be suitable for people who are going to retire in the next few years.

We recommend the investors to go for the ten year option.  Yes, NRIs can also invest in these bonds. 

If you need any assistance in investing in this Bond issue, please feel free to write to me at venkytuty@gmail.com or call me on +91 98415-67379.  

Disclaimer:

This is not an invitation to subscribe to the Tax free bond issue of PFC.  You should consult your personal financial advisor or take your own decision on this investment.  Please read the offer document completely before making any investment decision.

Disclosure:

The author may or may not be investing in this bond issue.  Also, if you decide to invest through us, we may be getting some commission from the product manufacturer. 

Trivandrum Diary

Couple of weeks back I was in Trivandrum to attend one of my former colleague's marriage.  Probably, this is the second time I have visited Trivandrum and got to see a city a "little" bit.

I travelled by the Trivandrum Express, which starts pretty early.  So if somebody is travelling in this express, they have to take a day off as it leaves Chennai by 3.25 PM! I have noticed since the last few train travels, I am becoming really hesitant in travelling anything other than 3 AC.  I have to now consciously work towards breaking this.

Few things which caught my attention:

• The Kerala houses which you see from the train are very enticing.  Not because of its size but for the greenery all around the house.  
• I don't know who and how the city's new areas are planned and developed.  I find it extremely difficult to accept the fact that all the roads are of 15 feet width.  Not more than 1 car can pass through at a time.  I saw it almost all the way up to Nagercoil on my way back. Whats the logic to have such narrow roads?
• A visit to Trivandrum is incomplete without a visit to the now world famous Sree Padmanabaswamy temple. On the day I went, during Navaratri, we were waiting for the puja's to get over and darshan allowed.  Everybody, more than 500 people, were neatly standing in a queue with no commotion or noise.  
• Thanks to the riches, the temple is now heavily protected by the Commandos in uniform at all the four entrances.  Kerala Police officers in plain clothes, a dhoti and angavastram, man inside the temple.  I don't know what to say, but you see policeman with revolvers hanging from their hips even inside the Sanctum Sanctorum.  

Overall, the city still retains the town like feel, which is good!

The dying art of "Sambar Powder Making"

From the time immemorial, I am used to eating Sambar Rice (sadham) as the first course in our traditional meal.  For that matter, our everyday meal is a traditional meal with 3 courses.. can't help it! One of my pet grouse in this regard is the general decline in the quality of the Sambhar being made at home.  (ok, I am making a bold statement here with the understanding that my wife doesn't read blogs, at the least my blog).

I wore my investigative hat to find out what is really causing this gradual decline in the quality.  I found out that in our house, we have moved away from the age-old traditional way of making the sambhar powder.  It used to be an elaborate exercise involving drying, frying, grinding of what not spices.  So the most plausible alternative to that is to buy the ready-made sambhar powder.

We moved to the ready-made sambhar powder few years ago and have experimented with all available brands starting from Sakthi Sambhar powder to Aaachi to Ambika, but never satisfied with any one of them.  But I always used to crib to my wife that the Sambhar is not up to the mark and I used to make some unwanted jokes like that she should go back to taking lessons on how to make sambhar all over again.

Since couple of weeks the quality of sambhar has improved dramatically, increasing my curiosity to what has happened to cause this positive surprise.  The answer lies in the packet of home-made sambhar powder delivered from my in-laws place.  What a difference to the taste of sambhar?

Now I have started telling my wife that instead of learning to make sambhar, she should learn the secrets of making the sambhar powder.  If luck shines on me, I will able to impress my wife to start making the sambhar powder at home instead of the off-the-shelf sambhar powder.   The only reply I have received so far is a "stern look"! 

Shriram City Union Finance - NCD Issue - Invest

Overview: 
Shriram City Union Finance, a non-banking Finance Company (NBFC) from the Chennai headquartered Shriram Group of Companies is launching a secured Non-Convertible Debenture from 12 Sep 2012.  Shriram City Union Finance plans to collect Rs250 crores with a green-shoe option of another Rs250 crores.  

The NCD has a 3 year and 5 year option investment option.  The coupon rate for the 3 year investment is 11.5% and the coupon rate for 5 years is 11.75%.  Please note these rates are applicable only for investments less than Rs5 lakhs under the Reserved Resident Individual Category.  The face value of every NCD is Rs1000 and investors can invest in multiples of Rs1000.  

Shriram City Union Finance is an existing profit making company engaged in the business of lending for consumer durables, two-wheelers and small businesses.  The business is concentrated in the four southern states and Maharashtra, which accounts for more than 65% of the branches.  The objective of the issue is to use the proceeds to repay existing loans, expand business and other routine business purposes.  The net interest margins made by Shriram City Union Finance are mouth-watering at more than 7%! 

Credit Rating:  
One of the important points to note in case of these long term debt instruments is how sound their business is.  This is known through the credit rating assigned by the various credit rating agencies employed by the issuer for this purpose.  

The NCD of Shriram City Union Finance has Crisil’s investment grade rating of AA-, which denotes "high degree of safety regarding timely financing of financial obligations".  

Mode of Holding: 
Please note, it is mandatory for all the applicants to apply for these NCDs only in the dematerialised form.  That is, you need a Demat account to apply for this issue.  


Investment Alternatives:
While making each and every investment it is very important to analyse what are the available alternatives.  In this case, the available alternatives are bank deposits and already existing NCDs from Shriram and other companies like Tata Capital, which are listed on the Stock Exchanges. 

Bank deposits currently don't offer similar returns for either 3 or 5 year deposits.  The only advantage they would provide is deposit insurance guarantee for a aggregate sum of Rs1 lakh for every investor.  

Looking at the other option of existing listed NCDs, there are few NCDs which are available at a little higher yield to maturity, like Tata Capital.  But the biggest problem in India is the lack of liquidity in debt segment of stock exchanges.  The average traded volumes are much lower in the region of Rs30 lakhs per day.  You may get a slightly better yield if you are able to pick up existing NCD's from the stock exchanges, but for a layman this would be a tough ask.  

Taxation:
All returns from NCDs are taxable under the "Income from Other Sources" head as per the Income Tax Act.   Therefore, the effective yields on the NCDs would be less compared to the coupon rate what has been mentioned above, depending on the tax slab you are in.  The issuer, Shriram City Union Finance, would not deduct tax at source (TDS) for the NCDs irrespective of the amount invested.  

Investment Recommendation: 
Considering the fact that the deposit rates are moving down and further expected to slide, I believe that this a good opportunity to lock a portion of your fixed income investments at an attractive interest rates. I would suggest that you may use this opportunity and apply for NCDs not exceeding 2% to 5% of your overall portfolio value. (For portfolio sizes which are bigger than Rs30 lakhs).  For others, you may go up to Rs50,000.   
  
As there are no put or call options in this issue, there is no threat of early redemption by the issuer.  

Hope you find this information useful and please do let me know if you require any help in applying for this NCD.   

Update on subscription status:
As of 14th Sept 2012, the issue has been subscribed 0.83 times, that is around Rs206crores out of the total issue size of Rs250 crores.  
Retail subscription less than Rs5 Lakhs - 1.92 times
All other categories have minuscule subcriptions  

Disclaimer:
Please note these are my personal views on this investment and I strongly urge you to check with your Personal Financial Planner before you decide on investing in this NCDs.  The views expressed here are my personal views and no way related to my current, past or future employers.  This post is not a solicitation to invest in Shriram City Union Finance NCDs.    

Investonomics by ICICI Securities

Last saturday, I attended a session hosted by ICICI Securities called Investonomics in Chennai.  This is a lecture series sponsored by ICICI Securities to educate the customers and in this program, we had Mr Krishan Sharma, Head of HDFC MF Training division as the guest speaker.

Krishan Sharma chose a very interesting topic called " Investing - The Challenge Within". The gist of the discussion is that it is we the investors fail to take advantage of the market and its returns because of the contradictions and paradoxes, as humans, we live with.  Everybody knows buy low and sell high.  But hardly few practice it.  The second thing is equities are held for the long term.  Long term is almost in perpetuity, as you equity holder is part owner of the business and normally owners don't sell businesses.  Again most of us don't know why we are buying something and why we are selling something. The other interesting point he brought out was about the price we pay to buy businesses.  Good companies are not necessarily good investments! This line is profound.  Good investments are something you buy at a good price.  So, these are few of the contradictions and paradoxes investors face and he urged them to raise above this to succeed in investments.

He was of a strong view that Indian stock markets are poised for multi-fold growth in the next 20 years or so and equity is one asset class which nobody can afford to miss.  Valid points I would say.  The only thing he is from a business which relies heavily on equity investments therefore, we should take this advice with a pinch of caution. Overall, it was a good meeting to re-emphasize on the fundamental concepts.

Coming to the other things which I observed during this 2 hours session are:

1.  The majority of the attendees are above 50 years.  Yes, this is true.  I could hardly find anybody in 20-30s and very few in 30-40s.  I don't understand if the younger generation doesn't have time or they don't invest at all!

2.  The meeting was followed by "High Tea", which means, there is Vadai, Bonda and Coffee on the house.  As usual, people can't form a single queue and everybody was jumping the queue.  Our guys will never change!

Initial Owernship Review - Mahindra Verito D6 - White

Initial ownership review:

The car came home almost 3 weeks ago.  As I write this, I have completed close to 400 kms of driving my new Verito.  The decision process has been written earlier and below are my initial observations, which are subject to change as I get more used to it.

Interiors:

The car is undoubtedly spacious and comfortable to seat 5 adults.  The driving position is very good, it is neither very low or too high as in tall-boy cars.  It gives excellent view of the road.  Having said that, the visibility on the right hand side is at times suspect.  I have come across some situations where it was a near blinder.  Added to the original design, I added door visor, which is impeding the view further. 

The original fabric seats are of decent quality.  It was comfortable to sit.  As I have recently added "Autoform" the seat covers, I am still getting used to them.  The comfort of OE seats were somewhat lost but I was told that it would take a week or so to get used to the new set of seat covers.   

The cabin lights are very powerful and it covers the full cabin space.  D6 comes with courtesy light, which remains on for 20 seconds or so, even after you switch off the ignition.  This is a very nifty feature. 

I have got used to the orientation of turn indicators and wiper.  I have not even once done it wrongly! The power window switches are on the middle of the console and few times I have scratching around the door arm-rest for this.  Not a show stopper so far. 

The D6 version comes factory fitted with a Kenwood music system and four speakers, which plays CD and auxillary cable output.  It is adequate for me to listen to FM radio.  I still don’t get the difference between bass, treble and other terms used and now you can understand the level of interest I have on music systems.  I want a functional music system which helps me to break the monotony and it is there.  The biggest surprise came when I realized that the auxillary slot is only for output (headphone) and not for input. 

The Mechanicals:

The engine under the hood is the famed 1.5 dci from Renault, which is seen in Nissan Micra, Renault Fluence, Duster and Pulse and the erstwhile Logan.  One of the key contributors for my decision to go for Verito is this gem.  I am not a automobile or mechanical engineer and with little or no knowledge, I was impressed by whatever I have read about this engine.  Hopefully, it stays true to its reputation and serves me well for the next few years. 

I love to drive sedately and steadily and I never enjoyed ripping the machines apart.  I am happy with the power the engine produces at 65 BHP.  As a driver, the first thing you come in contact in a car is the steering wheel and according to me, it is good and responsive.  When @sridhark rode the car, he felt that it was little stiff.  I heard that the smoothness improves after the first service.  Is that right?

One of the key reasons, we went for Verito is the suspension.  I find it good and manages our famed “Indian” roads very easily.  The passengers don’t feel any jerk or jump when you cross a mini-mountain (a.k.a speed breakers) or go over Pallanguli (pot-holed) roads! I have driven Etios and we felt that it was horrible. 

I was very worried about the AC before buying this but after using it for couple of weeks, I can say it works just fine.  When the car is parked in direct sunlight, I use the technique of letting the fresh air in and keeping the blower at speed 4.  I switch on the AC after couple of minutes and allow the fan speed to remain at 4 for 5 minutes.  The cabin cools down by then and after that I reduce the fan speed to either 2 or 1, depending on the number of passengers.  Though the peak summer is behind us in Chennai, I am pretty confident this would take me through comfortably next summer.   The AC vents are circle in shape and comes with an option of shutting it off completely or rotating 360 degrees, which I find it very useful.  Particularly, if you are travelling alone, the ability to shut off one of the driver facing vents helps you to avoid freezing inside the cabin. 

The city driveability is again a positive feature.  The car can run without stalling at lower RPMs and it is very helpful in slow moving traffic.  But in a stop-go-stop traffic conditions, I have seen multiple instances of the engine going off.  Again, I would believe it is more to do with my driving style.  While driving in the second gear, I tend to use clutch a bit more than required, having moved from a petrol car earlier.  This I need to reduce as I get more used to this car.  There is also a sudden acceleration I have noticed when you take off the foot from the clutch.  Probably, it is the way diesel cars are!

No complaints about NVH levels as it is one of the plus points of the cars.  There is definitely a diesel engine clatter but not very intrusive.  If you roll down the windows, the noise is pronounced but if you use AC, it is barely audible.  Switch on the music system, you can just about forget the noise.  Wonderful!

The clutch has been improved in the newer versions of Verito compared to Logans.  I have read about the hard clutch but the new Verito has a hydraulic one and it is very soft. 

First of my grudges comes in the form gears.  I am not very happy with the gear shifts.  The slotting is not to my expectation and I think it may be due to the newness of the machine.  I hope the smoothness of the gears improves after the first service. 

Braking is another key aspect which is definitely not inspiring.  I didn’t get a comfortable feeling with the brakes.  The suggestion to improve that is to go for better rubber but is there a guarantee that it would improve? I don’t think so!

Exteriors:

The choice of colours and on top of it, the paint quality in Verito has definitely gone down compared to Logan.  The white colour what you get is called Diamond white, which is not a pure white you find in cars like Etios or Sunny.   The gloss and the shine is definitely a notch lower than what we see in other cars.  A big compromise which I hate to accept.  In order to mitigate the impact, I went in for a 3M paint protection program at a cost of Rs3.4K.  3M gives you one year guarantee for this.

The headlights are adequate and the D6 version comes with Fog lamps.  I have not yet used the fog lamps in Chennai and may not be used at all in Chennai.  The D6 also comes with a de-mister and again not used so far.  Not able to comment on the effectiveness of the same.

The rear-view mirrors are okay but not the side-view mirrors.  It could have been little bigger to cover a wider view but unfortunately not.  Due to the presence of middle head-rest on the back seat, the visibility while reversing the car is very poor.  It takes some time to get used to. 

Chrome should be dear to some big boss in Mahindra, I guess.  You get a good amount of chrome all over the body.  It starts with Chrome on the front bonnet, on the roof-rails and on the rear appliqué.  I am ok with the front and the roof-rails (!?) but not at the rear.  They could have avoided having a meaningless and long chrome strip of chrome on the boot opener.  They already have the Mahindra logo nested on a piece of chrome. 

The overall build quality is good and the sheet metal used is much better than cars like Etios.  The interior plastics are definitely cheap though, which is a minor irritant.  Particularly, the AC vent with a silver plating, is an example of that.  The switches for AC, central lock are straight out of 1990’s and you feel for the price you pay, they can definitely work out something better. 

Mileage:

The most important aspect for any Indian buying a car is the mileage.  The current Driver Information System shows it around 13kms.  Mind you, I drive mostly in the city through narrow roads and heavy traffic.  I have not tested using full tank method but I am just relying on the DIS, which is not very reliable.  I will give it some more running in before really start worrying about the mileage.  I am pretty confident it should return not less than 15kms in city driving conditions. 

I am looking for a reverse camera to be fitted in and under body anti-rust coating, which may cost upto Rs10K.

My saga of a car purchase

This is a story of my car purchase decision spread over the last 6 months or so. 

A brief background.  I own a Hyundai Santro (2006 model) and has driven it some 38k kms.  The car was getting smaller for a growing family and decided to upgrade to a Sedan and that too a diesel sedan.  The reason for diesel sedan was the step-motherly treatment meted out to petrol and also the fact that I have already paid/paying sufficient amount of income tax to compensate for my entire life’s usage of subsidised diesel without any guilt!!

Of course, I wanted a Sedan/MPV but I had a budget to work with.  I wanted to finish it within Rs8 lakhs, plus or minus another 3%.  I didn’t want to put in lot of money on a car at this stage as I have been already bothered with housing loans.  I am not an aggressive driver but this time I wanted to have some safety aspects like ABS and Airbags, thanks to reading extensively on the internet forums.  I had a fancy for Mahindra Xylo Mini and waited for almost a year. No signs yet of its launch.  Got fed up with that and the news came about the imminent launch of Ertiga MPV.  Maruti Ertiga was making lot of noise about its imminent launch and its practicality.  I looked at the Ertiga images and coupled with Maruti Suzuki’s reliability(!), I was almost sure of booking it on the day of the launch.  Ertiga got launched in April and we were one of the first ones at the showroom to have a look at the car.  Everything was fine with the car except for the third row entry and exit.  My better half was not impressed with that model, and all my efforts to convince her didn’t help.  I didn’t want to buy something antagonizing my wife as there are already 100 different things to fight for!  So with Ertiga going out of the way, I started my search again and narrowed down to Mahindra Verito, followed by Nissan Sunny, Toyota Etios and Ford Fiesta.   

After doing a spec by spec comparison, I was convinced that Mahindra Verito ticks all my requirements.  It has a gem of an engine, has ABS, driver side airbag and sufficient space for 5 adults. Then started the dilemma of should I buy a car which has become synonymous of the taxi segment.  So we looked around for cars with the same engine and first saw Nissan Sunny.  The car was good, had tremendous amount of space, the same Renault 1.5 dci engine but way above my budget. 

Then we looked at Etios, as the price was attractive and we did a test drive with our neighbour’s car (GD Version).  The driveability was good but the engine noise was pronounced and the interiors was awful.  We didn’t like the suspension as well.  So we moved on to Ford Fiesta but thanks to the reports of excessive maintenance and spare parts cost, it never really took off. 

So we were back to square one, not able to decide in favour of Verito because of its image and others are above my budget.  After few days of confusion, I decided to go ahead and book the Verito D6 Executive edition. I thought making the decision was the most difficult part but alas, I was to be proved wrong.  The Mahindra dealers across the city did ensure that the buying process should not be a pleasant exercise at all.

The only dealer who had the executive edition was Zulaikha Motors, Velachery.  I spoke and confirmed with the Sales Executive and agreed to pay the advance 4 days after.  The day I went to the showroom after ensuring that it is an auspicious day to make the payment, I was welcomed very coldly by the stand-in Sales guy.  I have confirmed my purchase 4 days before but the day I landed in Zulaikha Motors, they said it is not certain that I would get the allotment.  For a car which was standing in the showroom for more than 2 months without any takers, they suddenly created some kind of artificial demand.  If they had mentioned that there are many people who were waiting to buy this (which I doubt), I would have arranged for funds immediately and sealed the deal.  They wanted to know how soon I can make the full payment and my allotment depends on that.  Somehow I felt cheated and my gut instinct told me not to proceed further with Zulaikha Motors. 

With the bad experience from Zulaikha Motors, my next stop was at MPL Automobiles.  I somehow consoled myself and settled for D6, not the executive edition.  We went on a Saturday evening and we were the only one in showroom and we met the Team Leader for Verito sales.  We made the booking and made a token advance of Rs10K and he promised all the colours are available.  We wanted to book Java Brown colour but they didn’t have it at the showroom.  So we agreed to have a look on Monday morning and confirm the colour.  On Monday morning, I followed up with MPL and they said they don’t have Java Brown in D6.  We enquired about other colours like Black, Red and none of them were available with them.  They claimed other than white, silver, blue and rocky beige, they don’t have the other colours.  Again a kind of disappointment and this time that too after paying the advance.  Really felt bad after these two dealer experiences.  I offered that I was willing to wait if they can procure black, red or brown.  They agreed and asked them to proceed with the either black or red.  Two days down the road, the Sales Manager called me and said in a stern voice that they can’t arrange for any colour other than the ones which are available.  They want to clear the stock of what they have.  Really I felt miserable for choosing a Mahindra Verito.  Two times I have tried and I couldn’t close a deal.  Completely disappointed with the attitude of these Mahindra dealers. 

For few hours, we seriously considered just closing our eyes and buying a Toyota Etios as we believed that the customer service would at least be much better.  I wanted to give one last try with India Garage before closing this option.  So I went there without any expectation and I found out that they have only white and silver.  Not even rocky beige or blue.  But at least they were willing to get a colour from Mahindra if I wanted one specifically.  So made the booking again with India Garage and asked them to get me either a red or black Verito D6.  In the meantime, during early June there were lot of rumours going around about the impending diesel tax.  My wife who was totally disillusioned with the entire exercise of moving from one dealer to the other, told me to just pick up what is readily available.  I felt it is sane piece of advice and decided to go with the white. 

(To be continued with initial ownership review and photos)

Do we really want to live in this country?

A comment posted by King Vishy on one of my earlier posts, provoked me to write this post on the pathetic state of affairs in our country.  

 

Recently I was in Tirunelveli where there is a power outage running up to 10 hours on a daily basis.  It was such a sorry state of affairs, even the inverters don't get charged properly.  Today we are in such a situation in our country, that there is acute shortage of Diesel in Chennai and Bangalore.  The reason is IT Companies and other MNC offices have bought and stored diesel in huge quantities to ensure that they have adequate power back-up.  We haven't even scrapped the tip with regard to non-conventional energy and in a country like ours, where there is so much of resources, let it be water, wind or sunshine,  it is just complete mis-management for which the future generations are going to pay a heavy price in the form of lack of job opportunities.  MNCs care a hoot, and they shift lock, stock and barrel to countries where they get the basic things like un-interruppted electricity, easy availability of land etc.,   

There are so many burning issues which this Government has failed to resolve.  It simply turns a blind eye to issues which are critical for this country starting from mis-allocation of scare natural resources, derogatory tax policies, poor connectivity and what not.  Look at the Air India problem, which is hanging in there for more than 15 days.  This Government can't even resolve a labour dispute in an airline which is 100% owned by it.  This government lacks only one thing, GOVERNANCE! I am not the first person to tell this and not going to be the last person, as well.  

On top of the lack of amenities, is the corruption,  prevalent in all forms and spheres.   It leads to increase in the cost of goods and services and makes the poor even poorer.  Corruption only helps the rich getting more richer. 

So it begs the question, do we really want to live in this country? Honestly, I accept, I get the idea, very  frequently these days, of running out of this country, if possible, forever.  But somehow, I manage to convince myself that this country has got the potential, the resources and if not today, at least tomorrow, a leader would emerge to take this country out of this sorry state of affairs.

People like King Vishy, who work abroad saving some money with the intention of coming back to India to settle down, now faces a very piquant situation in the form of absence of basic amenities, scarcity of goods, corruption and raging inflation.  I won't fault them, if they decide to leave India permanently.  They have to really think hard, do they really want to come back to a country run by thieves, scoundrels, hypocrites and idiots. 

Found my old favourite “Hero” pen

In my school and college days, I had a favorite pen with which I wrote all my exams.  This was a prized Black “Hero” Pen with a golden cap and I believed that whenever I wrote exams with this pen, my handwriting looked better.  I don’t exactly remember how I got this but I guess I bought it just before my 10^th standard board exams.  Those days, the cost was Rs.50 or so and that was a big amount.  I religiously used the same pen for my 10^th, 12^th and all my exams in graduation till I completed my Chartered Accountancy.  It was such a sentimental one and I never tried any other pen for exams.  This is in spite of the  entire population moving over to ball-point pens. 

After all my examination days, I have kept it aside safely, giving it a pride of place in my possessions.  The other prized possessions are something like paper cuttings which carried my name for some cricket match scores.  I moved out of my hometown, lived in bachelor accommodations and then shifted couple of homes.  It slipped out of my mind and slowly the importance of this pen in my life reduced and to tell the truth I even forgot about it. 

After many years, recently while digging some old documents, I found this pen.  It kindled so much of fond memories of the exams and the success this pen gave me.  Of course, it was not this pen alone but this was the instrument through which I gained so much.  I turned nostalgic and re-wound how I used to take care of this pen starting from filling ink to ensuring that the original nib didn’t get spoiled. 

I am happy and lucky to have it back now and I have given it a pride of place again.  Yes, now it is in my shaving kit which makes me look at it everyday!! Do you have a pen like this in your life as well? Do share your experience in comments.    

Tirunelveli Visit Diary

I was at Tirunelveli couple of weeks back and it was great to get connected to my roots. The town hasn't really changed much but there are lot of new things visible across the town. There are many observations which I would like to capture here, but I will restrict myself to the top few:

1. Torrid time with electricity - Lesser said, the better. It is a rude shock to live with no electricity for close to 10 hours everyday. Chennai is much better with only 2 hours of power cut and feels like heaven, for a change!! Everywhere there are inverters and it seems to be a booming business. No doubt, Legrand bought Numeric UPS for Rs800 Crores!!

2. Real Estate prices are on par with the City, if not more - just out of curiosity, I enquired about the ongoing rates at prime locations of Tirunelveli. I have to tightly hold on to my chair when I heard the prices. The price of a "cent" of land in Tirunelveli Junction area where I stayed is Rs7 lakhs. That is, Rs1609/- per sq ft for the city folks. I personally feel that there is a bubble building up in Tier II and Tier III cities real estate prices.

3. Cost of living – one of notions most of us carry is that the cost of living in Tier II cities are much lower than places like Chennai. This is again a mis-conceived notion as I found it to my horror. Everything from auto fares to hotel bills are high. For a 6 km of auto ride, I paid Rs130! A bowl of Navaratna Khorma costs Rs125 at a hotel, which at best can be called a wannabe 2star. So, all the thoughts of retiring in a Tier II cities means you need the same amount of money, may be, little less!

4. Helmets everywhere – one redeeming thing in this whole trip is 100% enforcement to the Helmet rule. Yes, I am not joking. All two-wheeler riders are wearing helmets and when I enquired with the auto-driver, he said it is because of Karunakara Singh. Guess, he is the Commissioner of Police are something. The Police is very strict in enforcing this rule and a spot fine of Rs150 is being levied. Even in Chennai, the capital city, the adherence rate is no more than 50% at best. Just goes on to show, how one sincere Officer can make such a big difference to the society!!

Interesting visitor count on the blog!

Today my blog reached the count of 22222. And the best thing I managed to capture the screen shot of that.

Who is the real beneficiary of Physical Gold SIPs offered by Jewellery houses?

I have been seeing a frantic rush to buy gold, both in physical and in electronic forms over the last couple of years. It is natural for investors to use gold as an investment avenue when we go through inflationary conditions, as we currently do. Thanks to huge bailouts packages starting from the 2008 bailout of financial institutions to the latest bailout of Greece, there is a huge influx of paper money into the world economy. This in turn drives the erosion in value of various financial assets like stocks, bonds etc., but an asset like Gold is believed to retain value. This is true according to the classical economic theories and validated by our forefathers who bought nothing but gold whenever they had money. From all aspects the clamour for gold has been increasing among the investing community. The price of the gold has also moved up in tandem over the last couple of years.

Sensing a big business opportunity is the Indian Jewellery community which is now vigorously marketing the systematic investment plan in physical gold. Almost all the jewellers in Chennai have launched schemes where people can invest a specified amount of money and the equivalent amount of gold would be credited to their account at the prevailing rate. The jewellers sweeten this deal by foregoing the traditional making charges and wastage. The jewellers market this scheme by informing the gullible investors that the price at which gold they bought is protected for future price escalations. Their basic assumption is that the "price of gold would continue to raise forever". One of the basic tenets of economics is that nothing can keep raising forever and what goes up has to come down sometime.

There are number of questions which crosses my mind:
1. Lack of regulations: Who regulates these jewellers with regard to these systematic investment plans? The answer is nobody regulates them and nobody independently certifies that the price at which the gold is alloted to investors are in alignment with the market price.
2. Credit worthiness of the jewellers: These systematic investment plans are long term products running for 12-18 months and exposes the investors to default risk. They have nothing else to fall back upon other than the empty guarantees of these jewellers.
3. Price risk: One of the biggest risks is what happens tomorrow if the price of the gold crashes to pre-2008 levels? In my opinion this is one of the biggest risks associated with these schemes. You may ask how it is different if I buy gold today at high prices and subsequently the price goes down? Good question, but the answer is the gold you buy today is a bird in hand compared to these schemes where you just pay the money to the jeweller and expect him to honour the committment after 24 months or so.
4. Lack of transperancy: Normally, for these type of transactions, the seller has to properly hedge their positions in the gold market. But we don't know if these are being properly done by the jewellers on a daily basis. Also, I am afraid they dont mark to market their losses if any and account it in their books of accounts. I think I am sounding too naive to expect our Indian Jewellers to do this prudent accounting. First of all, let them account all their sales!
5. Risk of over-trading in commodities/derivatives exchange: If we assume that the jewellers try to hedge their positions in the derivatives market, then there is a risk of over-trading in the derivatives market by the jewellers. We have seen many instances in the past when the traders have literally lost their shirt by excessively trading on the commodity derivatives market. Very recently, there were press reports of the promoters of KS Oils losing huge money by trading in the palm oil futures.

So, overall there are huge risks assumed by the people who go for this systematic investment plans with jewellers and it is better to avoid them altogether. If you want to buy gold, just buy it over the counter rather than joining a scheme like this.