Brokers: intermediary for the mutual funds

By Dhirendra Kumar

One of the things that I really enjoy doing is talking with investors. After having being associated with the financial industry for such a long time, I have often had conversations with people who belong to the industry. But I find it important to get a perspective from the other side as well, and hence, conversing with investors is something I look forward to.

During the past week, through numerous interactions with investors I realised that one of Securities & Exchange Board of India's (Sebi's) latest rulings has caused some amount of confusion amongst them. A few days back, Sebi passed an order that will allow stock brokers to sell mutual funds as well. While this will open up a new way for investors to buy funds, with stock brokers acting as fund distributors, it has left some of them confused between this new system and the trading of closed-end funds on exchanges.

Closed-end funds having been traded on stock exchanges for over a decade. Generally, units of such funds are available at a discount to the NAV. And this is what some investors expect to happen with other funds too under the new system. Many have asked me if stock brokers will now be selling all kinds of mutual funds at a discount. The answer to that is no. In fact, these two systems have absolutely nothing to do with one another.

What SEBI has tried to do with this new ruling is open an easier and more convenient way for investors to buy mutual fund units. Stock exchanges have a massive network - over two lakh terminals across 1,500 cities and town. Stock investors are almost always interacting with their brokers and Sebi wants to take advantage of this well-established set-up by allowing brokers to sell funds as well.

For the investors, this system has a number of advantages as well. They won't have to do their Know Your Customer (KYC) identity verification separately for different transactions. Once it's done for a depository account, it needn't be done for fund investments. Other than that, investors will be able to hold their units in dematerialized form, and avail a single unified statement of their stock and fund holdings combined.

This is what this new system of routing mutual fund sales through stock brokers is all about. The closed-end funds being traded on exchanges is a completely different thing as the fund company is not even involved in the transactions there. Investors who need to opt out prematurely sell their units directly to other investors. It is the need to redeem that makes investors sell their units at a discount. The same won't happen when you buy funds from your stock broker.

Now what remains to be seen is how this new system is implemented and adapted. As days go by, the system will evolve but its success will depend on how stock brokers and sub-brokers feel about getting into the business of selling funds. After the abolishment of entry loads, selling funds is not as lucrative. Hence, we can't really expect a lot of brokers to take the trouble of getting an AMFI certification and the other things required to sell funds. At the most, stock brokers might take to selling funds to retain customers by offering comprehensive investment services.

However, I see great potential for this new system. It will be a success if all the right pieces fall into the right places. 

Author is CEO of Value Research

MY COMMENTS -

Read carefully the highlighted point which my friend made.

Spreadsheet - ULIPs

Investors in India prefer to invest their money in unit-linked life insurance (ULIP) policies as the traditional endowment policy fails to protect their returns when inflation is high. 

Investors have, in the last few years, found that the sum assured guaranteed on maturity had depreciated in real value because of the depreciation in the value of the rupee and as a result are taking new policies, which are linked to the performance of the stock markets. Within ULIP plans, investors are preferring equity investments which are capped. The other popular funds in ULIP are bond fund, protector fund, secure fund, growth fund and enhancer fund. Various studies by Insurance Regulatory and Development Authority also show that investors are no longer content with the security of the capital alone and are looking for higher returns and greater capital appreciation.

About 70% of the total life insurance products the industry sold in 2007-08 were ULIPs, indicating the popularity, which has grown from just 41.77% in 2005-06. Private insurance companies accounted for about 90% of the total ULIP schemes sold in 2007-08. The incentive for the private sector to sell ULIPs aggressively also comes from the fact that the agents get a hefty commission, to the tune of 40%, on selling ULIP plans to investors.

ULIP has also gained high acceptance due to certain attractive features like flexibility to choose the sum assured, flexibility to choose the premium amount, option to change level of premium even after the plan has started and convenience of tracking one's investment performance on a daily basis. ULIPs are also liquid as an investor can go for partial and systematic withdrawal and have low minimum tenure.

Though ULIP plans suffered some setback when the markets plunged to new lows, the recovery since June this year has once again restored investors' confidence in ULIP plans. Also, the series of new regulations announced by the Securities and Exchange Board of India in the last few months has helped to regain investors' confidence in ULIPs.

source: Indian Express

MY COMMENTS -

The primary objective of Life Insurance is Safety, Not Returns. In India the mass is either under-insured or not-insured. Social Security is the first purpose to be solved but people move in wrong direction which seems like due to commissions or may be the belief system of people.

Most of people in India are not aware of 'Financial Planning' basics. And guess what no one is keen on the subject too. Many of us believe that we know everything but its far away from truth. Don't be misguided by anyone or by our belief system. Focus on facts not on illusions.

Just think readers who is going to be at the loosing end. As far as i know its YOU MY DEAR FRIEND. Either find the right person or increase your know-how if you have ample dedicated time. But, do ask yourself a question - Are you being fair with your hard earned money, yourself & your family?

Crude registers sharp drop

Prices drop due to Dubai's debt concerns 

Crude prices fell at Nymex on Friday, 27 November, 2009. Prices fell as the debt concerns in Dubai further troubled investors. The rising dollar also pressured the crude oil prices.

On Friday, crude-oil futures for light sweet crude for January delivery closed at $76.05/barrel (lower by $1.91 or 2.4%). Earlier during the day, the contract dropped to a low of $72.39. For the week, crude ended lower by 1.8%.

Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 55% since then.

In the currency market on Friday, the dollar headed up against most of the major currencies. The dollar index, which measures the strength of dollar against basket of six other currencies, rose by almost 0.2%.

Dubai World, the largest corporate entity in the Persian Gulf emirate, asked creditors last Wednesday for a six-month stay on repayment of $60 billion in debts.

Among other energy products, December gasoline lost 3.6% to $1.9262 a gallon, and December heating oil fell 1.4% to $1.9622 a gallon.

Also on Friday, natural gas for January delivery ended up 3 cents, or 0.6%, at $5.192 per million British thermal units. It ended the week 9% higher.

Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.

End of gold's winning streak

Yellow metal price drops after nine consecutive sessions of rally 

Yellow metal prices ended their nine day consecutive winning streak and ended lower on Friday, 27 November, 2009. Prices fell as the debt concerns in Dubai further troubled investors. The rising dollar also pressured the precious metal prices. Silver prices also ended substantially lower.

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa.

 

On Friday, gold for December delivery ended at $1,174.2, lower by $12.8 (1.1%) an ounce on the New York Mercantile Exchange. Earlier during the day, it rose to a high of $1,195 and also fell to a low of $1,130. In the previous nine sessions, gold gained more than 7%. For the week, gold gained 2.6%. On a year to date basis, gold price is higher by 33%.

On Friday, December Comex silver futures ended lower by 46.6 cents (2.5%) at $18.302 an ounce. Silver posted a marginal weekly loss.

In the currency market on Friday, the dollar headed up against most of the major currencies. The dollar index, which measures the strength of dollar against basket of six other currencies, rose by almost 0.2%.

Dubai World, the largest corporate entity in the Persian Gulf emirate, asked creditors last Wednesday for a six-month stay on repayment of $60 billion in debts.

In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.

FIIs in selling mode

Outflow of Rs 730.30 crore on 27 November 2009 

Foreign institutional investors (FIIs) sold shares worth a net Rs 730.30 crore on Friday, 27 November 2009 as against an inflow of Rs 306.10 crore on Thursday, 26 November 2009.

FII outflow of Rs 730.30 crore on 27 November 2009 was a result of gross purchases Rs 1420.80 crore and gross sales Rs 2151.10 crore. The BSE Sensex lost 222.92 points or 1.32% to 16,632.01 on that day.

FII inflow in November 2009 totaled Rs 4761.30 crore (till 27 November 2009). FII had bought equities worth Rs 8303.80 crore in October 2009. FII inflow in the calendar year 2009 totaled Rs 73,202.40 crore (till 27 November 2009).

There are a total of 1,697 foreign funds registered with the Securities & Exchange Board of India (Sebi).

Financial News Flash

India's Economic Growth Quickens to 7.9%, May Spur Withdrawal of Stimulus India’s economy expanded at the fastest pace in 1 1/2 years as manufacturing jumped, giving the central bank room to withdraw more stimulus measures.

Sensex Index Advances as Economic Growth Accelerates, Dubai Concern Eases India’s benchmark stock index rose, snapping a two-day 3.3 percent decline, as Asia’s third-largest economy grew at the fastest pace in 1 1/2 years last quarter, beating economists’ estimates.

Soybean Meal Exports From India to Miss Target on Shift to South America India, Asia’s biggest soybean meal exporter, may miss a target to boost shipments by 25 percent as a surge in domestic seed prices prompts buyers to shift to South American supplies, a processors’ group said.

Steel Authority of India Said to Reduce December Prices on Cheaper Imports Steel Authority of India Ltd., the nation’s second-biggest producer, will cut prices of products used to make appliances and automobiles next month, a company executive said.

Dubai Not Distressed in Bond Market Where Traders Bet on Abu Dhabi Rescue Dubai’s debt risk, after jumping the most last week since January, is still below the level signaling a potential failure as investors expect the emirate will be rescued by oil-rich neighbor Abu Dhabi.

Emission Cut Offers by Rich Nations Not Good Enough, India's Saran Says India, the world’s fourth-biggest polluter, said emission reduction offers by rich nations before next week’s climate change talks in Copenhagen are insufficient.

Essar Oil to Extend Talks With Royal Dutch Shell on Refinery Acquisition Essar Oil Ltd.’s talks for the possible purchase of three refineries from Royal Dutch Shell Plc will continue beyond the end of November, the company said in an e-mailed statement today.

Wockhardt Shares Surge as Much as 20% on Report of Loan Dispute Settlement Wockhardt Ltd., an Indian drugmaker, rose by the most in at least nine years in Mumbai trading after a newspaper reported it had reached a settlement over repayment of a loan with Singapore’s DBS Bank Ltd.

Natural Gas Glut Overwhelms Speculators as Market Defies Wall Street Rally When Qatar’s biggest natural gas shipment to the U.S. arrived this month, it signaled to Barclays Capital Inc. and PFC Energy that this year’s worst performing commodity investment won’t recover in 2010.

Dubai World's Debt Isn't Guaranteed by Government, Finance Official Says Dubai’s government said it hasn’t guaranteed the debt of Dubai World, the state-controlled holding company struggling with $59 billion in liabilities, and that creditors must help it restructure.

Emerging Markets Rally, Europe Stocks Fall as Investors Weigh Dubai Pledge Emerging-market stocks rebounded while European equities fell as investors assessed a pledge by the United Arab Emirates to back Dubai banks and ease the region’s debt crisis. U.S. index futures fluctuated and the dollar dropped.

Dubai Shares Sink, Abu Dhabi Index Drops Most in Eight Years on Debt Delay Dubai shares tumbled and Abu Dhabi’s stock index fell the most in at least eight years on the first trading day since the government announced state-run Dubai World, with $59 billion of liabilities, may delay debt payments.

Yen Options Signal Fujii Intervention Threats No Barrier to Weaker Dollar Options traders are adding to bets the yen will rise against the dollar even after the Ministry of Finance pledged to “do what is necessary” to stem gains following a surge to a 14-year high.

In-Geithner-We-Trust Market Brings Lowest Treasury Yields With Record Debt Less than a week after deflecting calls for his resignation, Timothy Geithner sold bonds on behalf of U.S. taxpayers at the lowest yields on record in a show of confidence in the Treasury Secretary’s policies.

Holiday Sales Will Drop 1% in U.S. as Forecasters See `Disciplined' Buying More consumers went shopping over the Thanksgiving holiday weekend, yet spent less than last year as they hunted for bargains on toys and electronics, according to the National Retail Federation.

U.K. House Prices Advance for Fourth Month as Mortgage Approvals Increase U.K. house prices rose for a fourth month in November and mortgage approvals climbed to the highest level in 1 1/2 years as the economy started to emerge from the recession.

source: Bloomberg

ICICI Prudential Tax Plan Declares 40% Dividend

Record date for dividend is 4 December 2009 

ICICI Prudential Mutual Fund has announced the declaration of dividend on the face value of Rs 10 per unit under dividend option of ICICI Prudential Tax Plan. The record date for dividend has been fixed as 4 December 2009.

The quantum of dividend will be 40% (Re 4 per unit) as on the record date which is subject to availability of distributable surplus. The NAV for the scheme was at Rs 20.71 as on 26 November 2009.

ICICI Prudential Tax Plan is an open ended equity linked savings scheme with the investment objective to generate long term capital appreciation through investments primarily in equity/equity related securities of the companies.

Franklin Templeton Mutual Fund Unveils India Income Opportunities Fund

NFO Period from 1 December to 10 December 2009 

Franklin Templeton Mutual Fund has launched a new fund named as Templeton India Income Opportunities Fund, an open ended income fund. The New Fund Offer (NFO) price for the scheme is Rs 10 per unit. The new issue will commence on 1 December 2009 and close on 10 December 2009. The scheme re-opens for ongoing sale and repurchase on 21 December 2009.

The fund seeks to provide regular income and capital appreciation by investing in fixed income securities across the yield curve.

The scheme offers growth and dividend plan. The dividend option offers dividend payout and dividend re-investment facilities.

The scheme will allocate up-to 100% of net assets in government securities and/or securities unconditionally guaranteed by the central/state government for repayment of principal and interest with low risk profile. Up-to 100% of assets would be allocated in debt securities issued by Public Sector Undertakings (PSU), debt securities issued by private sector corporate including banks and financial institutions and securitized debt with low to medium risk profile. Up-to 100% of assets would be allocated in money market instruments with low risk profile. 

The minimum investment amount is Rs 5000 and in multiples of Re 1 thereafter.

The fund seeks to collect a minimum subscription (minimum target) amount of Rs 1 crore under the scheme during the NFO period.

Entry load for the scheme is nil. Exit load charge will be 3% if redeemed within 6 months from the date of allotment, 2% if redeemed after 6 months but within 12 months from the date of allotment and 1% if redeemed after 12 months but within 18 months from the date of allotment.

Benchmark Index for the scheme is Crisil Short Term Bond Fund Index.

The fund managers of the scheme will be Vivek Ahuja & Sachin Padwal Desai.

NSE introduces Mutual Fund Service System

From 30 November 2009 

The National Stock Exchange (NSE) has introduced Mutual Fund Service System (MFSS) from today, 30 November 2009. MFSS will be available on all business days of the Capital Market segment. It will facilitate participants buying and selling mututal fund units through their terminals. The MFSS will be available for Participants between 9 a.m. until 3 p.m.

Trading members of the Exchange who are ARN holders and who have passed the AMFI certification examination will be permitted to participate (known as Participant) in this MFSS. Trading members who wish to participate will be required to apply to the Exchange and also undertake to comply with the requirements of the SEBI/Exchange for MFSS which will be notified from time to time.

Asset Management Companies (AMC) who wants to provide this alternate instrument to their potential customers shall enter into an agreement with the Exchange/Clearing Corporation. AMC shall notify schemes which they wish to permit on the MFSS. All schemes which are available on MFSS shall be informed to the Participants through circulars. The Exchange shall also keep the Participants informed of additions and deletions of such offerings through prior notification.

On-line order collection system, NEAT-MFSS will be provided to the participants. The participants can use their existing telecom network to connect to this system to enter requests for subscription and redemption of units of schemes available on the MFSS.

Securities settlement can be either through the RTA (if physical mode) or through the Depository (if Demat mode). A registered investor of a Participant, who has signed up for MFSS can decide to place an order for subscription or redemption through MFSS.

The pay-in of funds for subscription shall be through the designated bank accounts. The subscription transactions will be settled on a T+1 basis as per time lines specified by the Clearing Corporation. Pay-out of funds for redemption transactions shall be directly made to the investors from the RTA for both physical mode as well as Demat mode.

Mutual funds continue selling

Sales worth Rs 361.50 crore on 27 November 2009 

Mutual funds (MFs) sold shares worth a net Rs 361.50 crore on Friday, 27 November 2009, lower than Rs 257.60 crore on Thursday, 26 November 2009.

The net outflow of Rs 361.50 crore on 27 November 2009 was a result of gross purchases Rs 938.30 crore and gross sales Rs 1299.80 crore. The BSE Sensex lost 222.92 points or 1.32% to 16,632.01 on that day.

MFs sold shares worth a net Rs 1070.50 crore in November 2009 (till 27 November 2009). MFs had sold shares worth a net Rs 5,194.30 crore in October 2009.

Expert advice on Savings, Spending & Investment

Budget your savings, not just expenses

In our personal lives, we normally budget our expenses, but not our savings. That’s a mindset change that we need to bring about now. A budget is a plan for saving as well as spending. Here are a few quick tips that will help you maintain a budget and improve your cash flows.

Spend less than you earn: Thinking anything to the contrary seems blasphemous, but try saying this to today’s youngsters. For a start, make an estimate of your monthly expenses, and ensure that you keep a maximum of two months’ expenses in the bank.

Debit not Credit: An ex-colleague of mine once told me: “What you don’t have, you don’t spend.” If you did use only a debit card, you would not be able to swipe it for the new flat screen TV set you saw in the mall the last weekend.

Budget your savings: Instead of starting with a list of expenses (and all seem almost unavoidable, if you have the funds), ensure that you target, say, 30% or 50% of your monthly earnings as savings. Then ensure that this is invested immediately. It may even be prudent not to use your salary account for expenditure; transfer just the amount you need to spend to the other account through which your debit card is linked.

Review expenditure heads: There are certain unavoidable expenses such as house rent, school fees, and electricity bills. Then there are some which can be controlled like telephone bills, eating out and gifts. One of my clients actually has separate envelopes for eating out, petrol expenses and the like. If the family falls short on an eating-out budget, it goes to a South Indian fast food joint instead of the boutique Italian restaurant.

Don’t over-speculate: At the other end of the spectrum, there could be some of you who want to make every rupee earn the maximum it can. This obviously means lots more risk, and the possibility of losses. Take the example of an individual taking home Rs 30,000 per month, but spending Rs 25,000 per month. Instead of trying to invest the net savings of Rs 5,000 per month aggressively, this individual would get a 50% return by cutting his expenditure by only 10% (Rs 2,500 per month).

Original Author - Lovaii Navlakhi CFP

MY COMMENTS –

I fully agree by Lovaii Navlakhi. What he has written is just good for initial stage; one should focus on Cash Flow Analysis or Personal Budgeting for that. Seeking help from ethical professionals do help. It’s for the benefit of the masses & classes.

Learn the art of trusting honest & ethical people; if you don’t want to be sold an orange for an apple.

Insurance Council opposes EET system proposed in direct code

The Life Insurance Council has opposed a proposal embodied in the Draft Direct Taxes Code which says policy holders be taxed at the time of withdrawal of insurance fund. 

S B Mathur, Secretary General of the statutory body, said either the proposal be changed to retain the present system of exempting a life insurance holder from tax at the time of withdrawal, or tax should be levied only on real value of the withdrawn sum.

Constituted under the Insurance Act, the Council is a forum that connects various stakeholders in the insurance sector--the government, regulator and the Public--and includes all life insurers.

The code proposes an exempt, exempt, tax regime (EET) against the present exempt, exempt, exempt system(EEET). EET means that while contribution to insurance, return on that fund will be exempted from tax, withdrawal will be taxed.

The current EEE mode exempts the insured at all the three phases.

"Either the present system (of EEE) should continue or we should be given the benefit of indexation," Mathur said. 

Indexation means that the withdrawn value of money be reduced to real value by factoring in the price rise of each year. If that is done, the tax would be reduced. 

Mathur said insurance is a long-term contract. "If EET is applied, then we should be given the benefit of indexation. Real value of money goes down. Basically, the code proposes to tax long-term savings on nominal value."

The code says withdrawals should be included in the income of the assessed during the relevant year and taxed accordingly.

The EET mode of taxation, the code says, would encourage long-term savings by the people.

A bill on tax code is yet to be prepared. Finance Minister Pranab Mukherjee has assured that the bill would be tabled in parliament after addressing all concerns.

source: Financial Express

Dubai Debt Crisis Derails Asian markets

Hang Seng sink more than 1000 points while Shanghai, Sensex, Sydney drove deeper 

Stock market in Asian region slumped in the sea of red on Friday, 27 November 2009, with investor’s pressing heavy sales in financial stocks amid fears of a likely debt default in Dubai.

The U.S. market was closed overnight on Thanksgiving Day holiday. But investors are seen tracking cues from European markets, where stock prices had plunged sharply after Dubai World asked for more time to meet its debt obligations. The mood is so bearish that stocks cutting across several sectors are seeing a fairly massive sell-off.

In the commodity market, crude oil tumbled to a six-week low as Dubai’s attempt to reschedule its debt prompted investors to sell commodities.

On the New York Mercantile Exchange, where markets didn’t settle yesterday because of a public holiday, January U.S. crude futures were trading at $74.36 a barrel, down 4.6% from the closing price on 25 November 2009.

Brent crude oil for January settlement fell $1.47, or 1.9%, to $75.52 a barrel on the London-based ICE Futures Europe exchange at 9:28 a.m. London time. Earlier, the contract plunged as much as 4.3% to $73.7.

Gold dropped the most since January in London as gains in the dollar damped demand for the precious metal as an alternative asset. Gold for immediate delivery dropped as much as $50.28, or 4.2 percent, to $1,138.10 an ounce, the biggest intraday slide since Jan. 12. The metal traded at $1,152.33 by 9:09 a.m. in London.

In the currency market, Dubai debt fear continued to drive investors away from risks, sending Asian stocks sharply lower while Yen soars, taking dollar higher with it. Investors are clearly worried about the risk of contagion effect from Dubai which could trigger second wave in the credit crisis.

Yen accelerates further, making another 14 year high against dollar and rallies sharply against other major currencies. The Japanese yen was quoted at 85.7 per US dollar, compared to 86.59 hit late Thursday in New York and 128.47 per euro.

The Hong Kong dollar was trading at HK$ 7.7503 against the dollar. Actually the Hong Kong dollar is pegged at HK$ 7.8 to the U.S. dollar but can trade between HK$ 7.75 and HK$7.85 to the U.S. dollar.

In Sydney trade, the Australian dollar slumped to an eight-week low on a strong yen on Friday after choppy markets and fears that Dubai may not repay its $US80 billion debt turned investors off riskier assets. Against the US dollar, the Aussie fell as far as $US0.8989, from Thursday's close of $US0.9220. At the local close on Friday, it had recovered slightly to $US0.9017, but still hovered at a three-week low.

In Wellington trade, the NZ dollar was ditched today by Japanese investors fearful of a financial meltdown in the Middle East but it found support at lower levels. The NZ dollar was US71.05c at 5pm from US71.62c at 8am and US72.49c at 5pm yesterday. The low of US70.45c has not been seen since September.

The South Korean won declined 1.72% against the U.S. dollar on Dubai debt fears prompted investors to flock into safe assets. The local currency closed at 1,175.5 won to the greenback, down 20.20 won from the previous session.

The Taiwan dollar weakened further against the greenback. The Taiwan dollar was trading lower against the US dollar at NT$ 32.3150, 0.0710 up from Thursday’s close of NT$32.2440.

In the equity market, Asian stock markets slumped with some suffering their worst losses in months amid concerns about the potential fallout from Dubai World's debt standstill, with bank and construction stocks leading decliners.

In Japan, fears that Dubai may default on its debt have sent Japan shares market lower, joining a global retreat, as investor’s dumped riskier asset on worries about the ripples from a new international debt crises in Dubai.

Investors’ sentiments remain fragile amid growing pessimism over a recovery in the world’s second-largest economy. Investors expect that the market might remain weak for perhaps a few months given ongoing worries over the prevailing toxic cloud of so-called “3Ds” i.e. deflation, dilution, and the ruling Democratic Party of Japan.

At the closing bell, the Nikkei 225 Stock Average index was at 9,081.5, lost 301.72 points or 3.22% from its previous close, while the broader Topix of all First Section issues on the Tokyo Stock Exchange dropped 18.55 points, or 2.34%, to 811.01.

The Nikkei 225 Stock Average index dropped 416.18 points or 4.38%, while the broader Topix index has lost 27.7 points or 3.3%, for the week ended Friday, 27 November 2009.

On the economic front, the statistic bureau of Japan said that country core consumer price index fell 2.2% in October from a year earlier, the eighth straight annual decline, as the economy wallows in deflation due to weak domestic consumer demand. An index stripping out both energy and food prices showed deflationary pressures were mounting. Month-on-month, overall consumer prices dropped 0.4%, and excluding fresh food, prices fell 0.1%.

Retail sales in Japan dropped 0.9% year-on-year to 10.83 trillion yen in October 2009, the Ministry of Economy, Trade & Industry reported on Friday. Sales in large-scale retail stores declined 7.2% annually to 1.56 trillion yen in October. Wholesale sales plummeted 24.4% to 30.17 trillion yen.

Meanwhile, the Ministry of Internal Affairs & Communications reported that Japan's unemployment rate stood at a seasonally adjusted 5.1% in October, down from 5.3% in the previous month. 

In Mainland China, share market stumbled with all ten sectors tilted into red terrain, hit by concerns over Dubai’s financial health. The shock from Dubai’s move to suspend payments due on a slice of Government-backed debt spilled over the world market. Investors recoiled from risky asset like materials and energy and also dumped banks and financial and properties stocks on rekindled fear that Dubai debt default could reignite the financial turmoil of the credit crises.

The Shanghai Composite Index, measuring A shares and B shares on the Shanghai Stock Exchange, slumped 74.71 points, or 2.36%, to 3,096.26, meanwhile the CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, tumbled 2.96%, to 3,382.51. The Shenzhen Component Index on the smaller Shenzhen Stock Exchange retracted 3.09% or 411.23 points, to 12,876.15. The Shanghai Composite index stumbled 212.08 points, or 6.41%, while the CSI 300 Index retracted 248.5 points or 6.84%, for the week ended Friday, 27 November 2009.

In Hong Kong, the stock market plummeted as heavy selling triggered across the sector after a weaker performance in mainland bourses and European markets and lower US index futures on concern over losses stemming from Dubai’s attempt to reschedule its debt.

At the closing bell, the Hang Seng Index hammered 1,075.91 points, or 4.84%, to 21,134.50, meanwhile the Hang Seng China Enterprise, which tracks the overall performance of 43 mainland Chinese state-owned enterprises on the Hong Kong Stock Exchange, stumbled 674.15 points, or 5.13%, to 12,472.13. The Hong Kong benchmark Hang Seng Index surrendered 1,321.34 points or 5.88%, while Hang Seng China Enterprises retracted 857.53 points or 5.88%, in the week ended Friday, 27 November 2009.

In Australia, the share market plummeted with all round of selling across twelve sector, sparked by meltdown in European stocks and other Asian bourses after ‘Dubai World’, the Dubai government’s investment and development vehicle, said it would halt repayments for up to six months on its nearly $60 billion in debt.

At the closing bell, the benchmark S&P/ASX200 index sagged 136.5 points, or 2.9%, to 4,572.1, meanwhile the broader All Ordinaries plummeted 130.4 points, or 2.76%, to 4,597.2. The benchmark S&P/ASX200 index shrank 113.70 points, or 2.43% in the week ended Friday, 27 November 2009, meanwhile the Broader All Ordinaries lost 109.50 points or 2.33%, during same period.

In New Zealand, benchmark index declined by more than 1% to end the last trading day of the week in the negative terrain on Friday. The NZX50 declined 1.06% or 32.87 points to 3094.43. The NZX 15 lost 0.60% or 33.42 points to close at 5616.47.

In South Korea, stocks finished lower Friday as investors fretted over debt problems in Dubai. The market's decline followed reports that Dubai World, a Dubai government investment fund, has asked creditors for a debt payment deferment. The benchmark Korea Composite Stock Price Index (KOSPI) declined 75.02 points or 4.69% to end at 1,524.50, carrying its losing streak through a second consecutive session.

Stock markets in Singapore were closed for the holiday.

In Taiwan, stock markets dumped their recent gains, following the fear of Dubai debt crisis as Dubai World, developer of some of the glitziest properties on the planet comes up short on repaying debt. The fear of contagion in the financial sector was seen through the exposure of Cathay Financial, Taiwan's largest listed financial services provider by assets.

The benchmark Taiex share index slumped to three weeks low on Friday, ending lower by 248.35 points or 3.21% in a day, closing at 7490.91, the lowest closing since 6 November 2009 when market finished the day at 7463.05

In India, key benchmark indices cut steep intraday losses as European stocks recovered from an initial slide. News that China has pledged to stick with a pro-growth stance in 2010 also helped. The market recovered after a heavy sell-off in early afternoon trade triggered by worries about Dubai's debt problems. Investors were also spooked by broader fears that global financial markets have not healed properly since last year's crisis, and that the Dubai problem could expose these weaknesses.

The BSE 30-share Sensex was down 222.92 points or 1.32% to 16,632.01. The S&P CNX Nifty was down 63.80 points or 1.27% to 4941.75.

Elsewhere, Malaysia's Kula Lumpur Composite index finished lower at 1270.61 while stock markets in Indonesia’s Jakarta Composite index gave up 68.01 points ending the day lower at 2393.45.

In other regional market, European shares pulled back from early lows on Friday, as investors started to buy up shares in firms battered in the previous session by news that Dubai is seeking to postpone repaying the debt of its corporate entity Dubai World. Regional share markets were also off lows in Europe. The U.K. FTSE 100 index declined 0.3% or 13.72 points to 5,180, the German DAX index fell 0.2% or 12.76 points to 5,603 and the French CAC-40 index lost 0.1% or 4.10 points to 3,675.
 

Oil Flunks Below $73 As Dollar, Yen Surge

Crude futures dropped more than 7% on Friday, breaking below $73 a barrel, as investors spooked by Dubai's debt troubles sold assets perceived as risky, including commodities ranging from oil to metals. 

Crude oil for January delivery fell to an intraday low of $72.39 a barrel in electronic trading on Globex. The contract was last down $3.89, or 5%, to $74.07 a barrel.

The prices of oil, gold and other commodities fell sharply, as the U.S. dollar and the Japanese yen rose on the back of safe-haven inflows.

U.S. stock-index futures indicated a sharply lower opening on Wall Street in the wake of losses in European equities and a sell-off in Asia.

Oil prices have so far fallen about 10 per cent since striking a year high of $82 early last month, as lack lustre economic data and bulging fuel inventories in the United States combine to dent hopes of a swift recovery in energy demand.

MCX December dated oil contract slumped to as low as Rs 3412 per barrel down more than Rs 150 from yesterdays closing. The domestic commodities were however supported by the heavy losses in Indian Rupee, which fell due on capital outflows.

Gold Collapses By Nearly $65 On Dubai Sell Off

Gold futures fell sharply on Friday, tumbling to a low near $1,130 an ounce, as debt woes in Dubai fueled a sell-off in commodities and stocks, while the U.S. dollar gained against its rivals. 

Gold for December delivery tumbled from a high of $1,195 an ounce to an intraday low of $1,130.10 an ounce in electronic trading on Globex. That is a decline of nearly $65, or more than 5%. In recent trading, gold fell $27.80, to $1,159.20 an ounce.

European stocks fell in early trading. U.S. stock-market futures traded sharply lower in the wake of a sell-off overnight in Asia as nervous markets worried about banks' exposure to Dubai World's debt.

Dubai World, the city-state's largest corporate entity, has asked creditors for a six-month stay on debt repayments of $59 billion.

The dollar rose against its rivals as investors sold currencies perceived as risky. Oil futures were down more than 6% or $5 at $ 72.39 per barrel.

MCX Gold futures also tumbled very aggressively down Rs 431 or 2.4% to Rs 17567 from yesterdays closing level. The next support comes around Rs 17300 levels.

Foreign funds step up buying

Inflow of Rs 306.10 crore on 26 November 2009 

Foreign funds stepped up buying of Indian stocks, with net purchases of Rs 306.10 crore on Thursday, 26 November 2009, compared to Rs 65.10 crore on Wednesday, 25 November 2009.

The net inflow of Rs 306.10 crore on 26 November 2009 was a result of gross purchases Rs 2935.20 crore and gross sales Rs 2629.10 crore. World stocks fell that day as news of Dubai asking for a creditor standstill at Dubai World and Vietnam's currency devaluation increased investors' aversion to risk. The BSE Sensex lost 344.02 points or 2% to 16,854.93.

Export registered 6.6% decline in October 2009

FDI at US $ 15.3 billion till September 2009 

As per the ministry of commerce's quick estimates ,exports during October, 2009 indicated significant signs of stabilization and improvement in the Indian exports. The decline in exports in October 2009 was only 6.6% in Dollar terms ($13.19 Billion in October 2009 vis-a-vis $ 14.13 Billion in October, 2008) according to the commerce minister.

The stablisation in the exports needs to be viewed in the context of projections of IMF of 11.9% decline in world trade volume during the year 2009 coupled with 36.6% decline in commodity prices of oil, and 20.3% decline in non-fuel commodity prices during 2009, the Minister added.

Overall reduction in the rate of decline of export growth in the 7 months of the current financial year, tend to indicate that the different support measures of Government, announced during the Budget and the Foreign Trade Policy, do appear to have contributed significantly in arresting the rate of decline, particularly, for labour intensive sectors.

According to World Investment Report (WIR) 2009 the top five most attractive locations for FDI for 2009-11 are China, United States, India, Brazil and the Russian Federation. India continues to attract investors in the high value-added services industries like financial services and information technology. The top position is occupied by China, while the US is the fourth in the list. The report predicts India to be on the cusp of FDI take off, in view of the Government maintaining focus on reforms, overcoming narrow business interests, de-bottle necking infrastructure, logistics and regulatory barriers.

Financial News Flash

Tata Motors Turns to Profit in Second Quarter on Cost Cuts at Jaguar Unit Tata Motors Ltd., the Indian truckmaker that owns Jaguar Land Rover, turned to a profit in the second quarter after it cut costs at the luxury car unit.

Indian Stocks, Rupee, Bonds Decline on Concern Dubai May Default on Debt India’s stocks, currency and bonds fell on concern investors may shy away from riskier emerging market assets over losses stemming from Dubai’s attempt to reschedule its debt.

Dubai's Debt Crisis May Affect Remittances to India, Kerala's Isaac Says A financial crisis in Dubai will hurt remittances to India and reduce job opportunities for citizens of the south Asian nation, said Thomas Issac, finance minister of the southern state of Kerala.

Mobius Says Dubai Debt Concern May Trigger Emerging-Markets `Correction' Templeton Asset Management Ltd.’s Mark Mobius said Dubai’s attempt to reschedule debt may cause a “correction” in emerging markets, compounded by Vietnam’s currency devaluation and an “avalanche” of initial share sales.

Yen Strengthens to 14-Year High, Prompting Speculation Japan to Intervene The yen strengthened to a 14-year high against the dollar, climbing past 85 to the greenback and prompting speculation Japan will intervene in markets to preserve the nation’s export-led economic recovery.

Abu Dhabi Commercial Bank May Have Most Dubai World Loans at $1.9 Billion Abu Dhabi Commercial Bank PJSC may be owed $1.9 billion by Dubai World, making it the largest creditor outside the emirate to the state company seeking to reschedule debt, said two people familiar with the companies.

Gold Declines for Second Day as Dollar Strengthens on Dubai Debt Concern Gold declined for a second day, extending its retreat from an all-time high as a stronger dollar damped demand for the precious metal as an alternative asset.

Credit-Default Swap Reforms Roiled as Aiful, Cemex, Thomson Test Payments Wall Street’s system for determining payments on derivatives linked to the debt of defaulted companies is showing cracks less than a year after securities firms changed practices to avoid “Draconian” regulation.

Reliance Capital Plans to Acquire Controlling Stake in Quant Capital Group Reliance Capital Ltd. plans to acquire a controlling stake in Mumbai-based Quant Capital Group, according to a statement to the National Stock Exchange.

Ranbaxy Shares Climb to Highest in a Year as Valtrex Sales Begin in U.S. Ranbaxy Laboratories Ltd., India’s biggest drugmaker, rose to its highest level in more than a year in Mumbai trading after it began selling a generic version of GlaxoSmithKline Plc’s Valtrex drug in the U.S.

Emerging-Market Stocks, Commodities Slide as Bonds, Dollar Rally on Dubai Commodities dropped the most since July, emerging-market stocks fell, Treasuries and the dollar rose and credit default swaps surged as Dubai’s attempt to delay debt repayments unnerved investors.

RBS Led Dubai World Lenders, HSBC Has Most at Stake in UAE, JPMorgan Says Royal Bank of Scotland Group Plc underwrote more loans than any institution to Dubai World, the state company seeking to reschedule debt, while HSBC Holdings Plc has the most at risk in the United Arab Emirates, according to JPMorgan Chase & Co.

Mobius Sees a `Correction' From Dubai Crisis as Das Predicts Risk Aversion Dubai’s attempt to reschedule debt may spur a “correction” in emerging markets, according to Mark Mobius, while the global slump in equities shows government spending alone won’t protect financial markets, Arnab Das of Roubini Global Economics said.

Dubai Debt May Exceed $80 Billion on Off-Balance Sheet Liability, UBS Says Dubai, the Persian Gulf emirate whose state-run companies are seeking to defer debt payments, may owe more than the $80 billion to $90 billion in liabilities assumed by investors, UBS AG analysts said in a note.

European Economic Confidence Climbs to Highest Level Since Lehman Collapse European confidence in the economic outlook improved in November to the highest since the collapse of Lehman Brothers Holdings Inc., suggesting the recovery in the 16-member euro region is gathering strength.

Almunia Named as EU's Competition Commissioner, Barnier to Oversee Finance European Union Economic and Monetary Affairs Commissioner Joaquin Almunia, who led the expansion of countries using the euro, will be antitrust chief in the next European Commission succeeding Neelie Kroes.

Shipping Has `Trouble Building Behind Dam,' Ex-Baltic Exchange Head Says Ship prices may keep dropping for at least another year because banks have not yet dealt with the weaker loans they made to the industry, according to Michael Drayton, a former chairman of the Baltic Exchange.

source: Bloomberg

Birla Sun Life MF Declares Dividend for Short Term Opportunities Fund

Record date for dividend is 1 December 2009 

Birla Sun Life Mutual Fund has announced the declaration of dividend on the face value of Rs 10 per unit under dividend option in institutional plan of Birla Sun Life Short Term Opportunities Fund. The record date for dividend has been fixed as 1 December 2009.

The quantum of dividend will be 2.077% (Rs 0.2077 per unit) as on the record date, which is subject to availability of distributable surplus. The scheme recorded NAV of Rs 10.2070 as on 25 November 2009.

Birla Sun Life Short Term Opportunities Fund is an open ended income scheme with an objective to generate regular income by investing primarily in investment grade fixed income securities / money market instruments with short to medium term maturities and across the credit spectrum within the universe of investment grade rating.

ICICI Prudential MF Introduces Trigger Facility

With effect from 1 December 2009 

ICICI Prudential Mutual Fund has approved introduction of Trigger Facility (TF) by which an investor can indicate trigger levels for switching investment from ICICI Prudential Liquid Plan, ICICI Prudential Income Plan, ICICI Prudential Short Term Plan, ICICI Prudential Floating Rate Plan – Plan A & Plan B and ICICI Prudential Flexible Income Plan (the Source Schemes) to the ICICI Prudential Target Returns Fund (the Target Scheme) in which the amount from the Source Scheme(s) shall be transferred on activation of TF. Trigger Facility will be available for enrolment with effect from 1 December 2009.

ICICI Prudential Target Returns Fund is an open ended diversified equity fund and all the Source schemes are debt oriented.

Arbitrage

What is arbitrage?

Arbitrage is an investment strategy aimed at capturing the price differential between two or more markets to earn a risk-free profit. To execute an arbitrage deal, one has to simultaneously enter into deals in two markets where the price differential exists.

For example, one can buy shares of Company ABC in cash market at Rs 100 a piece and at the same time sell a future contract of an equal number of shares at Rs 105. This helps to catch the price differential of Rs 5 per share. By the end of the expiry of the contract, prices in cash and futures market converge, offering a risk-free profit.

Conversely, one may sell in cash market and buy in futures, if the price in the cash market is higher than the futures market, provided there is an efficient security lending arrangement.

Can money be made in this manner?

There are many who identify arbitrage opportunities across asset classes and markets. These are called arbitrageurs. Continuous tracking of markets and availability of good amount of cash are must to carry out the role of an arbitrageur to make a decent size of money.

Narrow spreads also limit the rate of return. This makes life difficult for an individual with limited resources.

How do retail investors participate?

Mutual funds come to the rescue of those who intend to take the arbitrage route but lack the expertise. The schemes here aim to make risk-free profits, by capturing the price differentials across markets arising out of the inefficiencies of the markets.

You can invest in such funds with a minimum of Rs 5,000. The ideal time horizon of an investment ranges between one and two years. The expected rate of return can be slightly above that of one offered by bank fixed deposits of a similar tenure.

Extended hours put on back-burner

Strong opposition from market participants has made stock exchanges put their plans to extend trading hours on the back-burner.The National Stock Exchange (NSE), which was advocating extension of trade timings, now says the majority of market players are against the move and a consensus is needed for it to go through.Over 60 per cent brokers, out of the 395 surveyed by the Association of National Stock Exchange Members of India (Anmi), expressed displeasure at the move. 

Anmi has about 800 members, quite a few of whom are also members of the Bombay Stock Exchange (BSE). The findings of the survey were given to both NSE and the Securities and Exchange Board of India (Sebi).Sebi had last month approved the extension, if stock exchanges so chose, of trading timings by two-and-a-half hours (from 9 am to 5 pm).

The current market hours are 9.55 am to 3.30 pm. Stock exchanges had sought extended timings to integrate Indian bourses with Singapore and other Asian markets in the morning and European markets in the evening.In Singapore, which is around two-and-a-half hours ahead of India, trading is held between 9 am and 12.30 pm and 2 pm and 5 pm (local time). Due to this mismatch, NSE was losing some derivatives volumes to Singapore , where the Nifty (its benchmark index) is listed. Hedge funds trade Nifty in Singapore prior to the opening of Indian markets.

Save on capital gains tax from property sale

A capital gain is income derived from the sale or transfer of a capital asset. A capital asset includes house property, shares, paintings, etc. A capital gain is the difference between the sale consideration and the cost of the acquisition of the asset, plus the cost of improvement thereto.

Short-term & long-term gains

Capital gains could be long-term or short-term . Capital assets are classified as long-term or short-term with reference to the period of holding of such assets.

In case a house property is held for not more than 36 months from the date of its transfer, the gain arising from the same would be treated as a short-term capital gain. Such a gain would be liable to tax at normal income-tax rates applicable to the tax payer. Therefore, for an individual tax payer in the highest tax slab rate, the short-term capital gain would be taxable @ 30%, plus education cess.

However, if such a property is held for more than 36 months and sold subsequently, the gain arising from there would be treated as a long-term capital gain and subject to tax @20%, plus education cess.

Such a long-term capital gain would also enjoy the benefit of indexation, ie, the cost of such a house property would be increased with reference to the cost inflation index.

The I-T Act, provides tax breaks for long-term capital gains invested in specified avenues. 

 Investment in another house

An individual may invest the long-term capital gains arising from the sale of a residential house to buy another house .

The new property should be bought within a year before or two years after the date of such transfer.

Also, such long-term capital gains could be invested to construct a new house property within three years from the date of sale.

In case the individual does not want to invest immediately and wants to buy/construct the other house later, he also has an option of keeping the funds in a specified capital gains scheme with a bank from which the funds could be specifically utilised for acquiring the other house, subject to conditions.  

Investment into specified bonds

An individual can also invest long-term capital gains within a period of six months after the date of transfer in certain specified options, which include bonds issued by NHAI, Rural Electrification Corporation, etc.

In respect to these bonds, the investment limit is restricted up to Rs 50 lakh during any financial year.  

Oil Slips Tracking Losses In Equities; Inventories Overhang

Oil fell today as the global stock markets tumbled and due to the hangover of high oil inventories in US. 

European shares fell sharply on Thursday, with banks leading a broad retreat for the region, as investors took some profits off the table amid uncertainty about exposure to Dubai debt. Asian shares were lower in part as the yen hit a multiyear high against the dollar, weighing on exporters. U.S. stock markets are closed on Thursday for the Thanksgiving holiday.

The Energy Department said in a report yesterday that the U.S. stockpiles increased to 337.8 million barrels in the week to Nov. 20.

Crude oil for January delivery fell as much as $1.11, or 1.4%, to $76.85 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $77.13 a barrel in London electronic session.

There will be no floor trading in New York today because of Thanksgiving. Electronic trading will continue during the holiday.

The Dollar Index, which tracks the greenback against the currencies of six trading partners, rose 0.3 percent to 74.519 after it reached a 15-month low yesterday on speculation the U.S. will keep interest rates near zero.

MCX crude oil futures are however trading in positive zone as the Rupee weakened today. MCX December futures are up nearly Rs 30 at Rs 3597 per barrel. It may find supports at Rs 3570 & Rs 3540 levels.

Gold Takes A Breather After Rising Near $1200 Threshold

International gold futures fell after hitting a records high of $1195 earlier today as the dollar rebounded from its lows, but the market was still expected to seek higher ground due to prospects for central bank buying and further dollar weakness. 

Trading will be thin on Thursday because markets in the U.S. are closed for the Thanksgiving holiday.

Bullion has gained more than 37% this year -- including a 13% rise in November alone on dollar weakness, expectations of further reserve diversification by central banks and fears of inflation next year.

The dollar recovered some poise after hitting a 14-year low against the yen as traders betting against the U.S. currency cashed in on its recent slide. Against a basket of currencies, the U.S. currency was up by 0.37%.

U.S. December Gold dropped $3.30 to $1,183.70 an ounce in electronic trading on the COMEX division of the New York Mercantile Exchange.. Earlier it rose to a fresh high of $1,195.00 per ounce

Gold gained 1.8% on Wednesday following reports that central banks were in the market to buy bullion. The Financial Chronicle newspaper reported that India's central bank may buy the 201.3 tons of gold the IMF is selling on terms now being negotiated. Also, the IMF sold a total 20 metric tons of gold to the Central Bank of Sri Lanka for $375 million.

MCX Gold futures are however trading higher today as the weakness in Indian Rupee supported the counter. The December gold futures are trading up almost Rs 90 at Rs 17803 per 10 grams. A fall below Rs 17745 levels will be bearish for the metal today.

FII buying slows down

Inflow of Rs 65.20 crore on 25 November 2009 

Foreign institutional investors (FIIs) bought shares worth a net Rs 65.20 crore on Wednesday, 25 November 2009, much lower than Rs 302.70 crore on Tuesday, 24 November 2009.

FII inflow of Rs 65.20 crore on 25 November 2009 was a result of gross purchases Rs 2255.30 crore and gross sales Rs 2190.10 crore. The BSE Sensex rose 67.87 points or 0.4% to 17198.95 on that day.

FII inflow in November 2009 totaled Rs 5185.50 crore (till 25 November 2009). FII had bought equities worth Rs 8303.80 crore in October 2009. FII inflow in the calendar year 2009 totaled Rs 73,626.60 crore (till 25 November 2009).

There are a total of 1,703 foreign funds registered with the Securities & Exchange Board of India (Sebi).

Foreign Institutional Investors activity during November-2009
	Date	Equity (Rs. Crore)			Debt (Rs. Crore)
		Gross	Gross	Net Purchase	Gross	Gross
		Purchase	Sales	/Sales	Purchase	Sales
	24-Nov-09	2,342.70	2,040.00	302.7	1,179.60	1,102.10
	23-Nov-09	1,951.30	2,019.30	-68	309.5	892.2
	20-Nov-09	2,291.70	2,417.30	-125.6	472.5	391
	19-Nov-09	2,083.50	2,417.80	-334.3	323.9	637.9
	18-Nov-09	2,586.00	2,063.70	522.3	275.1	430
	17-Nov-09	2,379.40	1,785.60	593.8	874.6	260.1
	16-Nov-09	2,505.90	1,826.60	679.3	314.6	163.3
	13-Nov-09	2,271.90	1,600.10	671.8	780.7	430.4
	11-Nov-09	3,087.10	2,114.30	972.8	284	250.4
	10-Nov-09	3,035.40	2,606.90	428.5	789.7	402.2
	09-Nov-09	2,280.20	1,631.00	649.2	469.7	2,272.30
	06-Nov-09	3,428.00	2,732.00	696	569	689.1
	05-Nov-09	2,035.50	1,767.90	267.6	1,059.40	314.9
	04-Nov-09	3,395.20	3,381.40	13.8	865.7	1,260.40
	03-Nov-09	2,188.10	2,488.90	-300.8	763.2	554.1
	TOTAL	37,861.90	32,892.80	4,969.10	9,331.20	10,050.40