MoneyVedam

After a number of measures taken to convert the investment in physical gold to paper gold, the government may have at last found the secret formula by introducing the Gold BOND scheme this week. Let us look at the interesting developments behind the arrival of Mr Gold Bond! The Problem The fundamental problem being addressed here is in ensuring that the Indians' love for the yellow metal does not damage the broader economy. How so? Indians' insatiable thirst for gold leads to huge imports (842 tons in 2014) every year leading to a spike in India's import bill. Gold forms 12% of our total imports. This causes a huge trade deficit, which in turn causes serious repercussions in the economy such as unstable macro climate, low sovereign rating, higher borrowing rates, currency fluctuations, capital outflow from stocks, bonds, rise in interest rate & inflation and lastly lower employment. Since 2013, the government has taken a number of measures ranging from curbing of ...

Let us understand how QE (Quantitative Easing) has become a dominant factor in the real estate bubble from 2007 to 2014. What is QE? QE is basically printing of money by the US Central Bank (called Federal Reserve Bank) to pump more money into the US banking system so as to prop up the US economy from the downfall of the 2007 Financial crisis. How does QE work? The US fed prints money ($4.5Trillion ~ 1/4th the size of US GDP) and lends it to US banks. You may also think of this as the Fed making a term deposit with the commercial banks just like you and me - except that we earn our money and deposit our savings in the bank while the Fed simply prints the money and deposits it with the US banks. The banks were then supposed to lend the money to businesses for expanding their operations and providing employment to people in the US. Instead, the banks used the free money (because interest is almost ZERO) in speculative activities in markets around the world. (Why did the Fed n...

Although today was a day of a 6% fall in the sensex (and Indian retail investors hold only 2% of their assets in stocks), I decided to write about something that is more dear to us - real estate! Most investment savvy people have invested in some form of a property over the last decade. A few lucky ones have even cashed out on their investment at returns unimaginable in the years since the economic liberalization of India (1991). Now that the talk of the town is a stagnating realty market, let us examine the actual state of affairs. The Boom Years From 2007 to 2013, property prices escalated so high that people were shunning all other forms of investment and going full steam on property. Although GDP growth was cited as a reason for the boom, the primary driver behind the maddening realty price was the QE (Quantitative Easing) carried out by the US Federal bank from 2009 to 2013. When QE eventually slowed from 2013, easy money vanished, leading to a stagnation in property prices...

It is that time of the year when you look for TDS certificates, insurance receipts, medical bills or even capital gain statements to begin filing your income tax returns. As always, this year too brings some changes to the data collected by the ITR forms but the general structure and format of the forms remain the same. Which form to use? By now the newspapers and online portals would have elaborated on who should use which form to file their returns. A gist of it is given below: ITR-1: To file income from salary/pension, rent from one house property and interest ITR-2: To file rental income from more than one property, capital gains and interest ITR-2A: To file rental income from more than one property, capital gains from shares/MFs and interest income ITR-4S: To file income from business or profession Doubts on what to file! Most people know what incomes to file. However doubts arise as to whether one should report income(s) to which TDS has not been applied - such as in...

Functioning of SWFs Every SWF is like a fund house - they have their own investment offices, fund managers and asset managers. Each SWF also has its own mission, return requirements and investment horizon (akin to an individual's financial plan). SWFs by their very nature are net positive FDI (Foreign Direct Investment) countries. Note that net negative FDI countries cannot afford to have a SWF since they are cash starved and need overseas capital to spur infrastructure and industry development (like India, Indonesia etc). However the mode of operation of these SWFs are not very transparent due to which they have raised several key concerns such as affecting market dynamics and effecting undue influence on politics of other nations. What about India? India has not reached the position of a net positive FDI yet. Infact India is a net negative FDI nation, which means it continues to depend and receive FDI to develop the nation. India has not yet exhausted domestic investments to...

This is a much debated topic at all levels of government and private bodies. Prior to taking a side, we need to understand what a Sovereign Wealth Fund (SWF) is, its purpose and how it should function to yield the desired result. A SWF is basically a pool of funds created from assets owned by a nation. The assets could be physical commodity(s) or the result of productivity gains of the economy (aka industrial and financial assets). Most commodity based SWFs are created by oil rich nations such as Saudi Arabia, Norway, Kuwait, Qatar, Abu Dhabi etc. Non-commodity based SWFs are based out of Hong Kong, Singapore & China. Basically the SWFs are owned and operated by the government or its agencies. SWFs - Purpose & Size The main purpose of a SWF is to ensure that the excess capital generated from a nation's assets are pooled together and invested overseas so as to generate additional income or acquire new assets, which in turn could be used for the nation's future genera...

DIIs (Domestic Institutional Investors) The largest DII in the capital market is LIC followed by other insurers and Mutual fund houses. LIC has a total assets under management of Rs.17.69 Lac crores ($295bn) and it has an investible corpus of Rs.2.25-Rs.3 Tn ($38-$50bn) p.a to invest in capital markets. LIC predominantly invests its corpus in government debt (80%) and the rest 20% in equity markets. Typical size of equity investment is Rs.550 bn ($9.1bn). Mutual Funds too invest about 80% in debt market and 20% in equity markets but their total AUM (Assets Under Management) itself forms only 60% of LIC's AUM. RIs (Retail Investors) The so called 2% retail investors that invest directly in equities are typically driven by market sentiments. They buy high & sell low only to realize that equity is a zero sum game. However a selective few that understands the market have stayed long for 7-15 years and have realized 20-25% annualized returns. Is RI the ACTUAL DII? Looking at...

Market capitalization of India's equity market touched Rs.100 Trillion ($1.67 Tn) in early December 2014. Market cap is the market value of all listed stocks multiplied by their respective market value. On a relative scale, the market cap of India is now at par with Germany & France and have surpassed those of Australia, Brazil, HongKong, Korea & Switzerland. US has the highest market cap in the world at $18.66Tn while China and Japan come next at $3.7Tn. Five years ago, during the 2009 financial crisis, market cap of Indian equity market was Rs.30 Trillion. For those who had stayed invested for the long term, their annualized returns would have been 27% p.a. However we hear a lot about FIIs (Foreign Institutional Investors) entering and exiting the markets there by making huge money from Indian equities. Let us look at the FII and DII (Domestic Institutional Investors) statistics in detail. FIIs (Foreign Institutional Investors) As per recent reports, FIIs have inves...