Understanding NPS(New Pension Scheme)

New Pension Scheme is Available to all citizens of India from 1st May 2009

In August 2008, Government had decided to offer NPS to all citizens of India on a voluntary basis. The necessary infrastructure for the roll-out of NPS is now ready and the New Pension System will be available to all citizens of India from 1st May 2009. Tier-I of the NPS constituting the non withdrawable Pension account will become operational from that date and Tier II (withdrawable account) of the NPS account will become operational in about six months.

Accordingly, PFRDA(Pension Fund Regulatory And Development Authority) took necessary steps to scale up the existing infrastructure to roll-out the NPS for all citizens. Twenty two(22) Points of Presence (PoPs) and six(6) Pension Fund Managers have been appointed by PFRDA for offering NPS to citizens at annual fees of 0.0009% of the invested amount, which is less than one paise per Rs 100. Branches of the registered PoPs designated as PoP Service Providers (PoP-SP) will act as the initial point of contact and collection point for all citizens other than Government employees desiring to obtain a Permanent Retirement Account Number (PRAN) under NPS.

The following entities have been approved by PFRDA for appointment as Sponsor(s) of Pension Fund/Pension Fund under the New Pension System for all citizens other than government employees covered under NPS:-

1. ICICI Prudential Life Insurance Company Limited

2. IDFC Asset Management Asset Management Company Limited

3. Kotak Mahindra Asset Management Company Limited

4. Reliance Capital Asset Management Company Limited

5. SBI Pension Funds Limited

6. UTI Retirement Solutions Limited

The PFRDA has appointed 22 entities as Points of Presence (POPs) that includes 17 banks. Among the banks, State Bank of India and its six associates, Union Bank of India, Allahabad Bank, Oriental Bank of Commerce, IDBI Bank have been appointed as POPs.

Private sector lender like ICICI Bank, Kotak Mahindra Bank and foreign bank Citibank will also function for the NPS for all citizens other than government employees. Other entities include LIC, UTI Asset Management Company, Reliance Capital, IL&FS Securities Services and Bajaj Allianz General Insurance.

Guidelines A. The PF will manage 3 separate schemes, each investing in a different asset class, being: 1. Asset class E (equity market instruments) – The investment by an NPS participant in this asset class would be subject to a cap of 50%. This asset class will be invested in index funds that replicate the portfolio of either BSE Sensitive index or NSE Nifty 50 index. Index Fund Schemes invest in securities in the same weightage comprising of an index. The PF will have to choose which index they intend to track in advance on a yearly basis. The permitted cap, as mentioned above, is expected to be maintained at that level at all points in time. However, the amount of funds invested in that asset class can differ from the specified cap by no more than 5% for purposes of portfolio balancing.

2. Asset class G (Government Securities) – This asset class will be invested in central government bonds and state government bonds.

3. Asset class C (credit risk bearing fixed income instruments) – This asset class contains bonds issued by any entity other than Central and State Government. This asset class will be invested in liquid funds of Mutual Funds, credit rated debt securities. This includes rated bonds/securities of Public Financial Institutions and Public sector companies, rated municipal bodies/infrastructure bonds and bonds of all firms (including PSU/PSE).

B. Cash held in the schemes will be for trading and cash flow management purposes only. Cash will not exceed 10% of the assets of the scheme portfolios, except when ‘cash' or specific cash instruments (such as treasury bills etc) are included in the investment universe.

The default option, called auto choice lifecycle fund, will see the investment mix change according to the age of the subscriber. At the lowest entry age of 18 years, auto choice entails an investment of 50% in E, 30% in C and 20 per cent in G. The ratios will remain unchanged till the subscriber turns 36, when the ratio of investment in E and C will decrease annually, while the proportion of G rises. By the time the subscriber is 55 years, G will account for 80 per cent of the corpus, while the share of E and C will fall to 10% each.

Investment Objectives The investment objectives for the three asset classes are outlined below:

Asset class E:

Benchmark – the performance of the scheme will be measured by reference to the total performance (dividends reinvested) of either BSE Sensex or NSE Nifty 50 Index, as chosen by the PF. The PF will have to choose which index they intend to track in advance.

Performance objective – the investment objective is to optimise returns while investing in the chosen index over a rolling annual basis.

Asset class G:

Performance objective – the investment objective is to optimise returns.

Risk – It is expected that the PF will be able to identify and justify the additional risks relative to the return, while managing the portfolio on an absolute return basis.

Asset class C:

Performance objective – the investment objective is to optimise returns.

Risk – It is expected that the PF will be able to identify and justify the additional risks relative to the return, while managing the portfolio on an absolute return basis.

Any Indian citizen between 18 and 55 years can invest in NPS. There is no investment ceiling. But the minimum investment limit has been fixed at Rs 6,000 annually. The minimum number of instalments per year is four. There is no upper limit on the contribution per instalment or on the number of instalments. The investor will have to bear a penalty of Rs 100 per year of default and will need to pay it with the minimum amount to reactivate the account. Also, dormant accounts will be closed when the account value falls to zero. The investor can exit before attaining the age of 60 years, provided he annuitise at least 80% of his pension corpus.

Central Government made the New Pension System (NPS) mandatory for its new recruits (except defense forces) from 1st January, 2004. A majority of State Governments have also shifted to the defined contribution based new pension system from varying dates.

Happuy Investing

Lets Understand Inflation

In india the inflation data is released on every thursday. As we have seen that inflation these days is hovering between 0%-1% but then also the prices of lot many goods which are used in our day to day life has not changed. What is the reason for the same?

If the decrese in the inflation is actually not reducing the pressure on the normal man's pocket then what is the fun of giving this inflation data?

Actually there is a reason for this mismatch (decrease in inflation is not reducing the prices of the basic items which are consumed on daily basis). We will discuss and try to understand that actually what is going on?

Before discussing the things further, I just want to introduce basic terms which will be used.

They are

CPI(Consumer Price Index) - This index is based on the prices at the consumer end.

WPI(Wholesale Price Index) - This index is based on the prices at the wholesale market.

In india ,inflation is calculated on the basis of WPI. 

WPI(Wholesale Price Index):

WPI was first published in the year 1902 and it was followed across the globe in calculating the inflation. But in developed countries this WPI was replaced by CPI in the 1970's. But in India we are still following this WPI while calculaing inflation.

This WPI has got a list of 435 commodities whose average price in the wholesale market helps in calculating the inflation.This price index is available on weekly basis.

CPI(Consumer Price Index):

CPI is a statistical time series measure of weighted average of prices of a specified set of goods and services purchased by consumers.

CPI is the official barometer of inflation in many countries like US,UK,Japan,Canada and China.

Drawbacks of WPI:

1.An individual when buys milk,ghee,butter or any other basic thing in day to day life,how many of them actually buy it on wholesale price.It is always the retail price which is to be paid by the consumer.

2.WPI gives weightage of 22% to food articles, 14% to fuel and 64% to Power and Manufactured goods.

3.There are 435 commodities which are analysed to give this inflation data and the last time when this list was reviewed is in 1992.So its already been 17 years and lot many of the commodities which are listed are more or less obsolete.

Advantages of WPI:

1.WPI is calculated on weekly basis and CPI is calculated on monthly basis.

2.The calculation of CPI could prove to be a difficult task as then 100s of cities and 1000s of villages are to be monitored to get the data.

3.There are 4 different types of CPI indices - CPI Industrial workers,CPI Urban Non Manual Employees,CPI Agricultural labourers and CPI Rural Labour. So it may be very tedious and difficult to get data collected.

CPI could be more effective than WPI :

As the set of goods which are refered to in CPI in calculating inflation are very near to the actual spending pattern.In CPI 60% weightage is giving to the food articles and it has also taken into consideration the rent paid ,medical expenses etc.

Today, in the newspaper I read that India is going to follow CPI and they have started collecting data from citites and villages and hopefully from August 2010 we will have inflation based on CPI rather than WPI.

I hope this article is helpful to you all.

How to protect your e mail address book?

As you may know, when/if a worm virus gets into your computer it heads straight for your email address book, and sends itself to everyone in there, thus infecting all your friends and associates.

This trick won't keep the virus from getting into your computer, but it will stop it from using your address book to spread further, and it will alert you to the fact that the worm has gotten into your system.

Here's what you do:

First, open your address book and click on 'new contact,' just as you would do if you were adding a new friend to your list of email addresses.

In the window where you would type your friend's first name, type in ' A'.

For the email address, type AAAAAAA@AAA.AAA

Now, here's what you've done and why it works:
The 'name 'A' will be placed at the top of your address book as entry #1.

This will be where the worm will start in an effort to send itself to all your friends.
When it tries to send itself to  AAAAAAA@AAA.AAA, it will be undeliverable because of the phony email address you entered.  If the first attempt fails the worm goes no further and none of your friends will be infected.

Here's the second great advantage of this method:  If an email cannot be delivered, you will be notified of
this in your In Box almost immediately.

Hence, if you ever get an email telling you that an email addressed to AAAAAAA@AAA.AAA could not be delivered, you know right away that you have the worm virus in your system.  You can then take steps to get rid of it!

Pretty slick huh?

If everybody you know does this then you need not ever worry about opening mail from friends.
DO IT NOW and pass this on to all your friends.

Understanding repo rates,reverse repo rates and CRR

In this post we will discuss about the benefits from the falling repo rates,reverse repo rates ,CRR.

Since last few months RBI has been reducing the repo rates,reverse repo rates ,CRR rates.RBI is taking these measures to curb the liquidity crunch that we are facing.

In this post we will discuss what exactly these rates are and how it will help in solving this liquidity problem. 

1.Repo rate :This is the rate at which banks can borrow from RBI.So if repo rate is decreased then the Banks can borrow more money from RBI and thus will have more money to give to the clients in the form of loans etc and vice versa.

2.Reverse repo rate:This is the rate at which the RBI gives interest on the deposits of the banks with RBI.So if reverse repo rate is decreased then the banks will get less interest on the deposits with RBI and so the banks will tend to keep more money with them rather than depositing it with RBI and vice versa.

3.CRR(Cash reserve ratio):This is the ratio or the amount as the %age of deposits required to be parked by the banks with RBI.So by decreasing the CRR the RBI is reducing the amount of %age of deposits which is to be parked by banks with RBI.So mor money will be there with banks and vice versa.

Basically all these measures of reducing the repo rate,reverse repo rate and CRR are taken by RBI to increase the flow of liquidity in the system and thus try to handle this liquidity crunch.

I hope this post will help in understanding these rates and the effect of changes in the rate. 

History Of Gold Prices

These days the price of Gold is trading at all time high levels.

Below, the history of Gold prices is mentioned which can help an investor to make a right and informed decision as to how much he should invest in Gold.

The data below can help you in finding the returns that Gold has given since 1930 and thus can help you in making decision, as to how much has to be invested in GOLD.

1930: 180 per 10 gram 

1940: 360 per 10 gram 

1950: 1000 per 10 gram 

1960: 1110 per 10 gram 

1970: 1840 per 10 gram 

1975: 5,400 per 10 gram 

2000: 3,000 per 10 gram

2006: 5,400 per 10 gram 

2009: 15,700 per 10 gram.

Few days back i wrote about ETF's  and gold is also traded in the form of ETF's.For further details see ETF's

These days it is good if investors invest through ETF's as it has got many advantages like:

1.Gold will be in Demateralised form and so it can be bought and sold very easily online.

2.There is no worry of theft.

3.You need not have lockers to keep your Gold.

4.The trading(buying/selling) will be very fast.

I hope this article and this data will help you in making informed decisions as far as trading and investing in Gold is concerned.

Happy Investing.

Nice One liners

Here  are some nice one-liners.. .
 
1. I say no to alcohol, it just doesn't  listen. 
 
2. A friend in need is a pest indeed. 
 
3. Marriage is one of the chief causes of divorce.  

4. Work is fine if it doesn't take too much of your  time. 
 
5.  When everything comes in your way you're in the
wrong lane. 

6.  The light at the end of the tunnel may be an oncoming train..

7. Born free, taxed to death.

8. Everyone has a photographic memory, some just don't have film. 
 
9. Life is unsure; always eat your dessert first.  

10. Smile, it makes people wonder what you are thinking. 
 
11.  If you keep your feet firmly on the ground,
 you'll have trouble putting on your pants. 

12. It's not hard to meet expenses, they are
 everywhere.  

13.. I love being a writer... what I can't stand is the
 paperwork.  

14. A printer consists of 3 main parts: the case, the
 jammed paper tray and the blinking red light. 

15. The guy who invented the first wheel was an idiot. The guy who invented the other three, he was the genius.  

16. The trouble with being punctual is that no one is there to appreciate it. 

17. In a country of free speech, why are there phone bills?
 
18. If you cannot change your mind, are you sure you have one?  
 
19. Beat the 5 O'clock rush, leave work at noon! 

20. If you can't convince them, confuse them.. 

21. It's not the fall that kills you. It's the sudden stop at the end. 

22. I couldn't repair your brakes, so I made your horn
 louder! 
 
23. Hot glass looks same as cold glass. - Cunino's Law
 of Burnt Fingers.
 
24. The cigarette does the smoking you are just the
 sucker.

25. Someday is not a day of the week 

26. Whenever I find the key to success, someone changes the lock.

27. To Err is human, to forgive is not a Company policy. 

28. The road to success..... Is always under construction.
 
29. Alcohol doesn't solve any problems, but if you
 think again, neither does Milk.

30. In order to get a Loan, you first need to prove that you don't need it.
 
31. All the desirable things in life are either illegal, expensive, fattening or married to someone else.

These days we come across a word "ETF" alot.

So thought of sharing my views on this product.

Its generally said that one should accumulate Nifty BeES(which is an ETF) for long term as it helps in gaining the profits by the increase in the value of Nifty. As value of Nifty/Sensex changes and these changes(increase/decrease) are because of the changes in the values of lot many securities which are listed on these stock exchanges,so one can have these ETF's as a part of their portfolio.

ETF's are exchange traded funds.These ETF's are actually not traded that heavily as they trade in US markets.One will find less volumes in ETF's, as trading in ETF's is not popular in Indian market.

ETF's have a lot of similarity with Mutual funds.As through mutual funds we can have exposure to a basket of securities,similarly in ETF's also we can have exposure to a basket of securities .So it is like trading a basket of securities as compared to one stock share as we do in normal share trading.

Similarity in ETF's and Mutual Funds.

1. They allow the investor/trader to have exposure to a basket of securities.

2. They are of two types - open ended and close ended.

3. They both track an index or a sector.

Difference in ETF's and Mutual Funds.

1. ETF's are traded on stock exchange and so the price keeps on changing throughout the day like any other stock price.
Mutual funds are traded on the NAV price(Net Asset Value) and it is declared once daily.

2. As ETF's are traded on exchanges so they can be bought on margin depending upon the margin/exposure provided by the brokerage house, through which you are trading.
Mutual funds can't be bought on margins.

3. ETF's can be sold short(means you can sell these ETF's without holding them as you do for shorting any kind of stock shares).
Mutual funds can't be sold short.

4. In ETF's direct buying and selling is done on exchange so very less or barely minimal or no interaction is there between the buyer and the seller.
In Mutual funds there is an interaction with the AMC(Asset management company).

5. Sometimes there is difference in the price which is prevailing in the stock market and its NAV and this can be used for arbitrage.

The different ETF's which are available in India are

1.Gold BeES
2.Liquid BeES
3.Nifty BeES
4.Bank BeES
5.Kotak Sensex ETF
5.Kotak PSU ETF
6.Kotak Gold ETF
7.Quantum Gold ETF - Growth
8.Quantum Index Fund - Growth
9.Relaince Banking ETF
10.PSU Bank BeES
11.ICICI SENSEX Prudential ETF
12.S&P CNX NIFTY UTI National Depository Receipt Scheme
13.UTI Gold ETF
14.Junior BeES
15.PSU Bank BeES

ETF's are very good for those investors/traders who want to have exposure of any particular sector or index and who wants to do the trading on their own on daily basis.So it is just like trading mutual funds on stock exchanges. So you can have benefit of both trading and sector/index exposure.

Happy Investing.