DAILY INSURANCE UPDATE

20-27 April 2011 Industry

IRDA relax accounting norms for insurers No truck with insurers Accounting norms for insurers relaxed Cost confusion for the insured Irda will continue to regulate pension schemes of insurance cos Irda to look into cost of regulation The nuances between liquid and ultra short-term bond funds 'India's FII share likely to drop this year': Anand Shah, CIO, BNP Paribas Mutual Fund MF investor awareness programme gaining momentum Invest in short-term income funds Cost of managing a portfolio When a fund house merges schemes 'Inflation can eat into the India growth story': Arun Khurana, UTI Mutual Fund

Life Insurance
Max New York Life launches igenius scholarship 2nd edition Future Generali launches ULIP Wealth Project Canara HSBC OBC Life clocks 82% growth in FY11 premium income Children plan in life insurance business posts fast growth Max New York Life may break-even this year Markets need to readjust for earnings growth downgrades: Sampath Reddy, CIO, Bajaj Allianz Life Insu Protect dependents from financial liability through term insurance Pvt life insurers' first year premium down 4 pc in FY11 Post-Sept norms hit life insurance biz

Smaller fund houses deliver higher returns

Pvt. Equity & Hedge Funds

PE investments, mergers & acquisitions at $ 29 bn in Jan-Mar

Economy & Finance

Rupee drops 3 paise against dollar Sensex gains 31 points in volatile trade Kaushik Basu expects inflation to fall below 8% 10% growth not achievable: Plan panel to tell PM Exports rise 37.5% to a record high of $246bn FDI dips about 25% in first 11 months of 2010-11 Good farm output will help ease inflation to 6 %: Rangarajan

General Insurance
Magma''s insurance arm to commence operations in current fiscal

10% GDP growth not feasible: Montek

Closing
Last Finacial Closing

Health Insurance
Add extra cover to your office mediclaim Why critical illness cover is so crucial for everyone

Pensions/PF
Pension Products may Come with Capital Guarantee Employer can't demand PF interest on termination

PF fund managers may get higher fee PFRDA chief rules out turf war with Irda

SEBI
SEBI raises sovereign wealth funds investment ceiling to 20% Acting in concert wont apply to SWFs SEBI to set up forensic accounting cell soon Emerging markets back on FII radar Sebi to have own forensic lab to check frauds Sebi board to reconsider NSDL case

Mutual Funds& AMCs

Industry
IRDA relax accounting norms for insurers
PTI See this story in: The Hindu Business Line , The Times of India, The Economic Times New Delhi: Insurance regulator, IRDA, on Tuesday relaxed accounting norms for insurance companies to take care of higher liability arising out of enhanced outgo towards gratuity for their employees. The regulator allowed the insurance and reinsurance companies to amortise (pay off in regular intervals) the additional liability on account of gratuity over a period of five years starting from financial year 201011. Last year the government had enhanced gratuity limit for all employees to Rs 10 lakh from Rs 3.5 lakh and also revised payment structure of employees of Public sector entities. The insurance regulator said these moves would lead to the increase in liability on account of gratuity which would in turn affect insurers profitability. (This) in turn will impact the insurers profitability significantly as they need to provide the same in the financial year 201011. This will cause a strain on their solvency as well as on their performance results, IRDA said. http://www.thehindubusinessline.com/industry-and-economy/banking/article1709739.ece http://timesofindia.indiatimes.com/business/india-business/Insurers-can-pay-gratuity-ininstalments/articleshow/8031971.cms http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/insurers-can-pay-gratuity-ininstalments/articleshow/8033467.cms

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No truck with insurers

The Financial Express A 70% hike in any price is bound to get anyone upset, so it is not surprising that various transporter associations have reacted the way they have to the Insurance Regulatory and Development Authoritys (Irda) decision to revise the premium on mandatory third-party insurance liability cover by 65-70%. Various associations which are meeting today are threatening to go on strike if the hike is not withdrawn. Whether Irda blinks will probably depend on how the political class tackles the threat, which will be aggravated by the fact that a transport strike will certainly result in prices of essential goods rising.

The truckers, however, would do well to keep in mind that, even after the Irda hike, they are still being hugely subsidised by the state-owned insurance companies. The third-party claims ratio for commercial goods carrying vehicles went up from 153% in 2007-08 to 173% in 2009-10that means for every R100 the insurance industry earned by way of premium, it paid out R173 towards the third party claim, by dipping into profits it made in other segments. Since the claims ratio is a lower 72% for private insurers compared to 232% for the public sector ones, only the private insurers will be in the black after the hike. Which raises two questions: why does the Irda have to fix these tariffs when it has freed up all others and, two, why dont the PSU insurers just leave this business to the private sector firms? The reason why Irda has to notify tariffs is that third-party insurance is mandatory and, if the prices are left to market forces, they will rise to cover the claims lossesthat is, they will rise by around 2.5 times. Indeed, the reason why private firms have lower claims on commercial vehicles as compared to PSU insurers is that private firms are very choosy and insure only the best transporters. If the government wants rates to remain low while not bleeding the PSU insurance firms, it will also have to chip in and do its bit. That means ensuring drivers dont get away with getting licences without being skilled, that transporters stick to the maximum number of driving hours, that overloading not be allowedat the end of the day, this is what makes accidents rise and third-party claims balloon. http://www.financialexpress.com/news/fe-editorial-no-truck-with-insurers/778347/0

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Accounting norms for insurers relaxed

The Financial Express Mumbai: Insurance regulator Irda on Tuesday relaxed accounting norms for insurance companies to take care of higher liability arising out of enhanced outgo towards gratuity for their employees. The regulator allowed the insurance and reinsurance companies to amortise (pay off in regular intervals) the additional liability on account of gratuity over a period of five years starting from financial year 2010-11. Last year the government had enhanced gratuity limit for all employees to R10 lakh from from R3.5 lakh and also revised payment structure of employees of public sector entities. The insurance regulator said these moves would lead to the increase in liability on account of gratuity which would in turn affect insurers profitability. (This) in turn will impact the insurers profitability significantly as they need to provide the same in the financial year 2010-11. This will cause a strain on their solvency as well as on their performance results, Irda said. http://www.financialexpress.com/news/accounting-norms-for-insurers-relaxed/778531/

Cost confusion for the insured

Dipta Joshi & Neha Pandey / Mumbai April 21, 2011, 0:17 IST Mortality rates can change for the same age, because of the difference in features. Buyers of insurance products always get confused with charges. There is a premium allocation charge, policy administration charge, mortality rate and so on. The confusion gets worse when these rates keep on changing annually. Take for instance, Mumbai-resident HS Pathaks confusion. He is wondering why two different children plans from the same insurance company have a premium difference of Rs 40,000: one Rs 36,000 and another Rs 76,000. While it can be mainly due to the difference in product features, things get more confusing when one looks at the mortality rate. The mortality charges for a 35-year old man buying Bajaj Allianz Life Insurances Max Advantage Plan (NAV Guaranteed) are Rs 3.03 per Rs 1,000 sum at risk. For its Smart Insurance Plan (endowment plan), he pays Rs 2.03. The NAV guarantee plan charges a higher rate due to an in-built

accidental death benefit. The mortality charge is the cost levied towards providing death benefit to the policyholders. Since these charges are linked to the average Indian life expectancy ratio (which is about 67 years), one would expect it to be similar across all age groups, products and companies. A senior official from the Insurance Regulatory and Development Authority (Irda) says mortality rates depend on the age of the policyholder, gender (premium for women is 15-20 per cent less than men), financial status, geography and occupation (a diver will be charged more than a teacher). Mortality is dependent on the sum at risk (sum assured minus fund value) and should reduce as the fund value increases in the policy term, he adds. While working out mortality rates, insurance companies use the Indian Assured Life Mortality (IALM) Table 1994-96 as a reference besides their own claims-related experiences. However, the number of claims industry-wide may be different from the ones seen by the company, giving way to higher premiums many times. Therefore, they base the rate on their assumption as well, said the Irda official. Rituraj Bhattacharya, head, product development, Bajaj Allianz Life Insurance, says, Mortality charges, even within the same class of products, could vary due to variation in the factors that determine it. These are the companys mortality assumptions, underwriting guidelines and claim experience, the product distribution channel, etc. Yes, even the distribution channel can ascertain your mortality fee. Brokers can be bad for customers because they do not pay attention to underwriting, thus, increasing the cost. A company agent does proper underwriting and increases premiums if required, said the Irda official. Higher mortality rates are charged when companies offer extra benefits for a product but dont levy extra charges. Childrens plans that waive the premium in case of the death of the parent are also a case in point. For products with in-built waivers, the waiver is not charged as a rider, but the mortality rate, in such cases, is loaded, say insurance officials. According to Paresh Parasnis, executive director and COO of HDFC Life Insurance, the charge is only up to the extent of the extra costs the company needs to incur. He says, As there is a protection element besides the savings element in such schemes, the policyholder is charged mortality only till the time the savings cross the sum assured. According to insurance companies, the mortality charges will depend on the socio-economic class the product is targeting. So, typically, products designed for HNI customers will be charged less mortality since they are likely to have a better lifestyle, says Sanchit Maini, chief actuary, Max New York Life. It is likely the premium charged for a product could differ based on the distribution channel. This is largely true for products sold directly by the company or through an online platform. When a product is sold online, no commission is payable and this benefit is passed on to the customer. Last September, Irda came up with a new set of guidelines for Ulip products. While it capped the skyrocketing front-end charges like the premium allocation and policy administration costs, mortality charges were left out of the ambit. And insurance agents claim some insurers have cashed in on this opportunity. A couple of insurers have increased mortality rates on account of a few benefits, like a higher payout for accidents, said the insurance agent. Bajaj Allianz Life Insurance, Reliance Life Insurance, Aviva Life Insurance and Metlife have increased mortality rates by 10-20 per cent. Insurance companies, however, deny this. Companies are aware any irrational loading will ultimately affect the yields of Ulip products, besides getting them pulled up by Irda, says Parasnis. http://www.businessstandard.com/india/news/cost-confusion-forinsured/432989/

Irda will continue to regulate pension schemes of insurance cos

The Hindu Business Line See similar story in: The Hindu (Apr 24) Hyderabad: The pension schemes of insurance companies will continue to be regulated by the insurance

regulator, said the Insurance Regulatory and Development Authority (IRDA), Chairman, Mr J. Hari Narayan. He, however, said the pension schemes handled by insurance companies have dipped from 25 per cent to 1718 per cent. Insurance companies at present handle pension schemes worth Rs 36,000 crore, he told presspersons on the sidelines of a summit on Transforming healthcare with IT 2011'. On monitoring of claims settlement by insurance companies, he said IRDA was in the process of automating the entire process for better monitoring of the claims handled by the insurers to avoid any delays in the system. We will complete the automation within a year, he said. On ULIPS, Mr Hari Narayan said though the growth in the overall insurance sector was 19 per cent year-on-year, the rate of growth in the ULIPS sector has come down to 13 per cent, with customers shifting to traditional products. http://www.thehindubusinessline.com/todays-paper/tp-economy/article1762034.ece http://www.hindu.com/2011/04/24/stories/2011042463481700.htm

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Irda to look into cost of regulation

Remya Nair mint (Apr 25) New Delhi: Indias Insurance Regulatory and Development Authority (Irda) is planning to commission a study to calculate the cost of its decisions on insurers and the subsequent impact on the cost of insurance policies. In the past year, insurance companies have had to incur higher costs as Irda asked for higher disclosure requirements, brought in large regulatory changes in products, and tightened distribution norms. The regulator wants to know if the cost of regulatory burden has become heavy or has eased, said J. Hari Narayan, chairman, Irda. There have been attempts done in other countriesnotably in Australia Other jurisdictions have also done it, he said. We need to improve upon the kind of concepts and find how best to measure that. Last year, Irda said companies have to make quarterly disclosures, including segment-wise reporting of business figures. In addition, it changed rules governing unit-linked insurance policies (Ulips)a hybrid product that invests part of the premium in equities. Life insurance companies had to rework their entire unit-linked product offerings and offer a completely new set of Ulips from September. At that time, Ulips constituted around 80-85% of the business of life insurance companies. Insurers also incurred costs over strengthening accounting teams, reworking product structures, training sales teams, reprinting brochures and working out new advertising strategies. Alpesh Shah, partner and director, Boston Consulting Group India, said that by calculating the cost of the regulatory burden, Irda can ascertain if it is doing too much or overstepping boundaries. Regulators have to protect consumer interests and at the same time ensure that the industry is healthy and viable, Shah said. By looking at the cost burden of regulatory decisions, the regulators can take a call on whether its decisions are an overall good measure. The regulatory burden can be broadly classified into three categoriescost incurred for complying with regulation, burden due to regulation making some businesses unprofitable and impact on profitability due to changes, he said. Although the industry may consider the last component as a cost burden, it may not be regarded as such by the regulator, Shah said.

The process may take a while to be completed, said the chief executive of a life insurance company who did not want to be named. Irda will have to go to each insurance company and find out what has been the impact. It will be different for each company, he said. It remains to be seen if they will be committed enough to carry out this large logistic exercise. Irda is looking at better and not just more regulation, Narayan said, responding to industry concerns that firms have had to cope with many changes within a short span of time. http://www.livemint.com/2011/04/24234239/Irda-to-look-into-cost-of-regu.html?h=B

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Life Insurance
Max New York Life launches igenius scholarship 2nd edition
PTI See this story in: The Hindu Business Line Mumbai: Max New York Life Insurance today announced its second edition of igenius scholarship, a unique parent-child engagement initiative to support all-round child development. igenius is an innovative engagement programme to understand and support the needs of a young Indian life insurance consumer and our journey in the first year has been overwhelming. We are pleased to reiterate our commitment to sustained all-round child development and launch igenius 2011, the Max New York Life Insurance Director & Chief Marketing Officer, Ms Anisha Motwani, said. The igenius scholarship programme involves a robust multiple-level evaluation process that has been conceptualised in association with Derek OBrien. Children from the third to the eighth standards can participate in this programme and win more than 1,000 prizes worth Rs 1 crore. igenius is aimed to become even bigger and is expected to generate greater participation. The programme will be extended to underprivileged children, she said. The registration will begin on April 28 this year and the grand finale will be held in December here. The igenius scholarship had attracted more than 10-lakh participants across 1,000 cities last year. The core philosophy of life insurance is protection for the uncertain and unseen future. The future of children gets most impacted in case of any eventuality. This year igenius makes a small beginning towards social inclusion by supporting some of such less fortunate children who do not have family support to promote their all round development, Ms Motwani said. Max New York Life Insurance is a joint venture between Max India and the international arm of New York Life. http://www.thehindubusinessline.com/industry-and-economy/banking/article1709494.ece

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Future Generali launches ULIP Wealth Project

The Economic Times Future Generali has launched a unit-linked plan (Ulip) called Wealth Protect. The Ulip offers protection of 7 to 30 times your annual premium, depending on the investor's age, term of the policy and the choice of the investor. On the investment side, it offers six investment options which target investors of different risk appetites. LOYALTY ADDITION: The guaranteed loyalty addition is 5% of the first year annualised premium if the premium amount is below . 25,000 and 7.5% for the premium amount above . 25,000. On maturity , the insurer pays the fund value plus guaranteed loyalty addition . For example, you will get a guaranteed addition of . 1,250 over and above the fund value at maturity for a premium payment of . 25,000 for 10 years. FUND OPTIONS: An investor should ideally opt for Future Apex Fund or Future Opportunity Fund. The apex fund allows the investor to invest up to 50% in debt. The equity exposure of the portfolio falls in the range of 50% to a maximum of 100%. The Opportunities fund offers 20:80 debt to equity ratio for an investor. The logic is the cost structure of the product is steep. Hence, an aggressive fund, which has a higher exposure in equity, has the ability to deliver returns after accounting for the charges. Under the future secure option, the Ulip invests in low-risk instruments such as bank deposits, certificate of deposits etc. "This fund is advisable for short-term investors since interest rates are expected to rise further. The investor could shift to another fund option once the interest rates taper out," says GN Agarwal, the chief actuary and chief risk officer of Future Generali. Historically , such products have offered a return of 5-6 %. A premium of . 25,000 for future secure fund attracts charges such as premium allocation at 5% (for the first year), fund management at 1.10% and policy administration at 3.75% among other charges. These charges alone add up to 9.85%. Even after the sixth year, the costs add up to 5.95% of the premium. WHY YOU CAN GO FOR IT: Future Apex Fund and Future Opportunity fund are aggressive equityoriented investments which can deliver promising returns. WHY YOU CAN AVOID IT: The cost structure is steep just like other Ulips. You have cheaper investment options in other equity investments , which can be supplemented with a simple term cover. Copyright 2011, Bennett, Coleman & Co. Ltd. All Rights Reserved" http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/future-generali-launches-ulipwealth-project/articleshow/8033454.cms

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Canara HSBC OBC Life clocks 82% growth in FY11 premium income
PTI See this story in: The Economic Times New Delhi: Canara HSBC Oriental Bank of Commerce Life Insurance today reported a 82 per cent growth in gross written premium at Rs 1,532 crore. During March, the company garner a premium income of Rs 256 crore, which helped it position amongst the top 10 private players in terms of weighted new business premium income, Canara HSBC OBC Life said in a statement. The company issued over 1.11 lakh policies in the fiscal. "The company's consistent growth is a result of the efficient bancassurance model of distribution, high quality sales..," Canara HSBC OBC Life Insurance CEO John Holden said.

In the current fiscal, the company will continue to focus on expanding its product portfolio to support the customers of distributor banks. The life insurer is a joint venture between Canara Bank, Oriental Bank of Commerce and HSBC Insurance (Asia-Pacific) Holdings Ltd. Currently, the company distributes its products through the branches of partner banks. "The company's achievements testify the strength of the bancassurance model in efficiently reaching both urban and rural customers along with the corporate segment of the distributing banks," the statement added. http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/canara-hsbc-obc-life-clocks82-growth-in-fy11-premium-income/articleshow/8027160.cms

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Children plan in life insurance business posts fast growth

Virendra Singh Rawat Business Standard New Delhi/ Lucknow: The children plan segment in the domestic life insurance industry is growing fast due to increasing awareness among consumers. Today, the segment accounts for 20-25 per cent of the life insurance space in India. There is a growing realisation among people that education in the future would be quite expensive, so people are investing in children plan to ensure their quality education, private insurer Max New York Life Insurance Senior Director and Chief Distribution Officer Ashish Vohra told Business Standard. Five years back, the proportion of children plans in life insurance industry was half of todays volume, he informed. Vohra said the segment would continue to grow rapidly, since the education sector had also witnessed the entry of private players in a big way and it has been well accepted that quality education in the future would come at a price. Commenting on the likely effects on life insurance industry due to the proposed Direct Tax Code (DTC), he said according to the disclosures made so far, there were not many incentives for the segment. However, DTC would encourage long-term life insurance policies with minimum cover of 20 years, he added. Meanwhile, Vohra said the growth rate of life insurance industry was likely to dip by 15 per cent for 2010-11, due to certain regulatory issues that had cropped up. During 2009-10, the new business premium for life insurance segment was about Rs 80,000 crore, which is likely to dip to under Rs 70,000 crore for 2010-11, he said. He was in town to announce the companys scholarship programme igenius 2011, which kicks off tomorrow. The programme promises 1,000 scholarships worth Rs 1 crore to students, selected through multi-level panIndia evaluation process. http://www.business-standard.com/india/news/children-plan-in-life-insurance-businessposts-fastgrowth/432796/

Max New York Life may break-even this year

Mumbai, April 20: With expectations to break-even this fiscal, Max New York Life (MNYL) has said that it does not see the need to infuse any further capital in the year to support its growing business. The ten-year-old private life insurer, part of the insurance and healthcare group Max India, has a paid-up capital of around Rs 2,000 crore (as of August 2010). We have already reported profits in the third quarter of the previous fiscal and were one of the few insurers to post a growth in sales despite the announcement of the tighter norms on the sale of Unit-Linked Insurance Plans. We should break-even this year and do not expect to add any more capital this fiscal as our reserves are adequate, said Ms Anisha Motwani, Director and Chief Marketing Officer, MNYL.

Brand building To continue brand-building, the company is also planning extensive marketing activities this year. This includes a continuation of the igenius' scholarships for talented children into the second year, besides a recently announced sponsorship deal with IPL team Pune Warriors. http://www.thehindubusinessline.com/industry-and-economy/banking/article1712303.ece

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Markets need to readjust for earnings growth downgrades: Sampath Reddy, CIO, Bajaj Allianz Life Insu
Priyank Lakhia/Bloomberg See this story in: mint Sampath Reddy, chief investment officer of equity at Bajaj Allianz Life Insurance Co. Ltd, speaks in an interview on his expectations about the Indian stock market, fourth-quarter earnings and the sectors that he favours. Edited excerpts: Markets have become volatile after the surge in March. What are your expectations about the markets and the earnings season? The rally in March and late last April was pretty sharp and driven mainly by foreign flows. We need to give investors some time for valuations and the kind of valuations that we are seeing. Basically, the key driver for markets in the near term will be these quarterly earnings, which has already started coming through. Markets are looking at a 17-18% growth for the full year. But in the last three-four months, earnings have been getting downgraded, so in that context, I would see the markets stabilize here. So we need to give it some time for valuations to get re-adjusted. Markets had moved higher on the back of strong inflows in March. What is your view on fund flows? The FIIs (foreign institution- al investors) have put in a large amount of money in the last year, around $24 billion in the last two years and they continue to be the buyers. So that is what is driving the markets. Now if you look at the local fund flows, like in the insurance companies, there is a severe deceleration that is seen there and in the case of mutual funds, there tends to be major withdrawals. In the last year there have been some 20,000 withdrawals from the mutual and equity fund flows. The previous year it was also muted. So mutual funds continue to see outflows. Domestic flows continues to be a key driver for the markets. FIIs have been the main drivers so far, but with the current valuation, I wouldn't be as optimistic as I was in the past. You mentioned possible down grades. What are your concerns? The immediate concern would be oil, which is currently at $112 per barrel, which is very high, and this is going to put pressure on the overall inflation and the cost structure of all the companies and bring down the earnings. I believe that the government will in- crease the price of petrol and diesel after the state elections gets done. The other issue is inflation is at 8.9%, which is slightly high. So, in contrast with the market expectation and at this level of inflation, interest rates will continue to go up. So that would be a key risk to the over- all cost of capital. Now the overall growth, if you look at IIP (index of industrial production), which has been growing 3.5% in the last four months, is not a healthy indicator. So if you look at the current situation, on one side you are seeing inflation on a high, and on the other, IIP growth isn't very exciting. So from that perspective, we need to be a little cautious about the market. What are you advising clients to do? Overall we are certainly optimistic and bullish on the India growth story. We don't see a risk to the GDP (gross domestic product) growth rate.

Only thing from the flows, the current valuation if you look at it, we need to give it some time, because markets need to re-adjust for earnings growth downgrades, as that would take about three-six months. Post that time correction, one can look at re-investing in the markets. What is your view on the banking industry? Is there a case for in vestment in this sector? Banking continues to be bullish. Banking as a sector, the credit growth for the last two years has been pretty good at about 22%. If you look at the earnings they have been good so far. Which tells us that the growth is good and asset quality is improving. So banking continues to do well on the back of good growth. Valuations, specially in the PSU banks are attractive. Information technology (IT) stocks have dropped after Infosys numbers disappointed. What's your expectation about the sector? We are already over-weight on the IT sector as such. But Infosys results have been disappointing. The quarterly numbers were weak. Based on the Infosys numbers that were pretty much below expectations, we would re-look at the growth outlook for Infosys as well as the IT sector. Mid-Cap IT companies have been disappointing for a year or so. Now the large cap companies are also showing bad numbers. So the growth for IT companies should be below expectations of the market and maybe there will be down- grades from the IT sector, for the next couple of quarters. So we will re-look at the sector. In this volatile market, is there a case to look at defensives like FMCG (fast moving consumer goods) and pharmaceuticals? I think these sectors are looking very good. We have been overweight on these defensive sectors for nearly two years. Specially in pharma where the growth continues to be very good in the domestic markets. In FMCG, growth is picking up because of an increase in local consumption and rising income levels. We are positive on these companies, as they are of a good brand franchise and give higher return on equities. What is your view on the automobile industry? Auto has been showing good numbers for the last two years. In fact, it is the fastest growing sector in the whole manufacturing space. Auto volumes have been pretty good. That has been happening due to strong rural and personal in- comes, which is what is driving the growth for consumer durables. We are bullish not only on auto, but also on refrigerators and air conditioner manufacturers and other consumer goods in the company.

Protect dependents from financial liability through term insurance

Paresh Parasnis The Indian Express (Apr 25) With life insurance being an integral part of an individuals financial planning exercise, a lot of focus has been given to life insurance products including term insurance plan. Before talking about term insurance or protection plan, we must go back to the fundamentals of life insurance. Insurance products fall under two broad categories pure risk cover and savings with risk cover. Pure risk cover Term insurance or protection plan falls under the pure risk cover category. This category of products only has the protection element and no maturity benefit associated with the policy. For example, the policy will only make a payment to the policyholder in the event of the specified event (death) occurring. Term insurance plans are usually cost-effective. In fact, term insurance plans are more cost-effective, when bought online. For example, with a protection plan, a mere sum of Rs 2,508 annually (exclusive of service tax & educational cess) could help provide a financial cushion of up to Rs 10,00,000 in the event of death of the policyholder (example based on a male policyholder aged 25 years, with a 25 year term). Term plans are insurance products in their purest form i.e. they are designed and priced so that the policyholders, as a group, are effectively pooling their premiums in order to pay a benefit for a random and uncertain, but significant event that may occur. This means that for each policyholder the cost of providing the cover is relatively modest in comparison to the benefit that would be provided if that event occurred.

When to opt for a term plan? A term plan is ideally suited for individuals, who are the single bread earners of the family, possessing good insurable health and those with high financial liabilities. Usually, low-income, high financial liabilities, dependent spouse and children and good insurable health are all the triggers for choosing a term insurance. The younger one starts, the better, as premiums will be low, when the individual is younger and healthier. Also, when the insured is young, he/she can avail of longer term coverage. Term plan is ideal for an individual to protect dependents from any financial liability such as a housing loan, childrens education loan etc in case of death. The ideal time to buy term insurance is when an individual creates the loan liability. Apart from the price factor, the service, advice, brand value and claims settlement ratios of a life insurer need to be taken into account while purchasing a term plan. Term cover While determining the right term, one must consider factors like long-term financial commitments and the possibility of deterioration of health parameters in future. It makes sense to purchase a term cover when the same is available for the maximum term available. Once can easily drop the cover at a later stage in case the same is not required, without any kind of penalty. As the name suggests, term plan is for a specific period or term. This term can range from 5 to 30 years depending on the individuals preference or financial needs. The premium will stay the same for the duration of the term, for example, 10, 15, 20 or 30 years. The term cover sometime carries an option for guaranteed renewal on expiry, without any health evidence. Such contracts are called renewable term contracts. Under renewable term contracts just before the expiry of the policy, the insured has a choice to continue with the policy by renewing the same. The premium on renewal will be charged at the rate applicable to the attained age at the time of renewal. It simply means that the premiums typically will go up at every renewal. There is no such thing as an ideal policy term, but generally ones cover should last till their working life assuming the liabilities have decreased and dependence of nominees on the insured has reduced. Benefits of Riders While purchasing a term plan, one must be aware of optional riders available with the base policy. Riders provide additional value to a basic term plan, at marginal cost. Riders are not standalone products, but an additional benefit option that can be purchased along with the basic insurance plan. The most popular riders available in the market are accidental death and disability cover, critical illness cover etc. A life insurance contract is a contract of utmost good faith, wherein it is the duty of an individual to inform the insurer of any facts that have the capacity to increase the risk for the insurer. One must read the proposal form after it has been completed and confirm that all answers are completed correctly and there is no misrepresentation in the proposal form. This is important as the claims will be payable only when utmost good faith is observed while purchasing life insurance and there is no misrepresentation or false information given while answering questions in the proposal form. http://www.indianexpress.com/news/protect-dependents-from-financial-liability-through-terminsurance/780758/0

Pvt life insurers' first year premium down 4 pc in FY11

PTI See this story in: The Economic Times New Delhi: The private life insurance sector saw a decline of four per cent to Rs 30,451 crore in the first year premium income during the 2010-11 fiscal. As many as 10 companies, of the total 22 private players accounting for 36.8 per cent of the total life insurance industry, witnessed a decline in first year premium income, as per an analysis of data released by IRDA . At the end of fiscal 2010-11, the private sector life insurance companies mopped up Rs 30,451 crore, against Rs 31,618 crore in the April-March period of previous fiscal. In terms of policy sales also, the private players saw a huge decline of 23 per cent for the year ended March 2011 at 1.11 crore.

The companies which witnessed a surge in the first year premium figures include Max New York Life , HDFC Life, SBI Life and ICICI Prudential. At the end of March 31, 2011, Max New York Life's first year premium income grew by 10 per cent, to Rs 1,934 crore. Further, HDFC Life saw an increase of about 27 per cent, Indiafirst Life (about 155 per cent), SBI Life (about 7 per cent) and ICICI Prudential (about 4 per cent). However, market leader Life Insurance Corporation's (LIC) first year premium income rose by 4 per cent to Rs 52,204 crore during the April-March 2010-11. In terms of policy sales too, LIC witnessed a decline of 5 per cent to 3.70 crore. http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/pvt-life-insurers-first-yearpremium-down-4-pc-in-fy11/articleshow/8082005.cms

Post-Sept norms hit life insurance biz

Niladri Bhattacharya Business Standard Despite robust collections in March, first-year premium collections by life insurance companies rose only 15.13 per cent in 2010-11, the lowest rise since 2002-03. The industry had declined by 14 per cent in that period. In the last three years, the life insurance industry registered a growth of 25 per cent in new premium income. However, sales this year took a hit after new norms were introduced in September 2010. The first six months of the financial year accounted for most of the growth in premium income. In 2010-11, the life insurance industry collected `1,25,826 crore through the sale of new policies, compared with `1,09,290 crore collected in the corresponding period a year ago. Life Insurance Corporation of India (LIC), the countrys largest life insurer, collected `86,445 crore by selling new policies in 2010-11, a rise of 22 per cent over `70,891 crore in 2009-10. In the same period, private insurers recorded a marginal 2.55 per cent rise in premium collections at `39,381 crore, compared with `38,399 crore in 2009-10. The private life insurance industry would take some more time to stabilise and adjust to the new norms on unitlinked products that were introduced in September, 2010. In the current financial year, we expect the private life insurance industry to grow by around 20 per cent, said K Sahay, managing director and chief executive, Star Union Dai-ichi Life Insurance. ICICI Prudential, which pipped SBI Life to become the largest private life insurer in terms of new business premium income, collected premiums worth `7,861 crore in 2010-11, up 24.10 per cent over `6,334 crore collected in 200910. SBI Life increased its new business to `7,571 crore, a rise of 7.5 per cent compared with `7,040 crore collected in the previous financial year. General Insurers Grow 21.7 Per Cent The gross written premium of the general insurance industry rose 21.7 per cent in 201011, compared to the previous financial year. According to data collected by insurers, the industry collected `42,568 crore by writing new policies in 2010-11, compared with `34,984 crore in the previous financial year. Private insurers fared marginally better than their stateowned peers in 2020-11, registering a growth of 22.5 per cent at `17,567 crore. The four state-owned general insurance companies - New India Assurance, National Insurance, United India Insurance and Oriental Insurance - collected `25,002 crore, a rise of 21.12 per cent compared to the previous year. During March, the industry collected `4,656 crore through the sale of new policies, a growth of 15.14 per cent over `4,043 crore in the same period a year ago.

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General Insurance
Magma''s insurance arm to commence operations in current fiscal
PTI See this story in: Yahoo India Mumbai: Kolkata-based non-banking financial company, Magma Fincorp, today said its insurance arm Magma HDI General Insurance will commence operations in current fiscal. "We have received the R1 license from the insurance regulator Irda. After other formalities including R2 and R3 licences, we hope to start operations by end-this fiscal," Magma Fincorp''s Vice Chairman and Managing Director, Sanjay Chamria told PTI on the sidelines of a press meet here. Magma has signed a joint venture with HDI Gerling, part of Talanx Group, Germany''s third largest insurance group to start a general insurance company in India, which since has received R1 license from the insurance regulator. Magma will hold 74 per cent while HDI Gerling will hold 26 per cent in Magma HDI General Insurance Company, Chamria said. Meanwhile, Magma Fincorp reported a significant increase in disbursements, revenue, PAT and in assets under management (AUM) in Q4 FY 11 over the corresponding quarter last year. The disbursements increased at a steady 41 per cent to Rs 1,955 crore while revenue increased 24 per cent to Rs 269.8 crore. The company recorded profit before tax (PBT) of Rs 66.4 crore and profit after tax (PAT) of Rs 44.9 crore, an increase of 57 per cent and 70 per cent, respectively in Q4 FY 11 over the corresponding period last year. http://in.finance.yahoo.com/news/Magma-insurance-arm-commence-pti-1020066202.html

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Health Insurance
Add extra cover to your office mediclaim
Preeti Kulkarni The Economic Times Group health insurance covers provided by employers are a great source of comfort for millions of employees. Such schemes typically pick up the hospital bills of employees and their family members. However,their utility value ranks the highest when it comes to the employees' elderly parents or inlaws . Generally, many health insurers dither from extending covers to senior citizens , as the likelihood of individual claims is quite high in this category. Even when they do, many senior citizens find the premiums to be beyond reasonable limits. Little wonder then, that employees treat employers' group health cover as a godsend. However, last year, some companies and health insurers decided to impose ceilings on the benefits in order to control mounting losses in their health portfolios. In most cases, this took the form of introduction of the co-pay clause. A few organisations completely excluded the cover for parents, while some others transferred the cost (premium for parents' cover) to employees. "Last year, some companies had capped the benefits provided to employees' in terms of parental coverage and the trend continues this year as well," says Sanjay Datta, head, health insurance, ICICI Lombard. Adds Damien Marmion, CEO, Max Bupa: "Organisations are looking at managing their costs better. So, one of the ways for insurers to take care of both ends is to maintain the same

costs, but revise their service offering. Limiting the coverage to just the employee, introducing co-pay, etc are some of the changes that are being made towards this end." Some companies also offer employees the option of paying an additional premium for extending the cover to their families or increasing the cover amount. "Due to claim ratios being unhealthy in the parents' segment, insurers have either hiked the parents' premium ranging from 30% to 100%, or added new restrictions like co-pay , deductibles, treatment sub-limits and so on," says Mahavir Chopra , head, e-business , medimanage.com, an insurance broking portal. The changed scenario means that whether your organisation tightens its belt or not, you need to be prepared for the possibility that your parents could be left out of the group cover . You will also be entitled to deductions under Section 80D for the mediclaim premium that you pay for your parents. SITUATION 1 If parental cover is scrapped altogether: It could be a major setback, but companies seldom take such a drastic measure. But, you will be better off reducing your reliance on your company's largesse even otherwise. "It's high time employees stop depending only on the employer-enabled parental coverage and start evaluating a good health insurance product, preferably offering lifetime coverage. As parents get older, the chances of getting a good cover with wider coverage terms in the retail health insurance space decreases substantially," says Chopra. If your parents are senior citizens, you could look at senior citizen health policies offered by some health insurers. Also, opt for the largest possible cover for your parents. SITUATION 2 Cover comes with the co-pay clause: Copay clause refers to the arrangement where the policyholder (in this case, the employee) agrees to share the claim burden in a pre-defined proportion, with the insurer chipping in with the balance. Copay ratios usually range between 10% and 25%. That is, for every claim of . 100 made, the policyholder will have to shell out Rs 25 (assuming 25% to be the co-pay ratio) while the insurance company foots the bill for Rs 75. Your plan of action in this case would depend on the terms of the scheme offered by your employer. If the benefits under such plans, particularly the pre-existing diseases cover, are not offered by other individual health policies available in the market, you can consider giving your assent to this arrangement . "If the policyholder feels that the group cover is insufficient, he can opt for a top-up cover," says Datta. Such covers get triggered only after the limit under the basic policy is breached. Now, suppose your company covers your parents to the extent of Rs 2 lakh, which you feel is inadequate. You can buy a topup policy, of say Rs 1 lakh, that will become effective only if the entire sum assured of Rs 2 lakh is exhausted. Going for a topup will be a cheaper option than buying a regular policy. To boost the health cover further, you can look at buying benefit policies for your parents. Offered mainly by life insurers, such policies hand out a pre-fixed sum once the claim is made. Some policies also provide a pre-agreed amount based on the number of days spent in the hospital. The claim approval process is relatively smoother and does not entail submission of original bills and documents. You can make a claim under such policies even if you have already been reimbursed by the corporate cover. SITUATION 3 The company provides parental cover, but employee has to bear the premium cost: Again, the terms of the group cover would be key here. Often, health insurers are more generous while dealing with corporate mediclaim policyholders. They get a preferential treatment in the sense that insurers try to ensure that the service offered to this category is satisfactory . A case in point is the withdrawal of cashless facility last year for treatment at certain 'corporate' hospitals. Public sector insurers, who took a strong stand against such hospitals after accusing them of charging exorbitant rates, spared corporate policyholders from this ordeal. Also, as mentioned earlier, the fact that most group health policies cover pre-existing illnesses could work in their favour. Personal health policies exclude pre-existing illnesses from terms of coverage for the initial 1-4 policy years, depending on the insurer. Making a decision in this scenario calls for a thorough cost-benefit analysis. You need to compare the premium payable and benefits provided vis-a-vis what is available in the market. "The employee should also know that the premium he is paying will not be refunded, if he separates from his employer. Also, he would, in most cases, not be able to carry forward special group benefits (like coverage of pre-existing diseases, maternity) to an independent policy that he may wish to buy at that stage," explains Chopra . Therefore, it ultimately boils down to the needs of individuals as well as their families and the price tag for the offerings in the market that can meet these requirements. "And, in all cases, even if the employee

decides to opt for the group cover, investing in an independent personal policy for parents makes huge sense. After all, the employee can move to another organisation that may not offer parental cover , or, may not offer it on similar terms. Moreover, the parallel retail policy would also act as a top-up in case of a claim exceeding the sum assured under the group policy," says Chopra. TOMORROW Get smart, use goal-based investing Copyright 2011, Bennett, Coleman & Co. Ltd. All Rights Reserved" http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/add-extra-cover-to-youroffice-mediclaim/articleshow/8033416.cms

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Why critical illness cover is so crucial for everyone

Sanjay Datta The Economic Times Overwhelmed, Gupta breathed a sigh of relief when he discovered that even after missing three EMIs for his home loan, his dream house continued to be his. Despite the most sophisticated heart surgery and medical attention, his savings were untouched. This 37-year-old manager, with no previous medical history of any illness, had never imagined in his worst nightmares that the ever-growing work related stress would land him in the ICU of a hospital. Gupta found himself surrounded by life-supporting equipments and a battery of doctors struggling to keep his heart beating. Gupta, the most unlikely to suffer a severe cardiac arrest, had lived a disciplined life with cautious food habits and regular exercise. However, more often than not, he brought his work stress home and with every promotion came along increased levels of stress and anxiety . He woke up to realise he had been unconscious for several weeks after the heart attack. Amidst the chaos, it had not occurred to anyone that the immediate financial burden arising from the cost of two long months of hospitalisation including ICU charges , cost of medicines , regular check-ups , was paid for by his home insurance policy. None of the EMIs for his home loan had bounced, as the loan was insured. Fortunately, three years ago, Gupta had opted for the critical illness cover in his bancassurance home loan insurance policy, which not only kept three EMIs for his home loan from bouncing but also covered his medical bills, keeping him from digging into his savings during contingency. The procedure to obtain such a cover was also simple, as all it required was just a simple declaration of his health. There was no medical check-up either. The thought of not losing his life-long investment facilitated his speedy recovery. A recent ICICI Lombard analysis hints at a worrying pattern in the occurrence of various lifestyle diseases in men and women alike. ICICI Lombard's Health Research Cell analysed the claims distribution data of the past two years from the company's group health portfolio . The results clearly indicate that critical diseases such as cardiac ailments, cancer, kidney or renal failure and stroke are affecting people at an early age. It shows that there is an immediate need to address these health risks that affect a large number of individuals and increasingly so at a younger age. The cost of treatment or procedures related to critical illnesses is usually high, which may not be covered by an individual's savings alone. Thus, it becomes imperative to obviate the risk of these lifestyle ailments through health insurance that provides comprehensive protection against critical or lifeendangering diseases such as cancer , coronary artery bypass graft surgery, heart attack, end stage renal failure, major organ transplant , stroke, paralysis, heart valve replacement surgery, multiple sclerosis cancer, heart attack, stroke and kidney failure etc. A critical illness cover is a definitive means of countering such risks. It allows you to focus on health as it takes away the stress about money. Careful assessment of both existent and imminent health risks based on factors such as age, gender , heredity and lifestyle is essential to determine one's insurance needs and choosing the right cover. Some general insurance companies have addressed the rising need of health insurance in the market by designing comprehensive home loan insurance policies, which pay off the loan, insure the home and simultaneously provide cover against critical illnesses. These policies encompass covering losses to structure and contents of home, covering living expenses while one is off work due to the ailment. These policies also ensure that the loan EMIs are not dishonoured in case of loss of employment in the event of such illnesses. Even in case of unfortunate death or permanent disability

caused by an accident, the total sum assured is paid off to the insured . So you should opt for a policy that covers multiple individuals under the same loan in case of joint loans. Prior to taking a policy, it is important for the customer to keep a track of the different exclusions in the insurance contract which may prevent payout in certain circumstances. The policy's premium usually depends on the age of the applicant, loan amount, loan tenure, sum insured and applicant's occupation. The risk in all financial liabilities can be nullified with adequate insurance cover. A critical illness cover takes care of immediate and future financial requirements arising from a severe ailment so that the savings are intact and used in the way initially planned. You may not be able to prepare for a critical illness completely but some of the burden can be lifted with a critical illness insurance plan. Sanjay Datta HEAD- CUSTOMER SERVICE, HEALTH & MOTOR ICICI Lombard General Insurance Copyright 2011, Bennett, Coleman & Co. Ltd. All Rights Reserved" http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/why-critical-illness-cover-isso-crucial-for-everyone/articleshow/8033429.cms

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Pensions/PF
Pension Products may Come with Capital Guarantee
Shilpy Sinha The Economic Times Mumbai: Insurance companies may soon be allowed to offer unit-linked pension products with capital guarantee against the current mandatory guarantee of 4.5%. A senior official from the Insurance Regulatory and Development Authority (Irda) said the revised norms on pension products may come by the end of this month. Income from pension products is not even . 10,000 crore. There is no point in asking insurance companies to do something impossible. Now the reverse repo rates have inched up to 5.75%, said a senior Irda official. The regulator had prescribed a guarantee of 50 basis points above the reverse repo rate. Also, the guarantee is revised annually resulting in the mandated 4.5% return going up to 6% for the next year. The minimum return, however,can only move in the 3-6% band. Citing global precedence, the official pointed out that some insurance companies in the UK and Taiwan went bankrupt because of guarantees prescribed by respective regulators. Also, the tenure of the products could range from 10 years to 30 years. The lock-in period during which the money cannot be withdrawn would be five years. There will be a provision, which would ensure that the equity portion will come down to 20-30% after the policyholder crosses the age of 55. This is similar to the new pension scheme (NPS) where investors are allowed to direct up to 50% of the corpus amount towards equities. During the last few years, they are required to move a large chunk towards debt. Under the new regime, which came into effect in September last year, only LIC has introduced a regular premium product conforming to the revised rules. But the corporation has not received an encouraging response on Pension Plus. Its earlier version Market Plus would contribute around 40% to the premium income. According to insurance companies, the mandatory guarantee has been acting as a deterrent to launching these products. As a result, private players like ICICI Prudential, HDFC Life have restricted themselves to single premium pension products. Four Insurers Can Amortise Liabilities Kolkata Irda has allowed four public sector general insurers to amortise their increased liability on account of revised gratuity norms over five years. Otherwise, it could have affected their profits and solvency margins, the regulator feels.

The four public sector general insurers are New India Assurance, United India Insurance, Oriental Insurance and National Insurance. After a pay revision of officers and employees during 2010-11, the maximum limit for gratuity has been increased from . 3.5 lakh to . 10 lakh for every staff. This is expected to increase the liabilities of the four insurers by around Rs. 1,000 crore. Copyright 2011, Bennett, Coleman & Co. Ltd. All Rights Reserved"

Employer can't demand PF interest on termination

Agencies See this story in: The Indian Express (Apr 25) New Delhi: An employer cannot demand interest on the provident fund paid upon termination of an employee in case of his reinstatement by a judicial order, a Delhi Court has ruled while holding that such practice is "illegal". The court said such a demand can be made only when the money is withdrawn as loan or advance by employee while in service. The verdict came on the case filed by a Delhi Transport Corporation (DTC) employee who had challenged the demand for interest on provident fund amount paid upon termination by the corporation. Later, he was reinstated by the order of the Industrial Tribunal and the Delhi High Court. "The employer is liable to charge interest when there is a withdrawal by the employee and not when the same is given to him in pursuance to his termination," senior civil judge Amit Kumar said. Nem Pal, who was with the DTC since 1979, had challenged the demand made by the corporation for an interest on the general provident fund (GPF) amount paid to him at the time of his termination. He was terminated from service in 1993 but was reinstated in the year 2002 with full back wages on the orders of the Industrial Tribunal and the High Court. Though he had deposited the GPF amount of Rs 23,372 paid to him on his termination, he was also asked to pay an interest of Rs 36,696 on the employer share in it, which was challenged before the court. As per service rules, an employee is liable to pay interest on the GPF amount taken as advance or loan during his tenure and cannot be held liable if the same has been handed over to him on his termination from the services which subsequently was not approved by the Industrial Tribunal as required under rules and thereafter by the High Court, the court said. "In view my findings, the demand of defendants (DTC) for payment of a sum of Rs 36,646 is declared unlawful, illegal and void abnitio and the plaintiff (Nem Pal) is not required to deposit this amount with the defendants," Kumar said. http://www.indianexpress.com/news/employer-cant-demand-pf-interest-on-termination/780631/

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PF fund managers may get higher fee

The Hindu Business Line (Apr 24) Mumbai: The Pension Fund Regulatory and Development Authority (PFRDA) is likely to increase the management fee payable to pension fund managers (PFMs). This to incentivise them to market the national pension system (NPS). Currently, PFMs get a paltry 0.0009 per cent per annum as fund management fees. The 0.0009 per cent fees that fund managers get is an insult. It needs to be revised,'' said Mr Yogesh Agarwal, Chairman, PFRDA, after inaugurating Union Bank of India's facility to handle NPS. The 3,000-odd branches of the public sector bank will act as point of presence service provider (POP-SP) to facilitate opening of NPS accounts, receive contribution and offer services such as switching between various investment options.

Managing funds The PFRDA has authorised seven PFMs to manage the national pension system. The scheme was earlier called the new pension system. Between them, the PFMs manage a corpus of Rs 9,000 crore. LIC Pension Fund Ltd, SBI Pension Funds Pvt Ltd, and UTI Retirement Solutions Ltd manage the pension funds of government employees who joined service after January 1, 2004. IDFC Pension Fund Management Co Ltd, ICICI Prudential Pension Fund Management Co Ltd, Kotak Mahindra Pension Fund Ltd and Reliance Capital Pension Fund Ltd manage the pension funds of all citizens. The NPS is a voluntary saving scheme based on defined contributions. It seeks to provide old age income and reasonable market based returns to all citizens. In the case of Government employees, the monthly contribution to the NPS is equivalent to 10 per cent of their salary and dearness allowance. This contribution is matched by the Union Government. However, there is no contribution from the Government in respect of individuals who are not Government employees. The minimum contributions are Rs 500 a transaction and Rs 6,000 a year in the case of all citizens. Meanwhile, Union Bank of India is looking at a credit growth of about 23 per cent and deposit growth of 20-21 per cent in the current fiscal, said Mr M.V. Nair, Chairman and Managing Director. Net Interest Margin is likely to be steady at 3-3.1 per cent, from 3.25 per cent in the 2010-11 fiscal. While a 25 basis points hike in rates by the Reserve Bank of India is likely, given the high inflation, Union Bank of India may take a call on increasing lending rates after considering its cost of funds, Mr Nair said. He, however, ruled out a hike in deposit rates for now. http://www.thehindubusinessline.com/todays-paper/tp-economy/article17

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PFRDA chief rules out turf war with Irda

The Financial Express (Apr 24) Mumbai: Ruling out any immediate turf war between the Pension Fund Regulatory & Development Authority (PFRDA) and the Insurance Regulatory & Development Authority (Irda) over the regulation of existing pension products of life insurance companies, Yogesh Agarwal, chairman, PFRDA, expects customers to gradually buy pension products from pension fund managers (regulated by PFRDA) than life insurers, as the former offer better returns on the pension product. The pension product of the National Pension Scheme (NPS) is one of the best financial products available in the country. We hope the policyholders having pension products in various life insurance and mutual fund schemes would shift their accounts to the NPS gradually. We are offering a superior return between 12% and 14% on pension products, said Agarwal. PFRDA is not happy with the way banks are implementing the NPS. Launching the NPS through all the branches of state-owned Union Bank of India in Mumbai on Saturday, Agarwal said, Banks havent evinced interest in NPS so far. Forget social obligation, the NPS also offers a tremendous business opportunity for banks in the country, said Agarwal. There are 50,000 branches of banks in the country as of now. However, merely 4,000 branches, which comprises 8% of the total number of bank branches, have implemented the NPS so far. The total number of NPS account holders as of now is 20 lakh. It comprises 12 lakh central government employees and 2 lakh state government staff. The total corpus under NPS has gone up to R9,000 crore as of

now, he said. http://www.financialexpress.com/news/pfrda-chief-rules-out-turf-war-with-irda/780535/0

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SEBI
SEBI raises sovereign wealth funds investment ceiling to 20%
PTI See this story in: The Hindu Business Line New Delhi: In a move that will enable foreign governments to make more investments in Indian stocks, the Securities and Exchange Board of India has allowed them to buy up to a maximum of 20 per cent stake in any listed company without any additional obligations. The proposed threshold of 20 per cent is twice the current limit of 10 per cent, beyond which sovereign wealth funds or investment arms of foreign governments need to make an open offer for buying any additional stake. SEBI, which will grant any such approval on case-by-case basis, has also sought changes in the relevant central government regulations about foreign investments, said a senior official. A proposal to this effect was approved at a SEBI board meeting on March 25 and the new guidelines would be announced soon, he added. The move, which would classify various funds of a single country as different entities and not as a single group, is primarily aimed at removing the regulatory hurdles for sovereign wealth funds of the countries with whom India has signed Comprehensive Economic Co-operation Agreement (CECA). Some of the major countries to benefit from the move include Singapore, whose two investment arms Temasek and GIC, have heavily invested in Indian companies and often face problems in buying shares beyond the current limit. The new rules would not equate sovereign funds as any other foreign institutional investors (FIIs) and give them a preferential treatment. Sovereign wealth funds invest in India via the foreign institutional investment route and/or through foreign direct investment/ foreign venture capital route. For this purpose, at times these funds use multiple investment vehicles (two to three), which may differ in terms of investment objective and structure, a SEBI board memorandum said. Having regard to this, one Comprehensive Economic Co-operation Agreement signed by India recognises such investment vehicles of the sovereign as independent of each other for the purpose of application of the SEBI rules, regulations and guidelines, it added. http://www.thehindubusinessline.com/companies/article1709273.ece

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Acting in concert wont apply to SWFs

The Financial Express New Delhi: Investments by sovereign wealth funds (SWFs) in Indian stock markets will now get more leeway than those by domestic financial institutions, according to a proposal being finetuned by the Securities and Exchange Board of India (Sebi). Further, by delinking sovereign funds from the category of foreign institutional investors (FII), the regulator will effectively create a new class of investors. The plan will be put up for approval by the Sebi board. The proposal will also need corresponding clearances from the RBI. The key difference between sovereign wealth funds and domestic financial institutions will be in the clause acting in concert, explained a top official. So, Temasek and GIC, the two sovereign funds from Singapore will be treated as two separate entities that have no link with each other. This is as per the terms of the Comprehensive Economic Cooperation Agreement India has signed with Singapore. A government source said the changes were made with the perspective of the Singapore wealth funds, but could obviously be extended to other nations too. Each of those funds can invest up to 15% or say, the proposed 25% of equity in a company as per a parallel change planned by the Sebi in its new takeover code. The implication is, in aggregate, they can hold up to 50% in an Indian listed company, subject to the foreign investment limit for the sector. Only when they cross 50% will they need to make an open offer. But an Indian group that floats two entities, for example, a mutual fund and a wealth management company, can cumulatively invest only up to 25%, even under the new takeover code. This is because the two entities will be treated as acting in concert. After the changes are approved by the Sebi board, a sovereign fund will have far more leeway than FIIs in the stock market too. The FIIs will still be subject to the rule that individually, their investment must not exceed 10% in a company and as a group, not above 20%. But the improved status for funds from countries with which India has such treaties is expected to create a clamour for higher caps from FIIs too. Greater investment space for SWFs is in line with the interest shown by the Indian government since early this year to expand the space for foreign investment. The government has relaxed the rules for what classifies as foreign direct investment while also raising ceilings for FII investment in government and corporate debt. http://www.financialexpress.com/news/acting-in-concert-wont-apply-to-swfs/778549/0

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SEBI to set up forensic accounting cell soon

PTI See this story in: The Hindu Business Line New Delhi: With an aim to catch fraudsters early in their sinister designs, the Securities and Exchange Board of India will soon set up a forensic accounting cell to identify any bungling in the books and regulatory filings of listed firms and market entities. At the same time, the market watchdog would also seek help from outside professionals, use latest technology software tools and put in place its own investigation laboratory to churn out new investigative methods. The proposed measures would be a part of SEBIs attempts to keep ahead of corporate and accounting fraudsters, and market manipulators, who are suspected of using newer methods and technologies every passing day to manipulate the rules in the market, a senior SEBI official said. Having its own forensic accounting cell would help the capital markets regulator avoid any recurrence of Satyam-like scams, where irregularities in the companys accounts went unnoticed for many years, he added. Surveillance of markets is going to be one key area of focus for SEBI in the current fiscal and a proposal has been made to increase the effectiveness of its surveillance mechanism, the official said, adding that the same was discussed at the regulators last board meeting.

Accordingly, SEBI has decided to create a forensic accounting cell to improve the quality of the financial information disclosed and to assist in detection of financial irregularities so as to serve as an effective early warning mechanism, he added. Besides, it has also decided to use latest technology software tools, utilise the services offered by professional firms to set up an investigation laboratory which will be used as an incubation room for innovation in investigative methods. The regulator had earlier in February implemented a new tool for speedy analysis of data and identification of possible violations like insider trading. The new tool, named Data Ware Housing and Business Intelligence System (DWBIS), will significantly enhance SEBIs investigation and surveillance functions and generate reports that will better serve SEBI to identify, detect and investigate aberrations and market abuses that undermine market integrity. This tool would help SEBI monitor the trade and order data received by it in order to identify the networked clients who possibly collectively indulge in violation of securities laws. It will have software functions aimed at addressing crimes like insider trading, front running, etc. Besides, SEBI is also working to put in place a unified regulatory filing system for all listed companies and market entities in a standardised format. http://www.thehindubusinessline.com/markets/stock-markets/article1709402.ece

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Emerging markets back on FII radar

Lokeshwarri S. K. The Hindu Business Line Global investors are again ploughing money into emerging markets, including India, as a string of incidents mars their appetite for developed nations. According to EPFR Global, the global fund-flow tracker, emerging markets equity funds posted inflows for the third straight week on April 15, a run that has seen a record $10.3 billion of inflows in the first fortnight of April. On the other hand, flows into developed market funds have slowed sharply with Japan Equity Funds recording outflows for the third consecutive week. This contrasts starkly with the performance in the first quarter of 2011 when developed market funds absorbed $57 billion and emerging markets recorded outflows of $24 billion. Data published by SEBI supports this trend in global fund flows. According to the market regulator, foreign institutional investors have turned net purchasers since March. They were on the back foot in the first two months of the year, having pulled out over $2 billion up to February. But flows picked up from March and around $3 billion have been pumped into Indian stocks since then. The change It may be recalled that there was an all-pervasive concern regarding high inflation, policy rate hikes and slowing rate of growth in emerging economies in the beginning of 2011. This, coupled with improving economic growth rate and accommodative monetary policy adopted by developed economies, made funds flow into equities of developed markets in the first two months of this year. But the situation began altering in March. Natural disasters in Australia, New Zealand and Japan have not only interrupted the recovery, they have in New Zealand and Japan knocked back growth in 2011 significantly, notes Deutsche Bank's Global Market Research report.

Resurfacing credit crisis in eurozone and recent rate hike by the European Central Bank have led to investors pulling money out of this region. Weakening dollar and political squabble have not helped US equities. As outlook for developed markets deteriorated, emerging market started looking relatively more attractive. If fund flow into emerging Asia is considered, India has received the largest portfolio flows among its Asian peers in 2011, with the exception of Japan where inflows were bloated due to carry trade borrowings. According to Bloomberg, Asian countries such as Indonesia and South Korea have recorded net outflows this calendar. Net inflows into other Asian countries such as the Philippines, Taiwan, Vietnam and Pakistan are lower than that recorded in India. Some of these external flows could have been routed through hedge funds. Performance of India-focused hedge funds was extremely robust in March. HedgeFund.net's India index was up a strong 6.67 per cent in March while hedge funds globally returned an average of 0.06 per cent. http://www.thehindubusinessline.com/markets/stock-markets/article1710098.ece

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Sebi to have own forensic lab to check frauds

Agencies See this story in: The Indian Express New Delhi: With an aim to catch fraudsters early in their sinister designs, Sebi will soon set up a forensic accounting cell to identify any bungling in the books and regulatory filings of listed firms and market entities. At the same time, the market watchdog would also seek help from outside professionals, use latest technology software tools and put in place its own 'investigation laboratory' to churn out new investigative methods. The proposed measures would be a part of Sebi's attempts to keep ahead of corporate and accounting fraudsters, and market manipulators, who are suspected of using newer methods and technologies every passing day to manipulate the rules in the market, a senior Sebi official said. Having its own forensic accounting cell would help Sebi avoid any recurrence of Satyam-like scams, where irregularities in the company's accounts went unnoticed for many years, he added. Surveillance of markets is going to be one key area of focus for Sebi in the current fiscal and a proposal has been made to increase the effectiveness of its surveillance mechanism, the official said, adding that the same was discussed at the regulator's last board meeting. Accordingly, Sebi has decided to "create a forensic accounting cell to improve quality of the financial information disclosed and to assist in detection of financial irregularities so as to serve as an effective early warning mechanism," he added. Besides, Sebi has also decided to use latest technology software tools, utilise the services offered by professional firms to set up an Investigation Laboratory, which will be used as an incubation room for innovation in investigative methods. Sebi had earlier in February implemented a new tool for speedy analysis of data and identification of possible violations like insider trading. The new tool, named Data Ware Housing and Business Intelligence System (DWBIS), will significantly enhance Sebi's investigation and surveillance functions and "generate reports that will better serve SEBI to identify, detect and investigate aberrations and market abuses that undermine market integrity."

This tool would help Sebi monitor the trade and order data received by it in order to identify networked clients who possibly collectively indulge in violations of securities laws. It will have software functions aimed at addressing "crimes like insider trading, front running, etc." Besides, Sebi is also working to put in place a unified regulatory filing system for all listed companies and market entities in a standardised format. http://www.indianexpress.com/news/sebi-to-have-own-forensic-lab-to-check-frauds/778233/0

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Sebi board to reconsider NSDL case

Bijithr The Financial Express Mumbai: The Securities and Exchange Board of India (Sebi) will hold a board members meeting later this month to reconsider a decision to clear the National Securities Depositories (NSDL) of irregularities related to initial public offerings (IPOs). The board meet has been convened to exclusively discuss the NSDL matter, said a senior Sebi official on condition of anonymity. The regulator in February 2010 had given a clean chit to NSDL after setting aside the findings of a twomember Sebi committee, which had held the depository accountable for its failure to detect fraud. The present Sebi move was necessitated after the Supreme Court on March 28, 2011, ordered the regulator to reconsider its earlier decision while hearing a special leave petition (SLP) filed by Social Action Forum for Manav Adhikar, a Delhi-based society. Since it is a Supreme Court directive, the one option before the regulator is to withdraw its earlier order, which declared null and void the decisions of a special committee that was set up to look in to NSDLs role in the scam, said Sandeep Parekh, founder of FinSec Law Advisors and former executive director at Sebis legal division. In February this year, a Bench headed by Justice RV Raveendran had criticised Sebi, asking why it had rejected a high-powered committees 2008 report on the IPO scam that indicted NSDL. The matter relates to a case in which few market participants reportedly used close to 60,000 fictitious demat accounts to corner share allotments meant for retail investors. The practice was noticed in 21 IPOs between 2003 and 2005. In its February 2011 order, the Supreme Court has asked attorney general GE Vahanvati to present Sebis views on former chairman CB Bhave and his role pertaining to the IPO scam involving NSDL. Bhave, whose term ended on February 17, was earlier the chairman of NSDL. Bhave, who took over as Sebi chief in 2008 while the markets regulator was still investigating the case, recused himself to avoid charges of conflict of interest. In December 2008, the Sebi committee comprising Mohan Gopal, director, National Judicial Academy, and V Leeladhar, then the RBI nominee on the board passed an order directing NSDL to conduct internal inquiries and fix individual responsibility for the lapses that aided the IPO scam. The report was placed before Sebi on January 21, 2009. However, the regulator dismissed the report on the grounds that the committee exceeded its mandate and therefore its findings were without the authority of law. Subsequently, Sebi heard the matter afresh and disposed of the case, giving a clean chit to NSDL. We find no evidence that there was any lapse on the part of NSDL in following its own procedures in this regard, Sebi said in its February 2010 order. http://www.financialexpress.com/news/sebi-board-to-reconsider-nsdl-case/778421/0

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Mutual Funds& AMCs

The nuances between liquid and ultra short-term bond funds
The Economic Times Investors use the category of mutual fund schemes called liquid funds (also known as money market funds) for short-term parking, as these funds are most stable in returns. There is another category of funds known as ultra short-term bond funds (earlier known as liquid plus), which are managed in a manner similar to liquid funds. It is necessary that investors are aware of both types of funds and their respective advantages that will aide in making informed decisions. Liquid funds are those that are defined as money market funds in the offer document and invest in money market instruments of residual maturity up to 91 days. What sets liquid funds apart in terms of lowest volatility in returns among all categories of funds is that there is no mark-to-market (MTM) of the portfolio on a daily basis unless there is a trade in the secondary market in the underlying security (or securities ). Practically there is no trade in money-market instruments and valuation of daily NAV happens on an accrual basis, i.e., by adding the coupon accrued for the day without any mark-to-market impact. Ultra short-term bond funds (USTBs) are defined as debt funds in the offer document and the fund manager is free to take securities of maturity longer than 91 days, but there is no compulsion to do the same. Valuation of daily NAV happens as per the valuation matrix provided by the rating agencies, hence there could be a markto-market impact. However, the component of securities with residual maturity more than 91 days (for which the valuation matrix is published) is maintained on the lower side, so that the volatility in returns is limited. Returns in USTBs are marginally higher than liquids by virtue of the marginally higher portfolio maturity. Normally, the longer the maturity of the instrument, the higher is the yield on that instrument (time value of money). USTBs have the liberty to purchase securities with maturity of more than 91 days and on an average, the portfolio maturity is longer than liquids funds. This leads to a higher accrual rate on the portfolio of USTBs. The volatility of returns in USTBs is marginally higher than liquids funds due to the small MTM component. Operational aspects: In liquid funds, purchase is T-1, i.e., cleared funds are given to the AMC by the cut-off time of 2 pm and availing of previous day's NAV. Redemption is T+1, i.e., the redemption request is placed within the cut-off time of 3 pm and the proceeds are received the next day. In USTBs, purchase is on a T+0 basis, i.e., that day's NAV would be applicable. If the amount is more than Rs 1 crore, clear funds have to be given to the AMC by the cut-off time of 3 pm, otherwise the NAV of the day on which clear funds are being given will be applicable. Redemption is T+1 for USTBs as well. For both fund categories the application should be submitted and time stamped at the AMCs'/RTA's office within the cut-off time. Taxation differences: While dividends are tax-free in the hands of the investor, there is a dividend distribution tax (DDT) that is deducted by the AMC on behalf of the investor and passed on to the government. The rate of DDT in case of liquid funds is 25% (plus surcharge/cess). From June 1, 2011, the DDT rate for corporate investors will go up to 30%. In case of USTBs, there are two rates of DDT: for individual investors, it is 12.5% (plus surcharge/cess) and for corporate investors the rate is 20% (plus surcharge/cess). From June 1, the DDT rate for corporate investors will go up to 30%. The advantages of liquid funds are that they provide stable returns and T-1 purchase. Another advantage is the declaration of NAVs on Sundays/holidays as well, which means redemption request put in on Friday (within the cut-off time) for proceeds on Monday would be at Sunday's NAV. In USTBs, this redemption will take place at Friday's NAV (since there is no NAV on holidays), which means no accrual income for two days.

The advantages of USTB funds are marginally higher returns than liquid funds and tax efficiency over liquid funds, i.e., lower DDT rate for individuals. For a horizon of more than two weeks, investors can avail of the relatively higher returns and tax efficiency of USTBs and for a short horizon of a few days, liquid funds are safer. Both the fund categories can be used for systematic investments into equity funds. Copyright 2011, Bennett, Coleman & Co. Ltd. All Rights Reserved" http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/the-nuances-between-liquid-andultra-short-term-bond-funds/articleshow/8023215.cms?curpg=2

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'India's FII share likely to drop this year': Anand Shah, CIO, BNP Paribas Mutual Fund
Puneet Wadhwa Business Standard New Delhi: Even as India used to trade at a significant premium compared to other emerging markets, the valuation premium has corrected after the recent underperformance, Anand Shah, CIO, BNP Paribas Mutual Fund, tells Puneet Wadhwa. Excerpts: How do you expect the Indian equity markets to pan out in the near-to-medium term? What are the triggers for a likely upside/downside from the current levels? We believe that in the longer term, the Indian growth story will benefit from favourable demographics. Largescale investment in infrastructure will make sure that India remains one of the fastest growing economies in world. Thus, the Indian equity markets offer a superior investment opportunity for local and global investors, in the long term. However, in the near-to-medium term, the market will remain highly volatile with risk-reward being slightly unfavourable. On a fundamental basis, the combination of high inflation, rising oil prices and rising interest rates does not augur well for any equity market. Going forward, we expect to see analyst downgrades for the GDP and near-term earnings of India Inc. How does India compare with other emerging markets in terms of valuations? Historically, India used to trade at a significant premium compared to other emerging markets. However, after the recent underperformance, Indias valuation premium relative to emerging markets has corrected. On a one-year forward basis, India would be trading at around 15-16 times, while most of the other emerging markets will be trading in the range of 12-15 times. Do you expect foreign institutional inflows into India improve? Why? India saw one of the highest FII inflows, in absolute terms as well as in terms of the share of total flows into emerging markets, in CY2010. We do not expect the FII inflows in CY11 to be as high as CY2010, since the total flows are expected to be lesser and the fact that Indias share may not be as high. Due to the rising inflation in developed markets, we believe that central bankers in these countries will be in a tightening mode vis--vis expansionary monetary stance of last year. Thus, overall flows to emerging markets will be lesser. Secondly, due to rising oil prices, high inflation and slowing growth, India cannot command as high a market share as last year. What is your expectation from the fourth quarter results of India Inc? Which sectors, according to you, are likely to do well? Have the markets already discounted the same? We expect India Inc to continue delivering its 18-20 per cent earnings growth rate trend in this quarter as well. But, the key figures to watch out for will be margins. There will be an impact on the margins for companies due to rising raw material prices and wages. We expect consumer led sectors that have the ability to pass on inflation to customers to do better than others. Sectors like auto, FMCG, cement and banking are expected to do well. Are you fully invested at current levels? How have you churned your portfolio in the last six months? What is

the strategy for the next few quarters? We believe in long-term investing. The aim is to buy the best companies of the country run by superior management. We follow largely a buy and hold strategy barring situations where valuations are very high. Over the next few quarters, we will continue to look to buy companies that have pricing power, strong balance sheets and superior free cash flows. What is your take on the commodities space: oil, precious metals? Global growth is expected to be seriously hurt by rising oil prices. Hence, we have a negative outlook on global commodities. As far as precious metals are concerned, they will continue to outperform other global commodities as long as interest rates remain low. What is your advice to the retail investors in the current market conditions? In the longer run, India offers a superior investment opportunity. India, over the next decade, will be one of the fastest growing economies due to favourable demographics, rising per capita income, consumption boom and rising infrastructure investments. However, in the near-to-medium term, we expect a lot of volatility in equity markets, both locally and globally. We recommend investors take the SIP (systematic investment plan) route while investing in the equity markets. http://www.business-standard.com/india/news/market-voice-anand-shah-cio-bnp-paribas-mutual-fund/432821/

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MF investor awareness programme gaining momentum

Sneha Padiyath The Hindu Business Line Mumbai: In 2010-11, 26 AMCs have conducted 5,817 investor awareness programmes covering 280 cities and 3,40,383 participants, flashes the ticker on the Association of Mutual Funds in India (AMFI) Web site. But how good is 3.4-lakh participants in a country with over 40 crore households which save nothing in mutual funds? Very, say some analysts. Consider this a first step, and it is a very impressive number, say fund analysts, distributors and fund house officials alike. But having said that, they say, there is still a long way to go. The mutual fund industry consists of about 40 functional fund houses managing assets worth about Rs 6 lakh crore (as on March 2011). Reaching out Fiscal year 2011 saw the industry's trade body AMFI turning its attention towards the retail investors through an investor awareness programme. We have always been trying to reach out to the investors. But now, our effort is to expand beyond the urban areas and convert people in the smaller cities and towns into mutual fund investors, said Mr V. Ramesh, Deputy CEO, AMFI. For this purpose, an Investor Awareness Committee was set up by AMFI, which devised a presentation to be used by the AMCs for their respective investor awareness initiatives. Fund houses, on their part, have conducted between 100 and 200 sessions last year. The number of sessions depends on the size and reach of the fund house. While Mirae Asset Management conducts about five classes a month, Reliance Mutual Fund conducts around 200 a month. As on March 2011, Mirae has assets under management (AUM) worth Rs 379 crore, and Reliance has AUM of Rs 1.01 lakh crore. Advt Promo Apart from this, AMFI will also come out with a series of educational advertisements aimed at the investors. These will be released to the public after the IPL tournament, said Mr Ramesh.

However, some fund analysts and advisors are less than convinced about these attempts by the AMCs and AMFI. According to them, conducting educational programmes is beyond the purview of the fund houses and AMFI. They said that education falls under the ambit of the regulator, who is in a better position to reach out to the investors. The capital market regulator, SEBI, is already conducting its own investor education programme. Investor awareness programmes being conducted by fund houses may be viewed as an attempt by them to promote their own products, making investors suspicious and vary of them, said Mr K. Joseph Thomas, Head Investment Advisory and Financial Planning, Aditya Birla Money. Ideal conductors Also, they say it leads to wastage of resources by fund houses as the target audience is the same. There is no point in them replicating the efforts. Ideally, investor awareness programme should be conducted by financial advisories and wealth management companies. They could do the job without appearing biased. They are, after all, the final point of contact in the distribution system, he added. As for the advertising campaign, analysts see it as a feeble attempt. A 20-second spot has virtually no impact. Mutual funds are something more serious and need longer to be understood. These are three-, five-, 10-year products, said Mr Dhirendra Kumar, CEO, Value Research. Mutual fund houses, however, chose to disagree. They claimed that the investor education is as much a responsibility of the fund houses as it is of the regulator. Yes, it is my business and fiduciary responsibility to manage money. But it is also my responsibility to make my investors aware as lack of knowledge is one of the biggest issues in the industry today, said Mr Arindam Ghosh, Head-Retail Sales, JP Morgan Asset Management. Fund house officials also added that the investor awareness programmes have a neutral approach. The aim is to simply educate the investors via seminars, e-classrooms and other e-learning methods. We talk about the importance of financial planning in these sessions. These may or may not translate into sales as the approach is neutral, said Mr Arindam Ghosh, CEO, Mirae Asset. Faced by constant pressure on their assets under management, fund houses will continue their efforts well into FY-12. With over 30 crore untapped investors, as one fund house official put it, they haven't even begun scratching the surface yet. http://www.thehindubusinessline.com/markets/stock-markets/article1709777.ece

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Invest in short-term income funds

Chirag Madia Jain The Financial Express Canara Robeco Mutual Fund Investment head Ritesh Jain has been an avid tracker of the bond markets. In an interview with FEs Chirag Madia Jain says interest rates could heap up again in the next few months. Excerpts: Since inflation continues to remain at the elevated levels, where do you see interest rates? A recent survey by RBI showed inflationary expectations at 13% for 2010. Had India been an isolated instance we would have seen higher rates and inflationary expectations would have come down. But we are globalised where some countries are seeing lower interest rates. So the more you hike the interest rates, the more hot money will flow into the country. And thats why our central bank has taken baby steps and hiked rates by 25 basis points each time. We believe the RBI will increase the policy rates by 50-75 basis points in the next three months. Whats more important is to have positive real interest rates, which means one should get higher returns on savings than inflation. If we look at the January-March period, FD rates went to 10-11% and this is a best way to curtail inflation. If this sustains for the next 3-6 months, inflation will automatically come down.Short term rates have peaked-out for time being and we might have seen some relief but they will again start moving up in next two-three months.

So where are you seeing the yields on the benchmark bond? We think yields will remain in the range of 7.9-8.25% for the next two-three months though they could harden to 8.5% between June and September should there be uncertainty on oil prices and inflation. It is very difficult to predict rates beyond six months. What kind of increase do you see in rates paid by corporates? Usually in the month of April, CP rates are lower and this year is no exception as there is not much credit demand. However, currently there is demand for funds from oil companies since their working capital requirement have gone up. They are borrowing two-month money at over 8-8.25% and by May end rates could harden by another 50 basis points. We assume that one year CP rates will go up by 50 basis points, for paper between 1-5 years say, non-convertible debentures, rates will go up by 25 basis points. Where do you see policy rates headed this financial year? I think the RBI will hike rates by another 75 basis points this year and in May we might be looking at hike of 25 basis points. As I said earlier the 13% inflationary expectation for December, 2010 is very alarming. We have seen huge redemptions from debt funds in the last few months. Where do you suggest investors put their money? We believe gold will do very well over the next three years. Since rates of CDs and CPs are going to be volatile, we are recommending short term income funds to our investors as they will give good returns over the next one year. Apart from that short term investors should also look the liquid funds which might give returns of over 7-8% in one year. Liquidity has eased somewhat but how do you read the trend? Liquidity is normal since the government has been spending but it could turn negative by mid-May. There are three-four auctions every month of R12,000 crore each. By mid May the government would have borrowed R50,000-60,000 crore. Huge credit demand from oil companies and and Assembly elections will also put pressure on liquidity. http://www.financialexpress.com/news/invest-in-shortterm-income-funds/778457/0

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Cost of managing a portfolio

Masoom Gupte Business Standard Mumbai: After burning his fingers by trying to manage his stock portfolio independently, Amit Rao is considering taking professional help from a portfolio management services (PMS) firm. However, he must choose the cost structure fixed or variable. A fixed-cost structure charges a specific percentage fee on the total assets under management (AUM) on a quarterly basis, amounting to about 2.5 -3 per cent annually. On the other hand, a variable cost structure is linked to the portfolios performance or the profits generated in a financial year. A pure variable cost structure is rarely offered. A fixed fee of about 1.5 per cent of the AUM (lower than that charged under the fixed cost structure) is charged as the fund management fee. There is a performance fee, too. Despite this, Rao is veering towards the variable cost structure. Reason: He wouldnt have to dole out a high fee if his portfolio is not generating good returns. An added incentive comes with the Securities and Exchange Board of India (Sebi) making it mandatory for fund managers to use the high watermarking principle while calculating variable costs. The principle marks the highest achieved value of the portfolio in a year, and performance fee is charged only if the portfolio value

crosses this watermark. Understand with an illustration: Say you invest Rs 10 lakh and this amount increases to Rs 13 lakh in the first year. The portfolio manager will share profits worth 10-20 per cent. Industry officials say that Sebi has only provided a broad principle for the calculation of the watermark. Fund managers have the flexibility of calculating the same after deducting the fixed fee and the profits taken by the portfolio manager, or, after deducting the fixed fee only. Such nitty gritties are governed by the contractual agreement between the client and fund manager. The client can negotiate the terms of the contract with the fund manager, says an industry official. Deducting the fixed fee component before calculating the watermark is a common practice. However, the fund managers share in profits is usually not deducted. For instance, say your investment of Rs 10 lakh rises to Rs 13 lakh. A fixed fee of Rs 10,000 is deducted. Now, your portfolio value is Rs 12.9 lakh. Since the profit-sharing is done on the entire profit of Rs 2.9 lakh, your watermark should be Rs 12.9 lakh, and not after the share of the PMS provider is taken out. According to Sriram Venkatasubramanium, head (wealth management), FCH Centrum Wealth Management, variable cost structures work to the customers advantage in bearish or volatile markets. Implementing the high watermark principle ensures that you do not pay twice for the profit generated on your portfolio. So, if the value of your portfolio gets eroded, you will only pay the management fee, adds Venkatasubramanium. Amar Pandit, CEO, My Financial Advisor says, In bullish markets, when there is a year-on-year rise in the portfolio value, the fixed cost structure will work out cheaper as you dont have to share a high percentage of your profits. That said, Rao must make his choice based on his view of the markets. If he wishes to switch in the future, he can easily do so from the next financial year. Mostly, at no extra cost or penalty. However, Jayant Pai, VP, Parag Parikh Financial Services, warns, With each switch, the watermark will be reset. Say you switch from a variable cost structure to a fixed-cost one. If you want to go back to the former, your previous watermark will not be considered and the fund manager can start with a clean slate. Irrespective of the option Rao picks, there are some common charges: upfront fee (a one-time flat fee of 1-2 per cent charged at the time of investment, deducted from the overall investment), brokerage charges on buying and selling of stocks (about 50 paise per thousand), service tax (10.3 per cent on the brokerage) and the custodian fee. http://www.business-standard.com/india/news/costmanagingportfolio/432842/

When a fund house merges schemes

Tania Kishore Jaleel / Mumbai April 21, 2011, 0:11 IST Last Saturday, ICICI Prudential Asset Management Company merged three of its schemes into a single one. The fund house merged three source funds Fusion I, Equity Opportunities Fund and Fusion III with ICICI Prudential Dynamic Fund, the target fund. Over the last one year, six fund houses, including UTI MF and Principal MF, have merged their schemes, Fund houses look at merging schemes where there is a duplicity of content or if the scheme has been underperforming historically, says Aashish Somaiya, head (retail business), ICICI Prudential AMC. Schemes are also merged if the corpus is too low. In the case of ICICI Prudential AMC, the corpus of the three source funds put together added up to Rs 1,100 crore and the assets under management (AUM) of the target fund stood at Rs 3,000 crore, says Somaiya. Over the last couple of years, the Securities Exchange Board of India (Sebi) has been nudging fund houses to go for mergers, thanks to many similar-themed schemes with the same fund house leading to confusion for the investors. Currently, there are more than 3,000 schemes offered by 42 fund houses. For investors in the three source funds, the important question should be whether to exit the scheme or opt for merger with the target scheme. According to Sebi guidelines, investors in source schemes are given a months time to exit the source schemes, without any exit load.

In this case, things should be simple for investors. ICICI Prudential Dynamic Fund is an open-ended diversified equity scheme. It is a multi-cap scheme aiming to generate capital appreciation by investing primarily in equities and for defensive consideration in fixed income securities, including money market instruments. The scheme has given impressive returns. ICICI Dynamic Fund gave returns of 14.3 per cent last year and 14.24 per cent annually over a five-year period. The category average the multi-cap category has given returns of 9.04 per cent and 10.66 per cent for one and five years, respectively. After the one-month period, units of existing schemes are exhausted (read redeemed) and those of the new scheme purchased at the current net asset value (NAV). So, if the NAV of the target scheme is more than the source scheme, one could expect lower number of units. However, it does not make a difference. A higher NAV does not impact the performance of a scheme as the rise or fall of stock prices in percentage terms will be reflected in the same proportion in the NAV, said Hemant Rustogi, CEO, Wiseinvest Advisors. For investors, even if you do not exit during the grace period, you can do so any time after the merger, as target schemes are usually open-ended. Radhika Gupta, director at Forefront Capital, says that if the target scheme has underperformed historically, one could exit. Depending on how long you have been holding the units of the schemes, you will be charged short- or longterm capital gains tax. In the case of an equity fund, if you exit within a year, you will have to pay a short-term capital gains tax of 15 per cent on the profits you have made. However, if you have been invested for more than a year, no capital gains tax is levied. http://www.businessstandard.com/india/news/whenfund-house-merges-schemes/432986/

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'Inflation can eat into the India growth story': Arun Khurana, UTI Mutual Fund
Puneet Wadhwa / New Delhi April 21, 2011, 0:49 IST The robustness of FII flows into India would largely be contingent upon the cooling off of inflation, Arun Khurana, Fund Manager, UTI Mutual Fund, tells Puneet Wadhwa. Excerpts: How are the foreign institutional investors (FIIs) viewing developments in India? Will they continue to invest in the Indian markets in FY12? The FIIs, after being bearish on India since November 2010, turned positive post the Union Budget presentation, which largely addressed the challenges relating to growth and liquidity despite surging inflation. We are cautiously optimistic regarding the continuance of FII flows in Indian markets in FY12. Since India is the only large economy after China (which of late seems to be running out of steam to sustain its growth momentum), which has a potential of logging double-digit growth in FY12, it should remain a focal point for FIIs. The robustness of FII flows into India would of course largely be contingent upon the cooling off of inflation, which has the potential to eat into the larger part of Indias growth story. China reported a marginal slowdown in its GDP growth during the first quarter. How are you viewing this development? A slowing down Chinese economy (if at all) on the contrary should in all likelihood be a blessing for the Indian economy. A slowdown in the Chinese economy should deflate commodity prices, which should help the Indian economy to get out of the commodity prices spiral.

With nominal growth being the same, a run down in overall inflation could boost the FY12 real GDP growth rate to upwards of 10 per cent, which should result in robust capital inflows, abundant liquidity, lower interest rates. The resultant lower interest rates should turn around the investment cycle leading to significant creation of fresh capacities, which should considerably ease down the supply led inflationary pressures and in the process boosting the overall growth prospects of the Indian economy. How have you churned your portfolio in the last six months? Which sectors got included and which ones fell out of favour? What is the strategy for the next six months? As a portfolio strategy, I look forward to increasing weightage in favour of PSU banks. Is it safe to get into the midcap stocks at the current levels? Within the banking space, we are likely to witness the emergence of quite a few midcap investment opportunities during FY12. We are also bullish on some of the auto finance focused small-to-mid cap non banking finance companies (NBFCs) particularly in the light commercial vehicle (LCV) and heavy commercial vehicle (HCV) space. What is your view on the way crude oil prices and the prices of precious metals (gold, silver) have been behaving in recently? Where do you see them settling? I am bearish on crude oil prices and expect them to settle between $100 and $110 a barrel over the next sixnine months. However, the possibility of a short-term upward move in its prices may not be ruled out in the light of lack of consensus regarding the possibility of a slowdown of the Chinese economy. http://www.businessstandard.com/india/news/market-voice-arun-khurana-uti-mutual-fund/432973/

Smaller fund houses deliver higher returns

K. Venkatasubramanian The Hindu Business Line While size is much sought after in the mutual fund industry, it is the smaller fund houses which have actually delivered the best returns to investors in the past year. Consider this. If one averages the returns across their equity schemes, Quantum Mutual Fund, Benchmark Mutual Fund and Daiwa Mutual emerge as the top performers over the past one year, managing returns of 13.4 per cent to 15.8 per cent. These funds are midgets, having under their fold only between Rs 125 crore and Rs 1,500 crore of assets. Their equity assets are lower. Four other small houses including Mirae and Canara Robeco figure among the top 10 on returns, delivering returns in the range of 10-15 per cent. Top equity managers such as Reliance Mutual, Sundaram Mutual and SBI Mutual have in contrast delivered average one-year returns of 4-7 per cent on their schemes. CONSISTENCY FACTOR Ranking all the fund houses by their one-year returns, only HDFC, Fidelity and UTI from the larger fund houses make it to the top 10 list. Even over a slightly longer timeframe of three years, smaller managers have fared well. In fact, five out of the top 10 are small houses. Here again, HDFC and Fidelity among the larger houses delivered consistent returns. Is it then correct to come to the conclusion that investors should bet only on schemes from smaller fund houses? Not necessarily. LACKING VARIETY For one, many smaller fund houses have only a few equity schemes under operation, aiding their averages'. Quantum and Mirae have two and three equity schemes under management respectively. Two, not too many of these schemes may have a long enough record to judge performance. Most of flagship

funds for these funds invest in large-cap stocks, which outperformed the broader markets over the last few years. CORRECT SIZE Here JP Morgan's AMC too needs a mention as all three of its schemes have outperformed indices over the last one-year, but has lagged behind over longer timeframes. But is managing a smaller number of funds the only way to better returns? It seems so. Fidelity with just six funds and DSP Blackrock with 10 schemes under management have seen consistent performance from most of them. Of course HDFC with 14 schemes has seen 11 of those perform consistently over one- and three-year periods. But with 17-21 schemes under operation, fund houses such as Sundaram, Tata, SBI, Birla Sun Life and Reliance have found it more challenging to deliver a consistent show across schemes. Only half of their funds have outperformed indices such as the Sensex, Nifty or BSE 100. http://www.thehindubusinessline.com/markets/stock-markets/article1763923.ece

Pvt. Equity & Hedge Funds

PE investments, mergers & acquisitions at $ 29 bn in Jan-Mar
PTI New Delhi, Apr 19: Private equity investments and merger and acquisition transactions in the country have witnessed robust growth during JanuaryMarch period, as deals worth $ 29 billion have been announced in this space. According to the data compiled by research firm Accenture, the total private equity investments during January March of this year stood at $ 3.18 billion, while M&A activity for the first three quarters of 2011 reached at $ 25.82 billion. In terms of deal-count, however, the total number of transactions decreased to 313 in the quarter to March 2011 from 389 in the year ago period. The total deal value increased from $ 24 billion in the first quarter of calendar year 2010 to $ 29 billion in the first quarter of 2011 mainly due to increase in average transaction size, the report noted. A sectoral analysis shows that energy, finance and telecom were the most targeted sectors during the quarter. Further, domestic deals were the flavour of the quarter, with 293 such pacts accounting for 94 per cent of the overall deal value. Besides, cross-border transaction stood at 20, which is six per cent of the total deal value. UK energy giant BP Plc buying 30 per cent interest in Reliance Industries 23 oil and gas blocks for $ 9 billion followed by Vodafone buying Essars stake in joint venture Vodafone Essar for $ 5 billion are among the major deals. Germany-based industry and infrastructure solutions company Siemens AG acquiring 19.82 per cent equity in Indian firm Siemens Ltd for $ 1.37 billion is another major transaction. In the private equity segment for the quarter ended March 2011, the total announced deal value was $ 3.18 billion, which is a four fold jump from the year ago period. The largest PE investment during the quarter was the $ 1 billion (about Rs 4,500 crore) commitment by Bain Capital and Singapores GIC to Hero Investments, the Hero group holding firm which is to buy out Honda Motors 26 per cent stake in listed two wheeler maker Hero Honda. http://www.thehindubusinessline.com/markets/article1709339.ece

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Economy & Finance

Rupee drops 3 paise against dollar
PTI See this story in:The Hindu Business Line Mumbai: The rupee on Tuesday recovered its initial sharp losses in line with the local equities and late dollar demand, still it ended lower by three paise against the US currency. A weak dollar overseas amid early fall in local equities and fresh capital outflows led the rupee to resume down at Rs 44.55/56 a dollar from Rs 44.45/46 at the Interbank Foreign Exchange market. The RBI has fixed the reference rate for the dollar at Rs 44.68 and the euro at Rs 63.53. Call declines further Call rates declined further to close at 6.50 per cent at the overnight call money market here on Tuesday on surfeit of liquidity in the banking system. The overnight call money rate finished lower at 6.50 per cent from Monday's closing level of 6.85 per cent. It moved in a range of 6.85 per cent and 6.25 per cent. The RBI, under the Liquidity Adjustment Facility, purchased securities worth Rs 1,705 crore from eight bids at the one-day repo auction at a fixed rate of 6.75 per cent. Bonds end mixed The government bond closed mixed on alternate bouts of buying and selling. The 8.08 per cent government security maturing in 2022 firmed up to Rs 98.85 from Rs 98.73 on Monday, while its yield softened to 8.24 per cent from 8.25 per cent. The 8.13 per cent government security maturing in 2022 rose to Rs 99.35 from Rs 99.20, while its yield moved down to 8.22 per cent from 8.24 per cent and the 8.26 per cent government security maturing in 2027 also quoted higher at Rs 98.20 from Rs 98.15 previously. http://www.thehindubusinessline.com/industry-and-economy/banking/article1710094.ece

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Sensex gains 31 points in volatile trade

PTI See this story in:The Hindu Business Line Mumbai: In a choppy trading, the Bombay Stock Exchange benchmark Sensex today gained about 30 points on selective buying to close at 19,121.83, although investors sentiment remained under pressure on weak Asian trend. The Sensex, which had lost over 600 points in the last two trading sessions, shuttled between gains and losses before ending the day 30.66 points higher at 19,121.83. The gauge touched the days high of 19,201.92 and a low of 18,976.19 as the stocks in teck, refinery, consumer durables and banking gained, while FMCG, power and auto sector ended in negative zone. Similarly, the broad-based National Stock Exchange index Nifty moved between 5,762.95 and 5,693.25, before ending 11.65 points up at 5,740.75.

HDFC Bank gained for the first time in three days on higher earnings, but investors were still worried on weakening Asian trend after the rating agency Standard and Poors lowered US credit outlook to negative. Rising inflation in the 17-nation European region, sovereign debt crisis and increasing crude oil prices negatively influenced the market sentiment. HDFC Bank gained 1.4 per cent to Rs 2,348.05, the second-best performer on the Sensex, on sound fourth quarter profit. Axis Bank gained 1.13 per cent to Rs 1,410.60. Reliance Industries, with heaviest weightage in the 30-share index, rose Rs 1.20 to Rs 1,011.35. Cairn India was up by Rs 7.70 at Rs 344.25 on reports that Sesa Goa has bought 200 million shares or about 11 per cent stake from Petronas of Malaysia. The two carry nearly 16 per cent weightage on the benchmark. The teck sector index gained the most by 0.77 per cent to 3,692.20, followed by the oil and gas index up 0.62 per cent at 10,030.08. Consumer durables index rose 0.52 per cent to 6,358.15 and banking 0.5 per cent to 13,238.35. As some investors shifted buying to lower value stocks, the mid-cap sector index rose 0.36 per cent to 7,141.92 and the small-cap 0.29 per cent to 8,762.65. http://www.thehindubusinessline.com/markets/stock-markets/article1709039.ece

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Kaushik Basu expects inflation to fall below 8%

PTI See this story in:The Hindu Business Line New Delhi: The governments chief economic advisor, Mr Kaushik Basu, said on Tuesday that inflation would decline to below 8 per cent in April, from 8.98 per cent reported in the previous month. I would expect inflation to be less than 8 per cent in April, he told reporters on the sidelines of an Assocham function. He further said the inter ministerial group (IMG) on inflation, constituted by the Government to suggest measures to control spiralling prices, will meet next month after the RBIs annual monetary policy review on May 3. We will have an important IMG meeting in early May. We want to look at macro economic demand management, he said, adding that RBI Governor, Mr D Subbarao, might also attend the meeting. The government had set up the IMG on inflation in February, to suggest measures to control spiralling prices, particularly of food articles. Economists expect that the central bank may go for another round of hike in key policy rates to control the inflation, which is still way above the comfort level. Mr Basu said the Government would have to come out with new measures to control inflation amid high global commodity prices and the policy followed by several economies of making available large cash flow into market. We will have to go on the drafting board and think in terms of measures that we can take. Some of them have to be quite different from the measures we are used to because this is a new kind of inflation, he said. He said earlier the policy makers did not use to look at the rest of the world while deciding on measures to control inflation. (But) now we are doing so, he said. http://www.thehindubusinessline.com/industry-and-economy/economy/article1709459.ece

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10% growth not achievable: Plan panel to tell PM

Hindustan Times Chetan Chauhan:The Planning Commission will be telling Prime Minister Manmohan Singh on Thursday that achieving the economic growth target of 10 % in the 12th plan will not be possible. Instead, the government should aim at a target of 9-9.5%. We want to present the Prime Minister a picture which is achievable, related stories MoS for planning Ashwini Kumar said, after an internal plan panel meeting. There were a lot of differences among the plan panel members on what should be the Indias target for the 12th plan. Some members were of the view that the government should not aim at more than 8 to 8.5 % if the inflation has to be kept under control. Targeting growth rate of more than 9 % will mean high inflation in double digits, a member, who was not willing to be quoted said. There was a dominant view that the resource generation because of high economic growth can be pumped into agriculture sector to improve productivity to tame inflation. With it, the panel decided that despite the global economy still being sluggish the government will aim at an agriculture growth target of atleast 4% growth during the next plan period. And for manufacturing sector the growth target set was 11-12%. Aiming for 4% agriculture growth will not be possible ample focus on water management and technological innovation to enhance food production in the country. We have to reduce the dependency on import to check inflation which is a major challenge, Kumar said. The panel will also tell the Prime Minister that achieving the high growth target will not be possible without infusing higher private investment to push infrastructure sector, a key to Indias high growth. India had failed to achieve the target of 35% private investment in the 11th plan. http://www.hindustantimes.com/business-news/global-economy/10-growth-not-achievable-Plan-panel-to-tellPM/Article1-687278.aspx

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Exports rise 37.5% to a record high of $246bn

The Times of India NEW DELHI: India's exports rose 37.5% in 2010-11 to touch a record $246 billion as traders targeted new markets and gained from improved sentiments in the US and Europe. Provisional numbers released by the commerce department on Tuesday showed that engineering goods and petroleum helped exporters close the year with nearly 25% higher exports than the $200 billion targeted by the government (see table). But oil appeared to be the main culprit when it came to imports, which rose 21.5% to $350.3 billion during the last financial year. Oil imports crossed the $100 billion mark to close the year at $101.7 billion, with the possibility of upward revision. Higher-than-budgeted exports, however, helped the economy deal with a lower than estimated trade deficit of $104.4 billion, which may be revised to $105-110 billion. At the present level, it was lower than $109 billion in 2009-10.

With trade adding up to nearly $600 billion in 2010-11, it now accounts for nearly 50% of India's gross domestic product (GDP). While there was all-round cheer and expectation of reaching the $450 billion export target ahead of the 2014 deadline, the government warned that a steep rise during the current financial year might be a tough task. To begin with, commerce and industry minister Anand Sharma warned of the possible adverse impact of higher global oil prices, which would push up production costs. Commerce secretary Rahul Khullar added growth worries in the US and Europe and problems in Japan to the list. "At the moment, 2011 is not looking very good," he said while adding that the government would try to push for a 25% growth in the current financial year too. In March, exports went up by 43.9% to $29.1 billion, while imports rose 17.3% to 34.7 billion, resulting in a trade deficit of $5.6 billion. http://timesofindia.indiatimes.com/business/india-business/Exports-rise-375-to-a-record-high-of246bn/articleshow/8032392.cms

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FDI dips about 25% in first 11 months of 2010-11

Agencies See this story in:The Indian Express New Delhi: India's Foreign Direct Investment (FDI) during April-February 2010-11 may have declined by 25.6 per cent to USD 18.3 billion, but the government is hopeful that some of the big ticket deals like that of BPReliance would reverse the trend. During April-February 2009-10, the country's FDI stood at USD 24.62 billion. "There has been a shortfall (in FDI) when we compare it with the last fiscal. There are quite a few investments that have been received," Commerce and Industry Minister Anand Sharma said here. However, he said, fresh investments particularly in services sector--computer (software and hardware), telecom, construction and real estate--have been received," The minister said the tie-up between the British-based company BP and Reliance would result in increased FDI inflows. BP is buying 30 per cent stake in its 23 out of 29 exploration blocks held by Reliance, for USD 7.2 billion, as per the deal announced in February. Sharma also made mentions about deals such as Vodafone and Essar. "These are indicators of continuing investor's confidence in India and are likely to add to the FDI portfolio this year substantially," he said. In February this year, India's FDI registered its second consecutive decline dipping by about 30 per cent yearon-year to USD 1.2 billion in the backdrop of financial turmoil in Europe. In February 2010, the country attracted FDI worth USD 1.7 billion. Countries, including Mauritius, Singapore, the US, UK, Netherlands, Japan, Germany and UAE are the major investors in India. http://www.indianexpress.com/news/fdi-dips-about-25-in-first-11-months-of-201011/778335/

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Good farm output will help ease inflation to 6 %: Rangarajan

The Hindu

NEW DELHI: Even as high inflation continues to remain a major concern, Prime Minister's Economic Advisory Council Chairman C. Rangarajan on Monday expressed optimism over a moderation in prices following a good farm output. Interacting with the media on the sidelines of a conference here, Dr. Rangarajan said: I think the inflation will come down in April. What happened in March was quite unexpected... but the food inflation is coming down. Wheat production is very good. Therefore, I expect food prices to come down further in April and that should help in the overall headline inflation coming down I think it [inflation] will be around 6 per cent ... probably that is where it will settle down. Headline inflation, as per the wholesale price index (WPI) surged to 8.98 per cent in March this year to not only be way above the RBI's (Reserve Bank of India) comfort zone of five-to-six per cent but also breach its scaled up projection of 8 per cent for the fiscal year ending March 31. While rising cost of inputs is already feeding into manufactured products to add fuel to headline inflation, the hardening of global commodity prices, particularly crude oil, is putting further pressure on prices. Dr. Rangarajan pointed out that domestic consumers have largely remained insulated from the impact of the global oil price hike thus far. For some more time, probably we might be able to shield the diesel prices from external influences. About 3-4 months from now, when inflation rate falls to a much lower level, perhaps we will have to take a decision on what to do with the diesel prices, he said. On the likely impact that the sovereign debt crisis in the Euro zone may have on capital flows in to India, Dr. Rangarajan said: Total quantum of fund flowing into the emerging market may come down a little bit, but as far as India is concerned, what will decide it [capital inflows] will be the perspective on India's growth and India's strength and I do not think it will be seriously affected. http://www.hindu.com/2011/04/20/stories/2011042056321500.htm

10% GDP growth not feasible: Montek

Agencies The Indian Express New Delhi: Raising doubts over feasibility of achieving 10 per cent average economic expansion in the 12th Plan (2012-17), Plan Commission Deputy Chairman Montek Singh Ahluwalia said the next plan would target GDP growth of 9 to 9.5 per cent in the next five years. "If you ask me personally, I think setting target of 10 per cent (GDP growth) as an average for 12th Plan, is not feasible...it would be somewhere between 9 to 9.5 in next Plan period," he said ahead of the meeting of the full Planning Commission. Prime Minister Manmohan Singh wants the Commission to aim at higher growth target for 10 per cent during the 12th Plan, as against 8.2 per cent estimated in the current plan. "Our assessment is that the international situation is full of uncertainty...I feel that if we are looking at a five year period (2012-17), we can do much better than we did in 11th Plan. I don't think that there should be much difficulty setting a target of 9 per cent," he said. A major area of focus would be on increasing agricultural productivity, he added. "In the 10th Plan it (agricultural growth) was around 2 per cent, in the 11th Plan it looks as if it will be 3 per cent...it won't be 4 per cent that we had targeted. My view would be that in the 12th Plan we must make sure that we can get to 4 per cent," Ahluwalia said. Briefing the media persons on focus of the full Planning Commission meeting tomorrow to be headed by the Prime Minister, Ahluwalia said, "We would be presenting key issues to the full panel and the approach to the 12th Plan may be ready in a month from now". Among others, the meeting will be attended by Planning Commission members and senior Cabinet ministers,

including Finance Minister Pranab Mukherjee and Home Minister P Chidambaram. "What we are presenting tomorrow is not the 12th Plan approach. We are actually working on that...The Approach Paper should be in a month or so," Ahluwalia said. The 'Approach' paper lays broad outline of a Five Year Plan. About the thrust of the 12th Plan, he said, "One thing we have all agreed (internally at Plan panel) is that it (thrust of 12th Plan) will be faster, more inclusive and sustainable growth". He also said that special thrust will be on achieving more progress in health and education, besides improving the gender ratio. Regarding the progress of the 11th Plan, he said, "The bottom line is that we have seen progress but not enough". Although the Commission had pegged the economic growth rate at 9 per cent for the 11th Plan (2007-12), it was scaled down to 8.2 per cent in view of the impact of the global financial meltdown on the Indian economy. http://www.indianexpress.com/news/10-gdp-growth-not-feasible-montek/778771/0

Closing
Last Finacial Closing
Sensex NSE US$ spot US$ US$ 6 months Yen Euro spot LIBOR 6 months Call GOI sec. 10 years 19,121.80(+30.66) 5,740.75(+11.65) Rs.44.48 Y.82.5417 Rs.46.2 Rs.0.54 Rs.63.47

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