Foreign exchange, hedging and costs et all

Forex reserves are at a record high, while hedging levels are at a record low. The good job that Raghuram Rajan has done by managing rupee levels has led to complacence that this will continue. Even as the RBI rues the low hedging levels of nearly 15 per cent, India Inc switches off the radio and sleeps at the wheel. The result of this indiscipline is that the RBI has to be shoring up the dollar and keeping excess reserves to protect itself against a run on the rupee.

The RBI has been putting pressure on banks to ensure that Indian corporates are hedged against rupee depreciation, but these hedging costs will bring the cost of forex loans at par with the cost of domestic borrowing. So, corporates are tempted to skimp on hedging costs and stay open to the risk of dollar appreciation, hoping that everything will work out all right. Where have we seen that before?

It's OK to break your leg, but don't break your neck. Some risks are acceptable, but others are not, as our fathers told us. Then why do we do such risky things again and again, and why don't we learn from past mistakes? Our uncovered forex exposure of $70 billion will force the RBI to hold reserves in excess of reasonable needs, thus incurring a cost. The return from US Treasuries is 2.5 per cent, while the opportunity cost would be, say, the India GOI bond rate of 8 per cent. This huge notional loss is being borne by the country to hedge against the private indiscipline of India Inc.

Why doesn't the RBI simply mandate a high hedge ratio, thereby creating a steep forward curve, and tell corporates to manage their hedging costs as best as they can? If people defecate out in the open, their private indiscretion creates a public cost in the form of higher sanitation cost, public-health risk and the cost of cleaning the city. This comes back to the public in some way, just that the people who defecate don't really pay the full cost.

It is the same with hedging costs. India Inc. defecates out in the open, with some sectors more to blame than others. Low-margin traders, like edible oils, tend to build big forex exposures, which come to grief during a 'flight to safety'. These are the panicky importers who created the last spike in the dollar-rupee exchange rate from 64 to 68 rupees to a dollar in the taper tantrum of mid-2013. The collateral damage on the rest of the economy (and maybe the Congress Party) is well known.

If hedging of long-term forex loans were made mandatory, the interest rate arbitrage would disappear, and people would go back to domestic borrowing, creating demand for domestic credit, which has been sluggish. For example, if the edible-oil industry were forced to hedge all its imports, this would raise the landed cost of imported oils, making domestic edible oils more competitive. This would correct the mispricing of imports, which is a good thing all round.

Corporates should be forced to manage their cost of hedging on domestic currency exchanges, which would widen and deepen Indian currency exchanges, a spin-off benefit. The market-wide impact of introducing this cost would reduce the possibility of a currency crisis by forcing importers to depend on domestic borrowings. Exporters, on the other hand, would not be affected. At least the spate of corporate bankruptcies that follows each big spike in the dollar-rupee exchange rate would be avoided.

Take the case of the edible-oil industry. Operating margins are 3 per cent, while hedging costs are around 7 per cent. The industry is fragmented, so if any particular player were to hedge its forex exposures, it would be driven out of business. So nobody hedges, leaving the entire industry open to the risk of a sudden spike in the dollar. The only way to survive in this industry is to look for, and be able to have, no imports in the pipeline when the disaster (i.e., currency crisis) strikes. As one promoter famously told , 'I have to choose between dying today versus dying tomorrow.'

So is it right to say that the entire bank lending to the edible-oil sector is actually dead, and that banks are booking false interest income from this sector to be written off at some future date? If hedging were made compulsory, the cost curve of the entire industry would shift upward and prices would reflect the correct cost (which includes the cost of hedging forex). That would save everyone, including the industry and the banks that lend to it.

Why are industries that have domestic sales in rupee allowed to borrow in forex at all? Isn't that a recipe for disaster? Shouldn't there be a clear directive to banks that net importers should not be allowed forex borrowings? If all importers are hedged, there will be no currency crisis because a lot of import demand would turn to domestic sources, thereby reducing the current account deficit and foreign commercial credit. This would increase the domestic corporate credit demand and give incentives to domestic savers to fund that incremental demand. As a corollary, this would reduce the RBI's cost of holding excess forex reserves.

A culture of interest-cost management should be promoted just the way commodities are listed to enable producers and consumers to hedge their requirements. The simple but dangerous choice, which all lesser human beings are prone to taking, is to take on forex risk to book some (interest) cost savings. This has always proved counterproductive in the long run, creating vast economic damage to the larger economy.

Can you ban defecation in the open and put people in jail? I don't think so. You have to create cleaner options and use education and information to promote good behaviour. Just like defecation in the open (and risky sexual behaviour) is to be found more among the poor and the ignorant, here too it is SMEs and small businesses which are most prone to taking excess forex risk. To discipline them, you need to tell banks that foreign borrowings are restricted to those who show demonstrated ability to manage forex risk.

This brings us to the banking system to monitor all this. I find that frontline PSU bank officers know less about forex than they know about banking, so these assessments should be centralised with the credit-risk cells at the central office. And no forex loans (PCFC or ECB) should be disbursed until there is a clear certificate from the credit-risk department that the borrower is capable of looking after himself.

For those who remember, the structured-derivatives scam (of circa 2008) was about private banks loading invisible forex risk onto corporate balance sheets to book huge Treasury profits on their own books. The policeman turned rapist, and some banks got a huge rap on their knuckles for this. If instead, these same banks were given the mandate to sell interest-cost reduction structures for domestic borrowers, they would end up taking on the forex risk on themselves. As domestic companies reduce risk, some banks might find it profitable to take forex risk onto themselves, creating quite a profitable niche for their bottom lines.

But socialisation of the costs of private vice should be managed. This happens in many places, Greece being a good example, but when it affects a country's macro stability and the relative wealth of its population, it is a very big hidden cost that must be brought to public consciousness. The higher risk premium attached to higher volatility holds back foreign equity investment, leads to higher borrowing cost in the international market and reduces the stature of the currency and country.

One look at Switzerland and you can see how a currency can build a country. Whether it is a safe haven or a city financial centre (Singapore or Hong Kong), you will find that these countries reap huge benefits by installing the rules of good behaviour in their country's social fabric. Without aspiring to similar status, a large country like India can hardly afford to allow such risky behaviour. At the other extreme, Russia has shown that even a large country can be brought down to its knees by promoting cronyism, another pattern of bad behaviour where private vice has caused public disaster.

Personal Portfolio Management...

Personal portfolio management is not a competitive sport. It is, instead, an important individualized effort to achieve some predetermined financial goal by balancing one’s risk-tolerance level with the desire to enhance capital wealth. Good investment management practices are complex and time consuming, requiring discipline, patience, and consistency of application. Too many investors fail to follow some simple, time-tested tenets that improve the odds of achieving success and, at the same time, reduce the anxiety naturally associated with an uncertain undertaking.

  

Some advice lines….

A fool and his money are soon parted. Investment capital becomes a perishable commodity if not handled properly. Be serious. Pay attention to your financial affairs. Take an active, intensive interest. If you don’t, why should anyone else?

There is no free lunch. Risk and return are interrelated. Set reasonable objectives using history as a guide. All returns relate to inflation. Better to be safe than sorry. Never up, never in. Most investors underestimate the stress of a high-risk portfolio on the way down.

Don’t put all your eggs in one basket. Diversify. Asset allocation determines the rate of return. Stocks beat bonds over time.

Never overreach for yield. Remember, leverage works both ways. More money has been lost searching for yield than at the point of a gun.

Spend interest, never principal, If at all possible, take out less than comes in. Then a portfolio grows in value and lasts forever. The other way around, it can be diminished quite rapidly.

You cannot eat relative performance. Measure results on a total return, portfolio basis against your own objectives, not someone else’s.

Don’t be afraid to take a loss. Mistakes are part of the game. The cost price of a security is a matter of historical insignificance, of interest only to the IRS. Averaging down, which is different from dollar cost averaging, means the first decision was a mistake. It is a technique used to avoid admitting a mistake or to recover a loss against the odds. When in doubt, get out. The first loss is not only the best but is also usually the smallest.

Watch out for fads. Hula hoops and bowling alleys (among others) didn’t last. There are no permanent shortages (or oversupplies). Every trend creates its own countervailing force. Expect the unexpected.

Act. Make decisions. No amount of information can remove all uncertainty. Have confidence in your moves. Better to be approximately right than precisely wrong.

Take the long view. Don’t panic under short-term transitory developments. Stick to your plan. Prevent emotion from overtaking reason. Market timing generally doesn’t work. Recognize the rhythm of events.

Remember the value of common sense. No system works all of the time. History is a guide, not a template.

Balancing, evauating and rebalancing mutual fund portfolio....

            The aim of this column is to educate investors about the parameters that they should consider when analyzing their mutual fund holdings. Before getting into this exercise, I am assuming that investors would have created an appropriate portfolio depending upon the risk profile suitable to them. A risk profiler will cover aspects like the age of the investor, investment objectives, time horizon, existing investments, income and liabilities and the ability to take risks. The portfolio created should have a proper asset allocation depending upon the results of the risk profiling exercise done by the investor with proper risk mitigation measures. These measures could include the following factors: the portfolio should not be concentrated in just 1 or 2 fund houses, the funds included should not have overlapping stocks, the market capitalization tilt of the portfolio should depend upon the risk profiler, etc. I am of the view that creating an appropriate portfolio is only work half done; investors will have to take the effort to review their portfolios on a regular basis. A regular review of portfolio does not mean that investors will have to monitor it on a daily basis; however a quarterly review should be done so that they are aware about how their hard earned money is being utilized by the expert fund managers in the industry. In this context, let me pen down some pointers which investors can consider while reviewing their portfolios.

          Performance is the first factor that can be considered while reviewing portfolios. However; this parameter can be looked at from different angles. The performance of a portfolio can be reviewed by checking if the funds in the portfolio have been able to beat their respective benchmarks or if the portfolio has been able to outperform the major indices, i.e. the Sensex and Nifty. The alternate way to check performance of the portfolio vs the benchmark is to construct an appropriate benchmark which will be a culmination of 2-3 indices by assigning suitable weights to them. Another metric that can be used is the evaluation of the relative performance of the funds; here I am referring to the performance of a particular fund vis-à-vis the peer group.

            The performance of the portfolio should be tracked over a period of time. For instance, let’s say an investment of INR 1 Lakh had been made into a mid- cap fund like IDFC sterling Equity Fund on January 9, 2012 and the fund value became INR 1, 45,802 on January 21, 2013.The normal investor psyche in this case will be to sell this investment and book profits before the market takes a u-turn. When this decision is made, the investor tends to forget the time horizon and the goals for which the investments have been made. There can also be instances when investments have been made into sector or global funds for 2 years and if the investments have been in red, then typically, investors would give an exit call. However, here the investors have to keep in mind the fact that investments into these funds should be made only if they see some future potential in these types of funds. In short, the performance of the portfolio should not be done in isolation; investors should keep themselves abreast about any changes that are being brought about in the funds that they hold in their portfolios.

             Active management is a habit that investors must cultivate to ensure that the investments turn out to be positive for them in the long run. A simple example can be shown with the help of fixed income instruments which are used to mitigate the overall risk to the portfolio. Two years back, if an investor had made an exposure into Fixed Maturity Plans (FMPs) and if these have matured now, then the best investment option in the current scenario would be to consider duration funds. In short, this is an informed decision that the investor will have to make so as to make sure that his portfolio is moving in the right direction.

             Another important factor that needs to be considered is to see if there is a change in the risk profile and if the answer is a yes, then appropriate changes will have to be made in the portfolio. For instance, if an investor had created a portfolio in his early twenties for the purpose of saving, if after 5 years he had a family, has taken a loan for buying a house, and his investment objective is to plan for his child’s education then the existing portfolio would have to be modified as per the new risk profile.

            To conclude, I would like to advice investors that they should not stop just at performance when monitoring their portfolios but should also hold accountable the fund management teams with whom they have trusted their surplus. To do this, they will have to spend a lot of time and effort for the same which is not possible in this rat race called life. This is where investors need to take the support of financial advisors and together they should be able to create and monitor the portfolios. Hence, in my opinion hand holding is needed if investors have to make the right investment decisions.

Choosing a fund?? Why not Multicaps!!

When people think of investing in an equity mutual fund, the most commonly asked question by them is which is the best fund to invest. Actually the first question should be which category is most appropriate to choose the fund from – whether it should be large cap, midcap, small cap, multicap, or sectoral fund category. Each such category has its own advantages - while large-cap funds can ensure stability in the portfolio, midcap and small cap funds can potentially provide exceptionally high returns, sectoral funds can provide a kicker to the returns if the going is good for the sector.

 Nevertheless among all these categories the one that stands out due to its considerable flexibility to invest anywhere is multicap category. Multicap funds are diversified mutual funds that can invest in companies across market capitalization. In other words, they are market capitalization agnostic and invest across the breadth of the equity market. Thus multicap funds are able to take advantage of the opportunities across market cap for the investment. The funds in other categories have restricted mandate and are constrained to stick to the companies that are defined by their defined market capitalization segment. For example a large cap fund will not be able to invest into mid and small cap stocks even if the valuations in these market cap segments become very compelling. Similarly a midcap fund is forced to remain invested in mid and small cap stocks even during severe bearish markets when shares of mid and small cap companies usually have a free fall.

In such a scenario a multicap fund having an astute fund manager can easily contain the downside by realigning market cap allocation as per the market situations. In a robust economic environment, the fund manager of a multicap fund can increase his bets on mid and small sized companies to benefit from earnings upgrades. And he moves his money from shares of mid cap companies to large cap companies to take a shelter, if he is expects prolonged bearish periods. Also a multicap fund is able to take advantage of both growth and value style of investment as their investment universe is very large.

Therefore in the long run multicap funds are usually better wealth creators than other categories as they can take advantage of investment opportunities across market caps. This fact is also supported by analysing the long term performance data of all categories. As per mutual fund performance data available as on 29 July, 2015 the large cap category has provided a return of 14.93% and 15.19% respectively during the past 10 year and 15 year periods, midcap category has provided a return of 18.05% and 19.32% respectively and multicap category has provided a return of 16.37% and 20.24% respectively over the same periods. Thus returns from multicap category are comparable to midcap category over the long term but come with lesser volatility. When compared with large cap category it has clearly beaten them during both 10 year and 15 year periods.

After asset allocation at broad level of debt-vs-equity, the second level of asset allocation that an equity portion of the portfolio requires is at the market capitalization level. But an average investor finds it difficult to assess which segment of the market will outperform – will it be large cap or midcap or small cap. Thus by investing in a good multicap fund they can benefit in any market condition as market capitalization decisions are taken care of by the fund manager who has necessary skills-set. But it is noteworthy that since a multicap fund has a much larger universe to invest, therefore risk levels of a multicap fund can quickly change. Thus the capability of the fund manager becomes a crucial thing for the success of a multicap fund. The fund manager should be able to read market conditions correctly and change the portfolio allocation of the fund as and when required.

            Therefore while selecting a multicap fund you should carefully check the past track records of both the fund and its fund manager. In short, it is beneficial for the retail investors that they select multicap funds as their core holding and do not get carried away by themes and mid-small-large cap schemes. It is especially useful for those investors who do not understand asset allocation and do not have a large portfolio.

Gain Analysis, 9 months holding...

SCRIP	PURCHASE PRICE	PRICE as on 17 July 2015	GAIN	%AGE gain
ENTERTAINMENT NETWORK	410	719.00	309	75
EVEREADY IND	110	366.55	256.55	233
CENTURY PLYBOARDS	183	193.00	10	5
GRANULES	76	98.05	22.05	29
LLOYD ELECTRIC	180	232.10	52.1	29
NUCLEUS SOFTWARE	223	317.00	94	42
R S SOFTWARE	283	162.80	-120.2	-42
SUVEN LIFE SCIENCES	122	268.05	146.05	120
T V TODAY NETWORK	170	205.95	35.95	21
CHOLAMANDALAM FINANCE	610	693.35	83.35	14
ZICOM SECURITY	173	162.25	-10.75	-6
BAJAJ FINSERVE	1450	1719.85	269.85	19
overall gain	IN ONLY 274 DAYS			44.88%

Investment stress???, ways to tackle it....

Oh, yes! Investment-related stress is as real as any other kind of stress. And probably just like physical stress or emotional stress, it creeps into you unnoticed. But stress, of any kind, is never as innocuous as it seems.
What investment-related stress does is that it makes you take financial decisions injudiciously. It makes you take knee jerk reactions that might seem sound at that time, but would be detrimental to your overall investments.So, yes, investment-related stress is real. That's the bad news. The good news is that there are real ways to beat this stress as well.
Clear out the junk
Many investors believe that they need a large number of funds to build a diversified portfolio. This is not true. You can get adequate diversification even with a few number of funds. Different strategies, different fund managers, different exposures, is all you need and what you can get without piling on fund after fund. So, clear the junk and build a portfolio that's easier to manage and track.
Keep a scrapbook
Maybe not exactly a scrapbook, but at least an account statement of your investments. Very often, we come across cases where investors know they've put their money in something, but have no idea about what that something is. That is a situation everyone needs to eschew. Keep a record of your investments as well as your insurance policies, and keep them handy so you don't waste time searching for them when you need them.
Take a walk
Literally, take a walk. When you look at the markets falling and think about redeeming your long-term fund investments, take a walk. When you see the markets rising and think about betting on a particular stock a friend tipped you about, take a walk. Basically, take a walk before you jump into any investment decision. A walk will clear your head and you'll make sure you don't end up with a regrettable decision.
Eat small meals often
Meals, here, means SIPs. The best way to invest in mutual funds is by putting in a small amount regularly, rather than a big amount in one go. Systematic investment plans have proven to be extremely rewarding in the long run because they average out your investment cause and allow you to buy units across various market conditions. And over and above that, SIPs become a habit that's worth holding onto.

Dont you invest, trade or spend on borrowed capital " THE GREEK WAY"

The rise of social media has meant that even somewhat esoteric jokes about financial events get passed around. During the global financial crisis, someone sent me this one: 1st guy: 'The financial crisis is making me really pessimistic. I'm starting to buy gold'. Second guy: 'That makes you an optimist. I'm buying rice.' Obviously, the Greece crisis has led to a flood of jokes. There's the one about the difference between 'Going Dutch' to share a restaurant bill and 'Going Greek' to not pay the bill at all. And there are any number about the Greek government eagerly awaiting replies to the Nigerian emails that they have responded to.



These Greek jokes are funny because they transfer the problems being faced by a country's economy to those of an individual or a business. However, in much the same way, Greece's problems are also a lesson in personal or corporate finance. At its simplest, Greece is an example of living beyond one's means, of spending like a much richer person than you are. In Greece's case, much of that amounted to the usual socialist folly of a bloated, overpaid and underperforming state sector.

However, what makes it relevant to individuals and businesses is the enormous role played by lenders who lent to Greece while winking at the Greek government's fudging of revenue and deficit figures. In India, we find no shortage of people and companies who have borrowed far beyond their means, simply because they could do so. Making big plans and spending money feels good and in all that excitement, it's easy to forget all the repayment and whether the borrowing is adding any real value to your future.

Borrowing for consumption is seen as completely normal--even desirable behaviour today. And yet, almost by definition, it implies zero savings, and nothing damages people's future more than that.

Portfolio Readjustment dated 3 July 2015

I have exited Fedders Lloyd and Infinite Computer solutions on 3 July. The funds have been utilized for purchasing Century Plyboards & Cholamandalam Investment.

New Multibagger purchases on 29 June 2015

We have added Century Plyboards and Cholamandlam Investment & Finance co at 183 & 623 respectively on 29th June 2015

Gain Analysis 8 months holding....

SCRIP	PURCHASE PRICE	PRICE as on 17 Jun 2015	GAIN	%AGE gain
ENTERTAINMENT NETWORK	410	603.80	193.8	47
EVEREADY IND	110	303.10	193.1	176
FEDDERS LLOYD	85	71.05	-13.95	-16
GRANULES	76	85.15	9.15	12
LLOYD ELECTRIC	180	191.70	11.7	6
NUCLEUS SOFTWARE	223	250.95	27.95	13
R S SOFTWARE	283	155.75	-127.25	-45
SUVEN LIFE SCIENCES	122	249.35	127.35	104
T V TODAY NETWORK	170	176.40	6.4	4
Infinite Computer Solutions	200	153.25	-46.75	-23
Zicom Security Systems	173	142.15	-30.85	-18
Bajaj Finserve	1450	1500.3	50.3	3
	IN ONLY 244 DAYS			21.91%

The healing and not hurting cut by RBI

That was a predictable 'Monetary Policy Tuesday'. Raghuram Rajan maintained his reputation as a hard-headed inflation fighter. The stock markets nose-dived while punters and other stock market types, along with sundry list of business executives lamented that Rajan was killing growth. Obviously, executive branch of the government did not officially complain but there were plenty of media persons who claimed that someone or the other from the government had whispered into their frustration with Rajan into the ears of some chosen ones. All in all, just another no-surprises day.

The only thing that is actually frustrating here is this extraordinary focus that we have on the immediate impact of the current rate cut, the reduced expectation of future rate cuts and its impact on the fate of people's equity investments. Sensible, steady investors, like those who might be running equity fund SIPs over the long-term, would look at the RBI's actions, see the 400 point crash of the Sensex in a matter of hours, and conclude that the RBI Governor has done something terrible to the future of their investments.

Yet, nothing could be further from the truth. The markets' reaction to the rate cut delivered by the RBI Governor--and his comments--was short-termist to the extreme. It was the starkest example of a situation where the interests of the short-term traders and long-term investors were not just divergent, but were completely opposed to each other. The punters wanted a stream of sharp rate cuts because they had all convinced themselves that uninterrupted sharper cuts were coming and anything less would result in dropping stock prices.

In sharp contrast, the interests of the long-term equity investor is best served by an environment where the RBI is focussed on delivering a low-inflation environment while giving a balanced set of rate reductions whenever possible and necessary. Unlike what the stock markets seem to imagine, the RBI's role is not to be a steady supplier of inputs that can be used to talk up stocks. It is, instead, the default supplier of confidence that no matter what, we will have a sensible monetary policy that will peg away relentlessly at inflation but still be responsive to poor growth.

And as for the government and businesses, they want lower rates because they are the big borrowers in the system. Asking them about interest rates is like asking a buyer of any product about what the price of that product should be. It goes without saying that buyers want lower prices. In fact, a large chunk of Indian financial system boils down to the government borrowing from small savers and depositors. This ranges from direct borrowing (post office deposits, for instance) to banks buying treasuries out of the SLR. The immediate and certain effect of lower interest rates will be that effectively, the government will pay households less for these borrowings. The higher growth that is supposed to come from lower rates may or may not come because of other factors, but lower real returns for households' deposits will definitely arrive.

One of the lines of argument that the commentariat often takes against the RBI is that Indian inflation is largely structural and doesn't respond to high interest rates. The argument is that high rates won't easily control inflation so you might as well lower them and look after growth. This may or may not have any truth in it but from the point of the view of the small saver (which is not well-represented in the media) this is a poisonous argument. Deposit rates must offer a real rate of return and thus must remain higher than inflation. Otherwise, the depositor's wealth is being robbed by lenders like businesses and the government.

It thus follows that no matter what happens to growth in the economy, rates drops must follow inflation drops, and not precede them. Clearly, unlike many others, Governor Rajan understands this very well.

DK

Some mutual funds schemes still missing?

          Every bull market seems to compel the mutual fund industry to go into a NFO overdrive and this one has been no exception. But going by the over 50 NFOs launched in 2014, the industry is running out of new ideas. Most of the new schemes with vague labels like 'equity oriented fund' and 'equity focussed fund', were mere clones of established open end schemes, with a close ended twist.

          Instead of resurrecting long-dead categories of schemes, why don't fund houses reach out to their two crore investors to find out what types of funds they would really like to have? From my chats with investors, here are three kinds of funds that investors want. Can the industry oblige?

An inflation hedge fund

          One basic objective that most Indian investors would like to meet, but fail miserably in meeting, is to hedge against inflation.

          Equity gurus will tell you that if you hold equity oriented funds for the really long term, they will certainly beat inflation. But the flat equity markets between 2008 and 2013 showed us that equity funds can lag inflation or 'shorter terms' like 5 years. Options like bank deposits and post office schemes, once you account for taxes, regularly fall two steps behind inflation. So, if I want my investments to beat inflation from year to year, where do I go?

            The fund industry must devise a solution for this. Maybe such a fund can construct a portfolio of high yielding bonds and bluechip equities to meet this objective. Or it can use a mix of gilts and high dividend yielding stocks (which are available aplenty during market lows). Or it can be fashioned out of commodity stocks or even commodities that make up big weights in the inflation index.

          Generating inflation beating returns isn't a tall order. The maximum CPI inflation rate recorded in India in the last ten years was about 15 per cent, the minimum was about 3 per cent. Given that mutual funds have access to a far wider basket of investment options than the retail investor - gilts, wholesale bank deposits, corporate bonds, commodities, derivatives - they are surely better placed than us to devise an inflation-beating portfolio.

A fixed dividend fund

           It's quite surprising isn't it, that despite the stunning variety of debt, hybrid and monthly income funds that the industry has devised for us, we don't have a fund that can deliver predictable annual income?

           Yes, monthly income plans have this mandate. But given their equity component, they are liable to skip dividends for a month or two if equity markets misbehave. Equity funds do declare dividends, but they are hardly the ideal products for predictability.

          Of all the scheme categories, debt mutual funds alone have portfolios that are designed to generate regular accrual income. But with the category going in for 'active management' and all kinds for specialisations - short term/long term, corporate/gilt, fixed/floating- fund houses seem to be trying too hard to deliver capital appreciation to debt investors.

           Instead of frenetically churning the portfolio to make the most of gyrations in interest rates, investors would probably appreciate it, if the debt fund industry came up with a debt scheme that simply declared fixed dividends every year, like clockwork. The dividends need not be double digit, but need to be predictable. Investors may be quite willing to accept a close end fund with this mandate.

A capital gain REIT

          Most Indian investors would like a real estate component to their portfolio. And investing in real-life property is no joke requiring huge commitments, leverage and dealing with interminable delays and risks that a builder may foist upon you. REITs were supposed to solve this problem.

           But Indian REIT regulations, in their current form, are a clone of the global model. They are mandated to invest mainly in commercial property, rely on meagre rental 'income' for returns and pay out a chunk of their 'gains' as dividends. Instead, how about desi REITs which can focus on residential property and land and deliver, not dividend income, but hefty NAV- based capital gains to investors if held for 8-10 years? This can deliver decent property linked returns to investors without the concentration risks and hassles of actually managing pieces of property.

Managing your finances, the mother's way

The world celebrated Mother's Day last Sunday, with almost everyone heralding mothers as the most important person in their lives. And rightfully so. Despite being a father, and a very good one at that, if I might say so myself, I truly believe that mothers are the best. They care for us from the day we are born, through the rest of our lives. And not only are mother selfless, they teach us a lot. My mother has taught me a lot about life and the world, and not only that, I've also learned a lot about managing my finances from her. That mothers are called the Home Minister of a household is a clichéd joke, but mine is also the Finance Minister of ours. The way she manages our home is commendable and what I have seen her do has also helped me handle my finances better. Here are two of them:

Keeping a tab on expenses

From the 10 rupees she might give someone as a tip for handling her grocery bags to the 1,000 rupees she might pay for those groceries, my mom writes every expense down in a dairy. Having seen her do that since I was kid, I got into the habit as well after I started making a living. This habit has helped me immensely in figuring out areas where I need to be frugal rather than frivolous with my expenses. A rupee saved is a rupee earned, after all. And that same rupee when invested is more than one rupee earned.

Budgeting your expenses

And once you know where you're spending more than you should, you can easily set a budget so that you limit that expense. My mom has a set budget for every household expense that needs to be made. The fact that she has a clear idea of how much of what has to be bought allows her to make sure that nothing goes amiss. I do the same. The first budget I have set aside is for my mutual fund investments. Once that's out of the way, the necessity expenses are taken care of and only then a budget is set of entertainment or such expenses.

Both of these things are such basic elements of managing one's finances that we often overlook them while we end up focusing on the more complex issues. But that is another thing that my mom has taught me - get done of the simpler things first before you move onto the tougher tasks. Drink milk before you fill up with something else, or finish studying the easier bits of your syllabus before you move to the tougher sections, she always taught me to focus on the basics and get the foundation strong.

'It's elementary, my dear son,' she'd say. 'Thanks, mom,' is what I now say.