What you must know about investing in gold

 

Let's consider the factors one needs to be aware of and the knowhow of investing in gold.

Forms of buying gold

Any investor has to be aware of the different forms of buying gold.

Jewellery: The most traditional and the dominant form of buying gold in India is in fact not an investment idea.

The reason is that there are heavy losses in the form of wastage and making charges. This can vary from a minimum of 10 per cent to as high as 35 per cent for special and complex designs.

Bank coins: Again not an investment idea as the premium that banks charge for their coins is anywhere between 5 per cent and 10 per cent. Also the bank coins have lesser liquidity as they are not bought back by the banks.

World Gold Council coins: These are coins issued by jewelers who are part of the WGC network. They have lesser premium over the market price (1% to 2%) and are redeemed at the market price when one takes them for selling off.

Bullion bars: These are good modes for investment but the minimum investment here is much higher than a common investor can think of.

Gold Exchange Traded Funds: ETFs are a hot option these days. These are like mutual funds that invest only in gold. They are proving to be an easier and safer mode to buy gold. The charges are very less and the gold can be accessed electronically. The disadvantage is that one never gets to 'see' one's holdings.

Current income

Gold in any form does not give any current income. The only exception is the dividend option in the gold ETFs. If held in the physical form, there is only outflow of cash for the maintenance of lockers.

Capital appreciation

Historically, gold has been the perfect hedge for inflation. This is based on data from the year 1800 AD. But in terms of absolute returns gold has fared rather poorly giving returns at only 0.8% above inflation.

Real estate and shares beat gold squarely on the capital appreciation front. Real estate and shares have given returns of about 11% over inflation since 1979 (1979 as that was the year the index called Sensex was formed).

In the short run, however, gold is a very strong bet, compared to shares which are highly volatile. The idea for gold investment will be to use it at times when the markets are falling and when the inflation is very high.

A 5 per cent of the overall investment portfolio can be considered for gold investments (bullion, WGC coins, gold ETFs). Jewellery is not an investment as far as personal finance goes. It is only an expense for pleasure, symbolising wealth.

Risk

Gold does not carry much risk at least in India, as we hardly see deflation in the real sense. Even when the official figures where showing negative inflation (deflation) during the last year, the actual prices of food items were increasing. This was reflected in the gold prices too.

The real risk with buying gold is in the opportunity cost of investing in other avenues that can actually give higher returns.

Liquidity

Gold scores the highest in terms of liquidity, compared to all other investments. At anytime of the day and any day gold could literally be converted to cash. Banks would give you a jewellery loan. (Remember though that many banks do not give loans on coins, including their own).

So would your friendly neighborhood pawn shop. They can also be sold in some pawn shops, though many are cautious to purchase in these outlets for fear of 'stolen jewellery'.

Gold jewelers would exchange your gold possessions for other gold jewels. But the problem here is that there is going to be making and wastage charges involved again. Here we lose the value (to the extent of 10% to 35%) of gold jewels.

An unfortunate social aspect in most families in India related to liquidity is that, gold has sentiments attached and is the last item to leave the house in case of financial difficulties. This negates the entire purpose of gold having liquidity.

Tax treatment

Gold suffers capital gains tax as per the IT act. So it is better to ask your jeweler for the bill. Close to 90% of the gold jewellery traded in India is unbilled. This is a serious problem for those who look at gold as an investment. Only the branded jewelers would automatically give you a bill. At other places ask for one.

We can make use of indexation benefits when calculating the capital gains of gold. So the tax payable will not be much.

Gold does not have any other tax benefits.

Convenience

Gold scores very high here. But with the per gram price rising, the smallest single investment is becoming higher. With the emergence of Golf ETFs the convenience to hold gold for the short term has increased many folds. Instead of holding cash for the short term, one can today make investments in Gold ETFs.

Conclusion

Gold has proved itself time and again to be the perfect hedge for inflation. But to look at it as a hedge avenue, Indians are yet to consider this market actively as the purchases continue to be dominated by jewellery.

Gold only beats inflation. It fares poorly when compared to real estate or shares when compared on the basis of real inflation adjusted returns.

Any serious investor, however, is advised to have a certain percentage of investment in gold to hedge inflation.

 

Prices to hit gold jewellery demand: WGC

Sky-high gold jwellery prices will haunt buyers in 2010 also though India is better placed than its global peers, where people are slowly turning back to purchases, according to World Gold Council. "In terms of jewellery, it is likely that the high price will continue to adversely affect demand, consumer confidence is returning faster to the traditionally strong jewellery markets of India and China than in other parts of the world," WGC Managing Director India Ajay Mitra said in a statement.

Jewellery demand was hit in 2009, due to global recession and record high prices in the key jewellery buying markets and elevated volatility levels of gold price, it said.

As a result, the demand was significantly lower in 2009 than a year previously, the statement added.

However, investment demand remained strong supported by continued economic and currency uncertainty, especially fears about future inflation, emanating from rapid money supply growth, and dollar weakness, the WGC said.

"Moreover, despite rapid investment inflows in recent years, allocation to gold remain low as a percentage of total global assets and there is ample scope for further growth," it added.

On supply side, mine production has been declining since 2001, and fell further 3 per cent last year to 2,400 tonnes. The outlook for new mine production remained benign, even as there has been a sharp increase in exploration spending since 2004, there has not been any new discoveries of gold.

Mining is, however, only one part of supply and practically all of the gold that has ever been mined still exists in jewellery form. "At the moment, our best estimate of above ground stocks is 163,000 tonnes, most of which resides in the jewellery sector in India," WGC said.

Scrap or recycled gold, it said, had been high this year due to record high prices in many jewellery-buying countries, but it has eased lately as the economy showed signs of recovery and in 2010 "distress selling" of the precious metal may continue to ease.

 

Court bans sale of Microsoft Word in US

Microsoft has lost an appeal in a patent dispute with Canadian company i4i with the US Court of Appeals for the Federal Circuit ordering the software giant to stop selling Microsoft Word 2007 and other Office 2007 products by January 11.

The court also hit Microsoft with a $287 million fine.

Microsoft lost a patent infringement suit against XML specialists i4i back in May when it was found that Word's handling of .xml, .docx, and .docm files infringed upon i4i's patented XML handling algorithms, but the injunction against further Word sales was put on hold pending the results of this appeal.

In August 2009, a US judge had ordered Microsoft to stop selling Microsoft Word in its current form in the US as it infringes upon a patent owned by a Canadian company, i4i.

Judge Leonard Davis of the US District Court for the Eastern District of Texas had passed an injunction to this effect and has given Microsoft 2 months within which the software giant must comply with the order.

A patent infringement lawsuit was filed by i4i in 2007 against Microsoft. The judge on Tuesday forbade Microsoft from selling Word products which let people create custom XML documents. Microsoft has now been banned from selling or importing into the US any Word products which can open .XML, .DOCX, or DOCM files containing custom XML.

However, reports suggest that the patent ruling will have not much effect on Microsoft. The Washington Post said that the ruling only upholds a judge's injunction issued after a district court jury found that a feature in Word 2007, and the Office 2007 suite that includes Word, infringed a patent held by i4i, a Toronto software developer.

Meanwhile, Kevin Kutz, director of public affairs, Microsoft Corporation, said in a media statement: 'We have just learned that the Court of Appeals for the Federal Circuit has denied our appeal in the i4i case.  We are moving quickly to comply with the injunction, which takes effect on January 11, 2010.'

The statement adds that the 'injunction applies only to copies of Microsoft Word 2007 and Microsoft Office 2007 sold in the United States on or after the injunction date of January 11, 2010. Copies of these products sold before this date are not affected.'

Microsoft also said that it has put the process in motion to 'remove the little-used XML features from these products.' 'Therefore, we expect to have copies of Microsoft Word 2007 and Office 2007, with this feature removed, available for US sale and distribution by the injunction date. In addition, the beta versions of Microsoft Word 2010 and Microsoft Office 2010, which are available now for downloading, do not contain the technology covered by the injunction,' the statement added.

 

How bonds add safety to your portfolio

 

Bond is simply a loan taken by the companies or government in order to finance their activities. Investors lend money and receive interest from the borrower at pre-determined intervals. Normally the periods can be quarterly, half-yearly and yearly. The bond can be considered as IOU from the borrower to the lender. The original value of the bond is called as face value.

The rate of interest is called coupon and the period of holding is called as maturity. If you choose not to withdraw the interest, the interest amount is added to your investment amount and earns you interest. At maturity, the amount you get is called as maturity value.

Example, if you buy a bond with a face value of Rs 100, with a coupon of 7 per cent, you get Rs 7 at the end of each year. If you opt to get this interest half-yearly, you get Rs 3.5 every 6 months.

Types of bonds

The bonds are of various types: capital gains bonds, taxable bonds, company bonds, commercial paper, treasury bills, strips, zero-coupon bonds and foreign currency convertible bonds, available to non-residents. Most of these bonds are taxable, while some like those issued by NABARD are tax-free.

Trading in bonds

Unfortunately trading in bonds is not available for Indian retail investors. You have to hold the bonds till maturity or till the borrower decides to repay the loan.

Factors affecting the bonds

The most important factor affecting the bond returns is the rate of interest. As the interest rate goes up, the returns from the bonds go down, since you are stuck at the lesser coupon. Another factor that can affect the bonds is the liquidity risk. This is true for company bonds, as the company may land in financial crisis and would be unable to repay the bonds. This makes bonds a riskier investment option than FDs.

Asset allocation for bonds

Since bonds are quite risky, it is advisable to opt for bonds issued by government or reputed corporate entities. Crisil gives credit rating for various bonds. The bond you want to go for should have at least AA+ rating. Once you do that, you can allocate 10 per cent of your portfolio towards bonds. If possible, choose short-term bond fund to protect yourself against interest risk.

Why choose bonds?

Besides offering you safety, bonds also tend to give you capital tax benefits. It is advisable to opt for mutual funds investing in bonds, as you enjoy the benefit of liquidity. Also you get exposure to different types of bonds at a mere amount of Rs 5,000.

For example, IDFC Dynamic Bond fund has managed to generate returns of 8.8 per cent, since 2002, when it was first introduced. Over the past 1 year, it has given a return of 18 per cent, as compared to the its benchmark, Crisil Composite Bond that offered a return of 7.8 per cent.

Bonds are an excellent diversification tool for those looking for stability and tax-saving. But they also carry certain risks. It is advisable to find out the reputation of the borrower as well as your risk appetite before investing.

 

Dubai property recovery under threat

 

The fear of government-owned Dubai World reneging on its commitments to global lenders is expected to find an echo in a reversal of a recent tentative recovery in Dubai's real estate values unless the emirate manages to strike some sort of deal with creditors and / or somehow raises the cash to meet its obligations, analysts and industry professionals said on Sunday.

The ports, property and hospitality conglomerate last Wednesday asked its creditors for a six-month standstill period while it restructures its debt obligations. Dubai World has borrowed $59 billion to finance its expansion, including the acquisition of port, retail and leisure assets and the setting up real estate ventures globally.

"Unless there is some agreement with creditors on the $10 billion or so that is due in the next two months, I see an indirect perceptional impact on property values in Dubai, maybe even sending them spiralling downward again," said Ashutosh Maitra, one of the partners at a Dubai-based property marketing firm.

This would have a direct impact on the Indian investors in the emirate's real estate sector, who constitute the largest number of property buyers followed by Britons. In real terms, however, such an impact would further push back the possibility of a profitable exit.

An economist attached to an asset management firm at the Dubai International Financial Centre, or DIFC, added: "Such an impact is only likely if there is no quick resolution to the Dubai World crisis. And frankly, this seems to be a storm in a teacup. Dubai World is not seeking to renege on obligations, it is simply asking for some time out from paying off the interest while it restructures its commitments."

By the middle of this year, property values had fallen by about 65 per cent in peak advertised prices since September 2008, when a delayed reaction to the global credit crunch hit the market. According to HSBC data, May 2009 saw a slight uptick in agreed prices month on month, indicating signs of recovery. The lender said distressed stock was gradually clearing due to renewed interest as well as some repricing by sellers. "Anecdotal evidence also suggests that foreign investors seem to be back in the market and there are bulk buyers of property for investment purposes," HSBC said.

The research arm of HC Securities said the main catalyst of an uptick is credit returning to the market as mortgage providers raised their loan-to-value ratios, relaxed credit norms and lowered rates in line with a downward trend in the Emirates Inter-Bank Offer Rate, or Eibor, which fell from 3.87 per cent in January to 1.95 per cent in October.

After dropping to a two-year low of seven per cent and six per cent, mortgage values and volumes as a percentage of total transactions have since steadily recovered to pre-crisis levels, reaching 24 per cent and 14 per cent, respectively, in October. Mortgage volumes have also recorded a strong growth, reaching a two-year high of 374 units in August, as prices drop to attractive levels, only to back-pedal to 191 units in October.

However, a number of factors are likely to keep the recovery fragile. According to HC Securities' own research, 60,000 residential units are likely to hit the market between 2009 and 2011, putting further pressure on prices.

At the same time, rental returns will continue to stagnate or fall marginally as uncertainty over the business environment keeps the expatriate population lower than in recent years. Several rounds of lay-offs by large and small corporations have resulted in rents in most parts of Dubai coming under intense pressure in the past 18 months, making property investments less attractive than they used to be in the glory days of 2002 to 2007, when so-called "flippers" -- investors who bought property with a 10 per cent down payment, only to sell it one or two months later for a 100 per cent return on investment -- made massive amounts of cash.

Asking rentals in Dubai have retreated for 10 months in succession since the start of the year, dropping more than 40 per cent year to date. Occupancy levels have been driven down by expatriates leaving and new stock coming into the market. The pace of the decline, however, seems to be slowing, according to HC Securities, with rent values declining only two per cent month-on-month in September and October.

Advertised rentals on agreed sale prices resulted in yields that are higher, upwards of 10 per cent in October. Considering there is a large bid/ask spread on prices, HC Securities believes rentals are no different and estimates that agreed rental yields have compressed from a high of 8.6 per cent in November 2008 to around 5.7 per cent in October 2009.

On the other hand, this is making life easier for tenants, who now have the upper hand in negotiating down their monthly rents. Over the past four months, there has been a large population shift from the traditionally low-rent areas of Dubai into the relatively upper-crust areas where rents have suddenly become more affordable.

Any quick recovery in realty values driven by massive foreign capital, as witnessed in the boom years, will be predicated on global fund managers allocating larger amounts to the Dubai and UAE markets. "I don't see that happening very quickly," said the DIFC-based economist, who refused to be named. "Primary fund flows will be allocated to more developed markets like New York and London -- where there is an established secondary market that facilitates an exit, and where transparent data shows a clear bottoming out. I believe only the high-risk hot money like hedge funds will be allocated to emerging markets."

Also, other real estate opportunities in the Arabian Gulf itself are looking more attractive, according to several property consultancies such as Jones Lang Lasalle and Colliers. One of them is Dubai's own neighbour, the oil-rich UAE capital city of Abu Dhabi, where severe residential and commercial property shortages are keeping prices and rental yields high.

"If the Dubai World debt imbroglio results in pushing property prices down again, it will be seen as the start of the double-dip in that sector. Since perception is everything these days, the worry is the double-dip will result in a W-shaped overall economic recovery for the emirate," said the DIFC-based economist. This would be bad news for real estate buyers in Dubai, who will witness their investments eroding even more before recovering.

"These worries would prove unfounded, however, if the Abu Dhabi Government or the Federal Government takes a hand in helping out the Dubai Government, as they have done on two occasions in the past," he said.

 

Facebook to get rid of India network

 

Almost 50 per cent of all the 350 million-odd active users on the social networking site are members of regional networks.

The world's largest social networking site, Facebook, has decided to rid itself of regional networks like India and China in a bid to tighten its privacy policy.

Following this move, thousands of Facebook users from India, who had opted for the "India" network when joining the social networking site, will have to revise their settings.

Every Indian who joins Facebook has an option to choose the 'India' network. India has nearly 12 million Facebook users, and the number is growing steadily. And there are numerous "India networks" -- the largest have around 13,198 members. Compared to this, Orkut (owned by Google) has around 16 million users, but the numbers are declining.

Since this update will remove regional networks and create some new settings, in the next couple of weeks Facebook will ask its users to review and update their privacy settings. Users will see a message that will explain the changes and take them to a page where they can update their settings.

When they're finished, it will show a confirmation page so that one can make sure one has chosen the right settings. As always, once the task is done, users will still be able to change the settings whenever they want.

Facebook has its reasons. Almost 50 per cent of all the 350 million-odd Facebook's active users are members of regional networks, "so this is an important issue for us," said Facebook founder Mark Zuckerberg in an open letter to users.

As Facebook has grown, regional networks like India and China have millions of members and "we've concluded that this is no longer the best way for you to control your privacy. If we can build a better system, then more than 100 million people will have more control of their information," said Zuckerberg.

"The positive side is that users will be better able to protect their privacy. On the negative side, users like me who have hundreds of contacts who have added me as friends, would now have to sift through those lists and decide who should see what. This is going to be very painful. It will need a software to manage these third-party contacts," rues Mahesh Murthy, founder and cheif executive officer of search engine marketing firm, Pinstorm.

"This was waiting to happen. The regional networks were not adding any value as such," says Kiruba Shankar, co-founder of F5ive Technologies and founder CEO of Business Blogging. He adds, though, that Facebook probably did this since the regional networks were a drain on resources without adding any value in terms of advertising. "When it comes to advertising, Facebook can't hold a candle to Google," he says.

Another Facebook user, Moksh Juneja, concurs: "It won't make any difference to the users except the fact that the India networks held an emotional appeal. It gave, perhaps, a sense of belonging so some users may protest."

Murthy, on his part, believes that the move also "throws up some very important and sensitive questions". For instance, what happens to large networks? "Is this a precursor to charging for large networks?" asks Murthy. Instances of that are the "Starbucks" network which has over 4.5 fans and the "Coca-Cola" network with nearly 3.6 million fans. "Will Facebook start charging for networks of this size?"

Murthy adds it will also be difficult to rally people around causes that matter -- for instance, the 26/11 terrorist attacks in Mumbai. "I recall that with the help of Facebook and Twitter, we managed to mobilise nearly 220,000 people  from all around the city to protest against the attacks, and pressurise the government to take action," he says.

Incidentally, the first version of Facebook was launched five years ago. Its current privacy model revolves around "networks" -- communities for your school, your company or your region. This worked well when Facebook was mostly used by students, since it made sense for a student to share content with their fellow students. Over time, networks were added for companies and regions as well. Today, Facebook has networks for entire countries, like India and China.

However, as Facebook has grown, some of these regional networks now have millions of members.

Hence, Facebook will now "remove regional networks completely and create a simpler model for privacy control where you can set content to be available to only your friends, friends of your friends, or everyone. We're adding something that many of you have asked for -- the ability to control who sees each individual piece of content you create or upload. In addition, we'll also be fulfilling a request made by many of you to make the privacy settings page simpler by combining some settings", said Zuckerberg, noting that Facebook "began discussing this plan back in July 2008".

 

GM-SIAC eye India's commerical vehicle mart

 

American auto maker General Motors on Friday said it will enter the Indian commercial vehicles market through a partnership with China's Shanghai Automotive Industry Corporation.

"General Motors has entered into collaboration with Shanghai Automotive Industry Corporation to develop and manufacture commercial vehicles and other competitive products for India and export markets," the firm said in a statement.

The tie-up will give GM India, the company's subsidiary in India, access to mini-commercial vehicles and other products from the stable of GM's joint ventures in China, it added.

"These will be produced at GM India's Talegaon and Halol plants alongside GM's portfolio of models for India and global markets," it added.

The statement, however, did not clarify on reports of SIAC picking up 50 per cent stake in GM India. It said: "The collaboration is expected to be finalised shortly."

"This (the tie-up) will give us an opportunity to utilize and expand our manufacturing capacities as we introduce additional products that are tailored to the needs of local vehicle buyers and local driving conditions," GM India President and Managing Director Karl Slym said.

Commenting on the development, GM International Operations President Nick Reilly said over the past decade, GM and SAIC have created one of the world's most successful automotive industry partnerships in China and cooperation in Korea.

"We look forward to bringing our model for success to India, which is one of the world's most vibrant emerging vehicle markets," Reilly added.

The GM-SAIC tie up follows GM India-Reva collaboration to launch electric vehicles in the market.

General Motors currently manufactures the Chevrolet Spark Chevrolet U-Va, Chevrolet Aveo Chevrolet SRV, Chevrolet Optra Magnum, Chevrolet Cruze, Chevrolet Tavera and Chevrolet Captiva at its two state of the art facilities in Halol and Talegaon.

It also operates R&D, Engineering & Design Centres in Bangalore. Its engine plant is also fast coming up at the Talegaon site and will be commissioned by the end of next year.

 

Three IT firms bag $600 million Walmart deal

 

Walmart has selected three IT vendors in India -- Infosys Technologies, Cognizant Technology Solutions and UST Global -- for multi-year contracts worth over $600 million (around Rs 2,750 crore).

The amount is roughly equivalent to the value of goods -- textiles, handicrafts and other products -- that the world's largest retailer sources from India every year.

This development is expected to boost the IT outsourcing landscape in India, given that Walmart typically prefers to develop its retail applications in-house. Walmart gradually started buying packaged retail applications from leading software vendors such as Oracle, HP and SAP only towards the end of 2007. It had, however, given Infosys and Cognizant pilot projects about five months ago.

Initially, the three vendors are expected to earn Rs 250 crore (Rs 2.5 billion) to Rs 300 crore (Rs 3 billion), each, annually. The figure is set to grow as Walmart increases outsourcing of work from its main merchandising division. Infosys and Cognizant are expected to garner a larger share of the pie between them.

"What is more important is that these three vendors have now got a ticket to be in the club of Walmart's list of preferred vendors which will help them in growing this account in the long-run," said a source close to the development.

According to the contract, Infosys and Cognizant will be responsible for application development and support, while UST Global will be responsible for specific testing of these applications.

Asked about the deal, Infosys and Cognizant declined to comment. "As a policy, we do not comment on speculation in the marketplace," spokespeople from both companies said. A UST Global spokesperson in India said the company does not comment on any client specific information as "we have non-disclosure agreements with most of our clients."

UST Global is part of the $6 billion US-based business conglomerate Comcraft Group, with a major presence in India.

Walmart's media relations director John Simley replying to an e-mailed query said, "We have a large and growing business and productive relationship with many Indian companies. We do not comment on speculations about the nature of any business relationship."

Walmart, the largest private employer and grocery retailer in the US with revenues of $404 billion (2009), selected the vendors after a competitive bidding process in which most Indian IT services companies participated, except TCS ,India's largest IT services firm.

Tata Consultancy Services failed to qualify for the bid because it has an exclusive partnership with Target, another American retailer, who is into direct competition with Walmart. Among the bidding companies, Walmart shortlisted six contenders of which three were finalised based on their level of competency in various processes.

Unlike other retailers, Walmart does not want to open its own captive centre in India, even though the company has established a huge sourcing office in Bangalore sometime back.

Some of the world's leading retailers like Tesco, Target and Supervalu have their own software development centres in India. Tesco's Hindustan Service Centre which went live in May 2004, employs close to 3,000 people.

In 2006, Supervalu which is the third-largest grocery retail chain in the US, also set up a captive development centre in India for new applications development, technical operations and testing of applications.

India is more prosperous than China

 

India

Is India more prosperous than China? Yes, says the Legatum Prosperity Index. India ranks 45th in the index well ahead of China.

The third edition of the Legatum Prosperity Index ranks 104 countries (covering 90 per cent of the world's population), based on a definition of prosperity that combines economic growth together with measures of happiness and quality of life.

Although outperformed by China on several economic indicators, India's superior overall ranking is achieved through its performance in the critical non-economic factors such as personal freedom which encompasses freedom of speech and religion, national tolerance for immigrants and ethnic and racial minorities.

India also ranks highly on measures of social capital, reflected in the percentage of citizens who volunteer, give to charity, help strangers, and who feel they can rely on family and friends. In this area, India ranks fifth in the world, ahead of the United States, the United Kingdom and Finland.

 "India is a classic example of a country whose prosperity stems largely from its social capital and quality of life rather than its performance on the purely economic measures. Although China outperforms India on several economic indicators, India is 30 places higher in the final rankings because of China's poor levels of personal freedom and democracy," said William Inboden, senior vice president of the Legatum Institute.

"However, there are some areas of concern for India, particularly in the quality of healthcare and education for which India ranks 88th and 86th respectively," concluded Inboden.

India's low global ranking on health indicators results from a number of factors: severe underinvestment in medical facilities resulting in poor standards of healthcare; low levels of improved sanitation facilities; undernourishment affecting 20 per cent of Indian citizens; a low average health adjusted life expectancy of 53 years; and a high number of citizens are reporting that they suffer from health problems. It is ranked 55th in entrepreneurship and innovation.

Ranking

Average Life Satisfaction Ranking -- 68th/104
Per Capita GDP Ranking  --    83rd/104
WEF Global Competitiveness Index -- 49th/133
UN Human Development Index --      132nd/179
Heritage/WSJ Economic Freedom Index -- 123rd/178
TI Corruption Perceptions Index  --  85th/180
Vision of Humanity Global Peace Index -- 122nd/144

China

China is ranked at the 75th position with unemployment is at 4 per cent and inflation rate at only 5 per cent. Despite the large availability of jobs, the workforce is hindered by a relatively small amount of physical capital which limits their production capacity.

While net interest margins are low at 2.6 percentage points, the percentage of defaulted loans is relatively high at 6.7 per cent, indicating weak vetting of borrowers.

Household expenditure as a share of GDP is the fifth highest by international standards, providing a large domestic market for Chinese firms while not compromising the domestic savings rate which is the third highest globally, at over 53 per cent of GDP. It is ranked 38th in entrepreneurship and innovation.

Ranking

Average Life Satisfaction Ranking --  82nd/104
Per Capita GDP Ranking  --     71st/104
WEF Global Competitiveness Index -- 29th/133
UN Human Development Index -- 94th/179
Heritage/WSJ Economic Freedom Index  -- 132nd/178
TI Corruption Perceptions Index  --   72nd/180
Vision of Humanity Global Peace Index --  74th/144

Finland

Finland scores high in economic fundamentals, with unemployment at 7 per cent and a low inflation rate of 3 per cent. Finnish workers have access to a large amount of physical capital, such as offices and machinery, placing the country at 16th on this variable.

Domestic savings are at 27 per cent of GDP and household expenditure at 25 per cent of GDP. The banking sector is highly efficient, with 0.3 per cent of loans in default and narrow lending and borrowing margins that rank Finland's banking sector the second highest, internationally.

The country's level of foreign direct investment is average according to global standards. A strong ratio of export revenues to the cost of imports indicate good terms of trade and a low raw material concentration points toward a heavily industrialised nation, focused on high value-added products and services. It is ranked 9th in entrepreneurship and innovation.

Ranking

Average Life Satisfaction Ranking -- 2nd/104
Per Capita GDP Ranking -- 16th/104
WEF Global Competitiveness Index -- 6th/133
UN Human Development Index -- 12th/179
Heritage/WSJ Economic Freedom Index -- 17th/178
TI Corruption Perceptions Index -- 5th/180
Vision of Humanity Global Peace Index -- 9th/144

2. Switzerland

Switzerland's foreign direct investment is high by global standards,  and Swiss workers have extremely high access to physical capital, with Switzerland ranking sixth on this variable.

Very low interest margins and default rates on loans indicate a highly efficient banking sector. An unemployment rate of 4 per cent, inflation rate of 1 per cent and domestic savings rate of 30 per cent of GDP create a stable foundation for the economy. It is ranked 2nd in entrepreneurship and innovation.

Average Life Satisfaction Ranking -- 8th/104
Per Capita GDP Ranking -- 7th/104
WEF Global Competitiveness Index -- 1st /133
UN Human Development Index -- 10th/179
Heritage/WSJ Economic Freedom Index -- 9th / 178
TI Corruption Perceptions Index -- 5th/180
Vision of Humanity Global Peace Index-- 18th/144

3. Sweden

Swedish workers benefit from access to very high levels of physical capital, placing Sweden 20th in the index on this variable.

Unemployment and inflation rates are both low at 6 per cent and 2 per cent, respectively. Sweden's domestic savings rate, at 27 per cent of GDP, rate near the global average, as does household expenditure at 26 per cent, while the proportion of loans in default is extremely low, pointing towards an efficient banking sector.

It prides to offer high value added goods and services. It is ranked 3rd in entrepreneurship and innovation.

Average Life Satisfaction Ranking -- 6th/104
Per Capita GDP Ranking -- 13th/104
WEF Global Competitiveness Index -- 4th/133
UN Human Development Index -- 7th/179
Heritage/WSJ Economic Freedom Index -- 26th/178
TI Corruption Perceptions Index -- 1st/180
Vision of Humanity Global Peace Index -- 6th/144

4. Denmark

Inflation rates are very low in Denmark, indicating high levels of price stability. The banking sector is amongst the most efficient as non-performing loans and delinquency rates remain low.

Danes have a very high rate of employment and access to a high level of physical capital used to produce goods and services, ranking the country at 13th on capital stock. However, foreign direct investment remains low at 4 per cent of GDP. It is ranked 6th in entrepreneurship and innovation.

Ranking

Average Life Satisfaction Ranking -- 1st/104
Per Capita GDP Ranking --15th/104
WEF Global Competitiveness Index -- 5th /133
UN Human Development Index --13th / 179
Heritage/WSJ Economic Freedom Index -- 8th/178
TI Corruption Perceptions Index -- 1st/180
Vision of Humanity Global Peace Index -- 2nd/144

5. Norway

Workers benefit from access to an extremely high level of physical capital, placing Norway in the top three countries on this variable. Both unemployment and inflation rates are very low at 2 per cent and 1 per cent, respectively.

At 39 per cent of GDP, Norway's domestic savings rate is high, and this coupled with moderate household expenditure indicates a stable domestic market. With less than 1% of loans defaulting and interest margins of 1.7 percentage points, the Norwegian banking sector is highly efficient. It is ranked 17th in entrepreneurship and innovation.

Ranking

Average Life Satisfaction Ranking -- 3rd/104
Per Capita GDP Ranking -- 1st/104
WEF Global Competitiveness Index -- 14th/133
UN Human Development Index -- 2nd/179
Heritage/WSJ Economic Freedom Index -- 28th/178
TI Corruption Perceptions Index -- 14th/180
Vision of Humanity Global Peace Index -- 2nd/144

6. Australia

The unemployment rate in Australia is low at 4 per cent and Australian workers have access to extremely high levels of physical capital per worker, and inflation is low at 2 per cent per year.

Australia's financial sector is strong with the lowest level of non-performing loans worldwide, and low lending and borrowing margins, indicating very high levels of banking competition and efficiency.

Household expenditure and the domestic savings rate in Australia are both near global averages at 26 per cent and 28 per cent, respectively. It is ranked 15th in entrepreneurship and innovation.

Ranking

Average Life Satisfaction Ranking -- 13th/104
Per Capita GDP Ranking -- 12th/104
WEF Global Competitiveness Index -- 15th/133
UN Human Development Index -- 4th/179
Heritage/WSJ Economic Freedom Index -- 3rd/178
TI Corruption Perceptions Index -- 9th/180
Vision of Humanity Global Peace Index -- 19th/144

7. Canada

Canadian workers have access to a very high level of physical capital. The economy benefits from low rates of unemployment and inflation. Low lending and borrowing margins together with extremely low level of non-performing loans suggest high efficiency in the banking sector.

The domestic savings rate is around 25 per cent of GDP, which is average by global standards. Canada ranks in the top ten countries in terms of household expenditure rate as a percentage of GDP, which suggests a thriving domestic market. It is ranked 4th in entrepreneurship and innovation.

Ranking

Average Life Satisfaction Ranking -- 7th/104
Per Capita GDP Ranking -- 11th/104
WEF Global Competitiveness Index -- 9th/133
UN Human Development Index -- 3rd/179
Heritage/WSJ Economic Freedom Index -- 7th/178
TI Corruption Perceptions Index -- 9th/180
Vision of Humanity Global Peace Index -- 8th/144

8. The Netherlands

The Netherlands has a stable economy with low unemployment at 4 per cent and inflation at 2 per cent. There is a strong investment environment allowing for capital accumulation and high levels of physical capital per worker.

An interest margin of 1.3 percentage points coupled with less than 1per cent of non-performing loans reflect a strong banking sector. The savings rate, at 28 per cent, is low, whilst household consumption is high at 26 per cent, placing the country in the top 20 in the latter variable. It is ranked 5th in entrepreneurship and innovation.

Ranking

Average Life Satisfaction Ranking -- 4th/104
Per Capita GDP Ranking -- 8th/104
WEF Global Competitiveness Index --10th/133
UN Human Development Index -- 6th/179
Heritage/WSJ Economic Freedom Index --12th/178
TI Corruption Perceptions Index --7th/180
Vision of Humanity Global Peace Index -- 22nd/144

9. United States

America's household spending is the highest in the world as a proportion of GDP, although domestic savings rates are only 14 per cent of income, ranking the country 82nd in the world.

Levels of capital stock per worker are in the top 10, and inflation was 3 per cent in 2007. The US economy focuses on high value added goods and services, and is not dependent on exports of raw materials. However, its ratio of export prices relative to the cost of imported goods is weaker, ranking the country 78th in the world.

The US also attracts relatively little foreign direct investment, which accounts for just 2% of GDP, ranking the country 83rd on this variable. The US leads the world in fostering entrepreneurship and generating intellectual property.

Ranking

Average Life Satisfaction Ranking --11th/104
Per Capita GDP Ranking -- 4th/104
WEF Global Competitiveness Index -- 2nd/133
UN Human Development Index -- 15th/179
Heritage/WSJ Economic Freedom Index -- 6th/178
TI Corruption Perceptions Index -- 18th/180
Vision of Humanity Global Peace Index -- 83rd/144

10. New Zealand

Unemployment and inflation rates are low at 4 per cent and 2 per cent, respectively. Domestic savings run near the international average at 21 per cent, and New Zealand's interest margin of two percentage points is low, indicating that the banking sector operates at a high level of efficiency.

While the country is demonstrably stable and productive, its export performance has been less than optimal, as indicated by the low ratio of export revenues to the cost of imports. It is ranked 18th in entrepreneurship and innovation.

Ranking

Average Life Satisfaction Ranking -- 9th/104
Per Capita GDP Ranking -- 27th/104
WEF Global Competitiveness Index -- 20th/133
UN Human Development Index -- 20th/179
Heritage/WSJ Economic Freedom Index -- 5th/178
TI Corruption Perceptions Index --1st /180
Vision of Humanity Global Peace Index -- 1st/144

 

Exploring Public Provident Fund as an investment avenue

 

Where Employees Provident Fund serves all salaried employees, the Public Provident Fund serves everyone - the employed, the un-employed, even children and housewives. The access to the fund is also quite easy as any post office and selected State Bank of India  will serve the investor. The purpose of the provident funds is to help people in their retirement periods. Hence the EPF and PPF are for long term savings. Let us look at the details of the fund now.

Current Income: The returns from the fund are in the form of interest paid. The interest rate currently is 8 per cent compounded annually. The interest however is not paid out but is compounded (like a bank recurring deposit) till the maturity or withdrawal. With the current levels of inflation, real and stated, the return from the PPF is very low. This is a typical asset class mismatch.

Capital Appreciation: Being a typical debt investment, there is no capital appreciation for the investment.

Risk: There is hardly any risk for the capital or the returns from the PPF deposit. The risk however is with inflation reducing the value of the returns to a very low level. The risk is also in the long lock-in period of 15 years.

Liquidity: The PPF gives very little liquidity too. The fund, as mentioned earlier, is for a minimum of 15 years. This can be extended in further period of 5 years each indefinitely (till the account holder is no more).

The liquidity is in the form of withdrawals that can be made from the fund from the 7th year onwards. The withdrawal value is however limited to a maximum of 50 per cent of the average of the last 3 years' fund values. After the 7th year, one withdrawal can be made every year, based on the same condition.

In case of death of the account holder before the maturity of the account, the fund will be paid to the nominee/ legal heir.

Tax Treatment: This is where the PPF scores very high. The PPF comes under the exempt category. This means that the amount invested gets tax benefits, the interest is not taxed and so is the final maturity amount.

The investment gets benefits under Section 80C of the IT Act. The investment however is limited to a maximum of Rs 70,000 per year per person. This limit of Rs 70,000 includes the deposits made in the name of any dependent children.

Some other unique benefits from the fund are that:

There is not wealth tax on the value of the fund: In case of insolvency the money in the fund will not be attached to the assets. So only this investment is truly ours, come what may. (Except for education in a philosophical sense). This feature can be very useful particularly for business people in high risk industries. The fund cannot help anyone if there is tax evasion though.

Convenience: Again the fund scores high on convenience. As a savings tool, it is incomparable in terms of the flexibility of payment and quantum. We can make up to 12 contributions per year. Each contribution can be as low as Rs 100 subject to a minimum of only Rs 500 per year.

There has to be atleast one contribution per year. In case no payment could be done for a whole year, there is a charge of Rs 50 when the next investment is made. The objective is to make savings as comfortable and convenient to the poorest of investor as imaginable.

The limitation is that the fund is yet to go online. So we have to carry our passbook and also face a queue to make the payment every time.

 

Growth or dividend stocks: Which are better?

 

What are dividend stocks?

Usually, companies issuing dividend stocks that yield high dividends are sound, have high cash reserves and do not depend on large capital investments for their growth.

Hence, the growth of these companies is steady and exposed to only very low downside risk.

You can buy dividend stocks if your risk appetite is low and you want a regular stream of income. For example, historical data shows that till March this year, the markets witnessed a slump in the stock prices thanks to the global economic slowdown.

This pushed up the dividend yields and consequently the demand for dividend paying stocks among the investors.

Further, the prospects of getting at least the dividends even when the markets are in red proves to be a convincing point for the investors to choose high dividend paying stocks in place of growth oriented stocks.

What are growth stocks?
Growth stocks are for those aggressive investors who have a higher risk appetite. Growth stocks are considered more lucrative when the markets are enjoying an upward rally.

For instance, the last six months has been good for the equity markets pushing up the demand for growth stocks. The Sensex has grown by leaps and bounds adding nearly 100 percent to its value since March. It has gone to breach the 17,000 points mark. Some experts feel that growth stocks could give better returns during such buoyant market conditions.

Difference between dividend stocks and growth stocks

Growth stocks are better for aggressive investors hoping for better returns in the long run whereas dividend stocks are for the safe ones as these stocks have limited downside risks and ensure a regular flow of income.

That said the decision to go for dividend stocks should be backed by a careful analysis of the basic strengths of these stocks, the present performances and future prospects and the history of dividend yields and dates. Also, historical data has shown that investing in high dividend stocks has been successful for long-term investors.

Strategy to balance the two

Some experts suggest that the investors can adopt a strategy wherein he can capitalise on the current market rally that is likely to continue for some more time and book profits on counters that could give between 15 to 25 percent returns and slowly shift to high growth stocks later.

There is also a contra suggestion from another section of experts who suggest building a mixed portfolio of 40 percent growth stocks and 60 percent dividend stocks so as to get the best of both worlds.

Sectors like cement, banking and others are safe bets considering the fiscal year 2011 forward price to earnings ratio or simply P/E. Also, the present healthy market conditions since March this year has been mainly due to the performances of sectors like automobiles, banks, FMCG, healthcare, metals and IT.

However, the markets have seen underperformances from sectors like capital goods, oil gas, realty and other infrastructure related sectors.

When should you buy both these types of stocks?

There are mixed suggestions from experts about buying dividend stocks in the present market scenario.

Some experts feel that the valuations has gone too far due to the abundant FII inflows and hint at waiting for a correction in the Sensex up to 600-800 points. However, there is another opinion that endorses dividend stocks for their low downside risks and regular income stream.

Mutual funds work in a different way and choosing dividend or growth options do not necessarily signify that the mutual fund will invest accordingly.

Choosing to invest in dividend stocks will yield regular inflows of money while investing in growth option will get the investor a lump sum amount on the sale of units. However, the returns will be similar in both the stocks.

Hence, the risk appetite of the investor and his investment goal will alone should be left to decide on choosing the right investment option.

 

The pros and cons of investing in fixed deposits

 

Current income

Bank deposits are most sought after for this purpose. They give a stable and fixed return on the invested money. Traditionally, the interest rate is fixed during the tenure of the fixed deposit. Some banks now-a-days have gone for the reduction in existing bank deposits too, when the market interest rates come down.

The income comes to us in the form of "interest" for the deposit amount. The principal (initial amount invested) is returned back to us at the time of maturity. There are options to receive the interest on a monthly/ quarterly / half-yearly or yearly basis. In case we do not need the interest to come to us during the term of the deposit, we can opt for the cumulative deposit option, where it is credited to the deposit and earns additional interest. Interest is generally compounded on a quarterly basis.

The historical average return from fixed deposits in India is approximately 8 per cent for long term deposits (5 years). The highs and lows have been in the range of 13 per cent to 4 per cent.

Capital appreciation

Capital appreciation does not apply to bank fixed deposits. Only the principal invested is returned back at the time of maturity.

Risk

Perhaps the main reason for investment in bank deposits is safety of the principal. The capital (only upto Rs100,000 though) has the highest safety compared to any other investment as it is guaranteed by the Deposit Insurance & Credit Guarantee Scheme of India. All banks operating in India are covered under this scheme.

More than this guarantee, the close monitoring that RBI has on all banks in India is a big advantage to the safety of the investors in fixed deposits.

The risk faced when investing in bank deposits is the interest rate risk. This is associated with the lost opportunity to invest in an instrument that has a higher return. Getting out of a fixed deposit can be costly (up to 1 per cent of the principal), when we exit prematurely.  So we may have to forgo potential earnings when the interest rate has risen only by about 1 per cent.

The highest risk faced with fixed deposits is the effect of inflation. The real return after adjusting for inflation is very less or sometimes negative for fixed deposits of banks. This is a big burden, particularly for retired people, who have invested their retirement proceeds to get regular income. Their income may be regular and steady but the money's worth keeps going down during the tenure of the fixed deposit.

Liquidity

Bank deposits have good liquidity. They can be closed and the principal withdrawn within a few hours in some banks to a couple of days in others.

The other option is to take a loan on the fixed deposit. Banks lend upto 90% of the principal of the deposit. Interest charged for this is only about 1 to 2 per cent and only for the period that we have used the cash (The feature works like an over-draft against the fixed deposit).

Tax treatment

Bank fixed deposits are not tax efficient. The interest is taxed. Also there is no benefit from making the investment.

There are the 5-year bank deposits (tax saving) that give benefit under section 80C of the IT Act. But the benefits such as partial withdrawal or closure, and loan facility are not available. The deposit rates are also lower compared to the normal fixed deposits. This effectively negates the tax saved.

Convenience

This is pretty high with bank deposits. The investments can start from very low amounts (Rs 100 in most cases). There are no upper limits for investment. However, investments above Rs 50,000 will require your PAN card.

For a regular saving for a short period (up to 2 or 3 years maximum) the recurring deposit option can be made use of. Most banks offer standalone deposit accounts, though some may ask for starting a linked savings account.

The deposit periods can even be for very short periods starting from 15 days. This helps us to temporarily park funds before we could decide on an investment or an expense (choosing the wedding ring or buying a car for example.)

Fixed deposits can also be linked to savings accounts of banks in the form of a sweep-in-deposit. This gives the benefit of higher rate of return (when money is in excess) and flexibility to use the money when required.

In conclusion

The bank deposit primarily serves us to preserve capital. Banks now-a-days have added a lot of additional benefits to the traditionally benign service. Retired people could make the best use of this avenue for securing a fixed and steady income.

The caution is not to use the fixed deposit as a long term investment avenue. The reason is that the real return is very less when adjusted for inflation. The tax treatment of the interest also eats into the returns.

 

Why invest in debt mutual funds

 

Debt mutual funds invest in debt instruments like government bonds, fixed deposits and approved private deposits. There are rating agencies that grade the debt instruments. Based on the fund philosophy, the fund manager will choose the instruments with different risks.

Current income

The debt mutual fund is primarily focused on getting a regular return. The investments of the fund are in deposits/bonds with different maturing tenures and different interest rates. We need to take care to match our time frame for investment to the time frame of these. The current income from these funds will be in the range of 8 to 10 per cent.

Generally, the current income is received format the debt mutual funds in the form of dividend. Hence, this cash flow is tax free in our (investors') hands.

Capital appreciation

Through investing in debt instruments only, there is a possibility for capital appreciation in debt funds. This is a major advantage that we get from investing in mutual funds rather than directly in a bank deposit.

This capital appreciation is possible because debt instruments that mutual funds invest in are market tradable. Thus, when the market interest rates come down as in the current scenario, the debt mutual funds get much higher bond yield.

The average return from the top 15 debt mutual funds in the last one year has been 25.96 per cent.

Risk

When the interest rates go up in the general market, the bond yield comes down, leading to capital erosion when debt instruments are traded. This can lead to very low or even negative returns from debt instruments.

So no financial tool can be said to be risk free. However in the short term, debt instruments are a good place to preserve capital.

Liquidity

Debt funds have high liquidity. They can be converted to cash between 2 to 4 days. The high liquidity and conservation of capital are key benefits for temporary parking of funds. Many companies make use of these features for the cash management of their corporate funds.

Tax treatment

Debt mutual funds like the debt instruments are taxed higher then the equity mutual funds. The short term capital gains are taxed at 20% and the long term capital gains tax is 10%. The tenure for long term capital gains is an investment period of over 1 year (365 days). (Similar to equity mutual funds)

Convenience

Like any mutual fund, the debt mutual fund also gives the 4 conveniences:

Convenience of knowledge
Convenience of time
Convenience of small investments and
Convenience of payment frequency

Summary

Debt mutual funds score better than the debt instruments directly because of the tax benefits that we get from their dividends compared to interest from the debt instruments.

Preservation of capital is a major advantage that we get from the debt mutual funds. The potential for capital appreciation and higher returns that the traditional debt instrument can be maximised from these funds.

By nature of their investments and the tax treatment, these are for investment for the short term only.

 

Benefits and risks of strategic investment

 

Kevin owned a company offering online marketing opportunities for multinational companies. The demand for such a service was huge. However, owing to small size of his company he was not able to meet the rising demands of his customers.

This is when Sameer, the CEO of another company, providing a similar kind of service albeit with their focus on other services, and an acquaintance of Kevin stepped in to help him out.

Sameer's company provided some strategic investments to Kevin's company, which enabled Kevin's company to grow and expand its business offerings.

This is just half the story. Most of us do not know what strategic investments are and how they work. We also do not know how it benefits a company. Let's try and understand the basics of strategic investment.

What is strategic investment?

The term 'strategic investments', applies to two different ways of investment in the financial world. The first is when an individual or a company invests with the goal of generating safe, steady returns, usually with the advice of a consulting company, which keeps up with trends in the market and addresses the needs of the customer.

In the second instance, it applies to a company's decision to invest in another, smaller company, usually a startup, with long-term strategy in mind, rather than simple profit. We would be taking a closer at this aspect of investment.

Why is strategic investment done?

Strategic investments are often used to raise capital and credibility for new companies which are struggling to make their way in the market. Larger companies make strategic investments in smaller ones for an assortment of reasons:

• The investment is made because the smaller company makes similar products
• The smaller company may eventually become a client of the big company
• The smaller company might be working on new and innovative technologies and ideas

Wouldn't an acquisition of the smaller company be better?

Industry experts disagree. For the smaller company, the 'strategic investment' arrangement is often beneficial as it allows the company to remain autonomous, and it encourages other investors to get involved, since they believe that they may profit from their investments.

Larger companies also benefit from these arrangements because they carry less risk than acquisitions, allowing the bigger company to receive benefits from the smaller company when it does well, or to jettison the investment if the situation does not work out.

How does it work?

Strategic investment begins with identifying and evaluating various projects and making a selection that is likely to boost the company's competitive advantage.

In a strategic investment, the investor generally acquires common or preferred stocks in the target company. A loan may also be taken for acquiring the debt securities of the target company.

Moreover, the two companies may enter into supply and sourcing contracts, technology-sharing agreements or research and development agreements.

They may also form separate, joint-venture entities for engaging in specified businesses. A strategic investment typically influences what a company does (what products/services it offers), where it does it (the locations of its operations) and/or how it does it (processes and practices).

What are the benefits and risks involved?

Some of the benefits involved in strategic investing include the following:

• Strategic investment gives the investing company access to resources at a fairly low cost. For instance, when the targeted company's business is to develop technology, which the investing company find useful, the latter can make a strategic investment in the former company instead of developing its own technology. This will reduce the cost of developing that technology to a great extent.

• For the investing company, an investment is usually made in exchange for a share of control over the company. This allows the company to protect its investment, and to shape the direction of the smaller company's business and product lines.

On the flip side:

• The process of identifying and evaluating various strategic investment options could be significantly complex, time consuming and expensive.

• The larger company may express a desire to take over the smaller company at some point in the future, once the small company has proved itself viable and productive.

• If the smaller company fails to keep up to its agreement due to any reason, there is always the threat of the investment being pulled out.

 

Forex versus commodity trading

 

Ease of trading

Commodities can be fairly easy to trade because their value is usually based directly on supply and demand. When anything being traded is directly based on supply and demand, it's trend will be more predictable.

Forex can be rather easy to trade if you are using the right trading system or strategy, however, Forex can also be very complex if you are unsure about the system or strategy you are using.

Profitability

Commodity trading can be very profitable; however it depends on the amount of money you initially invest.

Currency trading can also be extremely profitable. With an average daily turnover of over $1.3 trillion, millions of people are earning their fortunes by trading in the forex market. Traders also have the option of trading with leverage. While trading with leverage is risky, it increases your potential to make money.

Consistency

Trading commodities can be consistent; however one of the only ways to predict future values is by utilizing market news and analytics.

The Forex market is overall more consistent than commodities. Forex trends can be predicted using set techniques. There are many trading strategies available on forums which can be learned and, best of all, proven Forex signal services offer traders the opportunity to trade with automated signals which tell them what to trade & when to trade it.

Predictability

Commodity prices can jump all around the board depending on demand, weather, crop percentages planted, oil found or not found, etc. This decreases the amount of change you can predict.

Forex markets are more predictable. Sure, currency prices can fluctuate and become volatile at times, but there is more of a pattern involved with Forex. There are more trends created in Forex that can be followed compared to the commodity market. This can make it easier to be consistent when trading Forex.

Finding Information

Information about trading commodities can be fairly difficult to find, especially information which is free. There is an ample amount of information available, but a lot of it is costly to obtain.

Forex information is much more accessible and most of it is free. You can also sign up for practice accounts at many forex sites and actually try your hand at forex trading without risking your capital. This makes for a great introduction to forex trading and lets you know what the possibilities are. These practice accounts in forex trading are typically not available in the commodities arena.

In conclusion

Owing to the above mentioned factors it is easy to see that the balance tips in the favour of forex trading. However, you must always make decisions based on your investment plans and goals. Reading up on more information would always help in taking the right decision.

 

Internet: What the future holds for us

 

Can the Internet which has flattened the world and blurred economic boundaries, lead the way in changing the way we work, live, play and learn? Wim Elfrink, chief globalisation officer and EVP, Cisco Services, posed this question to a full house on the first keynote of the first day of the Interop Mumbai conference.

Before the audience could react, Elfrink reeled off a couple of interesting statistics: 100 new one million-plus cities will be built by 2025 and over 500 million people will be urbanized over the next five years.

The impact - more traffic, more pollution, more congestion and more strain on infrastructure. Is there a solution in sight or we and our future generations doomed to suffer the effects of urbanisation?

"The Internet is quickly expanding from mobile devices and computers to become the 'Internet of Things,' as it begins to encompass not only the consumer and business Internet, but now the industrialisation of the Internet," said Wim Elfrink.

Elfrink believes that if cities plan well and intelligently use technologies which are available today - the social, economic and environmental effects would be monumental. Cities once networked will be able to not only intelligently deliver efficient services, but also significantly transform the quality of lives of its citizens by transforming functions such as healthcare, transportation and education.

In a live demonstration, Elfrink (who was sitting in Mumbai) demonstrated how a citizen could avail different services right from his home. As an amazed audience watched, Elfrink promptly attached an IP-aware blood pressure device to measure his blood pressure. His doctor, sitting hundreds of miles away in Bangalore, analyzed the readings of his blood pressure and promptly gave Elfrink appropriate medical advice.

The next call was made to the Regional Transport Office in Bangalore, as Elfrink's driving license was past its expiry date. Once the call was connected via a telepresence medium, the operator at the RTO asked Elfrink to stand in front of his web camera.

Once this was done, within a span of 30 seconds, the RTO issued Elfrink a new driving license. Cisco also gave a demonstration of the impact of telepresence in sectors such as education.

As cities became more intelligent and are connected on the same network infrastructure, every citizen is digitally available. This will have tremendous impact on the way service providers deliver services, and the way we citizens consume our services.

 

Tips to invest in stocks and bonds

 

The world has changed with people changing from being cautious about their money to being better risk-takers.

Today, people are more willing to invest in different and new avenues for investments in the hope that their hunch would pay off. All these are aimed at achieving financial independence. Maximising returns and minimising risks is the foremost mantra for investors.

However, you cannot achieve both without doing a little bit of homework, which includes knowing where to invest and how much to invest. Some people look for new investment options while others stick to the time-tested investment options.

Two such time-tested investment options are stocks and bonds. You may know what stocks and bonds are, but you also need to make a choice about which option to focus more on in your portfolio.

This article will help you to understand the basic pros and cons of investing in stocks or bonds and help you make a choice.

Bound to the interest rate - Fluctuation in the values of the bonds occurs depending on the interest rate of the general economy.

For instance, if you have a Rs 1000 bond, which pays the interest of 5 per cent yearly, you can sell it at a higher face value provided the general interest rate is below 5 per cent. And if the rate of interest rises above 5%, the bond, though it can still be sold, is usually sold at less than its face value.

Fixed rate of return - Unlike stocks, you will not directly benefit from the success of the company or the amount of its profits. Instead, you will receive a fixed rate of return, known as the 'coupon rate' on your bond.

Safety of the investment - Due to the fixed rate of return, whether the company is wildly successful OR has an abysmal year of business, it will not affect your investment. Your bond return rate will be the same. However, there is also the possibility of the principal investment amount NOT being paid back to you.

Obviously, this risk can be somewhat controlled through the careful assessment of the companies or institutions that you choose to invest in.

Maturity dates - Once a bond hits its maturity date, the principal amount paid for that bond is returned to the investor. Different bonds are issued different maturity dates. Some bonds can have up to 30 years of maturity period. Therefore, liquidity could be a concern.

Risk versus return - If you're willing to take a greater risk for better coupon rates, then you would probably end up choosing the companies with low credit ratings, companies that are unproven or unstable.

Keep in mind, there is a great risk of default on the bonds from smaller corporations; however, the other side of the coin is that bond holders of such companies are preferential creditors. They get compensated before the stock holders in the event of a business going bankrupt.

So, for less risk, choose to invest in bonds from established companies and if you have bigger risk appetite, choose to invest in smaller, unproven companies.

Investment risks - As with bonds, you can decrease the risk of stock trading by choosing your stocks carefully, assessing your investments and weighing the risk of different companies.

Value fluctuation - Stocks worth is based directly on the performance of the company. If the company is doing well, growing, and attaining profits, then so does the value of the stock. If the company is weakening or failing, the stock of that company decreases in value.

There are various ways in which stocks are traded. In addition to being traded as shares of a company, stock can also be traded in the form of options, which is a type of Futures trading. Stock can also be sold and brought in the stock market on a daily basis.

The value of a certain stock can increase and decrease according to the rise and fall in the stock market. Because of this, investing in stocks is much riskier than investing in bonds.

In conclusion...

Both stocks and bonds can become profitable investments. But it is important to remember that both options also carry a certain amount of risk. The key to wise investing is always good research, a solid strategy and guidance you can trust.

 

Over 40 million use fake anti-virus software

 

Have you installed any downloaded anti-virus software on your computer? Check it out, it could be a fake one as cyber security experts have warned that over 40 million users worldwide have been tricked to buy such malicious software.

According to security experts at Symantec, web users generally get lured by cyber criminals to download and install fake anti-virus software on to their machines, believing they're protecting their PCs from hackers.

But actually, the criminals, who earn more than 750,000 pounds a year from the business, provide themselves a "back door" access into the machines via the software, The Telegraph reported.

Once the malicious software was installed, it forces users to unwittingly share their credit card and other financial details with fraudsters, said experts at the California-based software firm.

They have identified more than 250 versions of this software, called as 'scareware', and estimate that around 40 million people worldwide have fallen victim to these scams last year.

To intimidate and trick web users in to buying such software, Symantec said, the vendors go to great lengths.

They use pop-up adverts, which look similar as the alert messages from known and reputed anti-virus companies, to lull the users into a false sense of security. Such messages warn users that their computer has been compromised and is at risk unless they immediately install tools to protect it.

"Lots of times, in fact they're a conduit for attackers to take over your machine," said Vincent Weafer, Symantec's vice president for security response.

"They'll take your credit card information, any personal information you've entered there and they've got your machine," he said.

Hackers with always-on remote access to a machine could use that connection to harvest details of bank logins or other security codes, or even pull the computer into a giant 'botnet', a network of compromised machines that send out spam messages, or help to propagate the spread of viruses, unbeknown to the computer user, Weafer said.

"In terms of the number of people who potentially have this in their machines, it's tens of millions," he said.

Security experts also warned computer users not to buy anti-virus or security software from unsolicited pop-up adverts.

It is always better to buy those software directly from authorised company shops or from their official websites, they advised.

 

Types of Mutual Funds

 

The following are the basic types of mutual funds, classified on various criteria:

According to Maturity

Open Ended Funds

- Open ended funds have two main characteristics. First, they are purchased from the asset management company (AMC) itself, and not from the secondary market. Secondly, they have no fixed maturity period.

Closed Ended Funds

- Closed Ended funds are issued in a fixed number of shares(or units) in an initial public offering. In addition, they have a specified maturity period, mostly between three to fifteen years. You could subscribe to the shares during the period of the IPO, but if you want to purchase them afterwards, you would have to go to the secondary market.

Acording to Investment Objectives

Growth Oriented Funds

- These funds aim to increase the amount of funds invested, i.e., the main aim is capital apreciation. They invest in the equity stocks of fast growing companies. The risk level associated with these funds is the highest.

Income Funds

– These funds aim to provide a regular stream of income to the holder. They invest in a mix of dividend paying stocks, preferential shares, debentures, bonds and money market instruments.

Balanced Fund

- A balanced fund is usually the mixture or hybrid of the growth and income fund. They seek to provide the best of both the worlds, that is, capital apreciation with a regular income.

Liquid Funds

– Liquid funds aim to provide you with liquidity, at the same time ensuring that you get a higher return on your funds than the ordinary savings account. These funds funds invest in short-term debt instruments, which can be redily redeemed within a peirod of 24 hours.

Specialized Schemes/Funds

There is a wide range of funds that are oriented towards a particular market or instrument or an objective. These funds can be termed specilaized funds.A few examples are as follows:

Index Funds – An index funds pegs itself to a aprticular share index, e.g., the BSE or the Nifty. It invests its portfolio in the constituent stocks of the index in exactly the same proportions. It seeks to replicate the returns of the index.

Tax Saving Funds – A tax saving fund (or an Equity Linked Savings Scheme, or ELSS) is especially focused on saving taxes under the releveant tax laws. Thus, you get double benefits, tax savings, as well as returns on your investments.

Gilts Funds – As the name indicates, gilt funds invest in gilts, or selcted government securities. Therefore, they assure a very high degree of security, although the returns are on the lower side.

Sector Specific Funds – These mutual funds schemes invest in specific sectors or segments of the economy. For example, a real estate fund or an infrastructure fund.

Country/Market Specific Funds - Do you want to invest in the US economy? It may be diffiult otherwise, but a US oriented fund may provide the answer. Or perhaps you may like to invest in the emerging economies of the world? Well, then try the emerging markets funds !

 

Mutual Funds Basics

 

A mutual fund is one of the most potent investment options. It provides a viable investment avenue for the entire range on investors, from the discerning millionaire to the humblest of the investors. Though this tool of investment conevenience has been around for many years, it has gained currency and popularity only in the recent past. Due to its inherent advantages, the mutual fund has become the darling of investors and markets alike. In India, we have seen a vibrant market evolve over the years, and hundreds, maybe, thousands of different funds are actively traded in specialized markets. The funds have become the primary movers and shakers of the market, with huge pools of money at their disposal.

Though the term "mutual fund" has become the part of popular lingo, yet very few people actually know the fundamentals of a mutual fund. This article is an attempt to explain the basics of a Mutual Fund, in as simple a way as it is possible. So, how is a mutual fund defined? Put simply, a large number of small investors mutually pool their money into a common fund. The collective corpus is then used for investment in suitable opportunities. Why is the money pooled or collected? Simply because it is sometimes better to invest a substantial sum of money to get the most out of an investment. It may be out of reach of most but the biggest of investors. The mutual fund, therefore, combines the money from numerous investors to give them the benefit of such investments.

Chief Characteristics of a Mutual Fund:

The following are the chief characteristics or features of a mutual fund:

1) The fund forms a pool from the money collected from the various investors. This pool is then invested, and the profits (or losses) are shared in the ratio of the amount invested (minus any administrative fee).

2) The shares (or units, as they are called) of a MF are not available in the secondary market, neither can they be purchased from another investor. They have to be purchased from the fund itself.

3) The units can be sold back to the fund (directly, or through a recognized broker). This is called redemption.

4) A separate legal entity (called the Asset Management Company, or the AMC), is formed to manage the investments.

 

Why Invest through a Mutual Fund?

When there are a range of options that are available to a potential investor, why should an investor park her hard-earned money with a mutual fund? In other words, what are the advantages of investing through a mutual fund? Well, the advantages of investing through a mutual fund can be briefly stated as:

1) Opportunity:

The MF provides an opportunity of investment to an investor, which might have not been available otherwise. For example, an investor in India will find it extremely difficult to directly invest in European markets. She can route her investment through a MF which invests in European markets.

2) Diversification:

Proper diversification is a basic tenet of a good investment. For a small investor, diversification is rather difficult since the corpus of funds is small. A mutual fund readily provides this opportunity.

3) Professional fund management:

The funds are managed by highly trained and professional fund managers, who bring a lot of knowledge and expertise to the table. In this way, their expertise is available even to the humblest of the investor.

4) Convenience:

This is an important factor, since a large number of people run away from investments simply because they find them cumbersome. An investment through a mutual fund is highly simple, convenient and easily monitored, without the need for significant technical knowledge.

5) Liquidity:

Again, a significant advantage of a MF is that the investments are very liquid. The units of the MF can be easily redeemed through the fund itself or an authorized broker. It does take much time or formalities to get this done.

6) Low Cost:

A very nominal amount can get you started on the road to succesful investments. This amount may be sometimes as small as Rs. 1000! The amount of other costs such as administrative fees is also very small.

7) Variety:

You can get access to a whole gamut of investment options which cater to your individual risk and return profile. For example, you can chose to invest in high growth, stock-based funds, or you can chose to be consercvative with bond funds or money market funds.

 

Here, it must be stressed that not all of the above advantages are exclusive to Mutual Funds alone. In fact, these davantages are the hallmarks of any good investment. Yet, one can safely say that with all these advantages, the mutual fund is one of the best investment options available to the investor in today's markets.