S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
34,415.58 |222.93 0.65%	66.11 |-0.82 -1.26%	31,305.00 | 236.00 0.76%	73.78 |1.76 2.44%	5.00% - 6.90%

 

Perhaps people are withdrawing their own money in protest of not getting Rs 15 lakh of their share!

The government says, unusually high demand for cash has left ATMs dry.

(No! ATMs might be on a detox diet)

Some insiders of the Ruling party blamed the government and RBI for mismanagement.

Meanwhile, the income tax officials have raided hoarders in states that are worst affected by the cash crunch.

You must have read media reports and also seen the floods of posts on the social networking sites.  They are confusing! While some are giving the government the benefit of doubt because numbers are on its side, others are criticising it for its lack of preparedness to handle emergencies.

Well, the irony is people who are, perhaps, least affected by the cash crunch are talking most about it.

The problem with most of us today is, we take our positions (on any issue) first, and then try to justify our stance with news reports. Heated arguments on social media forums are futile almost always, as they are externally fueled more often than not.

Now, let’s look at some numbers.

According to Mr Subhash Chandra Garg, Economic Affairs Secretary, Rs 18 lakh crore is the value of money in circulation at present. As the government claims, at the time of demonetisation, the currency circulation in the system was Rs 17.5 lakh crore.

So at least on paper, there’s no crunch in the system.

How much cash do Indians withdraw from their accounts per month?

As per official records, Rs 20,000 crore is the average cash demand per month.

This number spiked “unusually” to Rs 40,000 crore to 45,000 crore in February and March. In the first two weeks of April, aggregate cash demand was Rs 45,000 crore.

The government also claims only about 10%-12% ATMs are facing the cash crunch.

If you believe official figures, the government maintains a buffer of Rs 2.5 lakh crore to 3 lakh crore to meet emergencies. It says it has already deployed some cash from this reserve and is still left with Rs 1.75 lakh crore surplus.

Now let’s cross-check these claims…

According to the article published by The Hindu Business Line on November 24, 2017, the card-to-ATM has doubled from 2,000 cards per machine to 4,000 cards per machine in urban areas over last few years. The same article quotes Mr Himanshu Pujara, Regional Managing Director, Asia Pacific, Euronet Services India, saying, the value of ATM transactions is about Rs 2.27 lakh crore (per annum).

This, in a way, supports the government’s claim that until recently the monthly cash demand was around Rs 20,000 crore per month.

The government has shown the preparedness to increase the money printing by 5 times. With this, the government is planning to print additional Rs 70,000 to Rs 75,000 crore in a month’s time.

Nonetheless, it has dismissed all claims of a cash crunch calling the temporary shortage “a local management issue.”

Who is withdrawing excess cash?

That’s a million-dollar question and perhaps nobody knows the answer except for those who are hoarding the cash or withdrawing for meeting genuine demands.

On April 19, 2018, The Times of India reported, “in-laws of suspended senior superintendent of police” had stashed Rs 25 lakh in a bank locker. Do such stories have any connection with the current cash crunch? The government must investigate.

Now, look at regions where there’s a cash crunch.

According to the Finance Ministry, Andhra Pradesh, Madhya Pradesh, Telangana, Karnataka, and Bihar and some parts of Maharashtra have reported similar instances.

Have they been in the news or controversies for any reason and is there any connection with the cash withdrawals?

Some experts claim this is a typical behaviour one should expect in pre-election times.

While others are calling it an artificial scarcity created by the opposition parties — the ones that are busy taking the potshots at the government at present.

Some think-tanks claim Cash-in-Circulation to GDP ratio isn’t keeping pace. In other words, the supply of currency has to go up for the rise in GDP, to put it simply.

As reported by Livemint on April 18, 2019, “Contracts for the purchase of ink and security thread expired in December 2017. Bharatiya Reserve Bank Note Mudran Pvt. Ltd will now have to float new tenders for the raw materials which is likely to take one year. However, it can take special permission from the government to buy fresh supplies.”

And haven’t you heard about people losing faith in public sector banks and withdrawing money? The government is calling it the behaviour of “herd mentality”.

But still, the question remains, why there has been a sudden spurt and why has the system failed to address the incremental cash demand?

Don’t expect politicians to give you any logical answers.

Handling ATMs is a cash-intensive business and handling cash emergencies isn’t always easy. It seems the government may have a sufficient warchest, but logistical management has been its Achilles Heel.  

The cash crunch is a ‘freebie’ that will keep fueling several elections, if not appropriately addressed.

If the government wants to save its (face) and credibility, it must answer the following questions:

Have banks failed in managing liquidity requirements, or the ATM machinery? Or it’s the banking regulator that has been unable to identify abnormalities in the system?

Is there any chronic problem with the banking system?

Are only public sector banks facing the cash crunch or the private sector banks are equally affected?

What in its view should be the Cash-in-Circulation to GDP ratio given the preferences of Indians?

What stopped the regulator and the affected banks from addressing the deficit situation overnight if the availability of the money wasn’t a problem as claimed?

If the cash withdrawals are unusual, is any section of economy reporting the unusual pumping of cash? If the answer is no, then it would be a clear case of hoarding!

Have the withdrawals been made from the Jan Dhan Accounts?

What’s its assessment of the appropriate monetary base India should have at present and a few years from now?

At what rate does it expects the cash demand to go up in next 6 months, 1 year, 3 years and 5 years—adjusted with seasonality and the ups and downs in the economic growth?

Why the government feels introducing Rs 1,000 notes is detrimental, when it’s “OK” to use Rs 2,000 notes?

And finally…

Why weren’t the systems red-flagged at the first instance of “unusual” cash withdrawals?

Unless, the government answers these questions, commenting on the present cash crunch won’t be more than kick-starting the engine of conspiracy theories.

Who’s withdrawing money? Farmers don’t have money, businesses are losing money. Fraudsters have no money. Politicians’ coffers are full of money. 

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Best Midcap Funds For 2018. Look Before You Leap!

Does Your Robo-Advisor Provide Research-Backed Recommendations?

Can a data scientist be a good medical scientist?

No, right!

Analysing data and identifying trends doesn’t automatically make anyone a medical scientist. Obviously, to be a medical scientist, one should know medical science.

If there was any merit in the argument above, then why do you think a robo-advisory platform will be good at identifying winning mutual funds?

Robo-investing is in vogue these days. Robo-advisory platforms have made sensational debuts and provided ease in investing. But how many are rendering a valuable advice and added sense in investing.

This is not to say that, all robo-advisory platforms are just “data scientists”, or as inexperienced. 

We believe, you ought to delve deeper getting answer to questions such as following before risking your hard-earned money:

• Who are the people (founders/promoters) behind the robo-advisory platform and what’s their experience in the field of personal finance -- their investment ideologies?
   
• What are the services they offer—whether only mutual fund related or a full-line viz. financial planning and investment planning among others?
   
• What is the technical competence of the team?
   
• What are the processes and systems the robo-advisory platform follows to recommend mutual fund schemes?
   
• What are the qualitative parameters used, if any?
   
• Are they unbiased and independent, or working for commissions?
   
• How transparent are they while charging you?
   
• What is their track record?
   

To read more and Personal FN's views, please click here.

Why You Should Stop Looking At Mutual Fund Star Ratings Now

Here’s honest advice for every mutual fund investor — Stop looking at star ratings.

One of my friends is an ardent believer in Astrology. His morning begins with the predictions for his sun sign made by an astrologer on one of his favourite astrological blog.

Although he may not get his fortune right, he is quite happy when he knows the precautions he needs to take for the day; with his job, with his family, his friends, and enemies too.

Many of you might have a somewhat similar inclination for Astrology.

The word 'Astrology’ is derived from two Greek words, ‘Astra’ which means ‘a star’, and ‘Logos’, which means a ‘logic or reason’. It signifies the movement of stars and planets that can have influence on your life.

Do Stars Talk?

Of course, tracking them helps us predict the future or fortune of an individual or entity.

But do they really stand true in case of mutual funds?

Can they really predict the fortune for mutual fund investors? Or would they just be a redundant symbol, going forward?

To meet the SEBI’s categorization and rationalization norms, mutual fund schemes are being re-categorized under different investment style, and many are being merged with other funds. In such a scenario, basing your investment decision on the past performance of the fund, which will now on be following different investment style altogether, is completely meaningless for you, the investor.

So would you rely on Star Ratings derived looking predominantly at such past performance numbers?

Say, for instance, you have invested in mutual funds for its 5-Star rating.

You were probably happy that you invested in a 5-star rated fund. This may even help you sleep peacefully at night.

Did you revisit the rating again? Has the fund, you had invested in, lost few of its stars?

What would you do in case it did?

You might simply stick with the fund you invested in, or else try to identify the next fund with a 5-star tag and switch to it.

Did you ever wonder, why your fund lost its stars? Was it sheer bad luck or did it never had potential to continue retaining the spot?

If you find that, except performance, all other factors of the fund still remains unchanged, i.e. its fund manager, its investment style, concentration, etc.; then, probably you might have got your timing wrong.

I will tell you why.

To read more about this story and Personal FN’s views over it, please click here.

Akshaya Tritiya: A Good Time To Buy Gold?

India is a country of customs and traditions.  People prefer to start any new activity on an auspicious day and a particular time, called the “muhurat”.

Mythological significance of such muhurats is immense for Hindus. Like some undying traditions, irrespective of how liberal a person’s outlook might be, but when it comes to a wedding, booking a new flat, gruha pravesh (shifting to a new home), buying a vehicle, or starting a new business activity, muhurat matters in all such cases.

But several days of the year are auspicious by their virtue and mythological relevance. Any activity started on these days usually doesn’t fail, as believed traditionally.

Akshaya Tritiya— the third day of Vaishakh month is one such day. This is the day in a year when the Sun and the Moon are at the acme of their brightness.

Buying gold on Akshaya Tritiya is a custom as it’s believed to offer good fortunes and eternal wealth. 

To read more about this story and Personal FN’s views over it, please click here.

HDFC Mid-Cap Opportunities Fund: Will the Fund's Corpus Weigh Down on Returns?

Though HDFC Mid-Cap Opportunities Fund has a corpus just short of Rs 20,000 crore, the fund house is not new to managing schemes with a large corpus.

Being a mid-cap focused fund, there is always a liquidity risk when dealing with an extremely large corpus. Hence, the fund needs to take adequate precautions in terms of diversifying the portfolio as per the asset allocation and over a range of stocks. A large corpus does reduce the flexibility of the fund, and could lead to suboptimal returns over the short-term.

HDFC Mid-Cap Opportunities Fund is the largest midcap-oriented scheme with an AUM of nearly Rs 20,000 crore, double of the next highest scheme on the list. The next highest being L&T Value Fund with an AUM of Rs 7,300 crore, followed by Reliance Growth with a corpus of Rs 6,600 crore. Many other mid-cap schemes with a smaller corpus have restricted inflows due lack of investment opportunities and liquidity constraints.

Click here to read the complete note!

Salaried taxpayers have very limited means to underreport their income. Still, ways exist. It's not entirely unheard of that salaried employees underreport income and overstate exemptions. Recently, the Income-Tax (I-T) Department issued a warning against such practices reiterating that unscrupulous practices are punishable. A wake-up call?

Everything You Need To Know About Financial Planning

Velocity Of Money: The velocity of money is the rate at which money is exchanged from one transaction to another. It also refers to how much a unit of currency is used in a given period of time. Simply put, it's the rate at which people spend money. The velocity of money is usually measured as a ratio of gross national product (GNP) to a country's total supply of money.

Quote: "An investor should act as though he had a lifetime decision card with just twenty punches on it."‒Warren Buffett