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| March 06, 2015 |
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| Weekly Facts |
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Change |
%Change |
| S&P BSE Sensex* |
29,220.12 |
-11.29 |
-0.04% |
| Re/US $ |
62.26 |
-0.5 |
0.81% |
| Gold Rs/10g |
26,900.00 |
50.00 |
0.19% |
| Crude ($/barrel) |
61.03 |
-0.27 |
-0.44% |
| F.D. Rates (1-Yr) |
7.25% - 8.75% |
Weekly change as on on March 04, 2015
*BSE Sensex as on March 05, 2015
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Impact 
To achieve any difficult objective or to solve any complex problem at organisational level, concerted efforts are required. Increasing sales can never be a job of a sales team alone or reducing costs cannot be a responsibility entirely of administration and human resources department. Different departments have to work with some mutual understanding to achieve common objectives. Similarly, in any economy; controlling inflation cannot be a job of the central bank or the government alone. Both of them have to address the problem of inflation jointly.
To make the battle against inflation more effective, RBI and the Government recently agreed on establishing a mutually agreed monetary policy framework in India. It is considered as one of the most significant steps taken towards overhauling the old structure of monetary policy and making it more aligned to global standards. The process begun on February 20, 2015 when RBI and the Government signed an agreement to amend the RBI Act to form a monetary policy committee which take decisions pertaining to monetary policy.
What will change with the new monetary policy structure shaping up?
The RBI restated that, the basic target of monetary policy would be to achieve price stability without forgetting about achieving the objective of growth. As agreed with the Government, the RBI has an objective of achieving 4% (+/-2%) target of inflation over 2 year starting from the fiscal 2016-17. So in the current context if it fails to keep inflation under 6% in Financial Year (FY) 2015-16 under 6% for 3 consecutive quarters, it would be said that monetary policy failed. Similarly, if inflation f breaks the band of +/-2% and falls below 2% for 3 consecutive quarters starting from FY 2016-17; it would still be a failure of the monetary policy.
With new framework shaping up, RBI will work towards achieving the inflation target it agreed on with the Government. If it fails to do so, it will clearly reason out its failure and suggest the remedy. Once in every six months, it has to publish a report on procedures employed for achieving inflation targets. Any change in the target or in the procedure, as a reaction to changing macro-economic environment should be stated clearly.
Are changes visible?
It might take some more time before the changes become visible. However, recent reduction in policy rates is an indication of how RBI may react to inflation going forward. On March 05, 2015, RBI reduced monetary policy rate by 0.25% in response to declining inflation and valuable structural changes initiated by the Government in the budget that might help in curbing inflation going forward. RBI has also stated that, future rate cuts may hinge on easing of supply constraints, improved availability of key inputs such as power, land, minerals and infrastructure, continuing progress on high-quality fiscal consolidation, the pass through of past rate cuts into lending rates. In other words, along with inflation, a rate would also depend on how Government makes progress in taking out bottlenecks that pose a threat of escalating inflationary pressure.
PersonalFN is of the view, that the changes to the monetary policy framework may bring more transparency and accountability. Not only RBI but also the Government will be responsible for progress on price stability front. If the Government fails to improve infrastructure and remove supply side constraints RBI may overlook fall in inflation happening as a result of drop in international crude oil prices; and may refrain from cutting rates even if current inflation is well below the targeted one.
PersonalFN is of the view that, adaptation of new framework may also help reduce speculation that usually revolves around policy rate cuts. This might be a good development for investors too. Markets normally tend to be more volatile when policy action is speculated largely. PersonalFN is of the view that, investors would be better off if they avoid any such speculation and stay invested in a diversified portfolio spread over different asset classes. You should be focused more on your financial goals rather than anticipating market reaction on monetary policy action.
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Impact
Everyone talks about economic growth today. However, it is equally important that benefits of higher economic growth percolate to all sections of the society. Upliftment of economically unprivileged people is imperative for sustainable and equitable development. Identifying this, the Government has initiated a process of providing some minimum standard of living to economically unprivileged. In his budgetary speech, the finance minister said that, “the government proposes to work towards Universal Social Security for all Indians”.
What Universal Social Security System means for Indians?
To begin with, the Government has targeted two areas. It has been observed that, financial impact of loss of life in families of economically unprivileged and backward sections is severe. Moreover, empowering old aged people is equally important as their population is going to grow in future. To address these issues the Government has decided to,
- Provide insurance at affordable rates
- Transform India from pension less society to socially secure society
The Government has launched 2 schemes to increase the penetration of insurance in the country. Along with this, a pension scheme has also been launched.
Which are these schemes?
Pradhan Mantri Suraksha Bima Yojna: This aims to provide accidental insurance of Rs 2 lakh at just Rs 12 per year.
Pradhan Mantri Jeevan Jyoti Bima Yojana: The Government has also planned to provide life insurance cover upto Rs 2 lakh to people falling in the age group of 18-50 against the premium payment of Rs 330 every year.
Atal Pension Yojana: To encourage people to contribute in a retirement fund in their working span; the Government has launched this scheme. Under this, the Government intends to contribute 50% of the amount contributed by the beneficiary restricted to Rs 1,000 per year for 5 years. For now, this benefit is available only for those who enrol in the scheme before, December 31, 2015.
In addition to aforesaid schemes, the Government has taken few more initiatives to lay foundation for more inclusive social security system. The Government has decided to utilise unclaimed PPF and EPF deposits to create a fund called for the welfare of senior citizens. To provide more direct benefits to the poor, the Government has been keen to promote Jan Dhan Yojana, Aadhar and Mobile linkages. This is famously termed as JAM trinity.
PersonalFN is of the view that, while initiatives taken by the Government are laudable; they may not meet their desired objectives unless implemented meticulously. It is important for the Government to give more clarity to insurers as far as pricing of aforesaid insurance schemes are concerned. The Government needs clearly state as to how much it would contribute towards these insurance schemes.
PersonalFN also believes, insurance schemes such as these may help create awareness about insurance in the country. India is still underpenetrated as far as insurance is concerned. PersonalFN is of the view that, irrespective of your income, you must have adequate insurance and you should start saving for your retirement right from early days of your working life.
Do you think these schemes will achieve their desired objectives? Share your views |
Impact
Different sections of the economy are giving diverse views on the union budget 2015-16. While some are calling it bold and satisfactory; others are disappointed with the effort of the finance minister. If any industry that has benefited considerably even before the NDA Government completed 3 months of its working period that was the mutual fund industry. Modi-led NDA coming to power was an enough reason for capital markets to cast off gloom. Retail investors were exiting mutual funds till then, who then started coming back to markets and investing in mutual funds again.
Being hopeful of receiving support from the Government to grow faster, mutual fund houses anticipated some favourable announcements in key areas of their operations. But in the end, the mutual fund industry might feel that the budget fell short of its expectations as there have been no significant announcements for the industry. On the contrary, some proposals made in the budget 2015-16 may work to the disadvantage of mutual funds. So, what has changed for them?
To read more about this news and PersonalFN's views on it, please click here.
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Impact
In the budget announced last Saturday, finance minister Arun Jaitley clearly set out his agenda to place India on a high growth trajectory. This year's budget was a mixed bag with new reforms evinced keeping in mind the bigger picture that is growth. It had none of the big bangs that some people were looking for. Instead, it focused on the government's priorities of fiscal management and growth revival. Let's check out who benefited more; industry or individuals.
So who gained?
It seems that the finance minister has tried to maintain balance while allocating funds and making changes in key areas such as taxation and policy framework. While limiting exemptions to corporates, the finance ministry proposed to reduce corporate tax rates from 30 % to 25 % over the next four years to boost corporate earnings growth. However this would reduce the government's corporate tax revenue by around 2 lakh crore while significantly benefitting corporates. In the near term, however, corporates and the wealthy, with an income over 1 crore would have to pay an extra 2% surcharge thereby raising the overall tax burden on India Inc. to 34.6 per cent in FY16.
To know more about this story and to read our views, please click here
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- Association of Mutual Funds in India (AMFI) has come up with a platform to make life simple for investors. Until now, to invest in two different schemes offered by the same fund house, you were filling two separate application forms, but soon you would be relieved from doing this.
AMFI, through its new platform called Mutual Fund Utility (MFU). It a place that brings investors, distributors and mutual funds together to share common technological infrastructure for deriving benefits.
Investors need to get a Common Account Number (CAN) to be able to transact using MFU. In simple words, CAN is a folio number assigned to the investor which would remain common for all transactions. CAN. Moreover, CAN also acts as your single reference point for investing in different mutual funds. Until now it wasn't possible for you to issue one bank mandate for several Systematic Investment Plans (SIPs); it has now become possible because of CAN. Now onwards, you may just fill in one form for applying in multiple schemes. The new platform also makes it possible for you to get all portfolio summaries and reports 24X7 without any hassle.
PersonalFN is of the view that, the new initiative of AMFI may make it possible for investors, distributors and mutual funds to save valuable time. Common reference point eliminates the need to keep records in many cases, thereby simplifying the process for investors. PersonalFN believes use of shared-platform would also result in cost-savings. This might give better experience to investors.
Having said this, PersonalFN believes that, there is no alternative to educating investors to increasing penetration of mutual funds in India. PersonalFN has taken a number of initiatives at various platforms to educate investors and helping novice investors invest wisely.
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Disinflation: A slowing in the rate of price inflation. Disinflation is used to describe instances when the inflation rate has reduced marginally over the short term. Although it is used to describe periods of slowing inflation, disinflation should not be confused with deflation.
(Source: Investopedia)
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Quote : "Buy not on optimism, but on arithmetic." - Ben Graham
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