S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
18,752.83 |288.6 1.56%	54.39 | 1.0 1.86%	31,960.00 | (40.0) -0.13%	108.95 | (6.9) -5.97%	7.25% - 9.00%

In order to de-risk the banks from the risks that has emerged due to the global financial crisis, the Reserve Bank of India (RBI) has decided to change the way it monitors and supervises banks.

According to RBI, the country's financial sector would now be evaluated under a dynamic risk-based mechanism, called INROADS (Indian Risk-Oriented and Dynamic Rating System), from the next round of Annual Financial Inspection (AFI) in 2013, and is proposed to replace the present system named - CAMELS (Capital adequacy, Asset quality, Management, earnings, Liquidity, and Systems and control), whereby banks would be required to address to the areas of concern mentioned in AFI during a particular year itself. Also, it is also intended to create a single-point contact for each bank in order to plug the regulatory lacuna.

It is noteworthy that under CAMELS, ratings are assigned from A+ to D for Indian banks at the time of finalising the AFI report.

The banking regulator – RBI would be entering into mutual regulatory cooperation agreements with regulators of other countries to extract information about Indian banks operating overseas and vice versa. Presently, RBI has already signed an agreement with 14 - 15 countries and is in talks with the US – a country where a majority of Indian banks have presence. But since the U.S. has three federal banking supervisors, it is expected that the process might take some time.

We believe that, the changes in the regulation brought about by the RBI for the banking system will go a long way in making the entire banking system more resilient. Thus, in case of any global turmoil taking shape like the one witnessed in 2008-09, the banking system will stand strong to wither away the storm. Implementation of the INROADS will help to capture the risks' which the present CAMELS system was not able to capture. Thus, having the new system will help the RBI to spot the weakness if any, in a particular bank at an early stage thereby avoiding its breakdown.

Moreover, speeding up the process of AFI will help create competitiveness amongst the banks which turn will result in better and more efficient services for bank's customers.

Gold shivers as the Indian rupee appreciates

The much awaited reforms kick started with the hike in diesel prices by Rs 5 per litre by the Government on September 13, 2012. This historic move was quickly followed by opening up the multi-brand retail by enabling 51% FDI and 49% of FDI announced in the civil aviation sector. On the global front, the United States of America launched another aggressive stimulus program which will buy U.S. $40-billion of mortgage-backed debt per month until the outlook for jobs improves substantially as long as inflation remains contained. Earlier in the month, the European Central Bank too, agreed on a new bond-buying programme to lower the borrowing costs of struggling Euro zone countries thus addressing to the bond market distortions and the "unfounded" fears of investors about the irreversibility of the euro.
 
(Source: ACE MF, PersonalFN Research)
These reforms on the domestic front and liquidity infusion measure taken by the central bankers have led to some respite for the Indian rupee – enabling it to appreciate against the dollar. And interestingly, although gold prices in U.S. dollar are trending up, not ruling out downbeat economic data; gold prices in India have softened in September 2012 led by the appreciating rupee movement (see chart above).

We are of the view that, the classic asset class gold has more to offer and one should not shy away from the classic yellow metal due to its intermediate slippage (in rupee terms). The developed nations (U.S. and Europe) are still not out of the woods. And thus, as long as the risk-averseness in the market, smart investors (including central banks over the world) will continue to take refuge in the precious yellow metal. Yes, any further appreciation in the rupee may cause the prices in the yellow metal to ease somewhat but the long term secular trend looks intact.

Thus, investors should continue buying gold from a very long term perspective and make it around 5% to 10% of their investment portfolio. And a smart way to invest in gold would be through gold ETFs or gold savings fund due to the benefits these options provide to the investors in gold.

Opt for direct plans of mutual funds to enhance your returns

An extra mile covered earns an extra buck. As the saying goes, an investor needs to put in that extra effort in order to earn that extra returns on his or her investments. This will soon be true for investors in mutual funds due to the recent investor friendly changes brought out by the Securities and Exchange Board of India (SEBI). According to the guidelines put forth by the SEBI, the mutual fund houses will have to provide direct plans in their existing and new schemes with a separate Net Asset Value (NAV) from January 01, 2013.

Until now, when an investor dealt directly with a fund company without going through a distributor, the money that didn't have to be paid to the distributor went to the fund house, adding to its margin of doing business. There was no particular advantage that the investor derived by doing things directly. But now that the guidelines direct the fund houses to come with direct plans with a separate NAV, such investors who walk the extra mile are sure to be benefited. To know more on how to benefit from walking that extra mile in mutual funds, please click here.

SEBI's step may help you get better investment advice

In this era of financial exuberance, many investors crave for better advice from their investment advisors. However, not many investors are able to satisfy their cravings as most of the investment advisors, agents or distributors are self-centred and put their interests' before the interests' of the investors. As a result many investors become wary of investing their hard earned money even in comparatively safer investment avenues like mutual funds and tread with over-cautiousness. This creates a lot of lost opportunities for investors on one hand and low penetration for mutual fund industry on the other.

Thus, in order to correct this anomaly and crack its whip on investment advisors indulging in unfair trade practices, the capital market regulator - Securities and Exchange Board of India (SEBI) has put in place strict norms for investment advisors. Post implementation of the SEBI's stricter norms, all investment advisers would need to register with SEBI (Securities and Exchange Board of India) after payment of required application and registration fees. Going forward, SEBI eventually wants them (investment advisors) to be regulated through a SRO (Self-Regulatory Organisation) model. To know more about how SEBI's steps will help you get better investment advice, please click here.

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The Securities and Exchange Board of India (SEBI) has proposed to make Application Supported by Blocked Account (ASBA) compulsory for retail investors in order to bring down the time taken between closure of an initial public offering (IPO) and listing of a security. Ideally, the capital market regulator has an objective of reducing this time lag to 5 days from the existing 12 days.

The ASBA facility allows investors to apply for public offerings, with the money moving out of the bank account only after allocation of shares. In 2011, SEBI made ASBA compulsory for non-retail investors – qualified institutional buyers and high net worth individuals. Meanwhile, retail investors, at present, can apply either by way of ASBA or through the traditional method of cheque payment. Under syndicate ASBA, investor applications are collected by a syndicate of brokers and banks. Brokers collect applications and send these to specified bank branches with payment authorisations. Bank ASBA is a process wherein investors give their applications directly to banks.

We are of the view that, the SEBI's proposal if implemented will help streamlining the IPO process by making it less complex and free from intermediaries. However, it is better to adopt the new practice in a phased manner and until then the syndicate ASBA can be followed. One of the biggest advantages at present for investors applying for IPOs through ASBA is that they don't lose out on the interest earned on their savings bank account.

Mortgaged-Backed Securities: A type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by a accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution.

Quote : "If you want something you have never had, you will have to do something you have never done."   - Lou Cassara