SUCHETA DALAL ON:

CORRUPTION & FRICTION IN CRYPTO-CURRENCY: ILLEGAL TODAY

DOING BUSINESS IN INDIA BUT MAY CHANGE TOMORROW
Personal Finance Magazine 19 January-1 February 2018 Rs 45

Pages 68 (SUBSCRIBER COPY NOT FOR RESALE) www.moneylife.in

STOCKS

Dredging Corporation Strides Shasun Real Estate

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Advertisement.indd 2 09-01-2018 15:31:36
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 ISSUE CONTENTS
19 Jan-1 Feb 2018

NRIs: Know the Rules

N on-resident Indians (NRIs) have always

been keen to invest in India and have
choices of equity, bonds, mutual fund (MF)
schemes, fixed deposits, public provident
fund (PPF), real estate and so on. PPF is
now out of bounds for them and they need
to explore other options. Equity schemes
are popular while fixed deposits are purely
savings products. Raj tells us, in detail, why a
US resident/person needs to be careful when
investing in MF schemes and insurance plans,
even if they are allowed to. Financial advisers
and chartered accountants may not be able to

guide you on taxation laws in the country of
your residence. Real estate investment is also
popular, but what about capital gains taxation
in your country when you sell property in
India? Raj dives deep into all this to offer
comprehensive coverage.
In her Crosshairs column, Sucheta does
a round up on the crypto-currency situation
and its acceptability or otherwise in India
and abroad. We would recommend stay away
and miss the bus if necessary, until it is legal
and crypto-currency bourses are regulated. In
Different Strokes, she writes about how the
tragedies at Kamala Mills and Elphinstone
Road Station in Mumbai are part of the larger
stranglehold of the corrupt neta-babu nexus
that promotes law-breaking by imposing high
frictional costs to doing business in India.
We have an interesting column this time on
the shoddy state of actuarial education in India
by Chandraprabha Venkatgiri. Since actuarial
science underpins the insurance business, it
exposes policyholders to the consequences.
I hope you have been reading Mehrab’s
pieces; he has returned to writing for us
after several years. His articles espouse the
first principles of financial planning, savings
and investments. This time, he postulates 10
commandments for managing your finances.
This should keep you in good financial shape
for most of your life. Bala’s piece on banks
suggests that, while no government will
convert depositors’ money into a failing bank’s
32 Cover Story
NRI Investors: Your Way through Investment
Options & a Maze of Rules
NRIs are in a dilemma as they need to close their PPF account
or earn a measly 4%pa. How to handle bank and demat
accounts? If you are a US resident/person, you need to be careful
when investing in mutual funds and insurance products even
if you are allowed to do so. Know what is the US SEC’s stand
on a US resident/person investing in Indian mutual funds. A
comprehensive analysis by Raj Pradhan
13 Your Money
– SEBI Proposes To Stop Advisers from Selling Financial
Products from 1 April 2019
– Keep Away from Benami Transactions, Warns I-T
Department
– Mutual Funds Directed To Adopt Total Return Index To
Benchmark Schemes
– SEBI Holds Discussions with NPCI To Reduce Listing
Time after an IPO
– Crisis-hit Jaypee Group Needs Rs8,000 Crore To
Complete Under-construction Flats
– SEBI Issues Notice To Auction 18 Properties of MPS
Group on 6th February
– RBI Directs Banks To Dispense More Rs200 Notes from
ATMs
15 MONEYLIFE

QUIZ
capital, the fact that such a thing is being
legislated is a wake-up call for all of us to look
at other avenues for parking our money. Disclaimer: Moneylife has a policy of not allowing its editorial staff to
buy and sell stocks that are written about in the magazine. All personal
transactions in individual stocks are subjected to internal disclosure rules.
MONEYLIFE | 19 Jan-1 Feb 2018 | 4

Content.indd 2 11-01-2018 18:19:57

Advertisement.indd 5 26-12-2017 19:00:43
 CONTENTS
18 TAX / FIXED INCOME LEGALLY SPEAKING

Crypto-currency Is Not Legal

Today but Nobody Knows
What the Future Holds
27 Have Bank FD Rates
Bottomed Out? 58 New India Assurance
Makes Customer Run
– G-Sec Yields Up from Pillar to Post
20 Different Strokes
Kamala Mills Fire, Elphinstone
Tragedy and Ease of Doing INSURANCE

Business

FUND POINTERS
30 Insurance
Trends
Health Insurance
– New India asking for proposal

24 Your Debt Scheme

Portfolio in 2018
at renewal is violation of IRDAI
regulations
Life Insurance
– When will IRDAI wake up to mass PULSE BEAT
mis-selling of insurance by banks?
Regulation
60 EatBrainVeggies,
FUND FACTS
– Insurance Companies Told To Issue g To Improve
gg
Functions
26 Best & Worst Mutual
Fund Schemes
TP Motor Cover Easily

MONEY MANTRA

xSTOCKS

22 Smart Money
42 10Commandments
Investment
for 2018 and Beyond
Faith in Our Banks:
Shaken, but Not Stirred

TAX HELPLINE – UK Doctors Want Junk Food

Banned in Hospitals

54 Queries
– Ban Energy Drinks for Kids – Jamie
at Moneylife Oliver
Foundation’s Tax Helpline – Can a High Dose of Vitamin D
Reduce Stiff Arteries?

46 Stock Watch xUSEFUL APPS

56
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Dredging Corporation: Can a

Simple Radio:
New Owner Dredge It Up? Simplest Way
of Listening 66 UIDAI Lampooned in the
Social Media
to FM Radio – Infosys: Look what those flexes can
Strides Shasun: Striding
Ahead? – Fast Finder: Find do after an event is wound up!
Your App in a Jiffy

Real Estate: How Do Real Estate – Decision Crafting:

Stocks Stack Up? Take Logical
Decisions
DEPARTMENTS
– Free-ebooks: Readers’ Response ........... 8
Market Trend: High Hundreds of Books,
Expectations for 2018 Free Book Review ....................62
Money Facts ....................64

Content.indd 4 11-01-2018 18:20:29

Advertisement.indd 1 09-01-2018 15:15:13
 Volume 12, Issue 25
19 January–1 February 2018
Debashis Basu
Editor & Publisher
editor@moneylife.in
Sucheta Dalal
Managing Editor
sucheta@moneylife.in
Editorial Consultant
Dr Nita Mukherjee
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Total no of pages - 68, Including Covers
RNI No: MAHENG/2006/16653
MONEYLIFE | 19 Jan–1 Feb 2018 | 8
Letters.indd 2
WHAT AILS HEALTH INSURANCE
SCHEMES FOR SENIOR CITIZENS?
India’s leading dailies are highlighting the
sudden rise in premium for senior citizens.
What the papers failed to highlight was that
the premium is close to 8% of the sum insured
Mutual Fund investments
which is quite astronomical and against the are subject to market risks,
concepts of insurability. When premium rises read all scheme related
documents carefully.
beyond reasonable limits, the insurability barriers
are crossed and consumers will look at other
options and/or leave themselves uninsured, which
is not good, because the burden of losses will fall Write to
back on the family, the society at large, or on the the Editor!
government. This is particularly unhappy for the
many insured who have made no claims for years
WIN
a prize
but are paying a heavy or impossible price for
a contingency that they may, probably, not face
in the future as well. It is an essential feature of
good insurance that the premium cost should be
fair, equitable and affordable. So, what has gone
wrong?
Traditionally, premiums are considered
affordable if they are in the region of a
maximum of around 3%. This was the case in
motor insurance; but the rate was sweetened
by ‘no claim bonus’ which could go up to
60% of the sum insured. Unaffordable premiums are
found in crop insurance; these have now moderated to aaround roun
ro undd 9% in
India. Yet, government schemes (in India as well as worldwide) have
subsidies even up to 80% and the rate for the farmer comes down to
around 2%. Claims in crop insurance are high—historically around
25 per 100 farmers. In the case of health insurance, it is 10 per 100
insured persons; but, for senior citizens, it will be higher.
What is the way forward? Health insurance is a frequency risk; this
means that there will be many claims, but the pay-out would usually
be small. Morbidity affects all but in different variations. Hence, 
09-01-2018 15:19:14
 LETTERS

Onus on the Investor To

the
Best Do Due Diligence?
letter
I read with great interest
the article titled “10 Facts
Mutual Funds Distributors
equity MF schemes
cannot stick to their
mandate because
Mutual Fund investments
are subject to market risks,
read all scheme related
documents carefully.
Won’t Tell You” (Moneylife, they need to have an
22 December 2017-4 January
2018) by Mehrab Irani. I think
exposure of at least
65% to equities for tax Congratulations
a very important issue has been highlighted. Mutual exemptions. Although Ankur Bamne
funds (MFs) are one of the most mis-sold financial cash levels are higher
products. The incentives to distributors are immense in this over-valued
YOU WIN A
PERSONALISED
and, unfortunately, the repercussions can only be market, these are still CLOCK
appreciated in due course of time. insufficient. They would
MF distributors give no idea about the products, rather prefer riding up
where the scheme invests and the associated risks. and down with the
All the responsibility lies with the investor. SIPs market than take
(systematic investment plans) are marketed as a safe, any contrarian calls.
fool-proof method of investing. Hardly a handful of
However, starting SIPs at market peaks and schemes have tried to Ankur Bamne

continuing them through the drawdown is likely to restrict their inflows

give underperformance (at least, in the short term). It
is commonly misunderstood that SIP is an investment
vehicle in itself. SIP is just a kind of formula for
investing that consists of investing a fixed amount of
money at fixed intervals.
Another issue is the expense ratio. These are higher
for actively managed funds. These expenses eat into
the corpus as they are fixed, irrespective of returns.
Does any AUM (asset under management) show the
compounding effect of expense ratios on scheme
returns, or accumulated corpus, over a long period of
time? The actual costs are not only the expense ratio,
because expenses are charged on the invested amount
(before performance). AUMs enjoy significant
margins on these and money management is a very
lucrative business leading to rapid increase in the
number of AUMs.
The holding period of stocks is reducing and the
churning is increasing. This invariably leads to costs
of transactions (brokerage and tax implications),
which will bear down on the NAV (net asset value).
The MF’s advice is to hold the investments for the
long term, while the fund managers are merrily
churning their portfolios.
Most fund managers care about short-term
performance. They do not want to stand out as an
underperformer. Most scheme portfolios track their
respective benchmarks (closet indexing). Dynamic
in view of ‘asset
elephantiasis’.
Others are happy
to receive the
money, in spite of the lack of o
options
ptio
ptio
pt onss tto
ions o iniinvest.
inve
nvest
st.
t.
The MF industry (AMFI—Association of Mutual
Funds of India) has been very aggressive in marketing
their schemes. Through print, television and online
campaigns, they are promoting their schemes, often
under the disguise of imparting financial literacy!
The liquidity of investments is highlighted as a selling
point for the schemes. But they do not mention
the exit-load in many equity schemes, or the tax
implications of withdrawal. The entire basket of
MFs is advertised to be extremely liquid, which is
purposeful mis-selling.
Nobody tells us that every SIP in an ELSS (equity
linked savings scheme) is considered a fresh
investment and has a corresponding three-year
lock-in.
The onus is on the investors to do a thorough
due diligence into what they are buying and the
appropriateness of the product for their goals and
risk appetite. They have to understand the product in
detail, before committing their money. The fine print
has to be read. The surprise often comes at the time
of redemption and it is often nasty.
Ankur Bamne, by email

9 | 19 Jan-1 Feb 2018 | MONEYLIFE

Letters.indd 4 09-01-2018 21:07:50

 LETTERS

 there are some persons who are quite disease-free, but
others are likely to be victims of frequent and severe
hospitalisation problems. This is especially true of
senior citizens. So, the matter of senior citizens’ health
insurance has to be dealt with in different ways.
In the USA, senior citizens migrate to a government
scheme known as Medicare. In insurance, it may be
useful to begin an insurance pool, where insured, who
face un-insurability problems, are moved to a
common pool which will be subsidised
by all insurers, the government and
even hospitals could be compelled to
offer special rebates, so that the cost of
coverage will be affordable. The most
important benefit of this would be
that the premium load on the general
population will come down.
Apart from this, it is important that
the over-regulation that exists in
India for health insurance is written
back or down. As is stated by many
insurers, regulations have compelled
the rise in premium as the regulations
cut off avenues to manage the risk and
underwrite keeping a balance between
those who claim and those who do not. The current
health insurance regulation is an improvement over
the 2013 version; but the regulations have too many
clauses that impinge on insurance underwriting and
risk rating. The result is just what was feared by
forward-looking insurance experts—health insurance
will be made unaffordable even for those who are not
chronically ill or unlikely to be ill.
Regulations should be very strict about customer
service and protection, but should keep away from
time-tested insurance and underwriting principles
and practices. There are many ways that insurers
can moderate premiums. The traditional discounts
and loadings, based on claim experience, the use of
co-payment and deductible, restrictions on insurance
benefit limits, floater, group, top-up policies and
so on. So, for instance, when the premium rate is
reaching 10%, a co-pay of 20%, can bring down the
rate considerably which makes it easier to insure.
There could be a liberal cover for general illnesses
and restricted cover or exclusion for the sure illnesses
because, strictly speaking, it is difficult to carry losses
that will bleed the insurance sector beyond a point
without social support from government sources.
It is essential that health insurance is
not destroyed, at this early stage, by
succumbing to pressures from those
who do not understand insurance
or even regulation. The concepts of
insurability and affordability should
be debated so that a public good and
necessity like health insurance will
bloom and not wither/die. To know
more about health insurance read the
book: Understanding Insurance of
Health.
PC James, by email
DON’T GET HOODWINKED!
This is with regard to “Regulators
and Regulation: Dancing to FSAP’s
Tune” by Sucheta Dalal (Moneylife, 5-18 January
2018). It seems that IMF (International Monetary
Fund) and World Bank are susceptible to pleas from
the country’s government. They are willing to give
high marks for illusory improvements in regulation
as the pay-off is that the country in question will be
more dependent on these international agencies for
legitimacy.
If IMF and World Bank commendations are truly
impartial and honest, why was it that the highly
commended regulators were caught napping in the
Western economies, leading to the financial meltdown
in 2007-2008? Indian consumers should rely on their
own assessments and not get hoodwinked by these
so-called august bodies.
Meenal Mamdani, online comment

Letters:
Letters to the Editor can be
emailed to editor@moneylife.
in or can be posted to: The Editor,
Moneylife Magazine, Unit No. 316,
3rd Floor, Hind Service Industries,
Off Veer Savarkar Marg, Dadar(W),
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MONEYLIFE | 19 Jan–1 Feb 2018 | 10

Letters.indd 5 09-01-2018 21:08:12

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Subscription Form 12 Oct 2017.indd 3 03-11-2017 18:35:05

 Your Money
REGULATION
SEBI Proposes To Stop Advisers from Selling
Financial Products from 1 April 2019
I n a discussion paper, the Securities
and Exchange Board of India (SEBI)
said “From April 01, 2019, any
person, including their immediate
relatives or holding or subsidiary
company shall offer either investment
advice or distribution services.” The
discussion paper further
urther said:
“There should be clear
segregation between n the
two activities of thee entity,
i.e, providing investment
tment
advice and distribution
ution of
the investment products
ducts
and execution of
investment transactions”.
tions”.
The paper said that
banks, non-banking g advice
finance companies
TAX
Keep Away from Benami Transactions,
Warns I-T Department
T he income-tax (I-T) department has
warned people to keep away from
benami transactions, cautioning that
violations under the newly enacted law
invite criminal prosecution and rigorous
imprisonment for up
to seven years. The
department put this
in an advertisement
published in leading
national dailies.
Under the
heading, “Keep
Away from Benami
Transactions”, it described black
money as a ‘crime against humanity’
and urged “conscientious citizens to
help the government in eradicating it.”
“Benamidar (in whose name benami
Your Money.indd 2
(NBFCs) and corporates who register
as investment advisers will not be
able distribute financial products
either directly or through a holding
or subsidiary company. Individuals
registered as investment advisers
too should not distribute financial
products either
property is standing), beneficiary
(who actually paid consideration) and
persons who abet and induce benami
transactions are prosecutable and
may face rigorous imprisonment up to
seven years besides
being liable to pay
fine up to 25% of
fair market value of
benami property,”
the advertisement
said. It added,
“Persons who furnish
false information
under Prohibition of Benami Property
Transactions Act, 2016, are prosecutable
and may be imprisoned up to five years
besides being liable to pay fine up to 10%
of fair market value of benami property .”
directly or through immediate
relatives. Individuals providing
distribution services will not be able
to provide advice for investing in
financial products. Similarly, banks,
NBFCs, corporates, limited liability
partnerships and firms providing
distribution services shall not provide
distribu
investment advice in financial products
investm
directly or through holding or
either d
subsidiary companies.
subsidia
SEBI said that the existing
SEB
registered investment advisers, who
regist
offering distribution services
are o
through immediate relatives or a
thro
subsidiary company, should choose
subs
between
betw providing investment
a or distribution services
before 31 March 2019.
MUTUAL FUNDS
Mutual Funds Directed To
Adopt Total Return Index To
Benchmark Schemes
S EBI has asked mutual fund houses to adopt
total return index (TRI), to benchmark
schemes. It is a more appropriate method to
measure the performance of such financial
products. “The performance of the schemes
of a mutual fund shall be benchmarked to the
Total Return variant of the index chosen as
a benchmark,” SEBI said, in a circular. TRI
includes dividends and other gains in addition
to the stock price movements, improving the
value of the index. The new norms will be
applicable to all schemes of mutual funds with
effect from 1 February 2018. Mutual funds are
required to disclose the name of benchmark
index with which the asset management
company (AMC) and trustees compare the
performance of the product in ‘scheme-related
documents.’
13 | 19 Jan-1 Feb 2018 | MONEYLIFE
11-01-2018 18:44:07
 Your Money
IPO REGULATION

SEBI Holds Discussions with NPCI To Reduce SEBI Issues Notice To

Listing Time after an IPO
S EBI is in discussions with NPCI
(National Payments Corporation
of India) and others to develop an
alternate payment mechanism which
could enhance the efficiency in
payment system and reduce the listing
time, Parliament was
informed.
“An efficient payments
mechanism has the
potential to reduce the
time and cost associated
with public issue and
reduce the market risk for
shareholders by allowing
unblocking of capital,”
minister of state for
finance, P Radhakrishnan,
said in a written reply to
the Lok Sabha.
“At present, SEBI is undertaking
discussions with NPCI and other
intermediaries associated with IPO
(initial public offer) process to assess the
feasibility of developing an alternate
payment mechanism,
which building upon
the ASBA (applications
supported by blocked
amount) mechanism,
could enhance the
process efficiency in
payment system and
may curtail the post-
issue timeline for listing
from the existing six
days,” the minister
added.
Auction 18 Properties of MPS
Group on 6th February
J ustice Sailendra Prasad Talukdar has
been appointed as one-man committee
for liquidating the assets of the MPS group
of companies and repaying the investors.
SEBI has initiated the process for sale of
assets of the group, as per an order of the
Calcutta High Court. SEBI has lined up 18
properties of the West Bengal-based group
for an online auction in February 2018 at a
total reserve price of over Rs67 crore. The
properties listed for sale include land parcels,
buildings, residential flats and commercial
space in Kolkata. SBI Capital Markets has
been engaged SEBI to assist in the sale of
the properties through e-auction platform on
an “as is where is and whatever there is”
basis. In a notice, SEBI said that SBI Capital
Markets will auction 18 properties on 6
February 2018.

MUTUAL FUNDS Court and National Company

Law Tribunal (NCLT), we intend
Crisis-hit Jaypee Group Needs to complete and deliver all 32,000

Rs8,000 Crore To Complete Under-

units by 2020,” Mr Kumar told
media persons. He said the group
construction Flats has already delivered 6,300 flats and
1,500 plots so far and the target is to

C risis-hit Jaypee group needs

Rs8,000 crore to complete the
construction of flats, of which
Rs6,000 crore would come from
home-buyers while another Rs2,000
crore-Rs2,500 crore needs to
be infused, Jaypee adviser Ajit
Kumar said.
In 2007, Jaypee group
started the development of
32,000 flats and plots in
its township Wish Town at
Noida, of which nearly 8,000
units have been delivered.
Of the total flats/plots,
Jaypee Infratech, which has
already gone into insolvency,
began work on 28,000 units while
the remaining 4,000 units were
with Jaypee group’s flagship firm
Jaiprakash Associates.
“Subject to orders of Supreme
hand over 5,000 units by June 2018.
The group would pay compensation
to home-buyers for the delays in
possession of flats, he added.
Mr Kumar said that the Jaypee group
has enough assets, including
vacant land parcels, to pay all
bank dues.
Jaypee group is facing
huge protest from home-
buyers due to significant
delays in delivery of real estate
projects. Jaypee Infratech
has been taken over by an
NCLT-appointed insolvency
resolution professional (IRP)
for recovery of bad loans.

MONEYLIFE | 19 Jan-1 Feb 2018 | 14

Your Money.indd 3 11-01-2018 18:41:14

 BANKING
The banks have been reluctant
to tweak ATMs as they would have
RBI Directs Banks To Dispense More to bear an estimated cost of more
Rs200 Notes from ATMs than Rs110 crore to recalibrate the
220,000+ ATMs in India. The entire

T he Reserve Bank of India (RBI) has

ordered banks to recalibrate ATMs
(automated teller machines) to
in the past one year due to availability
of Rs2,000 notes in ATMs, say bankers.
exercise is expected to be complete
in the next six months. Without this
exercise, the existing bank ATMs
ensure that more numbers of will not be able to dispense the
the Rs200 denomination note Rs200 denomination notes.
are dispensed to the general The exercise will involve
public, while it makes efforts installation of spacers to
to step up the supply of lower adjust the currency size.
denomination notes. According to estimates, the
RBI may bring down the average recalibration cost per
average ticket size of ATM ATM would be approximately
withdrawals which had gone up Rs5,000.

Moneylife

MONEYLIFE
Quiz no

276
QUIZ Answer
Correctly! Win
Another quiz to tease your brain. The answers are in a personalised
sed
this very issue. The winner will be chosen by a lucky clock with an KVR Chandra Sekhar

investmentnt
draw from correct entries and answers published in Mutual Fund
investments are quote!
the issue dated 1 March 2018. Send in your answers to subject to market risks,
read all scheme related
quiz@moneylife.in with the Quiz no., name, address & documents carefully.
telephone number before 7 February 2018.

1. How much were the average returns of long-term debt 5. Who is responsible for saying, “It is the natural tendency of
mutual fund schemes in the past one year? government to desire perfect records of private lives”?
a. 2.14% b. 2.50% a. Mahatma Gandhi b. Edward Snowden
c. 2.76% d. 2.98% c. Margaret Thatcher d. Karl Marx

2. Among mutual fund schemes which showed poor 1-year 6. Under which Section of the Income-tax Act can one claim
returns but had a good 3-year record, how much was the exemption for house rent allowance?
highest 3-year return? a. Section 80GG b. Section 10(13A)
a. 8.4% b. 8.5% c. Section 80D d. Section 80CCA
c. 8.7% d. 8.9%
7. What is the estimated number of radio stations in the
3. What should the expense ratio ideally be for liquid mutual world?
fund schemes? a. 10,000 b. 20,000
a. Lower than 0.5% b. Lower than 1.0% c. 30,000 d. 40,000
c. Lower than 1.5% d. Lower than 2.0%
8. Since when has Dredging Corporation of India been
4. Where is the headquarters of Strides Shasun? witnessing low profits?
a. London b. New York a. March 2008 b. March 2012
c. Bengaluru d. Ahmedabad c. March 2015 d. March 2016

In all, 23 readers got all the answers right last time.

The answers to Moneylife Quiz-274 are: • 1-a. Rs1.5 lakh
The winner of Quiz-274 is KVR Chandra Sekhar from
• 2-b. Rs70,000 crore • 3-c. 80% • 4-d. 63% • 5-d. Nepal
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• 6-c. Milad-e-sherif 2017 • 7-b. Form 16 • 8-a. Rs250 crore
personalised clock with an investment quote!

15 | 19 Jan-1 Feb 2018 | MONEYLIFE

Your Money.indd 4 11-01-2018 18:41:52

 Public Interest
The Reality behind an Actuarial
‘Science’ Course…
G
iri (my better half) always insurance premium. This is the job in an insurance call centre (of all
chides me for attempting to main function of an actuary, though places) in Pune. Satish was fuming
show things in poor light. they have other roles like risk so much that if a kettle of cold water
But I cannot help it, can I? Even modelling, etc. had been kept before of him, it
as I plan my annual trip to the When I contacted Satish Nair would have heated up in no time.
US in February, I thought I must (not his real name) through one So where is the problem? Why
share certain happenings that will of my acquaintances, he dropped is doing an actuarial science course
definitely be in the interest of the a bombshell. Since pursuing an in India not such an exciting
larger public. I know that Moneylife actuarial science course from India proposition? There are very few
stands in the forefront educational institutions
when it comes to issues that impart an actuarial
such as these, as part of science course in
its exemplary efforts in India. Of these, 50%
setting a new journalistic offer courses that are
trend. not recognised by
My nephew, who is the industry. Gullible
based in Mumbai, was students get attracted
keen on his son pursuing a to all the marketing
course in actuarial science. nonsense being dished
He sought my help, since out by these institutions
he, somehow, believed that and end up wasting
a seasoned academician money, time and effort.
like me will be of great Some of them end up
help to him. I had already ruining their career too.
forewarned him about my There are very few educational Actually, there is
activist instincts. Despite a coterie that exists in
being a senior citizen,
institutions that impart an actuarial an unofficial form. In
I have still managed to science course in India. Of these, 50% one of the well-known
maintain my contacts in offer courses that are not recognised institutes in India’s
academia. It always helps. by the industry. Gullible students get business capital that
Thanks to social media attracted to all the marketing nonsense offers an actuarial
networks, I have managed of these institutions and end up science course, an
to stay connected. outstanding student
As I began talking to
wasting money, time and effort. Some will take at least seven
one person after another, of them end up ruining their career too years to get a degree in
the real truth behind an actuarial science after
actuarial science course started was next to impossible (I will come his graduation—provided, he doesn’t
coming to light. It was, indeed, a to it later), his daughter pursued a lose interest halfway through the
shocker for me! Anyway, readers two-year actuarial science course course. One can imagine the plight
must have heard/ read about how an from UK wiping out half of Satish’s of other not-so-bright students
actuary is a most sought after person retirement funds. When she returned who may (if at all they manage
in the insurance industry and how to India, hoping to land a plum to complete) get their degree in
actuaries draw huge sums of money job, there were no takers. After actuarial science in 9-10 years.
as salaries and bonuses. Actuaries waiting for close to six months The evaluation pattern of
are responsible for using statistical and twiddling her thumbs at home, the actuarial science course is
methods to compute the amount of Satish’s daughter managed to get a contrived. Rather than having a 

MONEYLIFE | 19 Jan-1 Feb 2018 | 16

Public Interest.indd 2 09-01-2018 20:44:03

  reasonably efficient system that
passes meritorious students, the
system is so flawed that the barely
3% of students pass. This is done
deliberately to create an artificial
hype around the actuarial science
course. So, the benchmark passing
percentage keeps on changing year
on year. Let me give an example.
Deepak Kiran (not his real
name) appeared for actuarial science
examination in 2014. He did not
clear the exam because he got only
65% and there were a couple of
others who had managed to get
70%. So, the benchmark passing
percentage was fixed at 70%. The
next year, Kiran appeared for the
exam and got 74%. He was still
declared failed because some of the
students had managed to score 80%
and so the benchmark was changed.
Some experts call it the ‘percentile’
system of evaluation. There are no
prizes for guessing that Kiran had
the sense to abandon something that
he considered absolutely absurd. He
wrote his GMAT and, today, he is
pursuing MBA (masters in business
administration) at a university in
England.
So, I hope that readers now
understand how the scoring system
for actuarial science course is
egregious. Insiders insist that this is
the ploy of the members who belong
to a so-called association that wishes
to deliberately create a shortage of
actuaries in India so that salaries
Just retired?
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Ways to keep your money at work
Once every fortnight
Public Interest.indd 3
of actuaries can be further hiked.
But neither the regulatory body
(IRDAI—Insurance Regulatory and
Development Authority of India) nor
the government seems to have any
say in the matter.
I would hate to call it a scam
but it is nothing short of that.
Examinations are held to select
students. In case of competitive
examinations, to attract meritorious
students, the entrance examination
standards are set at a high level. This
is understandable as the number of
seats is limited; so, entries need to
be curtailed to give preference to
top-quality students who genuinely
deserve the seat. This is the case
with all the top-notch business-
schools in India. However, once a
student gets a seat, the examination
process is the usual one—whatever
you may name it. Nowadays, the
grade point average (GPA) score is
more popular. However, nothing can
beat the so-called percentile system
adopted by institutions offering the
actuarial science course.
When I conveyed this to my
nephew, he was glad that he had
contacted me. As always, I had
provided the right information
to him, thanks to all my social
networks. But I would like to make
a sincere request to parents (I would
rather call it as an appeal)—please
do proper homework and help
your child enrol in a good course
that has job prospects as well as a
proper examination procedure. It is
essential that you check your child’s
eligibility and mental make-up for a
course that makes rigorous demands
on their time.
I know of many parents who
insist that their children pursue a
course in chartered accountancy
(CA) without knowing the effort
involved in it. Some students can
suffer a burnout with the constant
running around. Coaching classes
have mushroomed at all metros
claiming that they impart world
class coaching for CA. But the pass
percentage is barely 6%-8%. These
classes have hyped the course so
much that there are students who
abandoned their graduation for
pursuing CA and, in the end, did not
manage to achieve either. Parents
need to think carefully—coaching
classes will put immense pressure
and dangle the carrot saying that
the commerce student can finish
CA along with their degree course.
After completing it, the student has
to anyway join the mad rush in the
corporate world. Most of those who
pursue a degree by correspondence
end up lacking social skills that are
so important in the corporate world.
Thus, whether it is a chartered
accountancy course or an actuarial
science course, be forewarned
about the risk elements. At the end
of the day, it is a question of your
child’s career. — Chandraprabha
Venkatagiri 
For subscription offers that
are a steal, look for a form
elsewhere in this issue or our
website at www.moneylife.in
17 | 19 Jan-1 Feb 2018 | MONEYLIFE
09-01-2018 20:45:14
 CROSSHAIRs
Crypto-currency Is Not Legal Today but Nobody
Knows What the Future Holds
T
here is so much being written about people
who have turned billionaires by investing in
Bitcoins that those who missed the boat fall
into four categories—the ones clambering on to the
crypto-currency bandwagon in the hope of making
big bucks on the lesser known currencies; and those
who are telling themselves that it is another version
of the tulip mania. There is a third group of lawyers
and consultants who are minting money lobbying for
these currencies to gain legitimacy, or explaining them
to people at fee-based seminars, while a fourth group
wants answers and reassurance from someone else
that their dabbling in Bitcoins will not clean out their
savings or attract income-tax notices.
The block-chain technology behind crypto-
currencies had gained worldwide acceptance; but
crypto-currencies as a legal tender is a different ball
game. Let’s try and understand what is happening in
India and abroad. In March 2017, the finance ministry
set up a nine-member inter-disciplinary committee that
included Niti Aayog to study the global situation and
suggest measures for dealing with such currencies. The
finance minister announced in November 2017, ‘The
government’s position is clear, we don’t recognise this
as legal currency as of now.’
Then, on 29th December, the finance ministry issued
a formal press release warning people about ‘virtual
currencies’ (VCs). It said, “VCs are not backed by
government fiat” and they are also not legal tender
or even currencies, in the real sense, although they
are called ‘coins’. VCs don’t have “any intrinsic value
and are not backed by any kind of assets,” their prices
are “entirely a matter of mere speculation” and that
there is a “real and heightened risk of investment
bubble of the type seen in ponzi schemes," says the
MONEYLIFE | 19
27Jan-1
November
Feb 2018
2014 ||18
14
Crosshair.indd 2
Exclusive news, the stories behind the
headlines and the truth between the
lines by Sucheta Dalal
release. Equating crypto-currency to Ponzi schemes,
the ministry warned people to avoid getting trapped
by them and to note that digital currencies are often
used to carry out subversive activities such as drug
and terror funding. It was also emphatic in stating
that “VCs do not have any regulatory permission or
protection in India” and people should deal with them
at their own risk. This warning was issued after seeking
public views on future of Bitcoins (in May 2017) on
its portal MyGov. Given that the cost of one Bitcoin
had soared to a peak of as much as Rs19 lakh, we are
talking about big stakes here.
Greed and risk-taking behaviour go hand-in-hand;
so, despite this emphatic warning, and at least three
previous warnings by the Reserve Bank of India (RBI)
(once in 2013 and twice in 2017), there are thousands
of people queuing up every day to register with crypto
exchanges. We have listed only five such exchanges
operating in India (in Delhi, Mumbai, Pune, Bengaluru
and Hyderabad); these include Zebpay, Unocoin,
GlobalDCX, CoinSecure and BtcxIndia. In fact, the
business press gives credibility to these exchanges by
writing about the waiting lists for registration to trade.
Those in queue would do well to learn from the
collapse of the National Spot Exchange of India Ltd
(NSEL). A crackdown by the government and the tax
department led to a forced shutdown which caused
a loss of over Rs5,000 crore. NSEL was shut, even
though it had operated with the full knowledge of the
commodity regulator and the Securities and Exchange
Board of India (SEBI); it also had a permission of
sorts from the ministry of consumer affairs. People
wanting to invest must remember that virtual currency
exchanges do not even have that fig leaf.
I asked SEBI chairman, Ajay Tyagi, about crypto- 
11-01-2018 17:09:35
  currency exchanges operating like regulated entities and
what happens if they collapse? There was no answer.
Media reports, however, say that SEBI is examining a
legal framework for crypto-currencies and Mr Tyagi
was quoted by the press as saying that it does not pose
a systemic risk, so far. This is in contrast to the rather
strident stand taken by the finance ministry shortly
after Mr Tyagi’s statement.
If any of the crypto exchanges collapses, the
regulators and the government may quietly wash their
hands off. Why not ban the currencies then? Rajeev
Chandrasekhar, a Rajya Sabha MP, asked as much in
parliament. His question was whether the government
plans to block all bank accounts and credit cards that
are being used for Bitcoin/crypto-currency transactions.
The finance minister Arun Jaitley refused to answer
and said he would await the report of the inter-
disciplinary committee. In other words, crypto-currency
is not legal in India declares the government, but it
is not illegal either.
While government
inaction in peer-to-
peer acceptance and
valuation of crypto-
currencies may be
fine, allowing crypto-
currency exchanges
to operate without
regulation is clearly
irresponsible.
Worse, the
tax department is
legitimising them
by formally visiting
these exchanges,
as reported by the
business press, to explore the possibility of levying GST
on them. One thing seems certain. If crypto-currency
exchanges do fail, then investors would have no one to
blame but themselves.
Another issue that is strangely lending credibility
to crypto-currency exchanges are the tax notices
to individual investors by the income–tax (I-T)
department. A tax notice, with 28 detailed questions,
has gone viral on social media. The department has
reportedly sent out 500,000 notices sending the
recipients scurrying to find out their tax liability,
probably for the first time.
As far as tax implications for the individual are
concerned, well-known chartered accountant, Ameet
Patel, is emphatic that there is no ambiguity. The I-T
department, he says, is unconcerned with the legality
or otherwise of income—whether from drug running
or crypto-currencies. It is only concerned with income.
If you have earned income that puts you in the tax
bracket, then you definitely pay tax.
Crosshair.indd 3
Future Trends
Having said this, there is no way of knowing whether
crypto-currencies will remain illegal forever. Some
of the biggest exchanges in the world do not want
to lose out on the craze and have launched futures
contracts in crypto-currencies. While the CBOE Global
markets (Chicago Board of Exchange) was the first
to launch Bitcoin futures on 10 December 2017, the
CME (Chicago Mercantile Exchange) introduced these
contracts on 18 December 2017.
Top businesses and investors are divided on the
issue. The legendary Warren Buffett is critical and
thinks they will have a ‘bad ending’. Jamie Dimon,
CEO of JP Morgan Chase, has called it a ‘fraud’.
Nobel Prize winning economist, Robert Shiller, thinks
it is a bubble, as do Ray Dalio, who heads Bridgewater
Associates, the world’s largest hedge fund, and Jim
Rogers. Most, however, are positive about the
block-chain technology that underpins crypto-
currencies.
Meanwhile,
software giants,
such as Microsoft,
Dell, Reddit as
well as Expedia,
Subway and a
growing number
of others, are
accepting payments
in Bitcoins.
Many developed
nations have also
taken a benign
view to the use
Source: Grantham, Mayo, Van Otterloo of Bitcoins for
peer-to-peer
transactions (or barter deals) or given it a semblance
of legality, even while worrying about its use for illegal
transactions and money laundering. They include the
United States, Canada, Germany and Australia. Most
nations have issued warnings or cautioned people
about crypto-currencies and do not allow them as legal
tender, but have not declared them illegal either; nor
do they legally permit these as a means of payment.
Countries like Finland and Sweden treat VCs as a
commodity. The countries that have explicitly banned
crypto-currencies include Kyrgystan, Bolivia, Vietnam,
Ecuador, Algeria, Morocco, Bangladesh, Nepal, etc. A
large number of countries are sitting on the fence and
watching developments.
Like in India, there are powerful lobbies of
consulting and legal firms that are pushing hard for
legalising crypto-currency. But it is too early to say if
crypto-currencies will end up as a famous bubble like
the Dutch Tulip mania or survive and gain legitimacy
eventually. 
19 | 19 Jan-1 Feb 2018 | MONEYLIFE
11-01-2018 17:09:54
 DIFFERENT STROKES SUCHETA DALAL

Kamala Mills Fire, Elphinstone

Tragedy and Ease of Doing Business

T
he fire that killed 14 people at the two swanky, neta-babu-underworld mafia works, the process of
upmarket restaurants at Kamala Mills in Mumbai’s converting the mill lands into commercial space began
Lower Parel provides deep insights into doing with the pretence of earnestness. The late Charles Correa,
business in India. It also explains why most people are a legendary architect, was asked to head a committee to
unimpressed by the 30-point jump in India’s World Bank’s suggest ways to redevelop mill lands in 1991. The textile
Ease of Doing Business ranking (moving from 130 to 100). mills had gone bust after a prolonged trade union agitation
Nothing that matters to people has changed on the ground. of the 1980s. The committee recommended that one-third
India’s over-crowded commercial capital also has the of the open land must be used for public amenities.
most expensive real estate in But mill-owners lobbied
the world, making property with corrupt politicians
development a lucrative and, in 2001, the formula
and corrupt business. So, was tweaked to slash the
when over 500 acres of land available for public
beautiful mill land, with use. One industrialist told
lots of greenery and beautiful me, we (Mumbaikars) would
water bodies, was opened for be lucky to get “10% of the
development in the 1990s, promised 30%.” It turned
we had an opportunity out to be even worse. The
to model a tiny part of construction spree that
this sprawling metropolis One industrialist told me, we followed led to rapacious
along the lines of Sir Edwin (Mumbaikars) would be lucky to get flouting of rules, destruction
Luyten’s NewDelhi or “10% of the promised 30% (of open of greenery and disregard
Le Corbusier’s Chandigarh. space).” It turned out to be even worse for open space and, worse,
Instead, a continuously no attempt to upgrade civic
corrupted planning amenities and infrastructure,
process, brazen disregard of rules, haphazard widen roads or ensure disaster management facilities.
development, pathetically inadequate infrastructure and What we have is the incongruity of luxurious, gated
overcrowding have given us two heart-rending tragedies office complexes with their gleaming towers and manicured
in less than four months. The stampede at Elphinstone green patches (replacing ruthlessly hacked trees) with
Road Station (Elphinstone) crushed 23 people on high-speed elevators, tony restaurants and meeting spaces
29 September 2017 because basic amenities, like the foot opening out to narrow roads choked with traffic. The
over bridge (FOB), were inadequate to meet the footfalls dilapidated chawls that line these roads have lost hope
that burgeoned over the past decade. The railways had of redevelopment. India’s top builders, powerful bankers,
ignored all pleas and warnings for nearly two years. highly paid consultants and CEOs have all helped build
In December, a fire at two restaurants at Kamala Mills this monstrosity. Most of them wax eloquent about their
snuffed out 14 lives because two posh restaurants had corporate social responsibility efforts to the media, but
violated dozens of building and fire safety norms and do they pause to reflect on what they have helped create
one was even operating without a licence, at that point. as their luxury cars crawl through the choked roads and
It is no coincidence that the tragedies occurred within a incessant honking to reach office?
kilometre of one another. Kamala Mills and Elphinstone are not two tragic
Instead of a well-planned business and entertainment incidents—they are a harbinger of worse to come, unless
hub on what were once the mill lands, what we have is ill- there is bigger effort to tackle infrastructure needs and
planned 360 acres of development that stands testimony to punish infractions in the entire mill land complex.
the rotten nexus of collusion, corruption and monumental Will it happen? Unlikely. It is no secret that jobs at the
apathy that is killing the city. Typical of how the corrupt Brihanmumbai Municipal Corporation (BMC) involving 

MONEYLIFE | 19 Jan-1 Feb 2018 | 20

DIFFERENT STROKES.indd 2 11-01-2018 16:22:17

 DIFFERENT STROKES SUCHETA DALAL

 the grant of licences and permissions are sold or auctioned. the inquiry drags on, they will also start getting half their
Yet, we naively believe tired clichés about punishing the salary. It is only the businessmen who were jailed. Those
guilty after a spate of face-saving arrests and suspensions, affected by the tragedy learn to survive after collecting a
even though there is no systemic change. small ex-gratia payment.
What does any of this have to do with Ease of Doing While it is easy to blame business for the violations, the
Business? Everything. Rules and permissions of the BMC current system is actually an invitation to break the rules
are deliberately opaque, confused, excessive, out-dated and allow the most connected and corrupt, to prosper.
and non-transparent only to allow the most rampant As property prices soared, officials and politicians got so
corruption. Our own experience in holding an outdoor greedy in their demands that it drove a couple of builders
event led to the discovery that we needed a dozen licences/ to commit suicide. The temporary outcry that followed
permissions each of which had a fixed bribe—sometimes also died down without any significant change.
thrice the licence fee. This was openly collected at the Forget about ease of doing business, there is a higher
BMC headquarters and included the traffic police whose frictional cost of doing business. While some get furious
permission was required to ensure that our guests were not at the extortion, others take advantage of it to flout rules
harassed. Do we really expect these officials to enforce rules and cut corners.
or bribe payers to follow them? The fire department, instead of

Photo Courtesy: The Free Press Journal

Municipal officers make worrying about safety norms, also
annual rounds of offices to inform colludes in helping leading business
people that they have violated houses to build more floor-space by
rules by failing to maintain recommending fire escape corridors
some British-era registers. Yes, that was later misused. The fire
‘lime-wash registers’ (it was department issued 4,592 notices
mandatory to lime-wash offices but launched just 14 prosecutions
every couple of years to prevent in six years, says a media report.
epidemics such as cholera and The rot is so deep that, instead
typhoid!), mandatory cross- of promoting transparency, the
ventilation rules (despite 50 years Ajoy Mehta, Municipal Commissioner of Mumbai municipal commissioner’s reaction
of air-conditioning), remain in was to blame Right to Information
the books and are invoked to
The rot is so deep that, instead (RTI) activists for colluding with
demand bribes—or what is
of promoting transparency, corrupt officials. It is not hard to
euphemistically called a ‘service the municipal commissioner’s fathom why he did not name or act
charge’. reaction was to blame Right against such ‘activists’ but chose to
As new entrepreneurs, we to Information activists for tarnish everybody; he is looking for
asked for the rules in order colluding with corrupt officials scapegoats. A PIL (public interest
to ensure were compliant; an litigation) has sought a commission
amused municipal official told of inquiry which may be quickly set
us it was not possible. The system is geared to make every up. But if its report implicates powerful netas and babus,
honest enterprise into a lawbreaker and allow the more it will probably be buried or ignored. This has happened
flagrant violations and infractions to go unpunished. so often in the past.
Journalists investigating the Kamala Mills tragedy If we want to prevent tragedies like Elphinstone and
are discovering a well-oiled cover-up process. Media Kamala Mills, we need to scrap irrelevant rules and
reports indicate that municipal officials have diligently regulations, promote transparency and better disclosures,
documented every violation and infringement of rules and online payments and encourage public feedback. We also
issued multiple show-cause notices that were deliberately need stringent personal accountability of key personnel
never followed up. In a couple of cases, prosecution was who buy their way into ‘lucrative’ posts. Only then can
also filed as a self-protection strategy, with no intention we begin to truly improve the Ease of Doing Business
to follow it through. instead of touting a meaningless jump in ranking by gaming
Municipal officials remained absent at court hearings certain parameters. 
or sought repeated adjournments. This gives iron-clad
protection to the corrupt in case of disasters such as a fire Sucheta Dalal is the managing editor of Moneylife. She was
or a building collapse. No municipal or fire officials has awarded the Padma Shri in 2006 for her outstanding contribution
been arrested; they are only suspended. After a while, if to journalism. She can be reached at sucheta@moneylife.in

21 | 19 Jan-1 Feb 2018 | MONEYLIFE

DIFFERENT STROKES.indd 3 16-01-2018 15:15:08

 SMART MONEY R BALAKRISHNAN
Faith in Our Banks:
Shaken, but Not Stirred
W
e are all living an illusion when it comes to our
financial system. Especially when it involves
public sector banks (PSBs) which are rickety
but rock-solid since they have an implicit government
guarantee behind them. And, now, the government has a
come out with a new Bill soon to become an Act—Financial
Resolution & Deposit Insurance Bill (FRDI Bill)—which,
as the draft states, theoretically gives the government the
legal right to let failing institutions like banks and insurance
companies convert bank deposits, over an insured limit,
into shares.
The idea is that failing institutions should not be
bailed out by taxpayers’
money but bailed in by those
to whom the banks owe
money. What the insured
limit would be is not clear.
Theoretically speaking, the
only failing institutions in
sight are the PSBs. There
has been a, rightful, outcry
over this. In the first place,
PSBs should not exist. They
have been used as chattels
by politicians to dish out
favours and implement
political programmes. The
government hides its fraudulent loan sanctions and loan
write-offs by weakening the banks or infusing more capital
into them from the taxpayers’ moneys.
Thus far, the government of India has not let the bank
depositors in the lurch—except in case of cooperative
banks. There are very regular incidents of the unregulated
cooperative banks going bust. Each cooperative bank is
tagged to some politician or the other and its loans have
been made, most probably, to his cronies. It is remarkable
that cooperative banks have to write-off bad loans. They
enjoy special powers that arm them with clout akin to tax
authorities for recovery of tax dues. Cooperative banks are
under the dual control of the Reserve Bank of India (RBI)
and Registrar of Cooperative Societies, neither of whom
has any interest in reining in rampaging politicians who
are responsible for regular failure of cooperative banks.
The FRDI Bill is a good wake-up call about what we
should do with our money. I am reasonably confident
MONEYLIFE | 19 Jan-1 Feb 2018 | 22
column_Balakrishnan.indd 2
that no government can afford to ditch a PSB. There is
merit in the clichéd phrase: “Too big to fail”. When the
government does not bury a corpse like IDBI Bank, I
am sure that it will not let any PSB fail. Yes, there are a
few banks which are in the category of ‘delinquents’ on
which RBI orders ‘PCA’ (prompt corrective action). PCA
just means that the bank in question has poor financial
health and that temporary restrictions are imposed on
them which means that they cannot lend until they come
back to health.
A bank’s health is impacted on three accounts. First
is a ‘shortage’ of capital. There are some global norms
on minimum capital, as
expressed in percentage terms
of total liabilities of a bank.
When losses eat into the net
share capital, the capital
available for lending dips.
They need to be capitalised.
The other criteria would be a
very high proportion of bad
debts. And the third would
be very poor profitability
numbers or ratios. All these
are interconnected. The only
way out is to pump in more
capital. Consider what is
happening now. The government is pumping in capital.
But can you see any freeze on any depositor withdrawing
a part or all of his moneys?
We have something called Deposit Insurance and Credit
Guarantee Corporation (DICGC) which has been set up
by the government and guarantees individual deposits up
to a certain limit. Right now, the limit is a lakh of rupees
per depositor. So, technically, if a bank goes under, the
maximum that is guaranteed is a lakh of rupees. And
depositors are not priority creditors. First payouts will be
to government agencies and creditors. After that, other
liabilities, if any, and depositors get paid just before the
shareholder. It is funny that, globally, the person who
finances the bank with deposits is treated as an unsecured
creditor!
The proposed new legislation wants to shake us out
of our stupor. In its draft form, it wants depositors to
‘bail-in’. In other words, there can be an appropriation 
11-01-2018 19:24:44
 SMART MONEY R BALAKRISHNAN
 of deposits above a threshold level, if there is a crisis in a
bank. It is like saying that banks’ recklessness in lending
will be covered up by depositors. This method has been
tried by a tiny country called Cyprus. Some details about
the trends in ‘bail-in’ can be found here: https://tinyurl.
com/yav6o66k
It is interesting to see that, in Cyprus, depositors were
ambushed with a week-end announcement. Everywhere,
politicians and regulators are identical. We, in India,
have the advantage of population. Even if our finances
are terrible, politicians cannot afford to let us down. So
they will come and bail out depositors, even if it means
printing money. Financial prudence simply does not exist
and they do not want their lending machines to be exposed
to scrutiny.
Of course, cooperative banks and smaller private banks
are vulnerable. While you may not lose all your money,
the risk of a freeze for a period of time or some haircuts
are possible. The introduction of the FRDI Bill, in its draft
form, is typical of this government’s ham-handed approach
to policy-making. The person who must have drafted the
legislation is either ignorant of what is on the ground, or
has deliberately tried to be obnoxious.
When the government owns banks and dishes out
depositors’ money to its friends and cronies, how can
it evade any responsibility? It will continue to use the
taxpayers’ money to bail out the banks which they have
robbed. Thus, depositors’ money comes back from the
taxpayer. Confused? The politician will do nothing
which disturbs this set up and, hence, we see their
total unwillingness to give up control over PSBs. This
government likes most of the things the Congress/UPA
government has done, when it comes to privileges, doles
and rent-seeking.
What’s Your Bahana for Not Subscribing?
I am not interested in honest & insightful advice on money matters
I never have any problems with banks, credit-cards or insurance companies
I always invest on the basis of tips from friends and brokers
Finance bores me to tears
I would rather spend two year’s of knowledge on one evening of eating out
I always buy from the newsstands
column_Balakrishnan.indd 3
However, this is a good wake-up call for us. Tomorrow,
some small private bank may be held up as a guinea pig.
It is up to us to get smart. I would urge people to keep
deposits to the minimum with banks. In terms of risk, I
would rank PSBs as least-risk for depositors. What could
possibly happen is that during some reorganisation, there
could be a temporary freeze on moving deposits beyond
a particular amount.
It is best to move money out of smaller banks,
cooperative banks and shift them to larger PSBs. For those
with larger amounts, using liquid mutual fund schemes is
a smart way. By liquid schemes, I do not mean short-term
or ultra short-term schemes. Liquid schemes carry the least
risk to the principal amount and can be redeemed in one
to two days. There is no TDS (tax deducted at source)
either. Choose the growth option and not some funny
dividend option. Keep most moneys between one or two
liquid schemes with a couple of fund houses. If you are
keeping them with a private sector bank, while one has
no reason to doubt the quality of an HDFC Bank or a
Kotak Bank, one cannot say the same thing about small
private banks or cooperative banks.
Banks are the last safe haven for savers when it comes
to liquidity and safety. However, we should thank this
government for making us read the fine print. In practice,
every bank, from SBI (State Bank of India) to HDFC
Bank will go bust if every depositor were to ask for his/
her money back at the same time. Banks thrive on trust.
And RBI is supposed to be a gatekeeper. However, they
are specialists only in post-mortem and have never caught
any bad intent. So, the real trust has to be on one’s own
capabilities to read the tea leaves. 
The author can be reached at balakrishnanr@gmail.com
For subscription offers
that are a steal, look for
a form elsewhere in this
issue or our website at
www.moneylife.in
23 | 19 Jan-1 Feb 2018 | MONEYLIFE
11-01-2018 19:26:17
 MUTUAL FUNDS POINTERS

Your Debt Scheme Portfolio in 2018

I
t is the beginning of 2018 and a time to reflect on than one’s expectation for the additional risk taken. But the
your investment portfolio. Riding the bull wave of the returns have dropped only last year; also, higher returns of
past five years may have doubled your wealth, but it 7% and more have been achieved only after compromising
is now time to protect that on the credit quality of the
growth while earning good debt papers bought by the
returns. With that in mind, let scheme(s). Such a high risk/
us focus on the debt schemes low reward equation had made
of mutual funds you should this category unfavourable for
invest in or avoid this year. We investment in 2017.
will discuss the debt schemes But one needs to stay
on the basis of duration, i.e., invested in these schemes for
using the weighted-average a minimum of three years to
maturity (WAM) of the debt avoid short-term interest-rate
papers the schemes hold. We risks that affect the schemes’
will segregate the debt scheme net asset value (NAV). The
universe into: liquid & ultra- average three-year returns
short-term debt schemes, of short-term debt schemes,
short-term debt schemes and long-term debt schemes. including ones that invest in short-term government bonds,
have been 8%. Here are some of the schemes which showed
Liquid & Ultra-short-term Debt Schemes poor 1-year returns but have a good 3-year record.
This should be the go-to category when it comes to parking
your money—whether it is the surplus money that is
supposed to be parked somewhere, before it is spent; or Performance
money obtained from exiting the equity schemes which Scheme 1-year* 3-year*
would be put back into good quality equity schemes after Returns % Returns %
the market has cooled down. The returns in these schemes UTI Dynamic Bond 4.1 8.4
aren’t low, given the low interest environment we are Sundaram Flexible Income 5.4 8.4
already in; liquid schemes are generating yearly returns DHFL Pramerica Med-Term Income 5.5 8.4
of 6% and higher. The premium on the extra risk taken ICICI Prudential Gilt Fund - Treasury 5.5 8.5
on low-duration and ultra-short term schemes will fetch
ICICI Prudential Banking & PSU Debt 5.5 8.7
an additional 50 basis points in returns.
*quarterly-rolling returns ending 31 December 2017
With investment growth visible from the second day
itself, including the ease of depositing and withdrawing
whenever required; liquid schemes are a good avenue for Considering the short-term under-performance, should
parking money. In the previous issue, we discussed liquid higher returns be expected in the next three years? This
schemes with debit cards—an attractive feature to withdraw will depend on the direction of the repo rate, fixed by the
your money from any ATM machine and pay for stuff just RBI (Reserve Bank of India). As a thumb rule, to forecast
like any other debit card. returns on these schemes for a given year, look at the repo
When investing in liquid schemes, or any debt scheme, rate and add 100 basis points to it, and you will have
one can get higher returns by opting for direct plans of forecasted the average yearly returns from the scheme.
the selected scheme. Another important indicator to look So, where will the repo rate head in the future? That’s
at is the expense ratio in liquid schemes; this should be where the catch is. No one knows. Forecasting interest
lower than 0.20%. rates and inflation are two of the most perilous tasks and
professionals working in storied research houses, get it
Short-term Debt Schemes regularly wrong. But there’s a good chance that the repo
This category of schemes invests mainly in corporate and rate may not go lower than 6%. The concern is that the
public sector units’ debt papers with the portfolio WAM real rate of return will be reduced due to rising inflation;
being one to six years. Performance-wise, such schemes have also, RBI has maintained status quo on its key policy rates,
delivered average returns of 6.50% last year. This is lower due to concerns on economic growth. Therefore, invest in 

MONEYLIFE | 19 Jan-1 Feb 2018 | 24

Fund Pointer.indd 2 11-01-2018 12:12:16

 MUTUAL FUNDS POINTERS

 short-term debt schemes but do not expect great nominal Federal Reserve hiked the key policy rate—the Fed rate—a
and real returns as earlier. Currently, there are no worries decision that nudged interest rates higher everywhere. Some
about interest rates going up but market expectations and foreign investors sold off their GOI bonds; to invest in US
fears can change rather quickly. Treasury bonds which will now fetch higher returns. The
Fed is expected to hike its key policy rate this year as well
Long-term Debt Schemes and, therefore, long-term debt schemes, mainly gilt funds,
Most of the long-term debt schemes invest mainly in should be avoided. A particular long-term debt scheme
government (GOI) bonds; these have maturities ranging even changed its mandate to include short-term debt in
from one year to 40 years and its portfolio, to reduce such risks.
are backed by full faith in the The chart below indicates how
government. This reduces the the yield on different maturities of
RBI has maintained status
credit risk of these schemes GOI bonds has increased in the
associated with non-payment quo on its policy rates. past six months. This is due to
of interest or principal by the Therefore, invest in short- upward pressure on interest rates
borrower. But performance-wise, and higher supply of the bonds
term debt schemes but do
long-term debt schemes had a hard than its demand which lowers the
time in 2017, as we had expected. not expect great nominal price of the bond and inversely
In our advisory service, we have and real returns as earlier. increases its yield—since bond
repeatedly stressed, for more than prices and their yields move in
Currently, there are no
a year, that one should not invest opposite directions.
in long-term debt schemes now. It worries about interest Edelweiss G-sec Fund, a
would lead to very poor returns. rates going up but market long-term debt scheme, tackled
Indeed, average returns of long- the Fed’s rate hike by dumping
expectations and fears can
term debt schemes were 2.60% half of their GOI bonds in
last year. The highest returns were change rather quickly November; before the heavy sell-
delivered by Sundaram Bond off in December. Another scheme,
Saver, at 5.60%, and the lowest IDFC G-sec Fund, replaced its
by IDBI Gilt Fund at -1.40%. While there were no negative GOI bonds with state development loans, which foreign
returns faced by those who stayed invested for the entire investors usually do not prefer to invest in. Therefore, these
year, others who invested in the final quarter of previous state-level bonds are immune to the Fed’s rate decisions.
year saw their investment values erode as much as 3%. Such active management is the differentiator between
This shocked many investors and they rushed to their passive and actively managed schemes. But, as mentioned
distributors and fund houses for an explanation. The reason earlier, it is clear that one should avoid investing in these
for under-performance was that the long party of lower schemes for the time being and focus mainly on liquid,
interest rates is perceived to be over. Additionally, the US ultra-short term and short-term schemes for this year. 

G-sec Yield Curve

8%

7.6%

7.2%

6.8%

6.4%

6%
3M 6M 1Y 2Y 3Y 4Y 5Y 10Y 15Y 19Y 24Y 30Y
Maturity

M=Month; Y=Year 8 Jan 2018 1 Month Ago 6 Months Ago

25 | 19 Jan-1 Feb 2018 | MONEYLIFE

Fund Pointer.indd 3 11-01-2018 12:13:12

 MUTUAL FUNDS FUND FACTS

Best & Worst Mutual Fund Schemes

The best# three and the worst three schemes over the past three years ranked by their
quarterly rolling returns. Premium members get access to a more refined list of top
schemes by logging in to Moneylife Advisory - advisor.moneylife.in
Equity Schemes (Quarterly Rolling Returns)
Large Cap (Category Avg: 3.08%, Sensex: 2.03%) Launch Corpus Avg. Quarterly 1-Year 3-Years** Exp
Date (Rs Crore)* Rolling Returns Ratio
SBI Bluechip 14-Feb-06 16943.50 3.69% 30.31% 14.76% 1.97%
Aditya Birla Sun Life Frontline Equity 30-Aug-02 19935.60 3.47% 30.66% 13.90% 2.12%
Indiabulls Blue Chip 10-Feb-12 710.88 3.47% 33.45% 13.87% 2.74%
Taurus Bonanza 04-Aug-95 134.94 2.60% 25.70% 10.38% 2.59%
ICICI Prudential Select Large Cap 28-May-09 648.87 2.58% 23.47% 10.33% 2.67%
HDFC Large Cap 18-Feb-94 1322.79 2.40% 29.49% 9.61% 2.19%
Multi-cap (Category Avg: 3.66%, BSE 200: 2.99%)
Aditya Birla Sun Life Pure Value 27-Mar-08 2,299.96 5.89% 56.19% 23.57% 2.39%
Motilal Oswal MOSt Focused Multicap 35 28-Apr-14 10,508.10 5.78% 43.17% 23.14% 2.17%
L&T India Value 08-Jan-10 6,463.60 5.34% 41.38% 21.37% 2.02%
JM Equity 01-Apr-95 5,829.82 2.07% 20.86% 8.29% 2.35%
Tata Regular Saving Equity 23-Jul-97 204.75 1.77% 7.29% 7.06% 1.76%
UTI Wealth Builder 17-Dec-08 971.37 1.62% 17.14% 6.47% 2.56%
Mid-and Small-cap (Category Avg: 5.38%, Nifty Midcap 100: 8.50%)
SBI Small & Midcap 09-Sep-09 888.07 8.09% 78.88% 32.37% 2.30%
L&T Emerging Businesses 12-May-14 2,891.68 6.85% 66.68% 27.42% 2.24%
DSP BlackRock Micro Cap 14-Jun-07 6,466.76 6.70% 43.01% 26.79% 2.41%
DHFL Pramerica Midcap Opportunities 02-Dec-13 142.06 3.88% 37.06% 15.54% 2.61%
IDFC Premier Equity 28-Sep-05 6,020.84 3.84% 38.15% 15.35% 2.00%
Axis Midcap 18-Feb-11 1,308.86 3.79% 42.10% 15.17% 2.18%

Debt Schemes
Income (Category Avg: 2.17%, Crisil Composite Bond: 2.33%)
ICICI Prudential Long Term Plan 20-Jan-10 3,674.20 2.64% 5.12% 10.56% 1.26%
Franklin India Dynamic Accrual 05-Mar-97 2,974.30 2.47% 8.52% 9.90% 1.77%
Axis Regular Savings 28-Mar-12 1,144.44 2.41% 7.51% 9.66% 1.00%
L&T Triple Ace Bond 31-Mar-97 304.38 1.80% 1.60% 7.21% 1.18%
DHFL Pramerica Premier Bond 21-Jan-03 1417.94 1.77% 4.65% 7.10% 1.58%
Edelweiss Bond 27-Jun-08 201.97 1.77% 2.77% 7.06% 1.49%
Liquid (Category Avg: 1.84%, Crisil Liquid Index: 1.84%)
Escorts Liquid Plan 03-Oct-05 177.67 1.94% 6.62% 7.74% 0.90%
Indiabulls Liquid 25-Oct-11 6,884.72 1.89% 6.72% 7.56% 0.21%
JM High Liquidity 31-Dec-97 3,496.40 1.88% 6.72% 7.52% 0.29%
Quantum Liquid 10-Apr-06 122.68 1.71% 6.03% 6.86% 0.26%
Reliance Liquid Fund - Cash Plan 07-Dec-01 9,096.62 1.67% 5.79% 6.69% 1.03%
L&T Cash Fund 27-Nov-06 426.12 1.59% 5.39% 6.38% 0.78%
# Please note the table represents a comparative performance of mutual fund schemes over a three-year period and it is not a recommendation; * Latest quarter average
assets under management; We have only considered schemes having a corpus above Rs100 crore. **Annually compounded

MONEYLIFE | 19 Jan-1 Feb 2018 | 26

Fund Fact.indd 2 11-01-2018 16:49:02

 TAX/ FIXED INCOME

Have Bank FD Rates Bottomed Out?

I
nterest rates on bank fixed The interest rate cycle may be jumped after the announcement.
deposits (FDs) for short terms reversing. Deposit rates may rise Interest rates may have bottomed
may rise in the near future. Yes in the next few months as banks out because of increasing inflation
Bank, ICICI Bank, RBL Bank and may need funds to meet the rising and additional borrowing
Axis Bank have revised FD rates demand for loans. Government is programme of the government.
at the end of planning to borrow extra Rs50,000 Banks will decide on rate revisions
December crore in 2017-18. Bond yields have based on credit demand and
2017. Yes
Bank has
increased FD PPF Redemption for NRIs
rates for a term
of 46 days
to less than
six months
P ublic provident fund (PPF) is no longer available for non-resident
Indians (NRIs) even if the account was opened before they became
NRIs. If you continue with it, the account will earn savings account
by 15 interest. PPF investment by NRIs is deemed to be encashed on the day
basis points the status of the resident changes to
(bps). non-resident. We have checked with
banks. They are allowing closing
of PPF prematurely for NRIs. Some
banks need the account-holder to
make a personal visit, to close account.
The 10-year benchmark G-Sec Find out from your bank the required
yield jumped by 101 bps within procedure and try to complete it.
six months after touching a low NRIs, being abroad, may have difficulty in communicating with banks
of 6.41% on 24 July 2017. It was in India to convey their decision. Banks may take their own time to
at 7.42% on 10 January 2018. close the PPF account. Unlike online FDs, there is no online process to
Some long-term debt mutual fund close a PPF account, even though some banks have started the facility
schemes have given negative returns for online opening of a PPF account.
in the past six months.

G-Sec Yields Up
Issuer Maturity Next Last Yield ISIN Rating

T
Date Coupon (%)
he 10-year benchmark G-Sec
yield, which sets the tone of the Hindalco Ltd 9.55% 25 Apr-22 25 Apr-18 8.10 INE038A07258 CRISIL AA+
fixed-income market, has increased
Hindalco Ltd 9.60% 02 Aug-22 02 Aug-18 8.10 INE038A07274 CRISIL AA+
in the last fortnight by 14 basis points
(bps) to end at 7.42% on 10th January. Tata Capital Fin Services 10 Apr-19 10 Apr-18 8.08 INE306N07JF3 CRISIL AA+
Ltd 7.95%

NSE data as of last trade date of 9 January 2018

G-Sec Maturity Yield to
Shriram Transport Fin Ltd
Date Maturity 15 Oct-27 15 Oct-18 8.30 INE721A08CY4 CRISIL AA+
8.20%
01 December 2044 7.69
Mahindra & Mahindra Fin 23 Jan-25 23 Jan-18 8.29 INE774D07KW6 CARE AAA
22 June 2045 7.67 Serv Ltd 8.79%

10 November 2033 7.63 Bajaj Finance Ltd 7.84% 30 Jun-20 30 Jun-18 8.00 INE296A07PG8 CRISIL AA+

G-Sec yields on 9 January 2018 BSE data as of last trade date of 9 January 2018

27 | 19 Jan-1 Feb 2018 | MONEYLIFE

Fixed Income.indd 1 11-01-2018 16:03:20

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MSSN GB (Insurance 1-3 ).indd 3 16-12-2016 17:29:45


INSURANCE TRENDS
New products, regulations, features and options,
interpreted from your perspective
H e a lt h I n s uranc e
New India asking
for proposal
at renewal is
violation of IRDAI
regulations
N ew India Assurance (NIA)
has hiked its premium by
almost 100% for senior citizens.
Regulations of the Insurance
Regulatory and Development
Authority of India (IRDAI) do not
allow premium for senior citizens to
be increased by more than
50%-75% at the time of renewal.
NIA’s premium hike is a violation
of these regulations. NIA has
discontinued its product ‘Mediclaim
2012 policy’ and offered
compulsory migration to the new
product ‘New India Mediclaim
Policy’. Under the guise of a new
and better product approved by
MONEYLIFE | 19 Jan-1 Feb 2018 | 30
Insurance.indd 2
IRDAI, existing policyholders are
harassed to cough up premium
which they may not be able to
afford.
The forced migration needs
fresh proposal to be submitted
even when the customer has not
asked to be migrated. Surprisingly,
it is required even if there is no
increase in the sum insured. It is
a violation of Health Insurance
Regulations, 2016. Clause 25(iii)
states, “No insurer shall resort
to fresh underwriting by calling
for medical examination, fresh
proposal form, etc, at renewal stage
where there is no change in Sum
Insured offered.” IRDAI needs to
stop such malpractices by NIA that
are detrimental to consumer rights.
The migration to new product
does not even offer the ‘no claim
discount’ and ‘family discount’
given with the existing policy of
Mediclaim 2012. It used to help
reduce the premium by up to 25%.
The new product does not even
offer accrual for no-claim-bonus
(NCB). The net effect is higher
premium for lower benefit amount.
Some private insurance
companies offer high NCB of
100%. NIA has gone back to
cut the no-claim benefits and
impose high premium for retail
policyholders. It is time retail
policyholders stop paying for
blunders made by government
insurance companies with group
mediclaim portfolio. IRDAI needs
to take steps to stop government
insurance companies bleeding with
loss-making group portfolio and
making up for it by overcharging
retail policyholders.
Life Insurance
When will IRDAI
wake up to mass
mis-selling of
insurance by
banks?
R ajasthan police’s special
operations group (SOG) is
investigating alleged mis-selling of
life insurance policies to farmers,
labourers and senior citizens from
rural areas of southern Rajasthan.
There are charges of ICICI Bank
and ICICI Prudential Life Insurance
officials allegedly duping customers
into buying insurance policies when
they barely had enough to pay one
policy premium. The customers
were in no position to pay the
huge recurring annual premiums;
this means that their first premium
gets forfeited and the insurance
company makes a bonanza.
The victims include beneficiaries
of Central government schemes
like the Kisan Credit Card and
MGNREGA as well as those who
took loans. Substantial amount
of loans given to farmers or other 
11-01-2018 16:20:25
 INSURANCE TRENDS
 susceptible customers was used to
buy a regular premium insurance
policy. How could these customers
be expected to pay recurring
premium? Often, customers are
told that they are opening a fixed
deposit (FD), but end up getting an
insurance policy. As a majority of
the customers couldn’t read or write
English, they were sitting ducks for
bankers and insurers.
Mis-selling of insurance policies
by the bancassurance channel
is on the rise, thanks to high
commissions and business links
(several banks have invested in life
insurance companies and, hence,
there is a push for selling policies
to bank customers). When will
IRDAI start taking strict action
against such complaints? ICICI Pru
Life may have refunded money to
some of the complainants whose
names came up during the SOG’s
pre-investigation, but such action
usually happens after the mis-
selling is unearthed. There could
be hundreds of people who have
got no refund. Are the cross-checks
at the time underwriting missing?
How can insurance companies and
banks be unaware of mis-selling by
their own personnel? Only putting
a few white-collar staff behind
bars on charges of cheating and
misrepresentation will work. If
IRDAI does intend to take action,
here the things it must address:
• Banks and insurance firms have
unrealistic monthly targets
which can lead to mis-selling of
policies to those who are easy
targets;
• Insurance policies are sold when
customers may think they are
investing in an FD or ELSS
(equity linked saving scheme);
• Regular premium policies are
sold when customers think
they are buying single-premium
policy with no further obligation
to pay every year;
Insurance.indd 3
• Single-premium policies usually
have cover less than 10 times
the premium. It means that the
maturity amount is taxable, but
customers may not even realise
it until the policy deducts tax at
source on the maturity amount;
• Policy is sold in the name of
son/daughter when senior citizen
customers do not qualify due to
age limit;
• Traditional products are sold
more for commissions. If the
customer cannot pay future
premium, then the first premium
is forfeited by the insurer which
is outrageous;
• Traditional products are
frontloaded with 35% to 40%
first-year commission. It is high
time IRDAI revamps traditional
products by reducing the first-
year commission. It is pushed
instead of ULIPs (unit-linked
insurance policies) which has
charges spread over the years;
• Traditional products have
pathetic surrender value.
Customers lose out with
traditional products whether
they continue paying premium
or not. ULIPs may have five
years lock-in, but maximum
surrender charges are only
Rs6,000.
Regulation
Insurance
Companies Told
To Issue TP Motor
Cover Easily
I
RDAI has directed insurance
companies to ensure easy
availability of motor third-party
(TP) insurance cover. It has
asked insurers to cooperate with
the police to facilitate issue and
renewal of TP liability policy to
owners of vehicles without TP
cover. Depending on your location,
insurance companies are reluctant
to issue stand-alone TP cover
especially if your city has a higher
accident rate. Insurers are keen on
selling comprehensive cover which
includes ‘own damage’ (OD) to
cover the loss to the vehicle due to
accidents.
IRDAI’s order comes after
several states reported that insurers
have a difficult process which can
prevent vehicle-owners from buying
TP or comprehensive cover which
needs inspection of the vehicle. A
Supreme Court committee on road
safety had directed the states and
Union Territories to periodically
carry out checks to see whether
vehicle-owners have TP insurance
cover. If not, their vehicle can be
detained till such time that the valid
TP insurance certificate is produced
by the vehicle-owner.
TP cover is under tariff and
IRDAI has made it mandatory. The
TP liability cover does not provide
any benefit to the insured; however,
it covers the insured’s legal liability
for death/disability of TP loss
or damage to TP property. It is
estimated that there can be 40%
uninsured cars and 70% uninsured
two-wheelers. It is important to
have TP motor insurance to ensure
that your legal liability is covered. 
31 | 19 Jan-1 Feb 2018 | MONEYLIFE
11-01-2018 16:21:20
 NRIs are in a dilemma as they need to close their PPF account or earn a measly
4%pa. How to handle bank and demat accounts? If you are a US resident/person,
you need to be careful when investing in mutual funds and ULIPs even if you are
allowed to do so. Know what is the US SEC’s stand on US resident/person investing
in Indian mutual funds. A comprehensive analysis by Raj Pradhan

P
ublic provident fund (PPF) was a popular
investment product for non-resident Indians
(NRIs) as it provided safety of principal and
decent return, along with being tax-free in
India. NRIs have been putting their hard-
earned money into this product. The government sent
NRIs into a tizzy by making an abrupt change to lower
the interest rate for NRIs to a mere 4%pa (per annum),
effective 3 October 2017. A game-changing rule from the
government has debarred NRIs from investing in PPF
and National Savings Certificates (NSC) with effect from
the same date.
Once you become an NRI, you will no longer be
eligible for the current interest rate (of 7.6%) for PPF
and NSC. Under this rule, PPF and NSC will yield
only savings account interest from the day the person
becomes an NRI. NSC investment by NRIs will have to
be encashed, or will be deemed to be encashed on the day
the status of the resident changes to non-resident. The
PPF notification says that the account will be ‘deemed
closed’ for NRIs which means that NRIs can freely
withdraw their existing PPF corpus. 

MONEYLIFE | 19 Jan-1 Feb 2018 | 32

Cover Story.indd 2 11-01-2018 19:31:43

 COVER STORY

 NRIs will have to get out of PPF and NSC instead selling of shares;
of earning a measly 4%pa interest till the maturity date • Stock investment cannot exceed 10% of the paid-up
of the account. In short, the government does not want capital of the company;
NRI money in PPF, NSC, POMIS (post-office monthly • Intraday trading not allowed. NRIs have to take
income scheme) and other time deposits offered by the delivery of shares purchased/sold;
post-offi ce. Read our Cover Story https://tinyurl.com/ • Short-selling not allowed;
yd5lgv89 Now that PPF is no longer an attractive option • Can invest in only selected stocks as listed by RBI
for NRIs, we have listed a range of products NRIs can periodically;
think of investing in. NRIs investing in India should • Investment can be done on repatriation as well as
worry about taxation and tax filing requirements in non-repatriation basis.
their country of residence. If the income from Indian The following transactions do not need PIS account.
investment does not have to be reported in your country a. Sale of shares, which were not bought under PIS. For
of residence and there is no tax on it, then you have full example, gifts, subscription to IPOs or shares bought
freedom while investing in India. as resident Indian, or received as bonus;
You will need to check what DTAA (double taxation b. Fresh subscription for IPOs as an NRI;
avoidance agreement) your c. Investment in MFs.
country of residence has with Bonds/NCDs: An NRI is eligible
India. It forms the framework NRIs investing in India to subscribe to bonds/NCDs
of rules on how Indian issued in India. However,
investment is taxed in your
should worry about taxation the issuer should specifically
country of residence. If you are and tax filing requirements enable the ‘NRI Window’ in an
a US resident/person, you need in their country of residence. offer. The bonds can be tax-free
to be careful when investing in bonds or taxable. They can be
mutual funds (MFs) and ULIPs
If the income from Indian subscribed on both, repatriable
(unit-linked insurance policies) investment does not have and non-repatriable, bases.
even if allowed to do so. A US to be reported in your NRIs can apply for these
person also includes US green- bonds through their NRE/
card-holders and US citizens
country of residence and NRO accounts. To apply on a
residing in India; they have to there is no tax on it, then repatriable basis, you need to
file tax returns in the US. you have full freedom while fund it from an NRE account.
Equity (Shares): The Reserve For non-repatriable basis,
Bank of India (RBI) allows
investing in India apply from an NRO account.
NRIs and overseas citizens of Exchange Traded Funds
India (OCI)/persons of Indian (ETFs): Investment can also be
origin (PIOs) to invest in the Indian equity markets done in ETFs available in India with your PIS account
under PIS (portfolio investment scheme). PIS is a foreign through your NRE/NRO bank account. But investors
investment route to simplify the process of registration from the US may want to avoid buying ETFs as they are
and investment for all foreign investors. NRIs/OCIs/PIOs considered PFIC (passive foreign investment company)
can purchase or sell the shares/NCDs (non-convertible discussed later in this article. Even investment in shares
debentures) of Indian companies on the stock exchange. of companies considered as PFIC should be avoided by a
This can be done by following these steps: US resident/person.
a. Bank Account: You need an NRE (non-resident
external) or NRO (non-resident ordinary) account Why a US Resident/Person May Avoid Indian MFs
and obtain approval for stock trading under PIS. An NRI, who is knowledgeable about stocks and has
b. Demat and Trading Account: You need a trading time to research the same, may invest directly in stocks. It
account (linked to the PIS account) with a broker and may not be practical for most of the NRIs who are busy
demat account by any service-provider. in their work and life or have no knowledge about stocks
Many banks have started offering all the above- or how to do research or valuation. For them, equity
mentioned services at a single point which has made MF could be the only option. Many developed countries
this process smooth. NRIs need to keep in mind the (unlike US) do not levy tax on notional income but only
following: on realised income, i.e., in the year of selling MF. NRIs
• Only one PIS account can be opened for buying and need to understand the implications of investing in MF 

33 | 19 Jan-1 Feb 2018 | MONEYLIFE

Cover Story.indd 3 11-01-2018 19:07:32

 MONEYLIFE
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 COVER STORY

 schemes or stocks in India.

NRIs in countries other than US and Canada can
continue to invest in Indian MFs subject to understanding
Indian MFs Are PFIC in
the taxation and tax compliance rules in your country of US
residence. What about US and Canada residents? Once
you declare the country of your residence to be US or
Canada to Indian fund houses and fill the form under
Foreign Account Tax Compliance Act (FATCA), some
A s per US taxation laws, a foreign corporation is
a PFIC if it meets either the income or asset test
described below. The below-mentioned two clauses
AMCs (asset management companies) may not allow ensure that Indian MFs get termed as PFIC.
future investments. This is mainly due to regulatory • Seventy-five per cent or more of the corporation’s
restrictions from Securities Exchange Commission gross income for its taxable year is passive
(SEC) of the US. None of the Indian AMCs is registered income, which is based on investments rather
with SEC. Read our Cover Story - https://tinyurl.com/ than standard operating business. All mutual
yar7hbdq There are a few AMCs like UTI, Reliance, etc, funds (including bond mutual funds) qualify as a
that will accept business from you even if you are a US/ PFIC as their sole purpose is to generate income
Canada resident/person. from investments in companies rather than
There is news of more MFs making their schemes through an operational business.
available for US/Canada resident/persons. Even • At least 50% of the average percentage of assets
chartered accountants (CAs) and investment advisors held by a foreign corporation during the taxable
from India are encouraging NRIs to invest in Indian year are assets that produce passive income
MFs. Even though none of the Indian AMCs is registered or that are held for the production of passive
with US SEC, can you, as a US resident/person invest in income.
Indian AMCs if allowed by them? Will there be an issue
raised by US SEC? A dedicated Moneylife subscriber
Rahul Chivate wrote to US SEC to get the answer from MF distributors being gung-ho about NRIs investing in
them. It may surprise you. The response was from Senior Indian AMCs. But, if you are a US resident/person, you
Counsel, Office of Investor Education and Advocacy, US may want to avoid investment in Indian MFs. Why so?
SEC. Taxation and tax compliance is a major issue. If you
US SEC is actually fine are an NRI who is a resident
with a US resident/person of country other than US, you
investing in Indian AMCs. need to check the rules of that
Their reply states: “U.S.
In NRI forums discussing country for investment in MFs
investors may invest in foreign investments, there is a high or other financial products in
mutual funds. However, such attraction for investment India.
investments may subject
investors to higher investment
in India, fuelled by PFIC Taxation Prevents Tax
risks. In addition, income and investment advisors and MF Deferment
capital gains generated from distributors being gung- Dividends from MF
such investment are subject investments are tax free in
to U.S. tax law. For general
ho about NRIs investing India, but will have to be
information of investing in Indian AMCs. But, if you added to income in US and tax
in foreign securities, please are a US resident/person, calculated thereon. Handling
review our publications at: the taxation of capital
https://tinyurl.com/y7ugor2t
you may want to avoid gains from Indian MFs gets
and https://tinyurl.com/ investment in Indian MFs complicated for a US resident/
ybzjmcun” person due to tax treatment
So, US SEC does not have and classification of foreign
an issue and, in India, the Securities and Exchange MFs as PFICs. According to the PFIC rules, any notional
Board of India (SEBI) is also fine with Indian AMCs gains from MF or private equity fund holdings must
offering products to a US resident/person. In NRI forums be declared every year and tax must be paid on such
discussing investments, there is a high attraction for notional gains.
investment in India, fuelled by investment advisors and Mark to Market: Investment in Indian MF schemes with 

MONEYLIFE | 19 Jan-1 Feb 2018 | 36

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 COVER STORY
 a growth option can perpetually defer taxation until
redemption by investors. Long-term equity schemes
are tax-free in India. Long-term debt schemes can use
double indexation to reduce gains to zero or near-zero.
So, Indians are lucky to have such features available to
save on taxes. But, if you are a US resident/person, the
luck does not apply to you.
As per PFIC rules, a US resident/person will have
to declare gains from MF investment every year (mark
to market) and pay taxes on it. With ‘mark to market’
method, you pay taxes on the difference between the
value of your investments at the beginning of the year
and the value of your investment at the end of the year.
Excess Distributions Method: US residents/persons
wanting to avoid ‘mark to market’, can go with ‘excess
distributions method’ (default method) but that will
end up with much higher taxation. The
net effect can possibly be effective
taxation of 35%-50% or more.
Taxation on PFICs is punitive
compared to the tax treatment
of MF schemes offered by
US companies. The ‘excess
distributions method’ option
of PFIC tax rules will treat
all income (including capital
gains) as ordinary income taxed
at the current highest individual
tax rate plus compounded interest
for deferred taxes for each year that you
have held the investment.
A US resident/person investing in Indian MFs can get
caught between devil and the deep sea. But do AMCs,
CAs or fi nancial advisors really tell you about it? They
are not considering US taxation and tax filing. Just
because the US SEC is fine with investments in Indian
MFs, it does not mean that you should jump into it. US
SEC response clearly states: “Income and capital gains
generated from such investment are subject to U.S. tax
law.”
Jigar Patel, non-practising Certified Public
Accountant (CPA from US), CA (India) and partner at
Naresh J Patel & Co, says, “It is important to understand
the concept and reason for the default option, i.e., excess
distributions method. If you buy a mutual fund in
January 2015 and sell in February 2018, the gain is not
of 2018 but of four years (2015, 2016, 2017 and 2018)
and the gain is to be recognised in the respective years.
If you do not report the income in the respective years,
you would need to pay the tax with interest in the year
of selling the fund. Because of the interest on previous
year’s taxes, it becomes expensive to select the default
Cover Story.indd 5
option.”
Qualified Electing Fund Method (QEF): This is an
excellent option wherein a foreign MF, which is allowed
QEF option, is taxed just like any other US MF. For it to
be allowed, the PFIC needs to meet certain accounting
and reporting requirements. But none of the Indian
AMCs is registered with SEC and it is unlikely that they
would report information the way US MFs would do to
SEC. So, an Indian AMC qualifying as QEF is unheard
of. Effectively, US residents/persons investing in Indian
AMCs will not qualify for the QEF method; hence, they
may like to avoid investing in Indian MFs.
CA Patel adds, “It would not be practical to select
QEF for Indian mutual fund as a unit holder of a QEF
needs to annually include its pro rata share of the
ordinary earnings of the QEF as ordinary income and
The mark to market option
is better for US residents.
However, we do not make
decision for our clients. We have
seen different treatments being
advised by different CPAs for
different clients
- Jigar Patel, non-practising CPA (US), CA
(India) and partner at Naresh J Patel & Co
its pro rata share of the net capital gain of the QEF as
long-term capital gain. In India, there is no information
sharing with the investor for his/her share of earning
and / or capital gain and it would not be possible for an
investor to find out this information especially when the
pro rata share keeps on changing based on investment in
the same fund by him and/or by other investors.”
How PFIC Mark to Market Impacts Your Equity and
Debt MFs
According to CA Patel, “I think the Mark to Market
option is better for US residents. However, we do not make
decision for our clients. We provide all the information
about the investments, valuation, transaction details and
other information required for making a declaration and
calculation of gain in an Excel file and ask the clients to
consult with their CPA about reporting the assets and
income. We have seen different treatments being advised
by different CPAs for different clients.”
The growth option of investment in Indian debt
MF schemes is a good option due to the twin features
of tax deferral until redemption and double indexation. 
37 | 19 Jan-1 Feb 2018 | MONEYLIFE
11-01-2018 19:08:09
 COVER STORY

Deferred tax will be almost impossible for a US resident/

person, as per US rules. They will have to pay tax in the
US for the calculated gains during the year, even if they
FATCA to Catch PFIC
do not redeem. We suggest US residents/persons avoid Investors?
it due to the mark to market or excess distributions
method. The tax filing is also cumbersome for investing
in a PFIC.
CA Patel articulates the case for debt MF scheme
I f you have a financial interest in India and happen
to be a resident of US/Canada or you are a person
from US/Canada (US/Canada citizen or holding
investment. He says, “Debt mutual fund may be permanent residency) not residing in US/Canada,
a good idea as the income is calculated in USD or you need to be aware of the implications of FATCA.
foreign currency, i.e., they will get the benefit of rupee India and US have entered into an inter-governmental
depreciation on the principal amount. For example, if agreement (IGA) in July 2015 under which Indian
an NRI from US invests 63,00,000 ($100,000 @ 63/$) financial institutions (FIs), including mutual funds,
in NRE FD @ 7% for one year, he will earn Rs4,41,000 will provide the necessary information to the Indian
as interest. If exchange rate is 65/$ after one year, he will tax authorities which will then be transmitted to US
include $6,785 as interest income. However, if he invests Internal Revenue Service (IRS) periodically.
in a liquid/debt scheme that generate 7% return, his US$ FATCA declaration was to be collected from
income would be $3,708 [$103,708 (67,41,000/65) - those investors who have opened MF folios on or
$100,000], reducing US$ income and accordingly tax after 1 July 2014 or if they have an account on 30
liability significantly. This is assuming that the rupee will June 2014 wherein the value of investments is above
depreciate, which has been the case in long term.” $50,000. However, banks and brokerage firms asked
The same rule applies to equity MF schemes with for FATCA declarations only from new customers as
growth option. Even though long-term capital gains on well as old customers who had foreign address or
equity MF schemes are tax-free in India, they are taxable NRE/NRO accounts.
in the US. As per DTAA rules, if a US resident/person
does not pay taxes on equity MFs in India, there is
nothing to offset it when filing US tax returns and, hence, issues while filing tax returns to the Internal Revenue
they are taxable in US (usually 15%). Mark to market Service (IRS). Filing it incorrectly, or not filing when you
will ensure that gains, even if there was no redemption, need to, can attract IRS scrutiny. You will have to fill
will have to be shown in US the dreaded Form 8621 which
tax returns. Equity MF schmes is extremely complicated. The
can also have losses on paper IRS offers these estimates of
(no redemption). So, each Form 8621 is extremely how long it will take some
year’s gains or losses have complicated. The IRS offers taxpayers to deal with Form
to be calculated to pay taxes these estimates of how 8621. Recordkeeping: 16 hr.,
correctly. 44 min. Learning about the
For mark to market option, long it will take some law or the form: 9 hr., 56 min.
any notional gain on holding taxpayers to deal with Form Preparing and sending the form
the mutual fund for the year 8621. Recordkeeping: 16 hr., to the IRS: 14 hr., 14 min.
is offered for taxation in the You are not required to file
same year. If there is any loss, 44 min. Learning about the Form 8621, if the value of all
it can only be adjusted up to law or the Form: 9 hr., 56 PFICs held by you is less than
the fund’s previous income. If min. Preparing and sending $25,000 at the end of the year
there is no income, then it will ($50,000 if filing a joint tax
be carried forward (purchase the Form to the IRS: 14 hr., return in US), and there were
cost will not be adjusted by 14 min. no distributions or dispositions
change in market value) to during the year. But if you want
be adjusted against the future to make one of the elections
income from the fund. described above, then you need to file Form 8621. The
default election is excess distributions method which has
PFIC Tax Filing Compliance Is Onerous its own drawbacks.
A US resident/person investing in Indian MFs can face So, if you are a US resident/person investing in 

MONEYLIFE | 19 Jan-1 Feb 2018 | 38

Cover Story.indd 6 11-01-2018 19:08:37

 COVER STORY

 Indian MF schemes and do not file Form 8621 for your can avail home loan from Indian banks or financial
Indian MF investment, then you have defaulted to excess institutions after satisfying the eligibility criteria. The
distributions method in the year of sale which is not loan amount and repayment transactions are in Indian
desirable. rupees.

Real Estate: Issues with Buying, Selling and Renting Property Selling Can Trouble You with Capital Gains
Buying multiple properties in India is not efficient from Abroad
the taxation perspective. Only one property can be shown Property is an illiquid asset. It is not easy to sell in a
as self-occupied. The other has to be rented out and down market without taking a beating. Selling property
rental income is taxable; if not rented out, it is considered comes with some restrictions by FEMA (Foreign
deemed let-out and the deemed rent is taxable. Investors Exchange Management Act), especially for repatriation
not showing rental income from multiple properties transactions. The property transaction can generate a
becomes an issue with Indian high amount of capital gains
tax compliance. which can create taxation issues
Tracking of properties held Unlike India, the foreign especially for NRIs, depending
by Indian residents and NRIs is country may not even on the country of residence.
diffi cult and, hence, real estate Taxation on capital gains in
investors have always been allow calculation of India can be avoided by buying
fl ying under the radar of tax inflation indexed purchase another property or investing
authorities. NRIs/PIOs/OCIs price to lower your capital in capital gains savings bonds
are big investors in Indian from Rural Electrification
real estate; they have to worry gains. If such adjustment Corporation (REC) and
whether FATCA will apply to is not allowed, your capital National Highways Authority
real estate holdings in future. gains abroad can be much of India (NHAI). But your
The issue, again, is that income country of residence may not
from real estate may not have higher than the capital accept such an arrangement.
been reported in the US tax gains calculated for Indian For example, a foreign resident
returns and, hence, NRIs may tax laws may save taxes on property
not want to reveal that they sold in India by re-investing in
did not report the Indian rental property or buying such bonds.
income in US tax returns. With But it may not be allowed under
fear of FATCA, NRIs are trying to come clean before tax laws of the foreign country where the NRI resides.
they get caught. The capital gains made zero in India may mean that full
capital gains will have to be paid in the foreign country.
Property Buying Fraught with Unclear Title Issues Unlike India, the foreign country may not even
Real estate has been a popular investment option for allow calculation of inflation indexed purchase price
NRIs/PIOs/OCIs. They are allowed to invest in residential to lower your capital gains. If such adjustment is not
and commercial properties with NRO/NRE accounts to allowed, your capital gains abroad can be much higher
make payment but cannot invest in agricultural land, than the capital gains calculated for Indian tax laws. It
farm house or plantations in India. NRIs can own such is crucial to consider if the income-tax liability in the
properties only if they have been inherited; but selling of country of residence on the capital gains will nullify the
such properties can be only to a resident Indian. tax savings you made to satisfy the Indian tax laws. You
With the real estate market in India going through will wonder whether claiming exemption under Sections
a downturn, NRIs should be wary of buying property 54/54F/54EC was really the correct decision.
as an investment. Moreover, buying property in India If you end up saving taxes in India, but paying in
can have issues of legalities and clear titles. Do check your country of residence, your tax saving may not
that the property has all the required approvals from materialise. The NRI may be better off claiming only
civic authorities for construction. It is not easy for a partial or no tax savings at all in India. Buying property
novice to buy property without hassles. Having the in India may seem unattractive when you consider the
‘right’ intermediary can help to check the documentation tax angle in your country of residence. So, don’t jump
and do proper title search and transfer; but agents are into buying property without knowing the tax issues
unregistered and, hence, service levels can vary. NRIs when you exit. 

39 | 19 Jan-1 Feb 2018 | MONEYLIFE

Cover Story.indd 7 11-01-2018 19:08:53

 COVER STORY

NRI Investments and Taxation

J igar Patel is the author of NRI Investments and
Taxation: A Small Guide for Big Gains. He is CFA
(USA), MBA-Finance (USA) and CA (India) who is
be about 3%-4%pa. So, Invest in India only if you
are ready for the currency fluctuations and are
ready to take about 3%-4%pa currency risk.
partner of Naresh J Patel & Co. He had CPA (USA) 4. Keep investments simple and in instruments that
licence when he was staying in USA, but is no longer you understand. The purpose of any investment
allowed to practise as a CPA. Here are some tips for needs to be defined whether for risk minimisation
NRIs given by him. (protection) or for return maximisation (growth).
1. Know yourself. NRIs should know their risk profile, Don’t mix protection with growth or vice versa. It
return expectations, tax slab, investment portfolio, is very easy to give complicated solutions to simple
diversification, investment objectives, liquidity, problems but it is very difficult to offer simple
family situation and circumstances, time horizon, solutions for complex problems.
compliance requirements, etc, before investing in 5. Understand and comply with all laws. Don’t
India. take any short cuts. If someone asks you to do
2. Understand that something, please understand
the FEMA (Foreign the reasons behind it,
Exchange Management Don’t take any short cuts. whether it is for compliance
Act) and Income Tax or making your/ their life
laws are different.
If someone asks you to easy. For example, many
NRIs should know do something, please NRIs were and are still being
FEMA rules as the understand the reasons told to get Aadhaar card due
FEMA guides about to ignorance or to circumvent
what, when, why, where,
behind it, whether it is for the laws; however, NRIs
when, how much an NRI compliance or making your/ are not allowed to have
can invest in India and/ their life easy. For example, Aadhaar card and Aadhaar
or remit funds outside card is not required if the
India. The Income-tax
many NRIs were and are still account/ investments are
Act only determines being told to get Aadhaar owned properly, i.e., as non-
the tax liability of any card due to ignorance or to resident. Compliance is the
income generated from key for investments by NRIs.
investments made as per
circumvent the laws I expect the compliance
FEMA laws. requirements to increase
3. Consider foreign and/or implementation to
currency risk: The rupee has long history of become more strict in future; so better to plan and
depreciation and is also expected to depreciate in comply. If you can’t do it on your own or your
future due to difference in inflation, interest rates agent or relationship manager is not equipped,
and other factors. While the rate of depreciation work with a knowledgeable and experienced
may change in short term, in the long term, it will adviser.

 Property on Rent – Is Tax Deducted at Source?
Renting your property with a ‘leave and licence’ (L&L)
agreement can be better than giving your property
without any paperwork. Registering and paying stamp
duty on the L&L agreement can ensure your right as the
owner. The police can help you as the property owner if
you have registered L&L agreement. If you don’t have an
agreement, it may be tougher to get justice.
Power of Attorney (PoA): When you are an NRI, you
have the additional burden of giving a PoA to one of
your family members to execute the L&L agreement,
in your absence. You may not be able to personally
meet the licensee to know him/her before renting It is
a disadvantage. There is always fear of the licensee not
vacating the place, despite signing an L&L agreement
and registering it.
TDS on Rent: Under L&L agreement, a licensee is
required to deduct tax at source at 30.9% under Section
195 before making the balance rental payment to the
NRI owner. The licensee needs to pay the rent directly 

MONEYLIFE | 19 Jan-1 Feb 2018 | 40

Cover Story.indd 8 11-01-2018 19:09:17

 COVER STORY

 into the NRO account. The TDS by L&L licensee can
be a turn-off for both parties, even though the owner is
liable to be taxed on the rental income and can even get
a refund if the income from Indian sources is below the
minimum slab rate.
good option, but the interest will have to be added to
income shown in your US tax returns. NRE FD is still a
decent option as there are no worries of taxation and tax
filing in India. NRE FD needs to be for a minimum one
year, to earn interest.

Good Old NRO/NRE Fixed Deposits Surprising Reason To Avoid Buying Insurance for
NRIs, PIOs/OCIs will usually have NRE or NRO Investment
account. Resident bank accounts opened before moving Term Plan Is Good for NRI/PIO/OCI
abroad will have to be converted to NRO accounts. It Moneylife has always advocated buying a term plan for
is better to do the conversion to NRO account before life insurance needs. At the same time, we have been clear
moving abroad as it will require greater efforts to do so that insurance-cum-investment products (traditional
when you are out of India. policies, ULIPs, pension plans)
need to be avoided. We are
NRO Savings and FDs NRIs can buy term plans; giving yet another reason
When you become an NRI, some insurers may not accept for NRIs from US to avoid
you will need to convert insurance-cum-investment
proposals from PIOs/OCIs.
your savings account and products. It can be considered
fi xed deposits (FDs) to NRO Medical tests are usually as PFIC which increases tax
savings and NRO FDs, done in India. It should be burden and compliance in US.
respectively. Interest earned NRIs can buy term plans;
possible to get them done
on NRO account is taxable some insurers may not accept
and also subject to TDS. The abroad too, if the insurance proposals from PIOs/OCIs.
TDS for NRO accounts will company allows it. LIC’s Medical tests are usually done
be 30.9% instead of 10% for in India. It should be possible
online term plan, e-Term, can
resident Indians. Even NRO to get them done abroad too,
savings account interest will be purchased by NRIs, but it if the insurance company
be subjected to 30.9% TDS; is not offered to PIOs/OCIs allows it. For example, LIC’s
resident savings account has online term plan, e-Term, can
no TDS. To have lower TDS be purchased by NRIs, but it
for NRO accounts, you will need to submit TRC (tax is not offered to PIO/OCI. NRIs from several countries
residency certificate) from the country of residence. For may be accepted. Insurance companies avoid NRIs from
example, DTAA allows TDS of 15% for US residents specific countries they consider risky. Please read our
submitting TRC for their NRO accounts. Cover Story on NRI/PIO/OCI life insurance - https://
tinyurl.com/yauxmmyz
NRE Savings and FDs
You can open NRE account for putting money you earn Is Insurance as Investment Considered PFIC in US?
abroad (if you do not wish to keep it in your country The idea of PFIC is not simply limited to MFs as it
of residence). NRIs, PIOs/OCIs are permitted to have can also apply to certain individual stocks or even life
NRE accounts with Indian banks. When you convert insurance products. Insurance policies pay money-
your foreign currency to Indian rupees to put in NRE back or lump-sum at maturity from their earnings on
account, you are subject to currency conversion risk. investment in bonds, government securities or equities.
Interest earned on NRE account is tax-free in India, but They pool the premiums and invest them to earn
it may be taxable in your country of residence. income by getting interest, dividend or capital gains.
For NRIs from countries that do not tax on the Indian Any corpus that generates passive income and
income (e.g., UAE, Kuwait, Qatar, etc), NRE FD is the has units and NAVs can be regarded as PFIC. As per
best investment option for risk-free return. However, the definition of PFIC, LIC or any private insurance
However, for NRIs from US or other developed countries company’s ULIP can be considered a PFIC. Endowment
that tax foreign income, NRE FD interest can be taxable, or money-back policy may not be considered as PFIC,
for example, NRE interest is taxable in US. even though some websites state otherwise. The jury is
NRE principal and interest amount can be freely out on this. Don’t expect insurance companies to give
repatriated to your country of residence. NRE FD is a you any clarification. 

41 | 19 Jan-1 Feb 2018 | MONEYLIFE

Cover Story.indd 9 11-01-2018 19:09:40

 MONEY MANTRA MEHRAB IRANI

10 Investment Commandments
for 2018 and Beyond
D
o you want to be a slave—wage slave of your require for at least the next five years and which you have
employer, tax slave of the government and loan the courage to lose with its value reducing by up to 50%
slave of a bank? Why are you adamant about in the short term and not panic on it.
working for money when money is willingly ready to Commandment 2: Thou Shall Do Proper Budgeting
work for you? Once you move from financial slavery to Thou shall not invest what is left after spending but spend
financial freedom, you will be able to fulfil your dreams what is left after investing. Remember that income-tax
and achieve your higher self-actualisation goals. You reduces your gross income; interest on loans on unnecessary
become financially free when you can stop working for expenses/bad capital assets diminish your net income and
money and when money starts working for you. In the the monster of inflation eats up your remaining income.
New Year, as you make different wows to improve your So, unless you budget properly to create investment assets,
health, social and family life, here are 10 commandments your dream of achieving financial freedom might remain
to improve your financial health so that you are on the just a pipedream. Saving must be a priority. You must
path to achieve financial emancipation. think of it as a compulsory ‘expense’ which you have
Commandment 1: Thou Shall Make a Proper Asset to incur for yourself the same way as you pay tax to
Allocation Plan the government and loan EMIs (not 9 equated monthly
Asset allocation is the primary premise for investments. instalments) to the bank.
Long-term statistical analysis has shown that 90% of Commandment 3: Thou Shall Take Proper Family
the variability in returns is due to asset allocation 9% Protection
due to stock selection and 1% because of market timing. Thou will not confuse insurance with investments. Thou
All assets move in business and economic cycles of their shall take proper insurance cover of at least 10 times
own and, while one asset might be in a bear market, your annual after-tax expenses (revenue and average of
another asset class might, simultaneously, be in a big bull past three-year capital expenditure). Thou shall also take
market. The broader asset groups of equities, proper medical insurance.
p
bonds, commodities and real estate Commandment 4: Thou Shall Take
(others being art and currencies) Proper Asset Protection
will lead you to the gateway Before starting to build fresh
of long-term wealth creation wealth, it is our duty to protect
and sustenance. Portfolios our existing assets. Assets like
behave differently from their a house, flat, or car must be
individual constituents. insured against accidents and
The aim of optimal asset natural perils. The event
allocation is not to invest Commandment 1: Asset Allocation of earthquake or terrorist
only in safe assets but to Commandment 2: Budgeting attack to our flat/ house
invest in a combination seems to be remote; but
of safe and risky assets Commandment 3: Life Potection the impact of such events
whose combined risk Commandment 4: Asset Protection could turn your financial
is much less than stability upside down.
that of the individual Commandment 5: Buy house for own use Therefore, protect your
constituents and, at Commandment 6: Know Speculative Assets house and other major
the same time, offer assets with proper
a higher degree Commandment 7: Know Good Vs Bad Debt insurance.
of return. While Commandment 8: Retirement Plan Commandment 5:
selecting assets, Thou Shall Buy Your
remember to Commandment 9: Investing Principles Own House for Self-
allocate only those Commandment 10: Don't Forget the above 9 occupation
funds to equities Thou shall look into
which you don’t buying your own 

MONEYLIFE | 19 Jan-1 Feb 2018 | 42

Irani column.indd 2 11-01-2018 18:24:33

 MONEY MANTRA MEHRAB IRANI
 house in 2018 with some bargain and discount from the
developer while we are close to the bottom in the current
interest rate cycle.
Commandment 6: Thou Shall Not Over-invest in
Speculative Items
This would include speculative or penny stocks, junk bonds,
non-cash-flow-generating commodities like gold or silver
and non-revenue-generating posh real estate like beach
houses. Investments in these can be done only when you
have a clear view on these asset classes and expect to gain
from their price movement. But you have to remember
that they are speculative in nature and will not go up in
perpetuity; hence, you should not remain wedded to those
investments but sell them when the right time comes.
Commandment 7: Thou Shall Learn the Difference
between Good and Bad Debt
Learn to distinguish between good and bad debt. It’s
pertinent to know that bad debt would be what is used to
create bad capital assets—assets like car, holiday home or
a house—which take away money from your pocket and
do not put any money in your pocket. On the other hand,
good debt would be that which helps you in creating an
asset which then puts money in your pocket (income) as well
as has scope for future capital appreciation, e.g., property
which earns rent, shares which earn (tax-free) dividends
and both have the potential for future capital appreciation.
Never borrow to incur a revenue expenditure, like taking
a foreign trip or buying a bad capital asset, like a car or
beach house, because these will not only take away money
from your pocket in the form of interest payments but
also put you into recurring wasteful revenue expenditure
in the form of maintenance of that bad capital asset like
petrol, repairs, property taxes, etc.
Commandment 8: Thou Shall Make a Proper
Retirement Plan
If you want to enjoy the same lifestyle that you are currently
enjoying even after your retirement or have the joy of
bequeathing your wealth to your children, start planning
for it today. And be realistic about it—make an estimate
of your needs which will keep evolving with your age and
time and also consider inflation in your computations.
Commandment 9: Thou Shall Remember These Principles
While Investing in Equities:
• Bull and bear markets run for several years. Hence,
determine the primary trend of the market and don’t
generally go against the primary trend;
• Market is supreme and above everybody: no government,
central bank, industrialist or operator can alter the
primary trend of the market. They can only complicate
the wave structure;
• Right asset allocation and getting the macro view right
are far more important and profitable rather than
Irani column.indd 3
individual investment ideas;
• Never invest or trade more than you can reasonably
afford to lose;
• Put stop-loss at a logical, not convenient, place and
always adhere to it;
• Cut losses and let profits run. Don’t let a profit get
converted to loss;
• If you wait too long to buy, until every uncertainty is
removed and every doubt is lifted at the bottom of a
market cycle, you may keep waiting and waiting;
• Act on your own judgement or entirely on the judgement
of another;
• Tips are for waiters and not investors;
• When in doubt, stay out and don’t get in when in
doubt;
• Don’t over-trade;
• Don’t invest or trade based on hope;
• Learn to accept your mistakes in the market (otherwise,
market will make you accept it in a cruel way) and
then analyse and learn from your mistakes;
• Wherever possible, trade liquid markets;
• Don’t believe everything which a corporate official
says about his / her company’s stock;
• When opinions in the market are unanimous—beware,
because markets are famous for doing the unexpected;
• Never be sentimental about an asset class or individual
stock;
• Playing the market is more of an art rather than a
science;
• Simple logical things work far better in the marketplace
rather than complex algorithms, theorems, valuations
principles, etc;
• Buy the stocks of companies that have shown consistent
growth in earnings and producing those goods / services
which people cannot do without;
• Last, but not the least: never try to catch the top and
the bottom because only liars and fools can do it.
Commandment 10: Thou shall not forget the above nine
commandments and keep reviewing, changing, rebalancing
and refining at regular intervals along with changes in
your financial condition.
Wish all the readers a very happy and prosperous
New Year. May this year commence the financial freedom
journey for each and everyone one of you. 
Mehrab Irani is the author of acclaimed
10 Commandments for Financial
Freedom and best-seller Mad Money
Journey, India’s first finance thriller
43 | 19 Jan-1 Feb 2018 | MONEYLIFE
11-01-2018 18:24:54
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 StockWatch Stocks and sectors that catch our eye

DR E DG I N G C ORP ORAT ION operating profit grew by 40% over that in the previous
corresponding quarter.
Can a New Owner Incorporated in March 1976, DCI is a premier
and the only major dredging company in India. Its
Dredge It Up? clients include Indian ports, Indian Navy, etc. Apart
from the traditional dredging segments involving

I
ndia’s biggest dredging operator, Dredging capital and maintenance dredging, DCI’s portfolio
Corporation of India Limited (DCI), has suddenly of services now also includes inland/shallow water
turned into a hot stock. From languishing at dredging, beach nourishment, project management
around Rs400 for all of 2016, the stock has shot up consultancy and sand mining, among others. Its current
to around Rs900. What’s going on? DCI is one of fleet includes 12 trailer suction hopper dredgers, three
the government-owned companies that have been cutter suction dredgers, three ancillary crafts dredgers
shortlisted for strategic disinvestment, meaning and one backhoe dredger. Most of the dredgers are
the government will sell its 73.74% holding in the used for maintenance dredging projects. Interestingly,
company. If, and 91% of spare parts and
when, that happens, components consumed
a substantial value are being imported.
can be unlocked. The Dredging is the
market-players are process of excavating or
betting that a new removing soil or rock
owner from the private from below water, using
sector will energise dredgers. The Indian
the company—like dredging market for
the Sterlite / Vedanta FY16-17 was about
group has done to Rs3,000 crore out of
Hindustan Copper and which Rs1,750 crore
Bharat Aluminium. (Rs1,550 crore from
India’s largest port major ports and Rs200
operator Adani Ports crore from minor ports)
and Special Economic Zone (APSEZ) is in the fray for is third-party dredging (i.e., dredging by companies like
acquiring the government’s stake. DCI and other players) and Rs1,250 crore is captive
This is why DCI’s past performance is not dredging (i.e., dredging by ports like Adani, Essar, etc.)
important while deciding whether it is investment- which are serviced by their own dredging assets. Third-
worthy or not. In the September quarter, it earned party Indian dredging market is expected to be Rs2,400
revenue of Rs161.25 crore from running 19 dredgers crore-Rs2,500 crore, over the next 10 years.
of different categories and reported a net profit of Growth in seaborne trade is the single largest
Rs18.59 crore in Q2FY17-18 vs net loss of Rs.14.3 demand driver for growth of dredging market in India
crore in the previous year’s corresponding quarter. The and, in that respect, the prospects of dredgers look 

Disclaimer: None of the stock information presented constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general in nature that does not take into
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information may be incomplete or condensed. All opinions and estimates constitute our judgement as on the date of the report and are subject to change without notice. Past performance is no indication of future
results. Investors must do their own research before acting on them. Data Source: Centre for Monitoring Indian Economy’s Prowess database.

Those who have subscribed to the stockletters should only follow the stocks recommended there.

MONEYLIFE | 19 Jan-1 Feb 2018 | 46

StockWatch.indd 2 11-01-2018 16:28:49

 STOCK WATCH

In the past, DCI used to dredge 24 million cubic

Net Profit (Rs Crore)
200
160
120
80
40
0 dredging and not designed to do capital dredging
FY06-07 FY11-12 FY16-17
 good. The capacity of major ports grew at 8% while
the capacity of minor ports grew at 12%. International
dredging companies have consolidated their position
in high-value capital dredging projects in India, while
DCI and other Indian private dredging companies are
focused on the maintenance dredging market. DCI has
almost 80% market share in maintenance dredging in
India.
For many years,
DCI survived on
assured business
given by the Central
government-owned
port trusts on a
nomination basis
(without tenders).
This system was
scrapped a decade
ago. DCI now
has to compete with other firms, Indian as well as
foreign—like Essar Group, Mercator Ltd and Marg
Ltd—to win contracts at state-owned port trusts and
elsewhere. Intense competition has resulted in dredging
contractors quoting way below estimates to clinch
contracts, hurting their margins.
High Dependence on Government
DCI has been almost totally dependent on government
projects. More than half of DCI’s annual revenues came
from the maintenance dredging contract at Kolkata
Port Trust (KoPT) and a large portion of the other half
from Cochin Port Trust. But, recently, the shipping
ministry has directed Kolkata Port Trust to open a new
shipping channel to improve the navigability of the
Haldia Port. DCI has secured a Rs1,119-crore contract
for five years to be executed for maintenance dredging
of KoPT.
metres (mcm) per year by deploying six dredgers at
Jellingham and Auckland bars. A reduction of one-
third of this led to a revenue loss of Rs100 crore for
DCI. Both, revenues as well as costs, were adversely
impacted last year due to dry docking (repairs) of
various dredgers. Revenue declined by 12% year-on-
year (y-o-y) and net profit collapsed by 83%. DCI has
been witnessing low profits since March 2012, when
net profit was just Rs13.18 crore, a far cry from Rs150
crore-Rs170 crore net profit made in 2006-08.
DCI’s dredgers are meant only for maintenance
which generates higher revenue. Besides, DCI’s dredgers
are not designed to operate with fewer staff. While a
dredger owned by a European dredging firm can be
run with 27 people, DCI’s dredgers require at least 40
people to operate, raising operational costs. A new
buyer will have to develop new customers. It has a
debt of Rs700 crore on its books which might end up
turning into bad debt. This has put the financials of the
company under a severe strain.
Investors are
expecting that the
dredging industry
is at the cusp of a
high growth phase
as the government
has announced
construction of new
ports and revival
of 106 national
waterways (NW)
which would increase
the opportunity of inland dredging. Furthermore,
projects like Jal Marg Vikas and Clean Ganga were
about to offer very large opportunities (around
Rs25,000 crore). Also, the Sagar Mala project has
envisaged 150 projects entailing an investment of
Rs100,000 crore (dredging market opportunity of
Rs20,000 crore).
However, government announcements generally are
at a variance with actual orders. All the government’s
initiatives are taking longer than expected to realise.
DCI has been looking at expanding its presence to
foreign shores. It, recently, signed a memorandum of
understanding (MoU) with a Bahrain-based company
with an eye on securing contracts in the Middle East.
It has been awarded the contract of Rs100 crore in
Bangladesh too.
The prospects of DCI being taken over by a
dynamic private player has pushed the stock up, 

47 | 19 Jan-1 Feb 2018 | MONEYLIFE

StockWatch.indd 3 11-01-2018 16:29:40

 STOCK WATCH
 making it quote at a price-to-earnings ratio (P/E) of
60, based on last four quarters of profits. After the
recent rally, DCI has a market-cap of about Rs2,500
crore. For this valuation to be justified, it must
generate a net profit of about Rs100 crore or so (P/E
of 25). It had a net profit of Rs154.82 crore in March
2008. Next year, the profit was down to a third and
has been generally below Rs50 crore for the past 10
years, barring two years. If you are buying this stock,
remember it is not based on fundamentals which will
take time to improve. We expect the bids for this
company to be high, based on DCI’s dominant position
and importance to a strategic buyer. And depending on
who the winning bidder is, the prospects of DCI may
be much brighter. 
S t r i de s S h as un
Striding Ahead?
S trides Shasun (SS), headquartered in Bengaluru, is
a vertically integrated pharmaceutical company.
Strides develops and manufactures intellectual
property-led niche pharmaceutical products for
regulated and emerging markets. Strides merged with
Shasun in FY14-15 to access its products pipeline
and supply chain. The merged entity also established
a new research & development (R&D) base. Strides
(pre-merger) was originally set up as a company
with trading focus in emerging markets of finished
dosage form (FDF). Post-merger, the company has
a business-to-consumer focus model with branded
generics, diversified footprint in regulated and emerging
markets, vertically integrated supply base and R&D.
MONEYLIFE | 19 Jan-1 Feb 2018 | 48
StockWatch.indd 4
Further, to establish a presence in various markets,
SS has acquired Universal Corporation in Africa. It
also acquired various brands in the US and emerging
markets to strengthen product offering. In FY16-17,
the company had proposed to demerge its business-
to-business commodity API (active pharmaceutical
ingredient) business. Now, SS has nine manufacturing
facilities across three continents, a footprint in over
100+ countries, two R&D centres with a 1,500-strong
sales force.
The company is yet to announce financial results for
the quarter ending December 2017; but, for the quarter
ending September 2017, revenues grew at 14.2% year-
on-year (y-o-y) while operating profit declined at 24%
y-o-y. The performance has not been great but the
company might turn around on account of its push
into emerging markets. It is transforming its business,
having sold its low-margin businesses like India and
Africa generics and also the on-going demerger of
commodity API business. The remaining businesses are
the institutional and branded products businesses of the
US, Australia and Africa, which are niche and have a
potential to scale up with good margins.
Shashank Sinha, managing director of SS, said, in a
press release on 31 October 2017, that “We are pleased
that our business has rebounded strongly driven by
regulated markets growth. We had successful new
product launches in the US and strong store additions
in Australia. We expect continued growth driven by our
focus on expecting new product launches as approval
momentum has picked up and operating leverage is
kicking in.”
India Infoline met with the management of the
company recently and reported some key points in
its research report. According to the brokerage, SS 
Segment-wise Revenue
FY15-16 FY16-17
15%
26%
40%
16%
51%
21%
18%
13%
Regulated Emerging Institutional API
11-01-2018 16:30:22
 STOCK WATCH
 now owns a good portfolio of strong brands, having
divested the low-margin business, which would have
called for substantial capital expenditure requirements.
The US business is set to take off as the company
ramps up sales of its existing large product approvals
like potassium citrate and omega-3 soft-gel capsules.
SS has added capabilities on topical applications with
a significant scope for ramp-up. Modified release,
soft gels and topicals do not face severe competition
and SS would look to 15-20 filings annually with a
focus on these products to not get affected by severe
price erosion in plain-vanilla oral solids, reports India
Infoline.
SS is present in 180 out of 250 molecules in
generics across 1,200 pharmacies in Australia.
Operations in Australia witnessed low single-digit
growth owing to launch of just seven new products.
But SS is expanding its distribution footprint by adding
50 stores and there is healthy momentum in consumer
health care products, says the India Infoline report.
Arrow Pharmaceuticals, a subsidiary of SS, acquired
R e a l E s t a te
How Do Real Estate
Stocks Stack Up?
T
hree of the best-known features of the Indian
real estate sector were: high cash transactions,
avoidance of taxes to some extent (such as
service-tax) and absence of regulations. Hence, when
India demonetised Rs500
and Rs1,000 notes in
November 2016, brought
in Goods and Services
Tax (GST) and introduced
Real Estate Regulation Act
(RERA), real estate was
supposed to get hit the
hardest. And, yet, it is the
real estate stocks that have
been the best performing
stocks of the past one year.
An acute liquidity crunch,
created by demonetisation,
brought the whole sector
to a standstill in November 2016. But, thanks to the
government’s attractive affordable housing scheme,
demand is picking up and stocks are flying. We
decided to take a closer look at the performance of
StockWatch.indd 5
Amneal Pharmaceuticals during the September quarter.
This acquisition is expected to add approximately
AUD25million in annual revenue, increase market
share by adding first-line pharmaceuticals store and
provide significant synergy opportunity of 100+
molecules.
After the divestment of Africa generics business,
SS owns $40million branded product business catering
to Western Africa and other institutional business as
well. SS is the second largest Indian player in Africa
branded generics after Ajanta Pharma. It enjoys a
good recognition from local doctors. Africa’s branded
business should grow between 10% and 20%, based
on new treatment therapies, new launches and higher
penetration.
The stock is currently trading at a price-to-earnings
ratio (P/E) multiple of 18x on a 12-month trailing
basis. If the transition of business is successful, the
stock may move up as revenue grows and margins
improve. The December quarter results will show how
well the new business model is working. 
select companies, after ranking them on some common
parameters.
Real estate is not a smooth business. Unit prices
are high and, therefore, sales are uneven. One cannot
straight away consider the sales growth of companies
on a year-on-year (y-o-y) or quarter-on-quarter
(q-o-q) basis, as it will not give a true picture. Real
estate projects are not completed in a few days or
months; it takes years to complete one project. The
accounting for inventory, sales and costs incurred
are not the same as for
a manufacturing or a
service company. As the
projects get completed, it
is shown as inventory and
then sales are gradually
made from the inventory
of the completed projects.
So, instead of looking
at normal sales growth,
which will be lumpy,
one should look at the
velocity of sales, which
is, sales to average
inventory, as a measure
of operational efficiency. This will give us an idea of
how successful a real estate developer is in pushing
out its inventory—the real measure of success in a
business marked by huge unsold inventory. The higher 
49 | 19 Jan-1 Feb 2018 | MONEYLIFE
11-01-2018 16:31:20
 STOCK WATCH

 the ratio, the better it is. If the developer is not able
to sell, naturally, inventory will grow and sales will
fall and this will lower the ratio. On the other hand,
if the ratio is high, it means that the builder has done
a lot of things right. He has anticipated the demand
correctly; kept its construction cost reasonable; and
priced its property in tune with the market. One of the
most common mistake builders make is over-paying for
land and, hence, they are reluctant to get rid of their
inventory because they cannot accept lower profits or
losses and move on. They will suffer from a lower ratio
of sales to average inventory.
However, while sales to average inventory is a
useful ratio, because of the lumpy nature of sales, one
cannot consider an annual figure; it would penalise a
company that had poor sales to inventory in one year
and reward those which
has had a very good year.
To reduce such distortions,
we have used 5-year
average of sales/average
inventory.
Another factor that
affects several developers
is finance cost. It is normal
for a developer to bring
funds for working capital
through borrowings
because, without funds,
it is not possible to start
development of a project
since sales would happen only at later stages. So, it
becomes extremely important to look at how much is a
developer spending on interest as a percentage of sales.
The lower this ratio, the better. And, lastly, after all
this, we need to know whether the builder is making
good money on the invested capital, where we have
used our metric for return on capital employed (RoCE),
i.e., net profit to capital employed. We have, then,
ranked real estate companies according to these three
parameters, given equal weights to all these parameters
and arrived at a combined ranking. The ranking
summary of the top-7 companies is given below, along
with a brief summary of their operations.
Marathon Nextgen Realty
Marathon Nextgen Realty (Marathon) is a Mumbai-
based developer, focused on slum rehabilitation
projects as well as high-end residential and commercial
projects. The company has projects in Lower Parel,
Mulund, Dombivali, Bhandup, Byculla, etc. In FY16-
17, Marathon had sales of Rs193 crore while the
average inventory during the year was Rs75 crore.
With government schemes like ‘Pradhan Mantri Awas
Yojna’ and ‘Housing for
all’, the company expects
huge demand in the coming
years as rising income and
affordability will boost
demand for residential real
estate. Marathon has 10
upcoming projects mostly
in the residential segment.
These projects are located
around Byculla, Bhandup,
Mulund, Panvel and
Thane. Looking at the past
track record of company,
as and when these projects
are completed, management will be able to sell and
not keep building up inventory. The stock is currently
trading at a price-to-earnings (P/E) multiple of 22.7x,
while the market-capitalisation of the company is
approximately Rs1,400 crore. Marathon is the only
company among these top-7 which is virtually debt-
free. Hence, with excellent execution, low leverage and 

The Better Ones

Rank Sales/Average 5-year Average Sales/ Finance Cost/ Net Profit/
Inventory Average Inventory Sales Capital Employed
1 Marathon Nextgen Realty 2.54 1.93 0.16% 21%
2 Ashiana Housing 0.60 0.61 1.74% 13%
3 Nila Infrastructures 1.63 1.28 7.87% 10%
4 Prestige Estates Projects 0.71 1.02 6.62% 6%
5 Mahindra Lifespace Developers 0.69 0.69 4.70% 4%
6 Oberoi Realty 0.31 0.51 0.50% 10%
7 Brigade Enterprises 0.89 0.96 12.18% 6%

MONEYLIFE | 19 Jan-1 Feb 2018 | 50

StockWatch.indd 6 11-01-2018 16:31:45

 STOCK WATCH
 high return ratio, Marathon ranks first in our list of
real estate companies.
Ashiana Housing
Ashiana Housing is a New Delhi-based real estate
developer with a pan-India presence. The company
has, till date, developed 20 million square feet of real
estate since inception. Ashiana is focused on developing
affordable housing for the middle-income group, which
is a big opportunity in India now. The government’s
push for affordable housing through Pradhan Mantri
Awas Yojna is going to result in higher demand in
this segment. As stated in the annual report in the
company, Ashiana has an unsold inventory of 972,000
square feet. The effect of demonetisation is slowly
reducing and Ashiana has been able to sell 157,000
square feet in the September 2017 quarter compared
to 151,000 square feet in the corresponding quarter
of the previous year. Ashiana has 13 projects in
the pipeline; most of them are expected
to be completed in the
coming two years. It has
planned another 14
projects. Ashiana also
holds a land bank of
76 acres for future
projects. At present, out
of completed projects,
16% of saleable area
sits on the balance
sheet as inventory.
Ashiana’s current
market-capitalisation is
Rs1,965 crore and P/E
is 24x. The growth rate has slowed down in the recent
past; but, with so many new upcoming projects and
another dozen in pipeline, this is a long-term bet. With
this management’s excellent execution, the stock may
perform well over the long term.
Nila Infrastructures
Nila Infrastructures (Nila) has a very strong presence
and Gujarat and Rajasthan. The company carries
out projects ranging from affordable housing to
government infrastructure projects. The company has
proposed a demerger of infrastructure and real-estate
business. Nila has a sales/average inventory ratio of
1.6x which indicates that the company is able to sell
its inventory quickly. But it slipped to 3rd rank in our
list due to leverage (i.e., 0.72) which has reduced its
net profit/capital employed ratio to 10%. Nila is an
established player with over 27+ years of experience.
StockWatch.indd 7
Since inception, the company has built over 10
million square feet and has another 5 million+ square
feet of real estate in 16 ongoing projects. As of the
quarter ending September 2017, the order book of
company stands at Rs482 crore which consists of 46%
order book from the government of Gujarat, while
another 51% is for affordable housing. The market-
capitalisation of Nila is Rs1,120 crore while P/E is 41x.
The stock seems to be expensive, as of now.
Prestige Estates Projects
Prestige Estates Projects (PEP) is a high-end realty
developer. The company has presence across
residential, commercial, retail, hospitality and
construction services. In every segment, PEP carries
out projects ranging from apartments to villas, office
spaces to IT parks, etc. PEP
has completed development
of 79 million square feet
across all segments, has
another 54 million square
feet as ongoing projects,
47 million square feet
of upcoming projects
and has a land bank of
40million square feet.
PEP does not have
lumpy revenues like other
real estate companies;
partly because it also
derives revenues from
rental income. PEP has
grown its top-line at a
compounded annual growth rate (CAGR) of 35% for
the past five years; the only exception was in
FY16-17 when growth was negative due to
demonetisation. Due to high leverage (1.3), finance cost
accounts for 6% of sales and, hence, it also has a lower
net profit/ capital employed ratio ( 6%). The current
market-capitalisation of company is Rs12,465 crore
and P/E is 33x. This is another expensive company
with high leverage.
Mahindra Lifespace Developers
Mahindra Lifespace Developers (MLD) is focused on
developing in only five cities, viz., Mumbai, Pune,
Bengaluru, Chennai, Hyderabad and NCR (national
capital region). MLD identifies its business under three
segments, viz., Mahindra Lifespace (focused on mid
and premium residential segments), Mahindra World
City (focused on commercial real estate) and Happinest
(focused on affordable housing). 
51 | 19 Jan-1 Feb 2018 | MONEYLIFE
11-01-2018 16:32:28
 STOCK WATCH
 Under Mahindra Lifespaces, there is currently 3.6
million square feet of residential real estate under
development and another 4.5 million square feet in
the pipeline. Till date, the company has completed
13 million square feet of real estate construction
along with a land bank for future projects of 11
million square feet. This is the core business of the
company. The target is buyers in the Rs40 lakh to
Rs1.5 crore ticket size (except in Mumbai, where this
is approximately Rs2.5 crore). Further, MLD identifies
Mumbai, Pune and Bengaluru markets with high
potential and plans to expand its presence in these
cities.
Mahindra World City provides integrated
infrastructure for companies in manufacturing and
services sector under special economic zones (SEZ) and
domestic tariff areas along with residential and social
infrastructure. At present, this segment is developing
large-format business cities in Chennai and Jaipur
with a total area under development of approximately
4,500 acres. These projects are executed in
partnership with state government under PPP (public
private partnership) model. Further, this segment is
launching industrial parks in Chennai (264 acres) and
Ahmedabad (268 acres).
Happinest is in the affordable housing segment.
MLD feels that there is an opportunity for growth in
this segment as a large portion of the market is under-
served. This segment focuses on sub-Rs25 lakh ticket
size. MLD has developed 670,000 00 square feet;
220,000 square feet are under construction
onstruction and
another 140,000 square feet in pipeline.
MLD is leveraging the Mahindrandra brand and
has delivered excellent results in the past. But
since demonetisation, the company any has been
struggling; hence, due to lower net profit/
capital employed ratio, MLD standsands 5th in
our list. MLD has potential to move up as
and when the projects are completedleted and
revenues start flowing in. The market-
arket-
capitalisation of the company is Rs2,350
crore while P/E 29.4x.
Oberoi Realty
Oberoi Realty (Oberoi) is a Mumbai-
mbai-
based real estate developer and iss
focused only in Mumbai. It is a
high-end realty developer and has as a
presence across various segments, s,
viz., residential, commercial and
hospitality. In its annual report
for FY16-17, the company has
MONEYLIFE | 19 Jan-1 Feb 2018 | 52
StockWatch.indd 8
expressed its intent to expand business beyond Mumbai
and also said that it is actively scouting for land parcels
in the NCR and Bengaluru. Oberoi has a strong brand
recognition which helps in better realisation. It also has
a strong track record of execution.
Oberoi operates on an outsourcing model, where
it appoints architects and contractors on a project
basis, increasing the profit margins. Oberoi has the
highest operating margin in our list, at 55%, while
net profit margin is 34%. In the hospitality segment,
Oberoi operates The Westin Mumbai Garden City
Hotel, which had an occupancy rate of 80%. On
the commercial front, too, the occupancy rate of
Commerz, its commercial building in September 2017,
was 88% while the occupancy rate of the 2nd phase
is low, at 20%, but is slowly increasing compared to
only 13% in previous year. The top-line has grown
@ 11% CAGR in the past three years; leverage is also
low, at 0.15, and net profit/capital employed ratio is
a low 10%. The current market-capitalisation of the
company is Rs16,757 crore while P/E is at 43x. The
stock is expensive.
Brigade Enterprises
Brigade Enterprises is a south India-focused real estate
developer. It is present across residential, commercial
and hospitality segment. Brigade’s residential portfolio
includes villas, premium residences, luxury apartments,
value homes and retirement homes. On the commercial
developed office spaces and
front, Brigade has devel
malls. Brigade h has developed more
million square feet across
than 30 mil
segments and has plans for
all segm
another 30 million crore square
anothe
feet in ccoming five years. Similar
to Oberoi,
Ober Brigade also derives
revenue from rental income
which g gives stability to its
revenue. Revenue has grown at a
revenue
CAGR of 18% over the past 10
years. Brigade couldn’t make it
to the top of our list due to its
high leverage
le (1.53). Finance
cost is a high 12.2% of sales.
The market-capitalisation
m of
the company
c is Rs4,265 crore
while
whi P/E is 22.8x. Brigade
has an excellent past track
record
reco and the stock may
continue
cont to do well as more
real
rea estate is developed and
sold.
sol 
11-01-2018 16:33:16
 STOCK WATCH
MARKET TREND
High Expectations for 2018
I
had mentioned, last fortnight, that January is usually
a bullish month and, so far, the market indices are
headed higher. On 29th December, the Sensex closed
on a strong note for the year, at 34,056. At the time of
writing, it was around 34,433. Surprisingly, Indian mutual
funds (MFs) were net sellers for the first few days of the
year, especially on 1st January when foreign institutional
investors (FIIs) were absent; on that day, particularly in the
last half hour, MFs net sold Rs987 crore worth of shares.
The market absorbed this and headed higher.
Bullishness is palpable after an unstoppable rally in
2017. Equities have tuned in exceptional performance,
beating gold, fixed-income assets and real estate
hands down, backed by a flood of money from Indian
households, through MFs, insurance companies and direct
investment in stocks. Globally, India was one of the top
performing equity markets. To carry the market higher
in 2018, everyone is expecting “positive earnings growth
surprise”—something that has eluded ed us for 12 quarters
now, even as stock prices have headed ded higher.
At the start of 2017, we faced a huge
uncertainty. Against the backdrop off crippling
demonetisation, growth prospects
looked dim. But, as the year wore
on, normalcy returned on the
currency front; Goods and
Services Tax (GST) got implemented;; India’
India’s
’s
sovereign rating got upgraded by Moody’s;oody’s; and the
government capitalised public sector or banks. If we can
continue to get waves of such positive ive news, the market
will keep heading higher. But the pessimism from which
the market springs to a major rally is not there now
(although I must confess that I did not see it that way in
January last year).
Rather, everyone is now super-bullish. The reason
for this, of course, is the belief that earnings growth will
be around 25%. That is the consensus estimate. If the
December quarter does not live up to this hope, we may
get some correction which would be a good opportunity
to buy quality stocks. It may be worth remembering that,
in the bull market that started in 2013 September, “we
have not yet entered the phase where the actual earnings
outpace estimated earnings resulting in positive surprise
on earnings, which was observed during the FY05-FY07
phase,” according to ICICI Securities. “In this context, we
believe it is unlikely that growth will surprise on the upside
StockWatch.indd 9
in CY18 and, against the backdrop of
stretched valuations and evolving risks,
equity returns could be moderate.”
As against this, there are a few risks
to Indian equities. One is crude oil price
rise, unless there is sustained domestic growth to easily
absorb rising prices, as happened in 2005-08 period. If oil
hits $70/barrel, we will see an uptick in inflation, possibly
even slightly higher interest rates, higher current account
deficit and a pressure on Budget deficit. The second
issue is the steady increase in US interest rates which
are being discounted due to stronger US growth and the
US president’s tax cuts. Foreign portfolio investment is
dependent on the movement in US interest rates and
rupee/dollar exchange rate.
The third issue is the state elections. Eight Indian
states are going to polls this year in what is being dubbed
as mini-general elections; of these, Rajasthan, Madhya
Pradesh and Karnataka are the bigger ones. All these
would be keenly contested as would be Chhattisgarh. If
setback in two or more states, the market
the BJP suffers a setba
may view it as a negative.
negat What will really be fateful for
markets is a combination of all three
the mar
above-mentioned factors. If not,
there are enough of positives to
kkeep the market bullish.
Even in a mildly bullish
environment, there will be pockets
envi
of outperformance.
o One is a genuine
rollout of affordable housing projects,
rollo
theme which has pushed up the
a the
stocks of real estate and finance companies. This
is the most effective initiative of the Modi government
because it boosts multiple sectors simultaneously, creating
a multiplier effect and does not involve the government
in execution. The second pocket of growth could be
infrastructure that now has a new crop of companies
which are smaller, less leveraged and running an asset-
light model. They may benefit from the massive projects
the Modi government has been announcing, such as
Bharatmala, Sagarmala, Setu Bharatam, etc.
Most analysts and fund managers are also focused
on opportunities like telecom, capex cycle, higher rural
consumer demand, shift in businesses from unorganised
to organised sectors through GST and anything connected
to higher farm sector output such as fertilisers, tractors,
commercial vehicles, pesticides, etc. I am not sure whether
these will play out as well as expected.— Debashis Basu 
53 | 19 Jan-1 Feb 2018 | MONEYLIFE
11-01-2018 16:58:00

Queries
At Moneylife Foundation’s
Ask tax-related questions at moneylife.in/taxhelp. It’s free
Tax on Additional Payment
on Share Surrender
R ecently, Essar Oil paid me an
additional Rs76.41 per share as
payout other than the delisting price
of Rs262.80. I had already received
the payment after deduction of
securities transaction tax (STT),
when I surrendered my shares. This
additional payment was given to me
without any deduction of STT and
is of a different financial year. What
is my tax liability on this additional
payout?
Ameet Patel’s Reply:
This is a very interesting situation
and will affect several people like
you who surrendered the shares
for buy back in December 2015.
The additional
compensation
received now,
in 2017, will be
considered as
additional sale
consideration for the shares sold in
December 2015.
This is in the nature of capital
gain. Hence, the capital gains
offered for tax in FY15-16 (relevant
to Assessment Year-AY16-17) will
have to be recomputed and a revised
return will have to be filed for that
year. Please note that if the return
for that year was not filed within
the prescribed time limit, it cannot
be revised because of a particular
provision of the Income-tax Act.
MONEYLIFE | 19 Jan-1 Feb 2018 | 54
Tax Queries.indd 2
Tax Helpline
The payment received will be
taxable in the current year because
it has accrued now and has also
been received now.
Claiming HRA Exemptions
I am a salaried employee but
I forgot to submit the rent
agreement and the rent slip to my
employer. As a result, the house rent
allowance (HRA) paid to me has
been taxed. Can I claim the HRA
exemptions under Section 80GG,
while filing my tax return?
Ameya Kunte’s Reply:
You should claim HRA exemption
under Section
10(13A) while filing
your tax return.
You can do so even
though it is not
reflecting in your
Form16. Since your employer has
provided HRA, you are not covered
by Section 80GG deduction
benefits.
Tax on Additional Payment
on Share Surrender
I have received Rs40,000 as gift
from my brother who is staying
in the US. I invested this money
in shares and earned Rs20,000 as
short-term capital gains. I am a
housewife with no other source of
income. My husband is an employee
in a public sector undertaking
Supported By
and files his returns separately.
My queries are: 1) Is this income
taxable as my gains are less than the
exempted limit of Rs2.5 lakh; and
2) If I need to file tax returns, can
I file separately without clubbing
it with my husband’s income or
returns?
Nikhil Vadia’s Reply:
Gift from real brother is not
taxable. Short-
term capital gain of
Rs20,000 will be part
of exemption limit of
Rs2.5 lakh. There is
no need to file return
if this is the only income for you.
Your income will not get clubbed
with your husband’s income.
Consulting Fee in NRE
Account
I am working as a consultant
abroad and have non-resident
Indian (NRI) status. Can I ask my
consulting company to remit partial
consulting fee to my non-resident
external rupee (NRE) account and
will there be any tax implications
on the remitted amount?
Subodh V Shah’s Reply:
As per the provisions of
Section 5, any income arising
or accruing or received in India
is taxable, irrespective of the
residential status of the recipient.
It would not
be advisable to
directly receive the
consulting fees into
your NRE account.
Though there are a
few judgements stating that there
is a distinction between income
received in India and the amount
received in India, my personal view
is that it would be a stand which
could certainly lead to litigation
and, hence, is best avoided. 
11-01-2018 13:47:14
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additional downloads, downloads
in the format of your choice (epub, pdf, kindle, text and
audio-books) and some exclusive titles. A real bonanza
for book-lovers! Android: https://goo.gl/gnN8XL
iOS: https://goo.gl/fvRQ4M 
Yazdi Tantra is a chartered accountant
by training, computer consultant by
profession, entrepreneur-developer by
hobby and trainer in his leisure time.
He is currently the vice-chairman of
Zoroastrian Co-operative Bank Ltd
and has been running a medium-sized computer
company ON-LYNE for the past 24 years.
09-01-2018 17:58:38
 HANDHOLDING:
MAS Benefit #11
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Option1: Do nothing.

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advisor.moneylife.in

MSSN Handholding.indd 1 15-12-2016 18:07:06

 LEGALLY SPEAKING SD ISRANI
New India Assurance Makes
Customer Run from Pillar to Post
S
ome people believe that one of the easiest things to
do in the world is to get an insurance policy and the
most difficult task is to get a claim from the insurance
company. Actually, policyholders are, often, made to run
from pillar to post to have claims settled, even when there
is no fraud or malpractice involved.
Consider this case decided by the National Consumer
Disputes Redressal Commission (NCDRC) on 15 December
2017. In New India Assurance Co Ltd (NIACL), vs Shyam
Sharan Pandey, the complainant had insured his truck with
NIACL. The policy was valid from 3 July 2008 to 2 July
2009. The truck-driver, along with a cleaner, had gone to
transport stone chips on 1 June 2009. That night, they
had eaten at a dhaba and gone
to load stone chips after which
they were found unconscious
near the railway crossing with
their truck missing. It transpired
that they had given a ride to four
persons who may have robbed
and poisoned them.
Both were taken to a hospital
in Raibareli. A complaint was
lodged with a local police station
the next day (3 June 2009) and
the insurance company was
informed. The insurer took two years to decide and rejected
the claim on 15 April 2011. Mr Pandey approached the
district consumer forum with a claim of Rs6.9 lakh along
with interest, compensation for mental harassment and
cost of litigation.
NIACL’s response was that its surveyor, on 22 March
2010, had recorded his opinion that the incident was
suspicious, so it had appointed another surveyor. The
second surveyor spoke to the driver and the cleaner, studied
the FIR (first information report), the investigation report
and submitted his report on 29 September 2010. He said
that since the driver and cleaner had allowed four persons
to travel, there was a breach of terms and conditions of the
policy; hence, NIACL was not liable to pay compensation.
The district forum, however, ruled in favour of Mr Pandey
and asked NIACL to pay him the entire amount along
with interest 10%pa (per annum) from the date of filing
of the complaint.
NIACL then filed an appeal before the West Bengal State
Consumer Disputes Redressal Commission, Kolkata, but
it was dismissed and the district forum’s order confirmed.
MONEYLIFE | 19 Jan-1 Feb 2018 | 58
Legally Speaking.indd 2
The insurer then filed a revision petition before NCDRC.
NCDRC observed that it was an admitted fact that
the vehicle was stolen and untraceable, resulting in total
loss. It noted that the surveyor had not assessed the loss,
but kept an eye of suspicion on the complainant’s claim
that the driver and cleaner were poisoned and could not
trace the truck. It further decided that carrying four extra
passengers in the truck was not a fundamental breach of
the condition of the policy. Therefore, the claim should be
settled on non-standard basis on the lines of two Supreme
Court judgements—National Insurance Company vs Nitin
Khandelwal IV (2008) CPJ 1 (SC) and Om Prakash vs
Reliance General Insurance (Civil appeal No 15611 of
2017).
NCDRC allowed the
complainant to be paid 75%
of the total value of truck,
in modification of the lower
courts’ orders. NIACL had to
pay the money in six weeks and
interest at the rate of 9% until
its realisation. NCDRC decided
another case on 14 December
2017—Remo Synth Resin &
Chem (P) Ltd vs National
Insurance Company Ltd. Here,
too, the policyholder was given a 20-year run-around to
settle a fire claim of 28 November 1997, despite the huge
damage caused.
In this case also, a second surveyor was appointed
because the first one had raised certain doubts and
suspicions. NCDRC had passed an interim order on this
case in 2006, but the matter was finally concluded in 2017
with the apex forum deciding in favour of the policyholder.
NCDRC also remarked that the insurance company should
not have rejected the claim, in the first place, due to a
dispute with its first surveyor.
One lesson from these cases is that policyholders will
need to prove the existence of the goods for which a claim
is made; hence, necessary to maintain proper records. Strict
adherence to policy conditions is also a must. 
SD Israni is a corporate lawyer & Fellow
of ICSI. Email: sdisrani@gmail.com
11-01-2018 13:49:14
 India’s largest &
most successful
FINANCIAL LITERACY EFFORT

+
RS
MEMBE

DAT
1
ION
FOUN

Moneylife Foundation AD.indd 1 09-01-2018 18:14:52

 EAT VEGGIES, TO
IMPROVE BRAIN
FUNCTIONS
MEDICAL DEVELOPMENTS FROM
A ccording to a new
research report, one
daily serving of green
leafy vegetables would help you
achieve cognitive abilities similar
to those over a decade younger in
age. The chemicals in the vegetables
that do this trick are: vitamin K,
lutein, nitrate and folate. Vegetables for protecting against all sorts
that have vitamin K are: spinach,
broccoli, cauliflower and cabbage;
lutein is available in spinach,
carrots and red and yellow peppers;
for nitrate, go for beets, lettuce,
radishes and spinach; and,
for
folate,
choose dark
green vegetables
like broccoli and spinach and dried
legumes such as chickpeas, beans
and lentils.
An article in the journal
W hile Indian doctors rarely
Neurology emphasises that these
nutrients help in neuro-protective
mechanisms. According to the
researchers working in Rush
University of Chicago, the rate
of cognitive decline is “linearly
associated with higher food
intakes of folate, phylloquinone,
and lutein.” Other compounds
supposed to boost brain functions
include turmeric and omega-3 fatty
acids available in certain kinds of
MONEYLIFE | 19 Jan-1 Feb 2018 | 60
Health.indd 2
AROUND THE WORLD
fish such as salmon, mackerel and
sardines.
Eating green leafy vegetables has conference have overwhelmingly
long been identified as one of the
most effective and simplest method
of diseases including the decline
in cognitive abilities. An aging
population across the de developed
world has brought into llimelight the obscene for places that promote
healthily. There
challenge of aging health
solutions to
is increased focus on solu
maintain and improve ph physical and was supported by the Academy
mental functions of the eelderly.
The researchers took 960
participants from the “M “Memory
and Aging Project” ag aged between
58–99 years, for the study. The
consumed green
group that consume
leafy vegetables had slower
cognitive decline. T The rate
of decline among th those who
consumed one or tw two servings
equivalent of
per day was the equiva
being 11 years younger ccompared
with those who rarely, o or never,
consumed green leafy ve vegetables.
UK DOCTORS WANT
JUNK FOOD BANNED IN
HOSPITALS
bother themselves with diet,
ever happy to prescribe pills and
perform surgeries, Britain’s doctors
have backed calls for
hospitals to stop selling
junk food anywhere on
their premises such as
shops, cafés and vending
machines. Some 500
delegates at the British Medical
Association’s (BMA) annual
passed a motion, moved by celebrity
cardiologist Dr Aseem Malhotra,
urging hospitals to sell only
healthy products. Dr Malhotra,
a cardiologist and anti-obesity
campaigner, argued that it was
health to also have fast-food
outlets on site. The campaign
of Medical Royal Colleges which
represents all 220,000 doctors of
the UK.
Dr Malhotra, a cardiologist
at London’s Royal Free hospital,
told delegates: “It is appalling to
observe on ward rounds patients,
some of whom are not fully mobile,
gorging on crisps, confectionery
and sugary drinks—the very food
items that may have contributed to
their admissions in the first place.
It is obscene that many hospitals
continue to have high street fast-
food franchises on site as well as
corridors littered with vending
machines selling junk food.”
However, the NHS
Confederation, which represents
the hospitals, opposes the plan.
Its director of policy, Dr Johnny
Marshall, was quoted as saying that 
11-01-2018 16:26:04
  existing food outlets in hospitals
are ‘highly valued’ by patients,
their families and hospital staff,and
most sell healthy products too. It is
also unfair and unrealistic to deny
patients the right to buy sweets to
cheer themselves up, he argued.
The BMA conference also urged
government to extend initiatives
involving free fruit and vegetables
in schools to all primary-age
children.
BAN ENERGY DRINKS FOR
KIDS – JAMIE OLIVER
Energy drinks are stimulating weeks. A higher dose led to better
beverages which have caffeine outcome, with the highest vitamin
(80mg in a 250ml can), taurine, D dose of 4,000 international units
vitamins, plus a high level of sugar
(27.5gm total sugar in a 250ml
can). In September 2017, the
Canadian Paediatric Society labelled
the beverages as ‘unnecessary at
best and dangerous at worst’. Jamie
Oliver’s head of nutrition, Laura
Matthews, said: “Some schools are
fighting their own battle against
these drinks, by banning them on
the premises. But schools can only
do so much on their own. We need

M eanwhile, UK celebrity chef

and health campaigner,
Jamie Oliver, has called on the UK
government to ban energy drink
the government to legally age-
restrict the sale of energy drinks, in
the same way that scratch cards are
only sold to over-16s.”

(IU) per day inducing a 10.4%

Photo Courtesy: Daily Mail

reduction in arterial stiffness.

sales to children under 16 years of
age. Already, supermarket chain,
Waitrose, has announced that
customers buying high caffeine
energy drinks must show proof
that they are over 16. According
to Jamie Oliver’s campaign, 69%
of children, aged 10-18, report
drinking energy drinks; 13%
admitted to drinking more than
a litre in one sitting. Mr Oliver
has also been campaigning for the
introduction of a sugar tax in the
UK.
Lithuania and Latvia have
banned sales of energy drinks to
those under 18.
CAN A HIGH DOSE OF
VITAMIN D REDUCE STIFF
ARTERIES?
I n a small randomised controlled
trial (RCT) of vitamin D-deficient
obese, conducted by Medical
College of Georgia at Augusta
University, overweight African-
Americans, having vitamin D
improved arterial stiffness in just 16
This is the first RCT to identify a
dose-dependent benefit of vitamin
D on arterial stiffness, although
a previous study of 2,000 IU/day
had established improved arterial
stiffness in African-American
adolescents.
The RCT had 70 participants
aged 13-45 years and were given
either a placebo, or the monthly
equivalent of daily vitamin D3 doses
of 600, 2,000, or 4,000 IU per day.
The 2,000 IU/day group improved
arterial stiffness by 2%; the 600 IU/
day group experienced a marginal
stiffening (0.1%); while the placebo
group showed a 2% increase. It
is important to note that a very
high dose is required to achieve the
benefit. The normal dose of Vitamin
D is 600 IU/day. 

61 | 19 Jan-1 Feb 2018 | MONEYLIFE

Health.indd 3 11-01-2018 16:50:35

 TECHNOLOGY
Microprocessors under Attack
Anything that involves coding or programing is vulnerable to attacks. The recent security flaws
discovered in microprocessors ratifies this, says Yogesh Sapkale
I
n January 2018, researchers announced a series
of major security vulnerabilities, named Spectre
and Meltdown, in the microprocessors (central
processing unit-CPU), made by Intel, AMD and ARM
that are used in all computer systems since the past 15-20
years. Using these vulnerabilities, anyone can steal user
data from such systems or devices. While some security
experts advise throwing away such microprocessors
and buying a new one, there is no guarantee that a new
microprocessor will be foolproof. In fact, in the ever
changing concepts and practices of security, everything
and anything can possibly be hacked.
Many people believe that a microprocessor
of chip cannot be hacked or manipulated. An
example is the electronic voting machine
(EVM). Many security experts have
been pointing out that such machines
can be manipulated. However, the
government and election authorities
continue with their stand that ‘all
is well’ and that EVMs cannot
be manipulated in any way or
by any means.
Any device that uses a
software code or program to carry
out stipulated tasks can be made to perform
other permit-able tasks as well. For example, if
you have a toy car that is programmed to move in
forward direction only, by changing the code in the
microprocessor, it can be made to move in reverse, or
in any other, direction. The vulnerability of Spectre and
Meltdown is nothing but a set of specific instructions
that can be re-arranged to perform different tasks. All
microprocessors come with their own set of instructions
that help them to improve performance or carry out
pre-designed tasks. An unprivileged, local attacker
could exploit these vulnerabilities by executing arbitrary
code and performing side-channel attacks on a targeted
system. Successful exploitation of these vulnerabilities
could allow the attacker to gain access to sensitive
information, including accessing virtual memory and
CPU cache contents.
While these flaws were known and have been
circulating among all major information technology
(IT) companies, the exposé by the researchers has
made everyone scrambling for answers. According to
MONEYLIFE | 19 Jan-1 Feb 2018 | 62
Technology.indd 1
noted security expert, Bruce Schneier, microprocessor
designers have been building insecure hardware for 20
years, but what is surprising is that it took 20 years to
discover it. ‘In their rush to make computers faster, they
were not thinking about security. They did not have the
expertise to find these vulnerabilities. And those who did
were too busy finding normal software vulnerabilities to
examine microprocessors,’ he says.
Since all major chip-users like PC-makers and mobile
manufacturers have the capability and capacity in terms
of money and manpower, they will definitely provide
the required patches for the chips. However, we need to
worry more about other devices, like webcams, digital
recorders and routers used mainly in homes. The
reason is that these devices are designed
and produced with much less
engineering expertise for keeping
the costs and margins at a lower
level. So, these manufacturers may
not have any security team that can
provide the patch for the chips used
in these devices. In addition, there
is hardly any mechanism available to
push security patches in such devices.
The vulnerabilities in chips or CPUs
are not normal. So, you cannot say ‘I
have updated firmware or patched my
system or device and I will not face any
issue or attack’. Patching a system or updating firmware
can only make sure that you are protected from the
current threat. But the danger will not go away so easily.
Vulnerabilities of Spectre and Meltdown will continue to
remain there for hackers to exploit.
Spectre and Meltdown only affect confidentiality
of data. However, new (discovered) vulnerabilities can
allow attackers to delete or manipulate data across
chips. Some of it may make chips that are controlling
our cars or home security devices or webcam or medical
devices very dangerous for users. Unfortunately, several
trends from IT industry are converging in a way
that would make patching security vulnerabilities or
updating firmware harder to implement.
So what is the solution? You need to contact the CPU
vendor and check if they have made any patches for
the vulnerabilities. If it is available, then download and
apply it as soon as you can. 
11-01-2018 18:27:58
 DISCOUNT

Pathbreakers.indd 4 01-12-2017 19:12:51

 MONEY FACTS STOCKS

INDIAN MARKET TRENDS FUND FLOWS

The Sensex and the Nifty gained 1% each during the Foreigners: Foreign institutional investors were net
fortnight ended 10th January. While the ML Mega-cap Index buyers of equities (Rs1,555.07 crore). They bought
ended flat, ML Micro-cap Index and ML Large-cap Index shares worth Rs33,203.41 crore. 
rose 4% each. ML Mid-cap Index advanced 5%. 
700

Share Prices Index, July 2017=100 445

145
190

-65
130
FII Net Investments
-320 (Rs Crore)

115
-575
1 Jan-18 10 Jan-18

100 Indians: Domestic institutional investors were net

sellers of equities (Rs19.60 crore). They sold shares
worth Rs28,302.59 crore. 
85 610
Jul-17 Oct-17 Jan-18

ML Large-cap ML Small-cap Nifty ML Micro-cap 225

ML Mid-cap ML Mega-cap Sensex
-160

-545
Index 29 Dec 10 Jan +/- DII Net Investments
(Rs Crore)
ML Small-cap Index 106.13 120.11 13% -930
ML Mid-cap Index 123.73 130.12 5%
-1,315
ML Micro-cap Index 109.95 114.44 4% 1 Jan-18 10 Jan-18
ML Large-cap Index 118.51 123.09 4%
Sensex 34,056.83 34,433.07 1% GLOBAL MARKET TRENDS
23,800
Nifty 10,530.70 10,632.20 1%
Nikkei
ML Mega-cap Index 114.95 114.46 0% 22,890

Mega-cap Gainers/Losers 29 Dec 10 Jan Change 21,980

Jindal Steel & Power 205.05 262.40 28%

21,070

Page Industries 25,541.55 22,969.85 -10%

20,160

Large-cap Gainers/Losers 29 Dec 10 Jan Change

19,250
Optiemus Infracom 163.90 241.95 48% Jul-17 Oct-17 Jan-18

Jaiprakash Power Ventures 9.52 8.07 -15% The Nikkei, NASDAQ Composite and Hang Seng
advanced 4% each, while Shanghai Composite and
Mid-cap Gainers/Losers 29 Dec 10 Jan Change
S&P 500 rose 3% each. 
Indosolar 9.04 13.95 54%
Index 29 Dec 10 Jan + / (-)
Cmi FPE 1,274.10 1,148.40 -10% Nikkei 22,765 23,788 4%

Small-cap Gainers/Losers 29 Dec 10 Jan Change Hang Seng 29,919 31,074 4%

NASDAQ Composite 6,903 7,154 4%
Educomp Solutions 5.60 8.20 46%
Shanghai Composite 3,307 3,422 3%
Gujarat N R E Coke 1.95 1.50 -23%
S&P 500 2,674 2,748 3%
Micro-cap Gainers/Losers 29 Dec 10 Jan Change Bovespa 76,402* 78,201 2%
Taiwan Weighted 10,643 10,831 2%
Pradip Overseas 2.25 3.45 53%
Korean Composite 2,467* 2,500 1%
PBA Infrastructure 26.25 21.25 -19%
FTSE 7,688 7,749 1%
(All Prices in Rs)
* 28 December 2017

MONEYLIFE | 19 Jan-1 Feb 2018 | 64

Money Fact.indd 2 11-01-2018 18:10:27

 MONEY FACTS STOCKS

What’s H T ML SECTORAL TRENDS


Hotels companies were in demand during the fortnight. EIH Associated
Hotels, Oriental Hotels, EIH Ltd, Indian Hotels soared 39%, 26%, 24% and
Shares of hotels companies, telecom
equipment companies and steel
products companies advanced 18%,
21%, respectively. Asian Hotels and Savera Industries advanced 15% each.  11% and 10%, respectively. Stocks
of garments companies, telecom
Companies 29 Dec 10 Jan +/- services companies, auto companies
and healthcare companies fell 6%,
ML Hotel Index EIH Associated Hotels 383.90 532.15 39%
3%, 2% and 1%, respectively. Stocks
Oriental Hotels 41.70 52.45 26%
130
of oil & gas services companies
EIH 145.80 181.10 24% ended flat. 
Indian Hotels Co 118.00 143.15 21%
115 ML Sectoral Trends
Jindal Hotels 59.35 70.55 19%
Hotels 18% Garments -6%
Royal Orchid Hotels 162.40 192.75 19%
Trading 12% Telecom Services -3%
100 Asian Hotels (North) 176.95 209.85 19%
Telecom Equipment 11% Auto -2%
Asian Hotels (East) 273.20 314.00 15%
Steel Products 10% Healthcare -1%
Savera Industries 83.90 96.40 15%
85 Paper & Paper Products 9% Oil & Gas Services 0%
Viceroy Hotels 17.85 20.40 14%
Jul-17 Oct-17 Jan-18
All Prices in Rs
URBAN INFLATION


What’s N T Urban inflation rose to 4.98%

in November 2017 from 3.81%
in October 2017. Combined
Telecom companies were a mixed bag. Reliance Communications, Bharti inflation for urban and rural areas
Airtel and Bharti Infratel declined 8%, 4% and 2%, respectively. GTL Ltd in November 2017 was 4.88%
and Mahanagar Telephone Nigam advanced 2% and 10%, respectively.  compared to 3.58% in October
2017. Inflation for clothes and
Companies 29 Dec 10 Jan +/- footwear items in urban areas
Reliance Comm 36.22 33.20 -8%
ML Telecom Services Index was 3.89% in November 2017
120 compared to 3.59% in October
Bharti Airtel 529.65 506.40 -4%
2017. Inflation for household
Bharti Infratel 378.75 370.80 -2% goods and services in urban areas
Tata Teleservices 7.06 6.96 -1% 110
Shooting Up
Tata Comm 681.55 673.45 -1%
5%
Idea Cellular 108.20 107.50 -1%
100
GTL 17.35 17.65 2% 4%

Mahanagar Tele 24.95 27.55 10%

90 3%
Suyog Telematics 335.00 372.90 11%
Jul-17 Oct-17 Janc-18
All Prices in Rs 2%

BULK DEALS 1%
Nov-16 May-17 Nov-17
Date Company Buyer Seller Rs Cr

09 Jan-18 Emami Infrastructure Shubham Enterprises Ganpati Industrial Pvt 14.04

was marginally higher, at 3.37%,
in November 2017 compared to
05 Jan-18 Kisan Mouldings Bright Impex & Agencies P Aayushmaan Rajesh Nuwal 4.81 3.05% in October 2017. Inflation
04 Jan-18 Kisan Mouldings Ladderup Finance Quiet Enterprises LLP 3.80 for housing in urban areas
increased to 7.36% in November
03 Jan-18 Kisan Mouldings Ladderup Wealth Management Pvt Quiet Enterprises LLP 3.47
2017 from 6.68% in October
10 Jan-18 Anisha Impex Sangeeta Pareekh Sunil Kumar Malik 3.30 2017. In urban areas, inflation for
personal-care and effects was at
05 Jan-18 Umiya Tubes Elite Accfin Solutions Pvt Anil Kumar Jha 0.56
2.97%, in November 2017 from
05 Jan-18 Sagar Diamonds Marwadi Shares and Finance Jackpot Vintrade Pvt 0.50 3.15% in October 2017. 

65 | 19 Jan-1 Feb 2018 | MONEYLIFE

Money Fact.indd 3 11-01-2018 18:11:06

 PS
UIDAI Lampooned in
the Social Media
he extraordinary powers of the Unique
T Identification Authority of India (UIDAI)
that do not allow action against it by a citizen,
combined with UIDAI’s penchant of filing
complaints against anyone who highlights its
flaws, caused a furore in early January. Even
Edward Snowden weighed in on the dangers of
Aadhaar, while @TVMohandasPai, former CFO
of Infosys, took up cudgels against journalists,
activists and others across the spectrum when he
insisted that the journalist from The Tribune, who
broke the story of data available for Rs500, had
committed a crime in accessing the data. Here are
some interesting tweets and some humour.

Infosys: Look what those

flexes can do after an
event is wound up!
And this comes at a time when Infosys has
decided to be thrifty (sensible?) about the
salary of its new CEO!

MONEYLIFE | 19 Jan-1 Feb 2018 | 66

PS.indd 1 11-01-2018 13:48:10

Advertisement.indd 4 10-01-2018 14:54:46
 REGISTERED WITH THE RNI UNDER NO. MAHENG/2006/16653. Postal Registration No:
MCW/184/2018-2020. POSTED AT PATRIKA CHANNEL SORTING OFFICE, MUMBAI 400001.
Date of Publishing 12 January 2018. Date of Posting Alternate Tuesday & Wednesday.

Advertisement.indd 3 09-01-2018 20:51:28