Is Gold in Bear Market After 10 Years of Bull Run?

After recent gold crash, it seems safe heaven asset and dearest of all Indians precious metal is entering in bear market in 2013. Bear market may drift it lower than its face value or fair value. Below are possible factors for recent crash:

• Several Gold ETF are reducing their holdings. George Soros cuts biggest gold ETF cuts holding by 55% in forth quarter of 2012.
• Goldman Sachs cuts gold targets and warned that it could go lower. It even recommended getting out of gold.
• US and world economy seems recovering resulting in strong dollar. Also US Fed indicating ending of stimulus (quantitative easing) which is negative for gold and positive for currency USD.
• Cyprus and Portugal were rumored to need to sell some of its gold to cover its bank bail-outs. While small at only about 350,000 ounces, there was a fear that other weak European countries with too much debt and sizable gold holdings could be forced into the same action. Cyprus officials have denied the sale, so the question is still in debate, even though the market has already moved. 
• Several speculators are now believe that Gold bull run is over. It should go down.

There may be physical demand of Gold from Asian countries like India. But it may not be able to prevent this fall. During recent fall, if someone wants to buy gold coin, no jeweler would like to sell at low prices. At MCX, Gold price of May contract is around 26000, all jewelers even reputed like Kalyan, TBZ are selling coins at 28,000+ prices.

For India, it is assumed that fall in gold price will reduce CAD (Current Account Deficit). It may not be true because if price is down, people will buy more. Gold in India is the best asset to hide black money. In last budget, it was indicated to present PAN card to buy gold more than 50,000. But it was not implemented due to resistance from Jeweler community. India need to reduce gold demand irrespective of its market price.

Above chart indicating steep fall in gold price clearly indicating gold is in bear market. It is expected to fall at 21000/22000 levels.

Mutual Fund (MF) Direct Plans - Intelligent Move by SEBI

Introducing Direct Plans
Effective from 1 January 2013, it is mandatory for MF to introduce direct plans for all schemes. Direct plans means investor invests in MF schemes without any distributor or agent. These direct plans will bring down investor cost up to 1%. MF can't charge marketing and agent commission expense on direct plans. Although percentage seems negligible but it will impact your overall portfolio. Assuming investor has 10 lac portfolio, he will save 10,000 Rs per annum which is really impressive. It will add into fund's return every year and impact will be more over long term.

How to invest in direct plans?
There will be separate plans for direct investments. For e.g. if you want to invest in HDFC Midcap Opportunity Growth scheme, you need to select HDFC Midcap Opportunity - Direct Plan - Growth while investing online or write cheque on same name for offline transaction. There will be separate NAV for direct plans. Definitely direct plan NAV will be slightly higher than regular plans.

More trouble for distributors
Distributors are currently least interested in selling MF products due to low commission structure. After this move, it will be difficult to find any distributor who will promote or propose MF investments to investors. Informed investors will take direct plan route for their investments to earn additional returns. There are some arguments favoring distributors that investor will not be able to make right decision by his own which is baseless. With little homework and huge knowledge available on internet, investor can make right decisions. Investors in rural areas, can go for distributor.

What about existing investments?
Assuming investor has 10 lac portfolio investing in different MF schemes through direct option earlier. But now if he wants to switch to direct plans, there will be applicable exit load as per scheme offer document. So it is not advisable to switch existing investments right-away without understanding cost associated with it. However, new investments can be made in direct plans without any hesitation. Investor can discontinue their SIPs in existing plans and enroll for SIP again in direct plans.

Mis-selling trick
Last but not least, distributors will sell regular plans using simple trick. Direct plans will perform better than regular plans. So direct plan's NAVs will be higher. For e.g. regular plan NAV is 15.51 but similar direct plan NAV will be 15.55. Distributor can ask investor to buy regular plan explaining regular plan is cheaper than direct one. Happy investing.......

Life Insurers go for Need-Based Selling

From mis-selling to need-based selling
Insurance industry mostly rely on mis-selling for their business, suddenly focusing on need-based selling. There are huge number of paid-up policies (policies in which insured stop paying premium after few years) in last few years mostly from private insurance companies. This indicates rampant mis-selling in the industry past few years. In such scenario, how it is possible to run business based on need-based selling?

Who is doing need-based selling?
Edelweiss Tokyo, Max New York Life and HDFC Life already kick-started efforts to win back customer's trust. They came up with a model in which agent needs to visit prospective policy holder 3 times to make him buy the products.

How they plan need-based selling?
First meeting just to explain entire product spectrum that insurance company offers. Second meeting is to understand customer's priority and financial goals. Also customer needs to fill certain forms citing his long/short team goals, current financial status, projected returns and target capital needed. Finally actual product will be sold in third meeting.

Will it really benefit customers?
If companies really want to do need-based selling, they should sell only term plans. Companies should discontinue their all other plans like ULIP, Endowment and so on as these plans are investment plans, not insurance plans. Ideally no one should consider insurance as an investment, so it does not make any sense to study someone's net-worth and goals to sell insurance.
If companies really want to perform need-based selling, they should calculate customer's present earning and propose term plan based on that. For doing that, it may not require 3 meetings as mentioned above. Rule of thumb is "Insurance means term plan, nothing else. It should not mixed with investment." Hope insurers and customers will understand that some day....

Reasons for Recent Gold/Silver Crash

Recently Gold has dropped 3% while Silver has plummeted more than 7%. Below are possible reasons:

• Year End Tax-related Profit-booking and Liquidation by Mutual Funds and Market Players. For e.g. Morgan Stanley advised its financial advisers to encourage clients to redeem their holdings from John Paulson's umbrella funds because of poor performance. John Paulson’s Fund has been forced to sell some of its SDPR’s Gold Holding due to redemption, which amounts to around 30% of its total Fund Holdings. The SDPR GLD ETF is obviously the most important gold ETF in the market, indeed, the single largest factor affecting the market, so heavy selling of this ETF can easily move the entire market.
• Lack of progress in U.S. budget talks on Fiscal Cliff which has raised concerns the world`s biggest economy would fall back into recession if the sharp spending cuts and tax hikes taking effect on January could not be avoided. Markets do not like uncertainty and most markets will remain jittery until the fiscal cliff issue comes to pass.
• With the end of the year and vacations coming ahead many investors prefer to close their positions to take profit and hence movements seem to be overestimated due to lack of volume.
• Precious Metal neither benefited from the losses in the dollar nor tracked the gains in the euro, where recently it has been seen unaffected by the movements in the FX market.
• Precious Metal reacted negatively to the latest U.S. GDP data. Based on the third reading of the U.S. real GDP growth, the economy grew at an annual pace of 3.1 percent in Q3, faster than the economists' estimates. The market fears that a faster economic recovery will shorten the time for the Fed's monetary stimulus, lowering their appeal as safe havens.

Gold target for near term would be 31000 on downside. However if it crosses above 31000, it can touch 31500/31600 on upside.

India Infoline Finance (IIFL) NCD Review - Avoid

India Infoline Finance ( IIFL) non-convertible debenture (NCD) issue got good response and has managed to collect over Rs 110 crore on first day of subscribing to the issue.

Issue Highlights: Issue opens: Wednesday, September 5, 2012 Coupon Rate : 12.75% per annum* Issue closes: Tuesday, September 18, 2012 Tenor for all options 72 months Issue Price: Rs.1000 per NCD Rating 'CRISIL AA‐/Stable' '[ICRA] AA‐ Stable' Face Value: Rs.1000 per NCD Issuance Listing on: NSE and BSE Registrar: Link Intime India Private  Limited

SPECIFIC TERMS FOR EACH SERIES OF BONDS

Options I II III Frequency of Interest Payment Monthly Annually NA Minimum Application Rs. 5,000 (5 NCDs) (for all options of NCDs, namely Options I, II and III, either taken individually  or collectively) In Multiples of 1 NCD after the minimum application Face Value of NCDs (Rs. / NCD) Rs. 1,000  Issue Price (Rs. / NCD) Rs. 1,000 Mode of Interest Payment/Redemption Through Various options available Through Various options available Redemption through  various options available Coupon (%) for NCD Holders 12.75% per annum 12.75% per annum NA Effective Yield (per annum) 13.52% 12.75% 12.75% Redemption Date 72 months from the Deemed Date of Allotment  Redemption Amount (Rs. /NCD) Face Value of the NCDs plus any interest that may have accrued Face Value of the NCDs plus any interest that may have accrued Rs. 2054.50 Deemed Date of Allotment Date of issue of the Allotment advice Nature of Indebtedness Un‐Secured Redeemable Subordinated Debt *For option I & II NCD: Un-secured Non Convertible Deventures

However, below are the reasons due to which investors should not subscribe the issue:

1. It is unsecured NCD. It means there is no collateral against these bond. This makes this issue little riskier. There are other secured NCDs available in the market.
2. Sectors in which IIFL is operating are not that promising. They are not market leader in any of them.
3. It will double your money in 6 years. But there are NCDs from Muthoot Finance can double your money in 5.5 years. Those NCDs still can be bought through stock exchanges (BSE / NSE).
4. Issue got rating of AA- from both Crisil and ICRA.

Best Frequent Flyer Card for India - Lufthansa Miles & More

Airline miles are easy to accumulate but difficult to redeem. Due to that there are several millions of miles are getting lapsed each year. There are very limited redemption options available for airline miles. You can't book reward flight, if you have miles not up to certain value. Ultimately, your airline miles lapse after 3 years.

Miles & More is the largest loyalty program for frequent flyers which allows to earn and redeem miles on star alliance airlines and other airlines across the world. Miles & More Wikipedia link lists all airlines which allows to earn/redeem miles on Miles & More card.

Register online on http://www.miles-and-more.com to earn reward miles on Miles & More card. Show your mileage card on flight check-in and accumulate rewards miles. There are plenty of options available for collecting miles other than airlines like hotels, shopping, car rental and so on.

Biggest advantage of having Miles & More is plenty of redemption options. For Indian flyers, best option is Indiatimes Shopping. You can redeem miles to buy wide range of products like apparel, watches, personal care, electronics, gold coins, gift vouchers and so on. Also minimum limit to redeem reward is 3000 miles. Apart from Indiatimes, there are plenty of other redemption options available. Entire list can be found on their website.

If we compare other Miles & More with other loyalty program, its real tough to redeem miles collected specially for Indian flyers. All airlines listed under Miles & More may have their own loyalty programs, but it is advisable to collect all miles on single card.

Citibank Rewards Card Review

If you love reward points on your credit card, Citibank Rewards Card is the best for you. Normally credit card reward points are tough to accumulate and they expire after few months if you can't utilize them. But Citibank Rewards Card helps you to accumulate reward points faster and they never expire. Here is how you can accumulate reward points:

1. First and foremost benefit of the card is welcome gift of 1400 Rs in terms of different gift vouchers
2. 2500 bonus reward points will be credited on your first purchase if purchase made in 30 days
3. 1 reward point for every 125 Rs spent
4. 10 times the Reward Points on spends at Apparel and Department Stores
5. 1000 bonus reward points if 1 lac spent for a given quarter
6. 300 bonus points on statement on email (green points)
7. 1000 bonus points every year to renew card
8. 500 bonus reward points on every birthday
9. 500 bonus reward points for additional card

There are plenty of ways to accumulate reward points. But most important question is what to do with those reward points? How much they worth? Each reward point worth 40 paise. It means Citibank gives for first year (2500+300+500=3300 points) and for subsequent years (1000+500=1500 points) free of cost. They worth 1320 Rs for first year and 600 Rs for subsequent years. Apart from this, rewards points will keep coming with all your purchases mainly on apparels.

Apart from this, there is no joining fee and no annual fee (if annual spend is 30,000 or more). You can apply online from their website citibank.co.in.

Below are reward point redemption options for the card:

1. From Citibank reward catalogue - can buy gift vouchers from various option available
2. Online redemption from website like indiaplaza.com, bookmyshow.com
3. Cashback: redeem against statement outstanding

However there are few drawback of this card:

1. 10 times reward point limit is for 7000 Rs per month
2. Not all store comes under  Apparel and Department Stores. For example D-Mart purchases are not qualified for 10 times reward. But BigBazzar, Hypercity purchases qualify for 10 times rewards.