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Tuesday, July 31, 2018

Personal Finance : What is Rule 72?

Personal Finance : What is Rule 72?

In personal finance, if you divide the number 72 by the rate of interest, you get to know the number of years it will take for you to double the money.

Example :  If the rate of interest is 9%, simply divide the number 72 by 9% and the answer is 8. 

Thus it will take 8 years to double your money if you invest at 9% per year rate of interest.


 We can use this rule in reverse to know the rate of interest needed to double your money to achieve your set goal.
Example : If you have Rs. 2,50,000 today and you need Rs. 5,00,000 in 5 years. Just divide the number 72 by 5, the answer is 14.41%. Thus you need a type of investment avenue, where you earn at least 14.41% per annum as rate of interest/returns to double your investment amount in 5 years.


This 'Rule 72' helps you to understand about inflation also. It helps you to calculate the amount of time it will take for inflation to make the real value of money half. 

Let's say present inflation is 5.5%. When you divide 72 by 5.5% the answer is 13.09 years.  That is to say, if you have Rs. 1,00,000 in your kitty today, it would take about 13.09 years for the value of the money to be halved..

Monday, July 30, 2018

Mutual Fund: Should SIPs be Continued When Returns are Negative?


Should SIPs be Continued When Returns are Negative

Mutual Fund: Should SIPs be Continued When Returns are Negative?

Monthly collections through SIPs hit an all time high of Rs. 7,350 crore in June, 2018 which shows high interest in investing in equity mutual funds through the SIP route.

However, many investors who started investing in equity mutual funds using SIPs in the past year are seeing negative returns due to the correction in the markets.
Find out what they should do in that case:

1. I started SIPs in 3 equity mutual funds in January, 2018 of which two are giving negative returns. What should I do?

Investors should not start evaluating SIP returns in less than a year’s time, as they could see disproportionate returns in the near term.

For example, in 2017, we saw one-year SIPs in midcap funds delivering as high as 40% return, but right now, some mutual funds are showing negative returns.

They should continue with the SIPs with a long-term time frame of 5 to 10 years. During this long cycle, the equity markets will go through a number of ups and down, and in some of these times, they are bound to see negative returns.

In the long term, equity market returns follow the nominal GDP growth rates. Hence, investors should continue their SIPs irrespective of the ones giving negative returns.

2. I will continue with my SIP, but does it make sense to change the mutual fund scheme if the existing SIP returns are negative?

Typically, six months is too short a period to judge a scheme and its returns. Ideally, investors should give the fund manager three to five years to perform.

If the fund underperforms its benchmark even over a three-year period, then investors could take a closer look at it and shift to another fund.
Alternatively, if the mandate of the scheme has changed, or the fund manager has changed, they should discuss this with an advisor before arriving at a decision.

3. How long can you run an SIP for?
Most fund houses stipulate a minimum time frame of 6 months for the SIP. Investors can choose any tenure they wish, which could be 3, 5 or even 10 years, or link it to their long-term goals.

Investors also have the choice to opt for the perpetual option, which means the SIP will continue till the investor gives an instruction to the fund house to close it.

Financial planners suggest investors link each SIP they do to a particular goal and continue with the SIP till the goal is reached.

4. I have money to spare every month post my annual salary hike. Should I increase the allocation?

Do not get disturbed by the volatility in the markets. Use this opportunity of a salary raise to increase your SIP amount proportionately by using the top-up facility provided by the fund house.

It is important that as your income grows, so should your investment amount.

Src: ET, Prashant Mahesh

Indian Mutual funds: total to an all-time high of 7.46 crore at the end of June, 2018


Indian Mutual funds: total to an all-time high of 7.46 crore at the end of June, 2018

Growing investor interest in mutual funds has led to an addition of about 33 lakh new folios in the first quarter of the current fiscal (2018-19), taking the total to an all-time high of 7.46 crore at the end of June.

This follows an addition of 1.6 crore investor accounts in the entire 2017-18, over 67 lakh folios in 2016-17 and 59 lakh in 2015-16. Folios are numbers designated to individual investor accounts, though an investor can have multiple accounts.

According to data from AMFI on the total investor accounts with 42 fund houses, the number of folios rose to a record 7,46,24,230 at the end of June, 2018, up from 7,13,47,301 at the end of March 2018, a gain of 32.77 lakh.

Mahindra MD Goenka’s Salary Grew 65% in 2017-18


Mahindra MD Goenka’s Salary Grew 65% in 2017-18

 Mahindra Group managing director Mr. Pawan Goenka’s remuneration rose by 65.2% to ₹12.2 crore last fiscal, according to the company’s Annual Report for 2017-18. 

His remuneration, which included perquisite value of ESOPs exercised, was more than group executive chairman Mr. Anand Mahindra, who took home ₹8.03 crore. 

In terms of increase also, Mr. Mahindra's remuneration grew by a modest 4.7% . 

Excluding perquisite value of ESOPs exercised, Mr. Goenka's salary stood at Rs 8.7 crore, although still slightly more than Mr. Mahindra, who earned ₹8.03 crore.

Saturday, July 28, 2018

Increased Property Purchase Costs – Hype Vs Reality..!

Increased Property Purchase Costs – Hype Vs. Reality

by Mr. Anuj Puri, Chairman – ANAROCK Property Consultants

While the impact is real on paper, miracles have been known to happen when a chequebook lies on the negotiation table

Stamp Duty Shocker

On the real estate market, upward revisions of any kind can doubtlessly hurt. Let's take the Maharashtra government's proposal to levy a surcharge of 1% on stamp duty, effectively raising it to 6% from the existing 5%. Such news, especially at a time when MMR’s real estate market was beginning to show some green shoots of revival with sales and new supply numbers rising, come as a shock.

This is a significant increase in the cost of real estate purchase that will hamper consumer sentiment - especially in the affordable housing segment. On the one hand, the  Government has rolled out multiple sops to boost affordable housing - and on the other, it is increasing the cost of properties. One can only hope that at least affordable housing is saved from this surcharge.

This is real and painful, and the impact is very hard to mitigate. That said, developers do have the option of absorbing this additional cost for serious buyers. We have seen the same dynamic playing out with the other factor which is traditionally assumed to impact housing demand - housing loan interest rates.

Upward revisions in interest rates are regularly bemoaned by the industry. However, if we consider the core reality, consumers are not as seriously affected by hardening interest rates as developers (who have been known to absorb the impact of increased home loan rates to catalyze sales).

How 'real' is the impact?

For all practical purposes, the home loan is the driving force behind the Indian residential real estate market. Without a home loan, a large portion of the Indian population would be forced to live in rental houses. Because of this facility, one can be a proud homeowner without having to have enormous amounts of ready cash.

Of course, some would say that the ideal way is to buy a property outright. However, given the high cost of property, home loans are really the only way out. While the borrower certainly needs to contribute a component of the property’s cost himself, he can realistically raise this via personal resources such as family or personal savings.

Due to the central role they play in sustaining the real estate market, it is not just home buyers who depend on home loans, but developers as well. Both sides will bemoan the announcement of even a marginal hike in interest rates, stating that it will seriously affect demand for homes. Both will laud a minuscule reduction while simultaneously stating that it is not enough and more was expected.

The common understanding is that when home loan interest rates rise, potential buyers have less disposable income to buy property with and will defer intended property purchases even further. This is disturbing since the current environment indicates that there will in all probability be further interest rate hikes and this would impact the demand for residential property.

Let's examine what this impact at the level of different budget segments, rather than at an overall market level.

  • Impact on LIG homebuyers: Technically, the buyer segment that is hit hardest by increasing interest rates is the bottom part of the pyramid - daily wage earners and people on very low monthly incomes who do not yet own a home and seriously want to. In an environment of increasing interest rates, it would logically be this segment that becomes averse to buying a home. However, in line with the Government of India's 'Housing for All' vision, first-time home buyers in the affordable housing segment have been incentivized with special interest rate rebates and a number of other measures. Therefore, they still have a lot of good reason to go in for home ownership.

  • Impact on HNI homebuyers: HNIs, who represent the top part of the pyramid, are less affected by home loan interest rates. They are focused on luxury housing, and many of them have the financial wherewithal to buy the properties they want outright and without a home loan. Even if they do use a home loan, minor variations in interest rates do not play a significant role in their purchase decisions.

  • Impact on MIG homebuyers: This leaves the middle class, which is technically vulnerable to rising interest rates. Most middle-class Indians walk a tightrope of financial balancing wherein they have a number of equally important financial obligations to meet. While owning a home may be high on their priority list, they also need to reserve funds for their children's education, paying their rent, investing for retirement, and so on. Then again, there are many strata even within the Indian middle class, so the 'upper middle class' has fewer financial challenges than the 'lower middle class'.

Minor upward revisions in home loan interest rates may not deter the upper middle class from a home purchase, while they can certainly give pause to a lower-middle-class family's plans. However, middle-class first-time home buyers do have recourse in the interest rate incentives that the Government has unleashed for their benefit, as long as the properties they buy fall within certain size and budget parameters.

Looking beyond the hype

Simultaneously, increasing interest rates also means that profits on fixed deposits and some other investment instruments increase. Also, when interest rates increase, developers - ever sensitive to sentiment - have invariably sought to offset the perceived impact by either reducing their prices, trotting out more lucrative offers and freebies, and generally becoming more open to serious negotiation.

In fact, this tendency has become a more or less permanent fixture ever since a lot of factors (other than interest rates) began impacting sales. Moreover, borrowers with a good credit repayment history can negotiate with a bank for a better home loan interest rate.

There is also the fact that there can be an additional tax benefit if the property is in a joint ownership. Like men, women homebuyers are also eligible for a tax exemption up to Rs.1.5 lakh under Section 80C on the principal paid on a housing loan, and up to Rs. 2 lakh under Section 24 per year on the interest on a home loan. If a property is rented out, then the entire interest on the home loan is allowed as a deduction.

To avail this additional tax benefit on a home loan, the property must be in co-ownership. Moreover, many major banks in India have a lower home loan interest for women borrowers as compared to men. The rebate can vary from .05% to .25%, depending on the bank and loan amount.

So, perhaps the impact of increasing home loan rates is not as severe as it is popularly made out to be. The average Indian’s dream of owning his own home is stronger than most other impulses, and Indians have been conditioned to wait with bated breath for home loan interest rates to fall. If they put their aspirations for owning a home on indefinite hold because they believe that interest rates must be a key consideration, we will certainly see 'fatalities'. However, we may be looking at a sentiment problem rather than a financial one.

The tricky element of sentiment

All other considerations and logic aside, sentiment does play a big role in any market.

As we have seen in the stock market, it can swing this way or that, sometimes without any real logical basis. Buyer psychology is equally fickle and can react to media stories, fake discounts and even religious sentiment. Given the minimal impact that a minuscule interest rate revision actually has on the overall cost of buying a home, it is also more than likely that a home purchase decision which has been put on hold purely on the basis of higher interest rates was never a serious decision in the first place.

The myth that interest rates are the one force that can or should make or break a home purchase is largely the function of a victim mentality. The same holds true for increased stamp duty. While the impact is real on paper, miracles have been known to happen when a cheque book lies on the negotiation table. The proactive approach for first-time homebuyers to take in any given market scenario is to identify the right property, understand and leverage any existing Government benefits, and negotiate the best possible deal with a developer as well as a bank.

The prevailing school of thought dictates that the only way out is to wait for optimal property prices, lowest stamp duty and rock-bottom interest rates. However, if one understands that these are myths, the field opens up considerably.

Arun Chitnis
Media Relations
ANAROCK Property Consultants Pvt. Ltd.
Office No. 901A 9th Floor, ONYX,
Next to Westin Hotel, Koregaon Park,
Pune – 411001

M: +91 9657129999

Resolves multiple financial queries - Investment Art or Science – Book by Sunil Kapadia


Investment Art or Science – by Sunil Kapadia

The book that resolves multiple financial queries

Pune based advisor Mr. Sunil Kapadia gives a glimpse of fundamentals of financial markets through his newly launched book.
‘Investment Art or Science’ to educate advisors and investors about the fundamentals of financial markets.

L&T Finance Holdings Ltd - quarter ended 30th June, 2018 PAT of Rs. 538 cr


L&T Finance Holdings Ltd - Financial Performance for the quarter ended 30th June, 2018

       RoE of 18.45% for Q1FY19

       PAT of Rs. 538 cr. for Q1FY19 up 71% from Rs. 314 cr. for Q1FY18

The Board of Directors of L&T Finance Holdings Ltd. (LTFH), at its meeting held today, approved the unaudited financial results for quarter ended 30th June 2018 (Q1FY19).

In line with direction from Ministry of Corporate Affairs, LTFH has adopted Indian Accounting Standards (IND AS) with effect from 1st April 2018. Results of Q1FY19 are prepared and reported in compliance with IND AS requirements. Additionally, for the same quarter of previous year (Q1FY18), figures have been recast to fit IND AS requirements.

Some key changes due to adoption of IND AS for LTFH are:

1.    Expected Credit Losses (ECL): ECL methodology prescribed in IND AS is based on the principle of providing for expected future losses, rather than incurred losses, which was followed under the previous accounting standard. Since required provisions are assessed using statistical modelling, ECL methodology facilitates granular analysis of portfolio, thereby translating true risk of a portfolio into provisions.

Under the previous accounting standard, an asset was classified as either standard (Not an NPA) or sub-standard (NPA). Under the new accounting standard, assets are classified as Performing Assets (Stage 1), Underperforming Assets (Stage 2) or Non-Performing Assets (Stage 3). In accordance with highest standard of transparency and governance, LTFH has reported its Stage 3 assets to include NPAs (above 90 DPD), Infra assets where regulatory forbearance was available (SDR, S4A, 5:25, etc.) and other standard assets with incipient stress.

In its Infra portfolio, LTFH has taken the entire Expected Credit Loss on its legacy stressed portfolio. LTFH’s legacy Infra stressed portfolio now carries provisions of ~Rs. 3,000 cr. against total portfolio of ~Rs. 5,000 cr. Of the Rs. 3,000 cr., LTFH was already carrying nearly Rs. 1,200 cr. of provisions as on 31st March 2018 under the previous accounting standard. The remaining Rs. 1,800 cr. have been adjusted against opening reserves while transitioning to IND AS.

LTFH was taking accelerated provisions in its Infra stressed assets portfolio over last two years. The provisioning requirement on this portfolio is now complete.

In LTFH’s retail portfolios, i.e., Rural and Housing, requirement of provisions have been assessed by statistically modelling past performance of its portfolio.

2.    Preference Shares: Under the previous accounting standard, Preference Shares were included in networth and dividend paid on these shares were appropriated from profits. Under IND AS, Preference Shares are classified as financial liabilities and dividend paid is accounted as finance cost. Even under earlier accounting standard, LTFH was reporting Return on Equity (RoE) after excluding Preference Shares and dividend. Hence there is no impact on RoE of LTFH due to the new standard.

3.    Fair Value of Investments and ESOPs: All investments have been revalued to their fair value in opening balance sheet and any further change in fair value is taken through P&L statement. Fair Market Value of ESOPs allotted to employees are calculated using Black Scholes method and taken in P&L, resulting in a small increase in manpower cost.

4.    Amortization of Fees: In line with requirement of IND AS, LTFH is amortizing its processing fees at Effective Interest Rate of the underlying loan. Since LTFH was already following this practice even under the previous accounting standard for a significant portion of its portfolio, the impact is minimal.

5.    Taxation: IND AS mandates computation of deferred taxes using balance sheet approach as against P&L approach followed under previous accounting standard. Consequently, opening reserves on the transition date have been restated and impact of subsequent periods has been accounted for in P&L statement. This has resulted in slight increase of tax liability for LTFH.

Results highlights:

       Growth in businesses: In its focus lending businesses, namely Rural Finance, Housing Finance and Wholesale Finance, LTFH recorded 27% YoY increase in assets in Q1FY19. LTFH used sell-down of wholesale loans as a strategic lever in guiding its portfolio composition to higher “Retailisation”. At the end of Q1FY19, Rural and Housing businesses together constituted 46% of total portfolio as against 35% at the end of Q1FY18.

Book Growth

Focus Businesses

Q1FY19 vs


Rural Finance

Housing Finance

Wholesale Finance


LTFH also delivered strong growth in its Investment Management & Wealth Management businesses. Average Assets under Management (AAUM) in Investment Management business increased to Rs. 71,118 cr. in Q1FY19 from Rs. 44,484 cr. in Q1FY18 – a growth of 60%. Assets under Service (AUS) in Wealth Management

business increased to Rs. 18,866 cr. in Q1FY19 from Rs. 17,120 cr. in Q1FY18 – a growth of 10%.

       Improving asset quality: LTFH has shown a substantial improvement in its Stage 3 assets, both in absolute and percentage terms. This has been achieved through vigorously monitored early warning signals, concentration on early bucket collections and strong Stage 3 resolution efforts. LTFH’s provision coverage has also increased during this time, indicating strength of its portfolio.

(Rs. Cr.)

Gross Stage 3

Net Stage 3

Gross Stage 3 %

Net Stage 3 %

Provision Coverage %

       Improving Cost to income ratio: LTFH Cost to Income ratio has reduced to 23.40% in Q1FY19 from 24.07% in Q1FY18. This reduction has been achieved despite substantial investment in digital & data analytics, branch infrastructure and manpower.

Management Commentary:

Commenting on the results and financial performance, Mr. Dinanath Dubhashi, Managing Director & CEO, LTFH, said “We continue on the journey of improving our RoE through continuously enhancing our competitive position, strong NIMs + fees, tight cost controls and improving asset quality. Retailisation of our book, and usage of digital and data analytics remains pivotal to our strategy. We have now provided for the legacy Infra stressed book. For Q1FY19, we have achieved RoE of 18.45% which is within the steady state range. Having reached the steady state range of RoE, our focus will be on maintaining it through responsible growth and minimizing sigma by tightly managing all families of risk. ”

About L&T Finance Holdings:

LTFH is a financial holding company offering a focused range of financial products and services across rural, housing and wholesale finance sectors, as well as mutual fund products and wealth management services, through its wholly-owned subsidiaries, viz., L&T Finance Ltd., L&T Housing Finance Ltd., L&T Infrastructure Finance Company Ltd., L&T Investment Management Ltd. and L&T Capital Markets Ltd. LTFH is registered with RBI as a CIC-ND-SI. LTFH is promoted by Larsen & Toubro Ltd. (L&T), one of the leading companies in India, with interests in engineering, construction, electrical & electronics manufacturing & services, IT and financial services.

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