Source: IRIS Exclusive (20 December 2011)


`Don`t mix insurance and investing`


In an interview with Pooja Chopra Goel of Myiris.com, Vivek T Mallick, CEO, Finesse Capital Financial Planners, says, ``The common mistake most individuals tend to make is confusing insurance with investment.``

Can you tell us about `Finesse Capital Financial Planners` and its mission & services? What services do you offer?

Finesse Capital Financial Planners was founded in the year 2010 to help people to be in charge of their personal finance to capitalize their wealth with time and realize their goal and dreams. We provide two services: comprehensive financial planning service & portfolio review service.

How and why did you decide to become so involved with personal financial planning?

I felt that there is a lot of dearth of time and knowledge among people about their personal finance. They were sold any product by their financial intermediary. My goal was simply to address what I perceived as a great need for more balanced and honest financial advice.

The competition in wealth management has been intense, with a number of small players having plucked in recent years. How do you place yourselves in that league?

I do not place myself in any league. I believe that if I am able to provide some education and confidence in a customer about his personal finance my job is done to my satisfaction.

What is the one financial mistake nearly everyone makes?

The common mistake most individuals tend to make is confusing insurance with investment. Mixing these two makes no sense and investor should keep it separate. Don`t mix insurance and investing.

What are your thoughts on the current financial crisis?

Frankly speaking, I don`t see any crisis. It is just a phase which may last for a year or so. If this is a crisis then what would you say of the great depression of 1929 in the US?

From your perspective, what are the most pressing risks facing retirees in the current environment?

Do we really see retirees now in this environment? I have not met any. Even the persons who have stopped working or retired are earning a living by becoming a consultant. The answer to the question is with the interest rates at its peak the retirees will have more to rejoice as they will get more for their balance in a bank savings account apart from investing in fixed deposits or fixed maturity plans. Also, the tax bracket for citizens above the age of 80 years has changed from this financial year.

Are there any retirement savings guidance programs or books you would recommend to help an individual identify just how much they should save each month?

There is no saving guidance programme or any book which will help anyone in deciding how much should one save. A person should look at his expenses before starting to save. He should cut down on plastic money spending and also his liabilities. Lesser the liabilities more the savings.

What is the most unbelievable excuse you`ve heard about why an individual cannot save for retirement?

That it is too early to think about retirement or an individual did not start saving because he / she didn`t have the time.

Any additional thoughts, comments you would like to address?

Personal finance is one of the most important aspect of a person`s life. An individual should take it very seriously. His / her future depends on his current savings.

`India`s inflation pressures among most acute in Asia`

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Structural food price issues and strong demand pressures have pushed inflation in India well above the norm for Asia, says Richard Iley, chief economist, Asia, BNP Paribas. He also explains how the inflation problem is different from its Asian peers and why a period of sustained sub-par GDP growth is inevitable.

Excerpts of the interview from Businessline:

How different is the problem of inflation in India when compared with its Asian peers? Is the Indian inflation more worrying?

India`s inflation pressures have been among the most acute in Asia for several years now. Inflation performance, as measured by the WPI, has been well above the norm for the region. I think that`s essentially a function of two factors. The first is the clear evidence that has emerged over the last 2-3 years that there is an increasingly structural food price issue. More specifically, the price of proteins, led by rising incomes, which in turn has been further accelerated by government policies - particularly the NREGA has led to stepped up level of demand for proteins. Given that food is about a quarter in the WPI index, this has been a very significant determinant. It has been very noticeable to me that the average food inflation rate in the last four years has been close to 9%, whereas earlier in the last decade, that is the 5-10 years before the global financial crisis, food price inflation was running more along the lines of 4-5%, largely in line with the RBI`s aspirations for overall inflation.

Secondly, I think demand pressures in the Indian economy have been among the strongest in the region. A telltale statistic is that nominal GDP growth exceeded 20 % in CY-10, the strongest nominal growth since the early 1970s. A combination of too loose fiscal policy and monetary policy and unsustainably fast rate of demand growth really pushed the economy into overheating territory and this in turn has led to a more generalized demand pull inflation in the last 9 months. So, it is a conjunction of these two issues which have led to India having one of the worst inflation performances in Asia.

Do you believe food inflation could remain stubborn for some more time in India, even as food prices are softening globally?

Statistically, I think food inflation in India is not very well correlated with global food price development. There is a big contrast there with China; where we find that Chinese CPI food inflation is closely correlated with global developments.

Domestic factors are much more important drivers of Indian food price inflation. That leads us back to the structural issues that we discussed and, of course, the annual progress of the monsoon. The latest data show that the monsoon is a bit more favourable than it was several weeks ago but it doesn`t appear that we are heading for a bumper harvest. My sense is that food price inflation will slowly, but only slowly, retreat. One helpful factor will be the base effects from last year`s spiking onion prices. Other things being equal, this should bring down food price inflation by around December or January assuming the monsoon remains about normal. But food price inflation will not fall back to levels we were used to seeing five years ago. So, from 9% to 6-7% in the first half of next year might be a sensible expectation.

Would a slowdown in investments together with capacity constraints seen in some sectors further aggregate the demand-pull situation?

There is a risk that tighter monetary policy and financial condition really choke off the investment that will be crucial in allowing the supply side of the economy to grow rapidly; which is the best medium solution for India`s inflation problem, be that in agriculture or in manufacturing.

But having moved above full capacity, and given the evidence of demand-pull inflation, the RBI has rightly recognised the need to set monetary policy sufficiently restrictive to engineer a period of sustained sub-par growth in the economy to make sure that these demand-pull pressures do abate. I think that implies a period of 7% GDP and maybe several quarters of growth in the high sixes (so below 7 %) and then perhaps later a return to sustainable growth of probably 8%.

Would more rate hikes become necessary?

Whether or not we need a further rate hike to guarantee this outcome remains unclear.

The strength in exports that the Indian economy has seen over the last year is most certainly going to moderate and that should be an important factor in reducing capacity utilisation in manufacturing and reducing demand pull inflationary pressures. I think we are very close to the peak of the rate cycle: it is touch and go whether we have one more quarter point of interest rate hike by the RBI. But, the bigger point for me is that it is going to be difficult for the RBI to ease the monetary policy any time soon. While food inflation may gently recede and we also expect manufacturing inflation to slowly come off, there remain a number of upside inflation risks lurking in the next 3-6 months, which would be an impediment for easing the policy. Monetary policy is beginning to tighten India and there is little prospect of that changing over the next year.  

We find contradicting signals between IIP numbers and PMI with the latter showing more weakness. What should be relied upon for a trend?

I think there is an industrial slowdown in train now which, from the RBI`s perspective, to some extent, will be welcomed as it ultimately reduces demand-pull pressures. Between the IIP index and PMI survey, I think the signal from the PMI Manufacturing Survey would be a more reliable one. The official IIP with the capital goods output has been exceptionally volatile over the last couple of years with very significant month on month swings, reflecting the relatively poor quality of this segment of the index. While I attach importance to the IIP index, I strip out the volatile capital goods number and look at the index excluding that. When you do that, the message is that it is more or less in line with the PMI Manufacturing survey. Until a quarter or so ago, developments have been rather robust but, in the last 2-3 months, there has been genuine weakness beginning to set in. That interpretation is also supported by other indicators of demand in the economy; vehicle sales is a key indicator. So, I think PMI gives the cleanest signal. 

While exports marginally lost its momentum, it continues to be strong. Would the slowdown in US or Europe begin to hurt Indian exports or would it derive strength from other markets?

I think the developments in the US and Euro zone are inevitably going to dent India`s export performance over the next 6-12 months. India`s trade is relatively well diversified with exports to the G3 - the US, Euro zone and Japan - accounting for 30% of goods exported. The West Asia is obviously an important market and China has been inevitably growing in importance as an export market as well. But developments in the biggest economies, the US and the Euro zone will affect India`s exports. A double-dip recession in the US now looks likely given the recent very disappointing data flow.

It won`t be a deep recession as the economy is still recovering from the aftermath of what was the harshest recession since the 1930s but it looks like the US economy has stalled and this will inevitably slow India`s export growth.

As I said earlier, the strength of exports has been a genuine bright spot for Indian economy thus far this year.

While domestic demand, particularly investment, has been cooling off, export growth has stayed brisk and has been keeping up the rate of capacity utilization in the industrial sector. The prospect of a sharp export slowdown should be a key factor in the demand pull inflationary pressures coming off the boil over the next 6-12 months.

Banker hunt leads NBFCs to headhunters

The draft guidelines for licensing of new banks in the private sector released last week, have set off a flurry of activity among stakeholders seeking to eye a number of candidates with the help of headhunters. Non-banking finance companies (NBFC) have given out mandates to recruiters to look for suitable candidates for the corner offices.

Business groups and enterprises who are seriously looking at a banking foray have also engaged consulting firms for charting out a road map. This involves looking at the existing competitive landscape; emerging opportunities and business focus – corporate, retail and geographical coverage of banks.

Headhunters, whom Business Standard spoke to, said companies have sent out feelers to eligible candidates seeking their interest to join their companies, as and when it takes shape. R Suresh, MD-India, Stanton Chase International, is busy with two new NBFC clients, one from Chennai and the other from Mumbai, to meet their need of C-level executives. "We are working with two large companies which expect to get a banking license. One of them is setting up certain additional functions also. We are involved in the recruitments."

According to Viren H Mehta, director, Ernst & Young, top priority for the NBFCs is to zero in on people who could be part of the top management team. Along with chief executive officer, risk management, operations and treasury, there are other key appointments which would merit attention. "The profile of the leadership team is the most important aspect as it would carry a lot of weight in the Reserve Bank of India's assessment of the company's capability to run the new entity," says Mehta.

For Uday Sodhi, chief executive officer of headhonchos.com, selections at the top and senior management level, will be a long process of evaluation and could take over six months. "Many companies and groups which are interested in setting up banks have approached us. Now they would access our vast and rich data-base on banking sector professionals. Then, they will interact with bankers."

The demand for covering unbanked areas and bringing them under financial inclusion, will help those companies with rural banking experience. Those with experience of setting-up operations or businesses will also be sought after. However, headhunters say there was no dearth of talent in the market which may severely impact dynamics. Advent of new banks will create new openings and people will get a chance to showcase their capabilities. Entry of new banks may also impact compensations, albeit at some point in future.

"Those looking for people will have to structure innovative packages. Those at the receiving end (read banks or financial entities that become target for talent search) will have to employ defensive strategies, including an improvement in pay packages to retain talent," says Sodhi.

"Existing banks, especially foreign and private ones, would take a cue from the emerging competition. This may push compensation packages and rewards for professionals in key functions. The real change would happen once they start feeling the heat. The war to retain and woo talent is not going to be easy," says Mehta.

No tax return for salary and interest income up to Rs 5 lakh

On Monday 6 June 2011, 4:48 PM

New Delhi, Jun 6 (PTI) In India, as many as 85 lakh salaried tax payers whose taxable income, including salary and interest income, is up to Rs 5 lakh, are not required to file income-tax return from now onwards.

"No income-tax returns is required for salaried persons whose annual annual taxable income including salary and interest is up to Rs 5 lakh. We would shortly notify this," a Central Board of Direct Taxes official said.

However, he said this would not cover income from other sources like house property, capital gains and gains from profession and business.

The scheme would be applicable from assessment year 2011-12 onwards. This means that the salaried persons eligible under the scheme would not have to file returns for the financial year 2010-11 in 2011-12 (assessment year).

Under the scheme, those salaried persons who want to claim tax refund, would have to file income tax return.

As per the Memorandum to the Finance Bill 2011, the government will be issuing a notification exempting ''classes of persons'' from the requirement of furnishing income tax returns.

Under the scheme, the salaried person wants exemption from filing IT return, has to disclose about the incomes like dividend and interest to his employer for tax deduction.

In the scenario, the Form 16 issued to salaried employees will be treated as Income Tax Return. At present, it is obligatory for all salaried persons to file income tax return under the Income Tax Act, 1961.

The idea behind the move is that in cases where there are no other sources of income, filing of a return is a duplication of existing information.

Source:- http://in.finance.yahoo.com/news/No-tax-return-salary-interest-pti-4140449186.html#y-nav-sec