Sensex above 21K, gold sinks: What if Putin had gone to war

Sensex above 21K, gold sinks: What if Putin had gone to war 

The Indian markets made smart gains soon after reports suggetsed that Russian president has ordered troops back to their bases. 

The Indian markets made smart gains soon after reports suggetsed that Russian president has ordered troops back to their bases.

India's benchmark index, that is Sensex, surged over 200 points in intraday trade soon after the news of Russian pullout trickled in.

At 1:46 pm, the Sensex was at 21,178.68, up 232.03 points, or 1.11%.

The broader 50-stock Nifty was at 6,288.20, up 66.75 points, or 1.07%.

Gold futures were at Rs 30,332 per 10 grams, up by Rs 299, on the MCX.

Here's how stock and commodities markets would have reacted had Russian president Vladimir Putin gone to war. 

"As far as the development in Ukraine is concerned there is one big thing which can influence India and that is oil imports; and this will start creating problem for the currency also," said Nischal Maheshwari, EVP Research, Edelweiss Securities. 

"Oil has already started going up. That is what's going to actually create a bigger problem for us. It creates current account deficit, rupee depreciation, among other things," he said.

Assuming a worst-case scenario on the Ukraine front, and of course the elections being a big overhang for our markets, what would have happened to the markets? 

"Markets will remain rangebound for the reason that you do not have a very strong clarity as far as the elections are concerned. What is going to be the outcome ... that is why people are anyway hesitant to take an overweight position on India. Now, in that kind of a situation if you have some concerns coming as far as the geopolitical situation is concerned, there would be pressure on the market," he says. 

Would the tension between Ukraine and Russia boosted commodities? There was a spike in both crude and gold after the crisis emerged.

"In terms of commodity prices, yes, in the short term we are likely to see a degree of risk of trade that will be positive for gold and also oil; but once a resolution is in place then the swings will reverse," says Robert Aspin, Head of Equity Investment Strategy, Standard Chartered. 

Commodity prices advanced to the highest level in almost six months as escalating tension in Ukraine fuelled worries that energy and agricultural supplies will be disrupted. Panic-ridden investors turned to gold as a safe option. Here are the commodities that could have faced immediate heat if Putin had gone to war.

Source : ET Bureau

Ajay Agarwal's Maxx Mobile is a multi-crore brand in a decade

I started in 2002 by stamping my firm’s brand name on imported mobile phone batteries and selling them to local traders at cut-throat rates : Ajjay Agarwal 

When I was 15 years old, I dropped out of school to join my father's electronic trading business in Mumbai. My move was not prompted by dire financial circumstances, but by sheer fascination. I was keenly interested in the family business, and this is why my parents did not force me to complete my education. In 1992, I started by helping my father with accounts, for which he paid me Rs4,000-5,000 per month. Five years on, I helped him get into other verticals, such as garments, musical instruments and imported mobile phone accessories. For the latter, we visited manufacturers in Malaysia and China, and this helped me when I launched my own company in January 2002.

I began with a seed capital of Rs10 lakh, which came from my savings. The first step was to have my proprietorship firm registered in the name of Max Mobiles and Phone Accessories; it was only in 2004 that we set up Maxx Mobile as a company. Initially, I would stamp my brand name on imported mobile phone batteries and sell them to dealers in Mumbai. The response was very good because my prices were lower than those of other brands in the market. Besides, I offered a warranty on batteries, which resulted in some losses because the overseas manufacturers would not give us a replacement for damaged goods. Still, it was a small price to pay for establishing the brand, and before the year ended, the firm had registered a sales figure of Rs15 lakh.

At the beginning of 2004, I figured that I should set up my own manufacturing unit for mobile phone batteries. I could easily afford the move since I had saved nearly Rs40 lakh from the company profit. To begin with, I leased a 3,500 sq ft space at Malad, Mumbai, and stocked it with a plastic moulding machine and a welding machine, both imported from Korea. I also employed 25-30 people for the new venture, and by February 2004, our manufacturing unit was up and running. Initially, we suffered frequent breakdowns due to overloading since the workers lacked experience in handling them. To overcome the problem, we hired a technician from a big company by paying him twice the salary he was getting. This proved to be a good investment, and by April 2004, we were manufacturing 5,000 batteries a day.

The next obvious move was to expand the operations. In 2006, we purchased 6,000 sq ft of land at Haridwar for Rs20 lakh, the funds coming from internal accruals. It cost us another Rs2.5 crore to set up the factory and purchase machines, for which we took bank loans. Once the Haridwar factory was functional, our output shot up to nearly 1 lakh pieces a day. The turnover for 2006-7 was Rs2 crore, which increased to Rs5 crore the following year, after we forayed into the headset business as well.

The next crucial year was 2008, when we started importing mobile phones and selling them under the brand name Maxx Mobile. Between August 2008 and December 2009, we launched almost 33 feature phone models. We also spent nearly Rs10 crore on setting up 23 dedicated outlets for our products in different cities across the country. Meanwhile, we became associated with the IPL matches and spent Rs12 crore on advertising. To fund these aggressive plans, we had to look beyond our own reserves, so we resorted to an additional funding of $20 million (approximately Rs100 crore at the time) from Star Holdings (Asia), a Singaporebased company. Amazingly, we recorded a turnover of Rs590 crore in the first five months of taking the initiative.

In 2009, we signed on M S Dhoni as our brand ambassador and the advertising campaign during the T20 World Cup helped us get eyeballs. Within three months, we reeled in 250 distributors and 35,000 retailers. By the end of 2011-12, the turnover touched Rs1,260 crore. However, the rupee fluctuation took a major toll on the business, with the turnover dropping to nearly Rs435 crore in 2012-13. Another learning from last year was to monitor the goods we stocked since we were left with a large number of an obsolete range of phones, which contributed to big losses.

We have learnt from our mistakes and have streamlined the operations. Today, we cater to all consumer segments, boasting 84 mobile phone models spanning dual-SIM budget phones, touchscreen phones, besides the mid-range and high-end Android smartphones and tablets. Our 550-employee company is eyeing a turnover of Rs600 crore in the current financial year. For any Indian brand to succeed, it's important to take care of the after-sales service. At present, we have around 1,000 service centres, which are set to double by the end of April 2014. Next on the cards is the manufacturing of Android mobile phones, though the idea is on hold due to the tax structure in the country , which makes it financially unviable for us. In the meantime, we are looking forward to a turnover of Rs1,500 crore by end-2017.

(As told to Amit Shanbaug)

Source : ET Bureau

John Abraham to buy 13% stake in HIL’s Delhi Waveriders

John Abraham to buy 13% stake in HIL’s Delhi Waveriders 

Delhi Waveriders had reached the finals of the first edition of the HIL that was held in January this year but lost the final tie to Ranchi Rhinos. 

Actor-turned-filmmaker John Abraham has agreed to buy a 13% stake in Hockey India League's Delhi Waveriders team from real estate firm Wave group for an undisclosed amount. The purchase adds to a growing list of cine stars who have put their money in the business of sports. Wave was founded by Ponty Chadha, the UP-based liquor and sugar baron. 

The Hockey India League, which initially sold five franchise teams in 2012 for a combined 100 crore, had allowed the teams to sell a part of their equity in the second edition of the league. A new franchise - Kalinga Lancers of Orissa that was added to the league this year - was valued 30% higher than the teams that were sold when HIL was launched, indicating the success of the tournament. 

"John will be the brand ambassador for the team and will promote hockey and Delhi Waveriders. He will be there for all matches of the Delhi team," said a person close to the development, who did not wish to be named. In an emailed response, Ravi Sodhi, director of corporate communications for the Wave group, said: "As a policy, we at Wave do not comment on market speculation." John Abraham could not be contacted immediately. The other teams in the league are Mumbai Magicians, owned by the promoters of Dabur; Punjab Warriors of the Jaypee Group, Patel-Uniexcel group's Ranchi Rhinos; Uttar Pradesh Wizards, owned by Sahara India; and the latest, Kalinga Lancers owned by Industrial Infrastructure Development and Mahanadi Coalfield. 

Delhi Waveriders had qualified for the finals of the HIL's first edition held in January this year, but lost that match to Ranchi Rhinos.

At the player auction for the hockey league last month, the six teams spent $1.4 million for 49 players. Of the 49, 28 were Indians and the rest players from Australia, New Zealand, Spain, Argentina, Ireland, England and South Africa. Last year, the five franchises had spent $3.1 million to buy 120 players. At this year's auction, Sahara UP Warriors bought former India midfielder Ramandeep Singh for $81,000, more than 30 times his base price of $2,600. Kalinga Lancers paid $71,000 for New Zealand midfielder Ryan Archibald, while Mumbai Magicians offered $59,000 for Australian midfielder Trent Mitton. 

Several Bollywood stars have shown interest in sports over the past few years, but it has mostly been related to cricket.

Shah Rukh Khan is the co-owner of the Kolkata Knight Riders team in the Indian Premier League cricket tournament, while Preity Zinta co-owns Kings XI Punjab and Shilpa Shetty and her husband Raj Kundra are part owners of Rajasthan Royals.

Salman Khan's brother Sohail Khan owns the Mumbai Heroes team in the Celebrity Cricket League. In the same league, Riteish Deshmukh owns the team Veer Marathi and south Indian actor Lissy Priyadarshan, who was popular in the 1980s, owns Kerala Strikers. 

Source : By Ravi Teja Sharma, ET Bureau 

Flipkart tops hiring charts at IITs, makes 118 offers in three-and-half days

Flipkart tops hiring charts at IITs, makes 118 offers in three-and-half days

The company has so far offered salaries in the range of Rs 10.5-11.5 lakh, a cut above average salaries on offer at the IITs this year 

Ecommerce major Flipkart has stormed the IITs emerging as the largest recruiter in the first three-and-half days of this placement season.

Dozens of other, lesser-known startups including Unbxd, Wooqer, Edudigm, ZeMoSo Labs are also making a significant number of hires, getting the better of many established companies in the war for talent.

Flipkart has made 118 offers so far to the class of 2014 and is turning out to be a huge draw at IITs, hotspots for the best Indian engineering talent. At IIT-Roorkee, for example, 600 out of 1,600 students applied for job at Flipkart, according to placement sources. It picked up 11 students. The company picked up the most number of students, 36, at IIT Kanpur.

"Our USP is clear - those who join us get the opportunity to build a company and its business from the ground up, grow along with it and learn at a pace and flexibility that is unmatched in the industry," Sachin Bansal, co-founder, Flipkart told ET.

Founded six years ago by two IITians, Flipkart has raised $360 million in the last six months that is now funding its talent acquisition.

Money from investors including Dragoneer Investment Group, Morgan Stanley Investment Management, Sofina SA and Vulcan Capital, that is now funding its aggressive talent acquisition. The company has so far offered salaries in the range of Rs 10.5-11.5 lakh, a cut above average salaries on offer at the IITs this year, but slightly lower than what marquee names like Citicorp and even some smaller startups are offering.

"We look for talent that is smart, and has the ability to learn and adapt in a rapidly evolving industry. We look for people with great problem-solving skills and passion," Bansal added. Even as Flipkart is topping the charts early on, a bunch of smaller - and in some cases, hardly-known - startups thronged the campuses and have found ready takers. If IIT-Roorkee had ecommerce company Unbxd, Bangalore-based Wooqer and analytics firm Axtria; IIT-Kanpur saw mobile advertising technology maker In-Mobi and Fuzzy Logic.

IIT-Kharagpur, on its part, has a big line-up, including A-star Singapore, Housing.com, Chronus, Ivy Cap Venture, Edudigm, InterviewStreet, App-Daily and Sharobi. At IIT-Guwahati, a number of different startups, including Capillary Technologies, Hike and ZeMoSo Labs, have signed up. At Guwahati alone, startups are expected to make over 30 hires.

"This shift in trend from the rudimentary job profiles to a startup profile becoming the choice of fresh graduates is the thing of future," said Natesan Srinivasan, faculty incharge, training & placement, IIT-Guwahati. Many factors work in startups' favour. Timings are flexible; there's a flatter hierarchy; smaller teams lead to better bonding; individual contribution is reflected better and people are able to work in different verticals simultaneously, resulting in an exponential career growth curve.

"Students are showing more interest in startups as many of them have been started by our alumni or those of other IITs," said Avijit Chatterjee, professor-in-charge, placements at IIT Bombay. "Some of the large startups also seem to have been infused with investments and therefore salary paid is good as well." Compensation offered by startups, though not bulge-bracket, is quite competitive.

At IIT-Roorkee, Unbxd hired for software engineer and business analyst profiles for Rs 14.5 lakh; Wooqer hired two software engineers for Rs 10.27 lakh; InMobi picked up 5 students for Rs 16 lakh and web application maker maxHeap Technologies came with 3 profiles for Rs 5-12 lakh. Gwynnie Bee India will come on Friday with Rs 10-lakh packages. Groupon has picked up 6 students with Rs 12-lakh offers.

Analytics firm Axtria has made a unique offer, where a student will get total compensation of Rs 25 lakh if he sticks with the company for three years.

Source : DEVINA SENGUPTA & SREERADHA D BASU, ET Bureau

Midcap crash leaves Rs 1,000 crore hole in big bull Rakesh Jhunjhunwala’s portfolio

Following the leader may not always be in people's best interests, especially when it comes to stock selection.

Many small investors, who fashioned their portfolios after that of Rakesh Jhunjhunwala, the so-called Warren Buffet of India, discovered this painful lesson with the recent mid-cap crash eroding his portfolio value by Rs 1,000 crore.

Stocks owned by Jhunjhunwala — Bilcare, A2Z Maintenance and DB Realty, Autoline Industries, Hindustan Oil Exploration and Delta Corp — which quoted at high multiples despite poor results, were hammered down as negative sentiment originating from stocks used in margin funding spread towards other fundamentally weak stocks.

Many small investors purchased these stocks not for their sound fundamentals or prospects but merely because they were part of billionaire investor Rakesh Jhunjhunwala's portfolio.

This is borne out by 21 of the 29 listed stocks held by Jhunjhunwala that have declined between 20% and 70% so far this year compared with a 3.5% fall in benchmark Sensex and a 15% fall in the BSE Mid-cap index.

Nearly 10 companies he invested in, including Aptech, McNally Bharat and Delta Corp, reported adecline in revenues for FY12 from a year ago. The likes of Hindustan Oil Exploration, Prime Focus, A2Z Maintenance,Sterling Holiday, Viceroy Hotels and Alphageo reported net losses for the nine months ending December 2012 (FY13).

Further, more than half of promoters' holdings in eight companies including DB Realty, Viceroy Hotels,Pantaloon Retail and NCC have been pledged as on December 2012.

Even Jhunjhunwala's favourite stock picks such as Titan Industries, Crisil and Rallis Industries underperformed the broader market. The only five stocks to have outperformed the indices are Lupin,Geometric, Prime Focus, Agro Tech Foods and Adinath Exim. So has Jhunjhunwala's strategy to 'Buy Right Hold Tight' gone wrong? Some market experts think so.

"Rakesh is known for investing in concept-based stocks for the long term, when nobody usually touches them," said Kush Katakia, founder of Beanstalk Advisory. "However, this strategy seems to have backfired as investors dumped these stocks during the recent midcap crash, and opted instead for companies with sound financials."

An e-mail query to Jhunjhunwala on the subject went unanswered. Call it negative sentiment or coincidence, stocks in Jhunjhunwala's portfolio have been hammered one after the other by Dalal Street over the past few weeks. The latest in the line is Bilcare.

The stock plunged 48% in the past four trading sessions through Friday. Jhunjhunwala, the second biggest public investor in the company after Deutsche Bank, held 8.51% in the company.

The billionaire investor entered this counter in June 2006, buying about 11.6% stake at an average price of Rs 360. The stock, which hit a record ofRs 1,830 in January 2008, currently trades at Rs 72.

A2Z Maintenance, in which Jhunjhunwala held 19.92% stake, has plunged 70% so far this year and 94% since its listing in December 2010. The Jhunjhunwala-backed diversified infrastructure company declined 20% on the listing day, after which he bought an additional 16 lakh shares.

The recent pick of DB Realty, in which Jhunjhunwala bought nearly 12.5 lakh shares in October last year at Rs 90 per share, 83% lower from its record high of Rs 540 in March 2010, further declined 63% this year and currently trades at Rs 57.65.

"The overall sentiment, especially in the midcap segment, has affected stocks owned by Rakesh," said another analyst who declined to be named. "A slowdown in business, pledging by promoters, over-leveraging, failure to service debt and ratings downgrades were the prime reasons for the recent carnage in midcap stocks, and Rakesh's portfolio was no exception."

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Rakesh Jhunjhunwala picks stake in Tata Communications

By: Ajaya Sharma

(According to sources, big bull Rakesh Jhunjhunwala & Associates bought 16 lakh shares in Tata Communications from Tata Sons via a block deal on June 28, 2013.)

It may just be a Rs 25-crore block deal, but its set mutual funds and the markets aflutter. Tata Communications, which has corrected 32 per cent in the past two months, is seeing buying from large players in the market, not to mention funds.

According to sources, big bull Rakesh Jhunjhunwala & Associates bought 16 lakh shares in Tata Communications from Tata Sons via a block deal on June 28, 2013.

The promoters had to sell 0.57 per cent stake in the company to comply with SEBI shareholding norms. Tata Communications' latest disclosures show reduced promoter stake on the BSE.

Dhanki Securities has been broker to the block deal.

E-mail queries written to Rakesh Jhunjhunwala and Tata Group went unanswered.

Institutions such as Kotak, Prudential ICIC and Edelweiss have been showing interest in the company and have increased their stake in the month of June.

Tata Communication is sitting on 740 acre land bank in Delhi, Maharashtra & Tamil Nadu.

The government holds about 27 per cent stake while the Tatas Group hold around 51 per cent stake in the company.

The stock ended at Rs 164.70, down 0.09 per cent, on the BSE. It touched a high of Rs 169.30 and a low of Rs 164 in trade today.

RJ Stocks : 

• Viceroy Hotels|
• Titan Industries|
• Sterling Holiday|
• Sensex|
• Rallis|
• Rakesh Jhunjhunwala|
• Prime Focus|
• Pantaloon Retail|
• NCC|
• McNally Bharat|
• Lupin|
• Hindustan Oil exploration|
• Geometric|
• Deutsche Bank|
• Delta Corp|
• Dalal Street|
• Crisil|
• BSE|
• Bilcare|
• Autoline Industries|
• Aptech|
• Agro Tech Foods|
• Adinath Exim|
• A2Z Maintenance

Source : Rajesh Mascarenhas, ET Bureau

RBI earns over 40% returns from its gold reserves

RBI is sitting on handsome returns on its gold reserves despite the recent crash in the yellow metal’s price.

The Reserve Bank of India is sitting on handsome returns on its gold reserves despite the recent crash in the yellow metal's price. 

The RBI's gold stock of about 400 tonnes, currently valued at $25.7 billion, has appreciated 41% since it bought 200 tonnes in October-November 2009 from the International Monetary Fund.

During the same period, returns from alternative liquid assets were just one fourth of gold. Prices of US treasuries rose only by 5.2%, while that of the benchmark Japanese government bond increased 11.4%.

The central bank values its gold at 90% of the value of the London Bullion Exchange at the end of every month. Even if one factors in the crash in gold prices in April, the value of its gold reserves is substantially higher than the returns from other currencies in its reserves.

The share of gold in its $295-billion foreign exchange reserves is 8.7%, up from less than 5% at the time of the purchase from IMF. India holds most of its reserves in liquid assets such as hard currencies like dollar, yen and euro, and sovereign bonds of AAA-rated nations.

The RBI had purchased 200 tonnes of gold for $6.7 billion from the IMF under the multilateral body's limited gold sales programme. This was done as part of the RBI's foreign exchange reserves management operations.

The purchase was an official sector offmarket transaction and was executed over a two-week period from October 19 to October 30, 2009. Gold prices in the international market rose steadily for more than a decade. However, they rose rapidly in the last two to three years.

The RBI, as a part of its reserve management strategy, does not actively trade in its gold like some European central banks. In 1991, it had pledged its gold with international lenders to raise funds to tide over the balance of payments crisis.

Source : ET 

Citigroup picks 20 stocks that can give over 20% returns in 2013

Citigroup picks 20 stocks that can give over 20% returns in 2013

Despite a weak start in 2013, the Sensex is likely to gain 12 per cent over the rest of the year, says aCitigroup report. The current weakness is a good time to have a bottom up approach in 20 stocks that can give around 20 per cent, it says.

According to the report there are challenges - on growth, corporate confidence /investment momentum, current account deficit, monetary policy flexibility and near-term earnings in 2013.

However, there is greater corporate rationality, some BS de-risking, government policy action, and some pretty decent, well growing and reasonably valued businesses.

"It is tough out there, but don't shut your eyes - open them to 20 stocks that could give you 20 percent," the report said.

It is of the view that investors should look at several small themes for stock picking rather than one grand one.

"These include a) falling interest rates - but moderate falls from here; b) continuing government policy/pricing action - and a little more on the execution side; c) maintaining a currency hedge - it's a vulnerability; d) moderating consumer demand; e) positioning for a recovery - albeit one that will be gradual, U rather than V-shaped; and f) an improving global outlook," the report says.

A major portion of the 20 stocks come from the largecap space. But after the sharp correction in the midcap space in 2013, it has picked up a few stocks that could generate decent returns.

Top 20 stocks pick for 2013

Source : ET Bureau

Can stocks help you retire rich?

Can stocks help you retire rich?

The insipid performance of equity-linked pension portfolios in the past five years has raised questions about the need to line one's retirement nest egg with stocks.

Chitra Gaur firmly believed that her NPS investmentswould outperform her husband's debt-based Provident Fund. "With 15% of the corpus invested in stocks, I was expecting a return of 9-10%," says the Delhi-based government school teacher (see picture).

However, despite the equity exposure and the fact that the markets were trading at very low levels throughout 2008-9, Chitra's NPS portfolio has given a return of 8.78% in the past five years, compared with the 8.62% return delivered by the Provident Fund during the same period. This calculation is based on the internal rate of return (IRR) of monthly contributions from April 2008 till March 2013 to the NPS fund for government employees managed by the UTI Retirement Solutions. Put simply, these are the SIP returns of the fund for the past five years.

Sitting in his office in a quiet part of bustling south Delhi, Pension Fund Regulatory and Development Authority (PFRDA) chairman Yogesh Agarwal is neither surprised, nor perturbed by these numbers. "There can't be a significant difference because the government allows only 15% of the corpus to be invested in equity," he says. The PFRDA wants the government employees to be allowed the same investment choices in the NPS as other investors. A private sector investor is allowed to define his asset allocation and can put up to 50% of his corpus in equity funds.

Will this help boost returns? We considered the SIP returns of NPS funds for general investors in the past four years and found that the equity funds have lagged debt funds. The calculation is based on the NAVs of the first reporting day of every month since June 2009. Aggressive investors, who allocated the maximum 50% to equity, have earned an average 7.3% (see table on next page), while balanced investors earned 8.3%.

However, the biggest surprise was the return earned by ultra-cautious investors, who steadfastly stayed away from the stock market. They have earned an average 9.74%, with the best performing SBI Pension Fund delivering double-digit returns. The softening of interest rates and the drop in bond yields in the past two years has led to better returns for debt funds.

Should you invest in equity?

For investors the big question is: should they expose their retirement savings to a volatile asset class such as stocks? Won't it be prudent to stick to the safety of debt? Central PF Commissioner Anil Swarup certainly thinks so. "It is possible to earn good returns without compromising on safety. We can go for debt instruments that are not as secure as gilts but can give us better returns," he says.

Swarup points out that the Central Board of Trustees (CBT) of the EPFO has recently liberalised the investment norms for the Provident Fund. Till now, the organisation was allowed to invest in AAA rated PSU bonds for up to 15 years, but the CBT has now permitted investments in longer duration bonds of up to 25 years. It has also given the nod to investments in private sector bonds, provided that the issuer is a listed company with a net worth of at least Rs 3,000 crore and has generated profits, and paid a dividend of at least 15% for the past five years. Besides, the bonds should have been rated AAA by at least two rating agencies.

Swarup reckons that this liberal mandate could help the EPF earn 50-75 basis points higher returns through such investments. "The safety of the investment is not compromised, but by merely relaxing the duration and issuer guidelines we will be able to earn higher returns," he adds.

However, market experts scoff at this ultra-cautious approach. Their contention: a 100% debt portfolio will never be able to beat inflation. The EPFO is allowed to invest up to 15% in stocks, but has never done so. Even if 1% of the EPFO corpus is put in stocks, that's Rs 4,500 crore worth of fresh investment flowing into the market.

Now you know why the Finance Ministry, Sebi and other market participants want the EPFO to invest some of its gargantuan portfolio in stocks. Admittedly, the past five years have seen unprecedented volatility in the stock markets. Even seasoned investors have been caught on the wrong foot. The 2008 crash took the Nifty to a multi-year low level. This was followed by a sharp rebound in 2009-10 and sustained choppiness thereafter. At the same time, debt investments earned good returns when bond yields fell sharply from 9.5% in early 2008 to 5.25% by the end of that black swan year.

Financial planners insist that equity is a necessary ingredient of your retirement pie. "An investor needs to have a portion of his retirement corpus in equity, otherwise he might miss his pension target," says Sailesh Multani, head of financial planning at Edelweiss Financial Planning. He points out that many investors do not factor in inflation when they set their retirement targets. "A sum of Rs 1 crore may seem enough right now, but it won't be so 15-20 years later. Retirees should be counselled about the importance of inflation-adjusted returns," he says.

How much is enough?

While this is correct, the problem lies in defining the 'portion' as a percentage of retirement savings. Every individual has a different risk profile and various investment options offer different levels of equity allocation. While the EPF has no equity exposure, the NPS funds for government employees put 15% in stocks and private NPS investors can invest up to 50% in this volatile class. If you have a unit-linked pension plan from a life insurance company, you can put up to 90% of your investments in equity.

There's also a rule of thumb that says one should have an equity exposure of 100 minus one's age. So, at 30, you should have about 70% of your portfolio in equity. At 55, the exposure to this volatile asset class should have been pared down to 45%. In fact, the NPS offers an auto choice where the investor's age decides the equity exposure. The 50% allocation to equity reduces every year by 2% after the investor turns 35, till it becomes 10% at the age of retirement. The returns for investors who have opted for auto rebalancing of their NPS investment may be slightly better than those earned by aggressive investors.

So, how much should you allocate to equity when saving for retirement? The portfolios of some of the top performing MIP mutual funds provide some answers. These schemes generally have 15-25% of their corpus invested in stocks. One scheme, the Birla Sun Life MIP II Savings 5, stands out in the crowd. Its equity exposure is capped at 10%, which limits the risk. In the past five years, the equity allocation has averaged 6.8% and currently stands at 8.6%.

In fact, during the bull run of 2007 and the mayhem of 2008, Birla Sun Life MIP II Savings 5 had no stocks in its portfolio. Even when the stock market was down by almost 50%, the fund did not change its mandate, but started nibbling at equity only when the dust had settled in early 2009. Yet, it has churned out a decent return for investors. At 8.7%, its SIP returns since April 2008 are marginally lower than those of the other top performing MIPs (see table).

It's instructive that the schemes with very high equity limits have not performed as well as those with lower ceilings. Clearly, higher returns don't necessarily require higher risks. Even a small 10-15% equity allocation is enough to help you reach your target. If you are investing in a 100% debt-oriented PF, you can supplement your retirement corpus by putting a small amount in equity funds or in your unit-linked pension plan. Chennai-based Uma and Ramesh Gopalan (see picture) invest in diversified equity funds because their GPF is completely based on debt.


Don't chase returns

Retirement is a non-negotiable goal. The worst thing you can do is to be lured by high returns. Studies have shown that when it comes to long-term goals such as retirement, the time at which you start saving and the amount you put away have a greater bearing on your final corpus than the return that your investment earns. The best part about retiral benefits from an employer is that these are compulsory and automatic. In the organised sector, the employee seldom has a choice. Also, the quantum of the monthly investment is linked to the income. As the income of the investor goes up with every annual increment, so do his retirement savings.

This is a challenge faced by self-employed professionals and those in the unorganised sector. Even a disciplined investor may lose out if he does not raise the quantum of his investments every year.

In fact, the superannuation benefits offered by an employer can fulfil the retirement needs of an investor if he is disciplined. If one starts putting Rs 2,500 a month in the PF or the NPS at 25 (with a matching contribution from his employer and a 10% increase in salary every year), even a modest return of 8% will grow his corpus to Rs 2 crore by the time he retires at 60.

Unfortunately, very few people are able to reach the Rs 2 crore milestone during their careers. Every time they change jobs, the PF balance is either withdrawn, or worse, they forget to transfer it. An estimated Rs 16,000 crore is lying in dormant PF accounts. Employees have as many as 3-4 accounts with different employers or at various locations.

The NPS investors, however, don't face such problems. They cannot withdraw before retirement and their NPS account is portable across employers and locations. Two years ago, the EPFO announced that if there is no activity in an account for more than three years, the balance will stop earning interest. This is expected to nudge subscribers into consolidating their PF accounts.

Swarup says the EPFO is working on a system where there will be no need to transfer the account. As with the NPS, every PF subscriber will be given a unique number when he joins and the account will be portable across employers. "We are in the process of establishing a centralised database of subscribers. Once this is accomplished, we will be able to roll it out in the next 12 months or so," he says.

Source : BABAR ZAIDI,ET BUREAU