Blog – Page 11

Is the new Healthy food really ‘Healthy’?

The food industry, in today’s era, is moving towards exploring a variety of food options that its customers would like. People are getting conscious day by day and want to remain fit in their lives for a variety of reasons. Therefore, the restaurants are exploring to serve options which are called ‘healthy’ in terms of their calorie content, nutritional facts and much more. But, the question of time is that ‘Are these food options really healthy?’

Well, as the restaurants and other food sellers offer, the healthy options are not really healthy. The foremost reason for stating this is their nutritional facts itself. The packaged food consists of processed carbs, which further has starch, sugar and fiber in it. The processed form of such ingredients is not really good for an individual’s body. Words like “multigrain,” “wheat,” and “7 grain” do not actually mean what they say. Many breads, for instance, labeled this way actually contain refined grains, which lack the fiber of whole grains and can make your blood sugar spike faster after eating, leading to cravings. Most of the products which claim to be healthy are not so, because what they essentially contain is refined grains, sugar and artificial chemicals. If we talk about the healthy options being offered at restaurants and cafes, they are either infused with some processed ingredients, dressed up with unhealthy sauces, or are cooked in unhealthy vegetable oil to make them taste delicious. Furthermore, MSG is another common ingredient being added to a variety of dishes for flavor enhancing which still remains controversial on how it affects a human body.

While fast-food chains have ostensibly been trying to offer more healthful options, a new study finds that the health impact of their menus has not improved — to the contrary, in fact. The individuals end up paying double the cost at restaurants in the name of healthy food and having an intake of nothing but the same(or only a little less) amount of calories, as compared to the junk food. For instance, submarine sandwiches are said to be a replacement of the junk food available in the market. However, it is actually made up of flour bread and contains sauces (apart from the vegetables and other fillings) which are as unhealthy as equivalent to an Italian dish (such as pasta). Yet another example, specific to North India, could be the North Indian food that people choose to eat outside, considering it as a healthy option in front of Chinese or Italian cuisine. The North Indian food available in the restaurants and cafes includes oils and creams which are not really good for our health.

Cooking food at home has always been and will be a better option towards healthy lifestyle over eating from restaurants. However, the fruits and vegetables available in the market outside are also not pure. They are injected with chemicals and hence do not contribute in a healthy way. Because of this reason, people are now moving towards gardening on their own. Another possible solution in moving towards a healthier life could be using home made products over processed food. To illustrate, a family could use homemade butter in place of the packaged butter available in the market because even when the butter packaging says it is a ‘lite’ version or ‘low fat’ butter, it would contain calories much more than the butter made at home with milk.

In a nutshell, it is right to say that the so called ‘low-carb’ or ‘fat free’ food is nothing but the processed form of the junk food and has an equal amount of fattening products and products which could otherwise be harmful for the public at large. So, do not just trust the labels mentioned on the products and menu cards of the restaurants; instead create your healthy meals in the traditional way at home to stay fit in the long run.

Manya Kakkar

Academic Associate, ICoFP

Mitigate associated investment risks with the assistance of Mutual Funds

The recent SIP flow information from AMFI shows that the May 2019 SIP input was Rs. 8,183 crore, reduced than the April 2019 Rs. 8,283. While the drop is marginal, the reason behind it may be that investors are cautious of the NBFC sector’s latest spate of downgrades and defaults.

The crisis impacted investors from mutual funds because the fund houses exposed to debt of such firms had to write- off their investments. This meant the scheme’s NAV fell to write-offs extent. As a consequence, the fund houses also had to face the pressure of redemption and they had to liquidate high-quality papers in order to satisfy the redemptions.

One fine thing, however, came out of the debacle — it broke many investors’ misperception about debt funds being a secure investment.

While the level and type of risk differs in investments, the reality is that no investment is safe and secure. The greater the expected yields, the greater the risk is involved.

This shows that one should not only look at the anticipated yields while making investment choices, but also at the risks associated with such investment.

Mutual fund investment can assist in minimizing the multiple investment-related risks. Note, however, that mutual fund investments are not risk-free.

Here’s how some investment-related risk can be mitigated when investment is made in mutual funds:

Inflation risk

If investment’s value does not rise above inflation, it can erode your money’s buying power. With reduced inflation-adjusted yields and with the cash you have, you will be able to buy less products and services.

You should therefore invest in resources that will, over time, value your wealth and thus counter inflation. Diversified equity funds would be a better choice than debt funds for this purpose. Equity funds are capable of generating greater long-term yields.

Business risk

It relates to the danger that because of any internal or external variables, the company / business in which you have invested may fail to achieve their goal, suffer losses, bankruptcy, etc. If you invest in just one company / business, because of the concentration of your investment, your risk will be greater and consequently your loss may be greater too.

As the mutual fund invests in the shares of many companies, it enables diversification of your investment. It is unlikely to underperform all of the scheme’s stocks at the same moment. Thus, if the stocks in the scheme underperform, your losses will be reduced, but your profits will also be limited.

Credit risk

This is a significant problem these days for debt investors. People are investing in debt instruments hoping to get back their principal amount along with interest on the maturity day of the instrument. Investors experience credit risk if the business delays or defaults in payment.

In general, credit risk debts give greater interest rates to compensate investors for their risk. You can choose Gilt Funds to handle credit risk; they invest in public bonds supported by sovereign guarantee. Note that the interest rate they give will be smaller while government securities are safer.

Moreover, invest only in debt schemes provided by mutual fund houses that follow solid investment procedures and have in place appropriate risk management mechanisms in place.

Interest rate risk

The interest rate of fixed-income securities also shifts when the RBI changes its policy rate. The value of debt securities is inversely linked to the interest rate. Therefore, the securities price will increase or decrease in line with the shift in interest rate.

Interest rate fluctuate more when the debt instrument’s duration is higher. If you want to invest in low-interest-rate debt funds, you can opt for short-term debts like liquid / overnight funds, ultra-short and low-duration funds, money market funds, etc.

Liquidity risk

This risk makes it impossible for you to redeem your investment whenever you wish. Some investment avenues come with a lock-in period and redemption is not permitted during that period. You may have to suffer capital loss even if it is permitted. If you find that the chosen route is inadequate or not appropriate for your requirements during the investment process, you will have no option but to stick.

You can invest in open-ended mutual fund schemes instead of investing in lock-in period avenues. Open-ended mutual funds enable you to select funds from various categories and sub-categories, to select funds depending on your requirements. It also enables you to invest systematically on a regular basis.

Conclusion

Because of multiple variables such as economic performance, fiscal and monetary policy changes, political changes, and so on, investments will always be susceptible to risk. While there will always be volatility on the market, one can decrease its effect by choosing the correct mutual funds after assessing your requirements and staying invested for the long term as the short-term effect of volatility is greater.

The risks associated with investments are mentioned in the offer documents, brochure, and other sources of product detail. Go through the details carefully to understand the risk involved before making any investment decision.

Included in the offer documents, brochure, and other product detail sources are the risks connected with investments. Go through the information closely before making any investment decision to comprehend the risk involved.

Rishi Taparia

Head – Academic Affairs, ICoFP

Algorithmic Trading – The Financial super car of next generation

“Speed alone cannot be a mark of success unless backed by the character of good intentions”

The imperative need for speed cannot be denied in any segment. Finance being no exception, the markets have taken leaps and bounds on adding speed to the concepts. The concept of a super car might bring a thrill and a spark to the eyes, but to run the full potentials of this super car, we need super infrastructure, super support system, and a well-controlled regulatory environment. Algorithmic trading and its different facets have already put forth the potentials and resultant dominating volumes are indicating the acceptance of the concept. What is not convincing is the concentration of trade in the hands of few institutions and High net worth investors.

If a market practice is expected to have constructive outcomes, it should be widely accepted and not restricted to few hands. The regulators and exchanges have a regulatory and moral responsibility to penetrate the concept to the vast spectrum of traders.

Traders and investors who are not updated with facets of Algorithmic Trading would soon find the market potentials declining for them, leading to an exit. This could be hazardous over a long term as the concentration of wealth would build-up in hands of few leading to widening of the income disparity levels.

A mature market would seek the interest of all and hence any activity that leads to disparity of income and erosion of confidence should be addressed with utmost importance.

Algorithmic trading turns a blessing in disguise as it facilitates in minimising the mispricing of the assets across the market, hence reduces noise and volatility. Moreover, it also adds liquidity over a short term by increasing the turnaround time of a trade. Amidst all these advantages, what algorithm trading does not address is capital formation, the main objective of capital market in any economy.

It should not be reiterated that capital formation is the key driving force for any economic growth. Capital markets are created to facilitate the mobilization of savings of all surplus economic units and convert them into capital assets (long term assets). Algorithmic trading does not facilitate capital formation as the trades are driven for a very short span.

India’s capital formation rate has been consistently declining at a CAGR of -4.10% in last 9 years. Whereas the volumes in algorithmic trading in last 7 years has been growing at the rate of 5.11%.

Figure 1.1 below indicates the Capital Formation Rate of India from 2008 to 2016

Figure: 1.1

Source: World Bank

Figure 1.2 below indicates the Growth of Algorithm Trading in India from 2010 to 2016

Figure: 1.2

Source: SEBI

In the light of the above-stated facts algorithmic trading should be acceptable to the market but in controlled numbers. Moreover, the amount of money diverted to capital market should be used for both the purposes, capital formation and liquidity enhancement.

The proposers and supporters of algorithm trading in India are just looking at the market volumes as indicators of growth and success. The statistics on support say that developed countries like USA (having close to 70% of the total trade coming from Algo Trade) as compared to India (having close to 46% of the total trade coming from Algo Trade).

Comparing the algorithm volumes of India with markets like USA and Japan would not be appropriate as these developed markets already have a very high gross capital formation, whereas India’s gross capital formation in absolute scale is not even comparable.

Figure 1.3 below gives a comparative analysis of the gross capital formation of India vis-à-vis other countries.

Figure: 1.3

Source: Trading Economics

The above statistics indicate that India should concentrate on increasing the capital asset base as a priority and later facilitating the expansion of short term trading strategies.

Among other things, algorithm trading is leading to concentration of income in the hands of few. This could be an alarming sign as already warned by IMF that India and China of facing the social risk of inequality of income distribution.

In its regional economic outlook for Asia and Pacific, IMF said that Asian countries are unable to replicate the “growth with equity” miracle and pointed out that inequality has only increased in the past two and a half decades, lowering the effectiveness of growth to combat poverty and preventing the building of a substantial middle class.

Economic inequality can be measured by Gini Coefficient, which has been showing alarming signs for India.

India’s Gini coefficient rose to 51 by 2013, from 45 in 1990, mainly on account of rising inequality between urban and rural areas as well as within urban areas.

China’s Gini coefficient also rose to 53 in 2013, from 33 in 1990. At a time when inequality has been coming down for most of the world, the average net Gini coefficient for Asia rose to 40 in 2013 from 36 in 1990, the highest among the rest of the world.

Gini coefficient is a widely used measure of inequality and takes into account income distribution among residents of a country. The income, in this case, has been calculated net of taxes and transfers. The higher the Gini coefficient, the greater is the inequality.

The above facts clearly indicate that our key focus should be on addressing fundamental issues of our country that would ensure stability and growth in future.

Suggestions for achieving a sustainable long term economic growth

In the light of facts stated above, following suggestions are proposed for Regulators and market participants.

The regulator of the market should ensure traders strike a balance between long term trades and short term trades
Training and education of algorithm trading and techniques should be disseminated across the market
A proportion of earnings through algorithm trades should be used for promoting financial literacy
Market wide limits should be defined linked to capital formation rate

The regulator in any market should evaluate the trade-off between short term liquidity and long term growth. The super car, algorithmic trading would turn a blessing for the next generation only when the economy is stable and promising consistent growth backed by capital formation.

Rishi Mehra

Visiting Faculty, ICoFP

ALUMNI MEET’19

‘Recall it as often as you wish, a happy memory never wears out.’ – Libbie Fudim

With this thought, International college of Financial Planning organized an Alumni meet, Converge, on the 27th April, 2019 at its campus for the Alums to meet and interact with their old friends, batch mates, seniors, juniors, faculty and staff members; foster new ties and observe significant development and achievements of their Educational Institution.

The event witnessed an outstanding turn out and participation where alums who passed out as early as 2004 too made it to the event. Some even travelled from different cities to be a part of the occasion.

The Alumni were elated to open the event with a lamp lighting ceremony along-with dignitaries including Mr. Anil Chopra, Group Director Bajaj Capital, Ms. Jai Vani Bajaj, Chief Mentor ICoFP and Mr. Abhijit Bose, CEO ICoFP present at the occasion. After the welcome address by leadership team at ICoFP, a short film summarizing the Institute’s Journey over the past one year was shared with Alums highlighting major developments & key achievements of their Alma mater. The monthly newsletter ‘IC Connect’ – April edition too was rolled out during the event and was well applauded. This was followed by cultural performances prepared and presented by current students of the MBA Finance Programs. The efforts and activities during the event were much appreciated by the Alums in the Alumni Speak session and along with that, they also shared their experiences and beautiful relationship with ICoFP. The Alumni also expressed their desire to remain engaged with the Institution in some way or the other and it was overwhelming to see their enthusiasm and commitment to contribute in the continued growth of the institution.

CONVOCATION

International College, New Delhi conducted its Annual Convocation Ceremony on Saturday, May 25, 2019 at ICoFP New Delhi Campus. During the ceremony, 50 students from batches 2015-2016 and 2016-17 were awarded degrees. The event was graced by Shri K K Bajaj, Founder Chairman, Bajaj Capital Limited, Ms. Jai Vani Bajaj, Chief Mentor, International College, Mr. Vinod Kaul, Jt. Managing Director, International College and Mr. Abhijit Bose, CEO, International College. The ceremony saw young women and men graduating with their hard-earned degrees.

On the occasion, Shri K K Bajaj, Founder Chairman, Bajaj Capital Limited congratulated all the students for having successfully completed, perhaps the most intense period of education in their academic career so far. We believe that our students will be the future thought leaders of the society.

The Annual Report was presented by Ms. Jai Vani Bajaj, Chief Mentor, International College, highlighting the noteworthy achievements in the last academic year. She wished a great success to all the graduates and emphasized that the IC students will be the future thought leaders of the society.

FUTURE PROSPECTS OF FINANCIAL PLANNING

Financial planning is the six step process which helps you in achieving your financial goals in life in a systematic and planned way.

It involves the following:

1. Make a household budget.
2. Monitor your expenses wisely
3. Maintain a personal account statement
4. Dealing with surplus cash judiciously
5. Create your own investment Portfolio
6. Plan for Retirement
7. Debt Management
8. Insurance coverage
9. Estate Planning
10.Tax Planning

Make a Household Budget :

Making a monthly budget is very important to bifurcate fixed and variable expenses and also to see whether some expenses can be curtailed.

After making budget and calculating surplus amount, investment of that surplus is important before you start spending money.

Systematic saving on a regular basis makes you rich. You may achieve your financial goals in a timely manner. If you are able to invest 10% of your income every month, it can help you to achieve various financial goals in your life. You may invest this amount in a liquid fund. The liquid fund is a type of debt mutual fund which invests money in fixed-income generating instruments like FDs, commercial paper, certificate of deposit etc. and Equity through Mutual Fund schemes depending on time horizon of goals.

Monitor your expenses wisely

If you are living month on month basis depending on your salary to pay for various expenses and find yourself in a situation that you are postponing some expenses for next salary, it means you are living way beyond your means. Maybe there are a lot of unplanned expenses. See that you are following your budget to pay for various fixed expenses and investing money for various goals in future.

Maintain personal account statement

Having a personal account statement helps to know what are your investments and what are your loans. It’s a powerful tool to take your finances to the next level. Before starting to create account statement, pull together your bank statements and other proofs of the liabilities. Then list down your assets like the bank balance, all investments, home value, and value of other assets. Take a sum of all the assets to arrive at the total value of your assets. Afterwards, list down your liabilities such as car loan, home loan, credit card balances and remaining balances in other loans. The sum of all the liabilities will show the value of the money you owe.

When you subtract the value of liabilities from assets, you get your Net Worth. Ideally, it needs to be positive which means money you own is greater than the money you owe.

Dealing with surplus cash judiciously

How you deal with the surplus cash will take care of your future Net Worth. When you don’t have a plan, you are likely going to indulge in overspending. This money could have been used to make you financially self-sufficient. In the backdrop of inflation, everything is going to be costlier with each passing year. If you don’t invest, your money won’t grow to bridge the inflationary gap. You might have to work beyond your 60s to pay your bills. Investing the surplus money will help in leading a luxurious life.

You should start with specification of financial goals like buying a car, buying a house, vacation planning or planning for retirement. Categorise those goals into short-term and long-term. Goals that can be achieved within 1 to 3 years are essentially short-term. Goals that need a horizon of 3-5 years are called medium-term goals. Goals that require more than 5 years to achieve are long-term goals. Then identify your risk appetite i.e. the degree to which you are comfortable with a fall in the value of your investments. In young age you need to have a high Risk appetite as it is the time to accumulate wealth and as you grow in age, your exposure to equity should reduce and debt should increase.

Mutual funds have a very simple option to invest your money systematically. You can start Systematic Investment Plan (SIP) at a nominal sum of Rs 500. Under SIP, a fixed amount gets deducted from your savings account and is invested in mutual fund scheme of your choice.

Create your personal investment Portfolio

Constructing your first investment portfolio is an achievement in itself. It is your first step towards wealth accumulation.

Building a portfolio involves distributing your investment amongst asset classes like Equity, Debt, Gold, Real Estate and cash. It is known as asset allocation. Although equity is the best tax-efficient and inflation beating investment , but putting all your money in equity is not a prudent move. You need to diversify the amount that are to be allocated in each asset class as per your investment goals. It is always wiser to be a long-term investor in order to accumulate greater corpus.

Once you have constructed a portfolio, you need to rebalance it periodically to keep the portfolio risk within expected limits. This is relevant from standpoint of market fluctuations. At the very outset, you may decide the time intervals after which you will be rebalancing. You can do it once in every six months or a year.

Plan for Retirement

Planning for retirement has become all the more important today. Due to nuclear family system, increased life expectancy, increase in healthcare costs, one needs to accumulate sufficient amount of corpus for retirement

It is never too early to plan to start planning for retirement. The earlier you start, the richer you retire. It happens due to the “magic of compounding”. In this way, you can even retire early and lead a stress-free life. While planning for retirement, you need to clarify a few points like deciding an age at which you want to retire. Along with that estimate how much money you will need every month to meet your post-retirement expenses.

Suppose that you plan to retire at 60 years and your monthly estimated expenditure after retirement is Rs 50000. , then assuming a rate of return of 12%, you need to contribute a SIP of Rs 6500 every month for 30 years to accumulate a corpus of Rs 2 crore. This amount will be sufficient to have a comfortable retired life.

Debt Management

Management of Debt is very important. Timely payment of Home loan, Car loan, Education loan or personal loan EMIs and to keep provision from your monthly income for the same is not an easy task or you may end up borrowing fresh loans to pay off older loans. If it gets out of control, then you may fall in a vicious debt trap. Your critical life goals may get side-lined and even your retirement may get delayed. However, management of your debt payment may keep you away from such troubles. In case you have a lot of debt to shoulder, start paying off the most expensive one. In fact, the credit card has been regarded as the most expensive form of debt. As soon as your salary gets credited each month, pay off your credit card balances in full. Don’t fall for the lure of paying off the minimum balance. Even before you know, the interest will spiral up to eat out all your savings. Make it a point to use the credit card only in case of emergency. Always keep debt as the last resort. As far as possible, make down payments for your purchases.

8. Insurance coverage

One needs to buy a Term Insurance policy to take care of loved ones in case of any mis-happening. Health Insurance policy is required to meet the rising health care costs. Purchase of property insurance is also must.
Just like investing is essential for wealth accumulation, insurance is essential for wealth preservation. However, investing and insurance are two separate things which most individuals don’t understand. They buy a ULIP and feel themselves at ease. But, this is the biggest mistake which they make. They end up paying more and remain inadequately insured. Instead of this, a term insurance plan will be a wiser proposition to buy. Term insurance plan provides you higher risk coverage at a reasonable price.

Estate Planning

Estate Planning meaning transfer of estate includes all the assets like house, car, gold, financial investments or any money lying in savings account. It’s everyone’s responsibility to write a WILL and decide about allocation of assets to different heirs.

You can start by preparing an inventory of assets that you own. Create a list of beneficiaries & proportion of assets that you want to allocate to each one of them. Make a WILL, get it registered. It will ensure that the beneficiaries do not have to face challenges in order to get the ownership of assets. A Solicitor can help you write the will properly.

Planning your Taxes

In tax planning, you analyse your finances from a tax efficiency point of view so as to plan these in the most optimized manner. You attempt to take advantage of the various tax exemptions, deductions, and benefits so as to reduce your tax liability at the end of the financial year. Even though tax planning is very much legitimate in nature, you need to ensure that you don’t indulge in tax evasion or tax avoidance.

From a tax planning standpoint, you can make use of a number of tax saving options. Like the deductions available from Sections 80C through to 80U that are given in the Income Tax Act. The most efficient way to take advantage of Section 80C is to invest in Equity Linked Savings Scheme (ELSS). It has the shortest lock-in period as compared to all the other tax-saving options available under Section 80C. In this, you can invest Rs.1, 50,000 and get deduction. Additionally, the ELSS is a diversified equity fund helps you to achieve your financial goals via investment in the equity market.

Career Opportunities In Financial Planning

Financial Planning is one of the fastest-growing professions across the world and with a huge demand-supply gap in India; the youngsters planning a career in Financial Planning have a bright future and can take advantage of many opportunities coming across in the financial services sector.

Financial Planners and their Role

Financial planners are the professionals who help individuals to plan the investment of money which is not only tricky but also challenging and difficult task.

Every individual wants to invest the funds for future to fulfil financial goals and other social commitments be it higher education of children, marriage of children, retirement, purchase of house , medical and health purpose or any other goal Financial planners offer their advice to the persons on their investment and saving options to achieve their social, personal, professional goals and commitments arising in future. Most people need guidance on where to invest, how to save taxes, the best insurance scheme (life as well as medical), which avenue to invest in, which stock to hold and which to sell, how to plan future career of their college going children and their own retirement. For all such services; planners come into picture for rendering expert advice and consultancy to their clients on utilizing the hard earned money and its better use for achieving financial goals.

Financial Planners performed following functions:

They identify various financial and personal goals of their clients and the time period of investments so that they can plan their investment accordingly.
Financial planners assess and evaluate the risk taking capability and financial strength of their clients for better utilization of funds.
They study the market potential, investment avenues, instruments of investment, financial products available and educate, suggest and advice to the clients.
They assess the risk-return attributes of various investment options with the help of analytical techniques and accordingly match the risk taking capability of clients.
Tax planning is an area where financial planners are really helpful because they upgrade themselves with the latest taxation changes by the government and thus they suggest their clients to invest the amount of money in tax-saving instruments for better return and assured appreciation.
They are also responsible for helping their clients about the comparative return-risk profile of the invested funds in different instruments.
They keep their clients abreast with the updates on financial products having different characteristics to suit their individual requirements.
Financial planners also help their clients by advising them about the right time to invest and proper timing to shift their invested money from poor performers to better performing funds.
They help the clients by investing their money and do accurate documentation with thereby saving their time.
They also manage the wealth of their clients, retail and HNI.
Retirement and insurance planning is an important financial goal. They advise their clients on various pension schemes and insurance products with risk-return profiling.
In addition to the above duties the financial planners frequently make their clients aware about the recent policy changes and economic environment which may affect the investment made by them and accordingly advise, revise or modify their investment strategies.

Organisations giving employment opportunities in Financial Planning

There is vast scope of employment for the people doing courses on Financial Planning/Wealth Management.

Initially financial planner can start his career with a Financial Planning/Wealth management firm, Distribution house or Asset Management Company. They can also start their career in Insurance Company or a Bank offering Wealth Management Services.

New opportunities lie in the field of financial planning of real estate and trusts which is still untapped with lot of potential. In private companies there is always a huge demand for financial planners. Experienced Financial Planners can find satisfying careers in investment banking, financial consulting, and financial analysis and insurance companies.

Knowledge Process Outsourcing (KPO) firms provide employment to financial planners as Data Analyst, Market Researcher, Client Development Analyst, Derivatives Analyst, Equity Analyst, Research Associate etc. Similarly financial planners are much sought after in the brokerage houses for positions such as research analysts, business analysts, research associates and technical analysts etc.

Banks require qualified and experienced financial planners for managing their investment advisory vertical. Relationship Managers in Banks help HNI Clients to manage their portfolio.

Starting your own financial planning firm after few years of experience will help even to tap the market in your home town. A desired qualification with a set of skills is necessary conditions for becoming a successful financial planner. Good inter personal skills; knowledge of financial markets, financial products, and their risk return attributes is important requisite. Financial planning is a fee based service and the fees should be a reasonable amount depending on limited advice or comprehensive advice.

Journalism is an area where financial planners can take advantage of their expertise provided they possess writing, analytical and presentation skills with a passion for writing and spreading financial knowledge to the public with convincing ability. Through print media, they can spread awareness on various products suitable to different category of clients.

Increasing financial literacy is important as many in India do not have knowledge of basic financial terms thereby influencing their investment decision making.

Financial planners can associate with financial services industry to spread financial literacy thus enabling millions to take right decisions. Also there is enough potential in teaching, training and research in the area of Financial Planning. Even financial planning and consultancy can be done on internet using networking sites following professional and ethical code of conduct.

Skill Set Required for Financial Planning

Apart from possessing professional qualification and desired certificate/degree/diploma, the various skills and proficiency required to be a financial planner include; interpersonal skills, convincing capability, patience, strong Commitment to ethics and client, effective communication, positive attitude, strong analytical ability, problem solving skills, updated information about economic environment and legislations related to tax, business or profession, initiative, creativity, relationship management, soft skills on computers, logical mind-set, knowledge of local language for establishing better connectivity with the clients and time management skills.

Madhu Sinha,

Campus Director, ICoFP Mumbai

AIF Market in India

Introduction:
In India, alternative investment funds (AIFs) are defined in Regulation 2(1) (b) of Securities and Exchange
Board of India (Alternative Investment Funds) Regulations, 2012. It refers to any privately pooled investment
fund, (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a
Limited Liability Partnership (LLP). Hence, in India, AIFs are private funds which are otherwise not coming
under the jurisdiction of any regulatory agency in India.

Categories of Alternative Investment Funds (AIFs) :
As per Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 Alternative
Investment Funds shall seek registration in one of the three categories
Category I: Mainly invests in start- ups, SME’s or any other sector which Govt. considers economically and
socially viable.
Category II: These include Alternative Investment Funds such as private equity funds or debt funds for which
no specific incentives or concessions are given by the government or any other Regulator
Category III : Alternative Investment Funds such as hedge funds or funds which trade with a view to make
short term returns or such other funds which are open ended and for which no specific incentives or concessions
are given by the government or any other Regulator.

Process and Documentation required for Listing and Trading Alternative Investment Fund

Size of AIF market:
Alternative investment funds (AIFs) have grown substantially – by 96% in the last financial year. The
commitments raised (roughly equivalent to AUM in MF parlance) increased from Rs.84,304 crore to Rs.1.65
lakh crore, shows the latest data by SEBI.
Investors continue to lap up category II funds such as private equity and debt funds, investing Rs.54,064 crore
in the category. These funds offer exposure to assets in which traditional mutual funds schemes do not invest.
Category III AIFs, which are essentially hedge funds, have also recorded an exponential increase, growing by
161% in the last one year. These funds deploy a variety of strategies like long and short strategy, IPO focussed
investments, running a concentrated portfolio to generate performance.

Category I funds meanwhile grew at a modest pace collecting Rs. 7,435 crore. The category consists of infrastructure funds, social venture funds, angel funds or VC funds.

Tax implication:
In India, the Category I and Category II AIFs registered with the SEBI have been accorded a pass through
status, with a requirement to subject any income credited or paid by the AIFs to a withholding tax of 10% for
resident investors and as per the “rates in force” for non-resident investors.
The Category III AIF has still not been accorded a pass through status, which means that income from such
funds will be taxed at the investment fund level and the tax obligation will not pass through to the unit- holders.
In cases where the income of the fund is characterized as income under the head “Profits or gains from business
or profession”, the investment fund would be taxed in respect to such income at the maximum marginal rate of
tax.

Ayush S.Mazumdar,

MBA-FA (2018-20)

Portfolio Management

What Is Portfolio Management?

There is an aspiration common to all investors – you want to grow your wealth exponentially. But the returns you see depend on several factors such as the assets you choose to invest in, the overall market sentiments and most importantly the allocation decisions you make. To give you an example in the securities market there are people who earn good returns on their investments even on days when the market crashes while some see their investments being corroded on good days. This is where it becomes important to build a portfolio that spreads out the wealth into different avenues and helps you in averting unnecessary risks.

Building a good portfolio is a combination of art & science. It is science because lot of data analysis needs to be conducted in order to create an optimal portfolio out of a pool of selected investable asset classes. It is an art because portfolio management is done for people who are unlikely to act rationally in different scenarios. Investors are humans and tend to exhibit lot of behavioural biases. Managing those diverse emotions & biases and helping investors to achieve near optimal investment solution for themselves is certainly an art. Under professional portfolio management, investments are made with respect to the objectives, goals are set both short and long term, assets are allocated based on evaluation of risk appetite, return objectives and investment constraints. Portfolio Managers take into account investor’s long term interests when building appropriate portfolio for their clients. They help investors choose the right investment avenues in terms of equities, mutual funds, bonds etc. and create a portfolio that grows with time, beats inflation and is reasonably protected against all the risks associated with investments.

In this detailed guide we shall look at various aspects of portfolio management including the roles and responsibilities of Portfolio Managers.

Importance of Portfolio Management

Now that you have got a brief idea about Portfolio Management you’d surely be interested in knowing the importance of portfolio management. Here’s why this is important –

The most important foundation of Portfolio Management lies in the concept of diversification. Diversification derives its importance from the adage “Don’t keep all your eggs in one basket”. Diversification reduces the risk of overall portfolio depletion in case of a specific event that impacts any given asset or asset class.
In the world of investment, one size doesn’t fit all and investment strategies have to be formulated based on the investor’s goals, time frame, risk appetite and expected capital market outlook. Portfolio Management lets the manager choose the investment strategy for the clients’ that is best suited to achieve their investment goals.
Risk management is one of the focus areas for any Portfolio Manager. One of the primary objectives of Portfolio Management is to evaluate the portfolio for current risk exposure and take necessary steps in adverse market conditions to shield investments from such risks through hedging.
Portfolio Management takes into account the ever-changing taxation laws and suggests a tax efficient investment strategy that reduces the tax burden on the investors and generates the best post-tax return given the investment goals & constraints.
“There are no free lunches in this world”. Similarly, there is no excess return that comes without incremental risk. Return expectation on different portfolios is usually based on the level of inherent risks –
1. High Risk – High Return Investments
2. Moderate Risk – Moderate Return Investments
3. Low Risk – Low Return Investments

Different kinds of Investment Portfolios:

Different investors have different levels of risk appetite and also have different goals to be achieved through their investments. Based on these risks and return objectives, Portfolio Managers may adopt one of these investment strategies –

Aggressive Portfolio – As the name suggests this is for investors who are looking to take high amounts of risk with the goal of earning exponential returns on their investments. From the Portfolio Manager’s point of view Aggressive Portfolio Management is all about choosing avenues that are expected to offer high returns to the investors above the broad index levels. But higher returns come with potential likelihood of higher losses. Most of the investment goes into alpha generation strategies including stocks, commodities, derivatives and other avenues that promise lucrative returns.
Defensive Portfolio – This is the antithesis of an Aggressive Portfolio. This is the more popular of the two and finds large number of takers. In a Defensive Portfolio the goal is to avoid losses even if that comes at the cost of dismal return to the portfolio. Investors who opt for this strategy are risk averse and conservative. This kind of investment is spread around T-Bills, money market securities and short-term government bonds. These safer avenues of investments yield low but steady returns.

Regular-Income generating Portfolio – There are investors who look for regular income from their investments. For instance, a retired person may want monthly pay-outs to fund his or her current lifestyle. Income Portfolio is targeted towards such investors. The area of focus for this investment strategy is to choose investment avenues with low volatility and regular income. This is done through a large allocation towards fixed income instruments like corporate bonds and a relatively small allocation to stable companies’ stocks that offer high dividend yields.

Roles and Responsibilities of a Portfolio Manager

Portfolio Managers help their clients make the right investment moves and help them achieve their investment goals and increase their wealth. But a Portfolio Manager wears multiple hats and their roles and responsibilities extend way beyond this primary objective. Here are the important roles and responsibilities of a Portfolio Manager –

Portfolio Managers chalk out tailored investment strategies for their clients. These are based on the age of the client, income levels and surplus capital at hand and finally align them with the long term investment goals.
Quick and informed decision making is one of the most important traits of a Portfolio Managers. They should be able to offer actionable advice to their clients.
There are different avenues of investment in the market such as equities, commodities, mutual funds, bonds to name a few. Portfolio Managers need to educate their clients on these options explaining clearly risks and opportunities in each of these to help them take informed decisions.
Portfolio Management incorporates risk management. A good manager would always inform his/her clients about the immediate and long-term risks associated with all their investments.
Ethics is one of the main pillars of Portfolio Management. A Portfolio Managers needs to be unbiased while offering investment suggestions to their clients. There should be nothing that conflicts with their primary duty towards their clients and their objective of providing the best investment solution with client’s long-term benefit in mind.
A portfolio manager should be accessible to the clients. While no client should expect a 24/7 Portfolio Manager, it is important to return a call or reply to an email within reasonable time. They should periodically enquire about any changes in clients’ circumstances like investment goals, constraints etc. and make modifications in the portfolio (if required) to incorporate the revised investment criterions.

Portfolio Managers and Clientele

Portfolio managers work at different levels with different kinds of clients. A Portfolio Manager who runs his/her own firm may choose to work with only one category of investor and specialize in their investments on work with different types of investors. Bigger firms often work with different types of investors. They can be broadly divided into three categories –

Individual Investors – They are mostly retail clients or high net worth individuals (better known as HNIs). Individual investors’ have diverse investment requirements based on factors such as their age, level of wealth vis-à-vis their investment goals, risk tolerance, income volatility or stability etc. Diversity in the behavioural aspects offer significant challenges and learning opportunities for portfolio managers.
Businesses – Businesses/Corporate/Institutional clients look at Portfolio Managers to help them optimize the investment strategy of their treasury management function. More often it is a support or an advisory role that the Portfolio Manager undertakes. For NBFCs, Insurance companies, Banks etc. role of portfolio manager increases significantly in importance due to larger stakes.

Use of Technology in Portfolio Management

Information Technology has made deep inroads into our lives. It has touched upon everything that we do in our lives and Portfolio Management is no different. As the saying goes technology has democratized investments. Whether it is buying or selling securities or investing in mutual funds people are making use of technology in every sphere of investments. Portfolio Managers in the modern world are technology savvy and use technology to the advantage of their clients. Through smart-phones and mobile applications, investors’ can keep a track of their investment portfolio, maintain risk limits and even execute transactions from anywhere anytime.

Let us now look at some of the areas where technology is being used for Portfolio Management and how it is helping the investors –

Analytical Research – In the past Portfolio Managers had to scout for information physically to come up with the most rewarding investment advice for their clients. This wasn’t easy and often the location of the manager, his/her access to information and time required to source this information could make a lot of difference. Now information on global capital markets is available on a millisecond basis and the information is automatically filtered based on the criterions set in the analytical model.
Agility in Investments – The biggest advantage of technology is the fact that it has brought agility in investments. With all the data and information freely available Portfolio Managers can take quick decisions. This allows them to capitalize on the opportunities that the market presents in a matter of seconds rather than hours or days.
Transparency – Go back to a time when there was no Internet and most investors would have to rely on their Portfolio Managers to know the status of their investments and returns. There was virtually no way to get daily update on investments. Technology has made it possible for investors to keep track of their investments. This has made the process more transparent as compared to the past.
Risk Management – Through the use of technology, risks can now be managed in a much more dynamic manner. Auto-execution limits can be set on portfolios which helps in keeping the losses in specified limits.
Robo-advisory – Now advisory systems are also getting automated, which presents both opportunities and challenges for investment advisors and portfolio managers.

Tips to Become a Good Portfolio Manager

Attain the Right Qualification – As a first step you need to attain the right qualification to become a Portfolio Manager. At the graduate level you need to choose a degree in economics, accounting, finance or statistics. This should be followed by a post-graduate degree in either of the streams or you can opt for a Master of Business Administration. MBA program offers you several incentives in this field
Be Tech-Savvy – In the times to come, knowledge of AI, data analytics, Programming etc. will be paramount as technology becomes an integral part of portfolio management. Proficiency in latest technology will be a pre-requisite for these jobs.

Opt for Certification – Portfolio Management market has become competitive and if you want to break into the top levels in this field earning a specialist qualification would be an advantage. You can opt for global certifications such as CFA® Charter (Chartered Financial Analyst – USA). A lot of Indian and global portfolio managers are CFA charter-holders. Equity research analysts, fixed-income research analysts who end up becoming Portfolio managers of different Mutual Funds, PMS firms, Pension Funds etc. work towards earning a CFA charter in order to have global career opportunities.
Start As A Financial Analyst – Portfolio Management is an advanced level in this industry and you need to start your career as a Financial Analyst (Research Analyst). You can either opt for this during your internship program or take it as a full-time job. You will have to learn the tricks of the trade in Portfolio Management and working as an analyst would be the right stepping stone towards that dream.
Always Be Analytical – There are many who end up remaining Financial Analysts and never graduate to becoming a Portfolio Manager due to their lack of enthusiasm in learning more than what is required at their job. Always be analytical in your research, focus on analysing companies not just part of one/two sectors, but in the overall market and continuously work towards sharpening your skills.
Stay Updated – There is no end to updating your skills and knowledge as a Portfolio Manager and you need to attend seminars and conferences where you will be exposed to new knowledge in Portfolio Management and also become aware of the new tools and methods that are used to identify the right investment avenues.

To sum up Portfolio Management plays a very important role in the investment market. Here in this detailed guide we have covered most of the important things you’d like to know about Portfolio Management. If you wish to multiply your investments without having to go through the nitty-gritties of the markets and other concerning factors you need to hire a seasoned Portfolio Manager to look after your wealth. From helping you choose the right investment avenues based on your financial goals to capitalizing on the opportunities and risk management, they are your trusted partners when it comes to investments.

THE TWIN DEFICIT DILEMMA

It’s high time that the global economy addresses the Minotaur in the room, the world’s de facto economic capital, USA. During his electoral campaigning, self reliance was a primary target that Donald Trump focused on and believed in. MAGA was a vote magnet for the many local industries that couldn’t survive global competition. Over two years into his term, we’ve witnessed Trump initiate a trade war and hike rates enough to cause a currency crises in nearly all the EMEs. Massive tax cuts were federally funded to revive the local industries. And while that may seem like a sound internal policy, the republican economists have completely disregarded the Twin Deficits Hypothesis, which even though isn’t true for every other nation, certainly holds for the American economy.

Twin deficit refers to a situation when a nation’s Trade deficit is accompanied by a simultaneous Fiscal deficit. After the Bretton Woods conference of 1945 chose the well-lobbied Global Plan as suggested by Harry Dexter (On behalf of the American Government) over the Global Surplus Recycling Mechanism (GSRM)/Bancor system proposed by Keynes, it was evident that the US couldn’t forsee a future where they’d have a Trade deficit. The GSRM was a mess-proof mechanism that would systematically bring international markets to equilibrium by appreciating the currencies of surplus nations, and depreciating those of the deficit facing nations. But since USA had a huge surpluses after the war, which they didn’t want to let go of, they put forth the Global Plan that would ameliorate deficits via IMF lending, but would do nothing about the surplus nations. This mechanism worked well for them after the implementation of the Marshall’s plan, under which money was lent to Western Europe and Japan (Cornering USSR!) to help them recover the consequences of the war. But for USA it served two purposes, eliminating communism and creating a market for the American economy, thus boosting it’s Trade surpluses. Eventually, in the 60’s, after the American government funded various Asian wars and simultaneously attempted to maintain populism by mass public welfare programs like Great Society by Lyndon Johnson or the New Frontier by JFK, it ran too deep into deficits. And this is where our twin deficit hypothesis comes in. Running fiscal deficits by cutting taxes causes consumption to rise and thus savings to fall. A reduction in savings prompts the government to borrow funds from abroad to finance their fiscal expenditure. Now an influx of investment makes demand for dollar rise, which in turn results in appreciation of the USD. And that makes American commodities relatively expensive to purchase, thus causing a trade deficit. It can be explained mathematically through a simple equation, Y = C + I + G + NX can be written as (Y – C – Tax + Transfer) + (Tax – G – Transfer) = I + NX which signifies

Private Savings + Public Saving = Domestic Investment + Net foreign Investment

Now imagine a decline in Public Savings, due to cutting taxes and causing a fiscal deficit. This can be offset by:

A Rise in Private Savings: As per Ricardian equivalence, tax cuts prompt people to increase savings, because they expect taxes to rise in the This, though economically ideal, is unlikely in the real life context of the non rational people.
A Fall in Domestic Investment: The crowding out It’s never good.
A Fall in the Net foreign Investment: The Twin Deficits dilemma

These deficits in the 60’s required a free monetary policy, one that wasn’t just limited to the Special Drawing Rights over gold reserves, and eventually resulted in the collapse of the Bretton Woods in 1971, so that USA could more freely incur deficits and take advantage of the negative engineering via the unfaltered faith in the Dollar. Twin deficits were also faced during the 80’s tax cuts by Reagan, and in early 2000s under the spending programs of the Bush administration.

The contrary cases of the 90’s and the late 2000’s can be justified by changes in the ‘other’ factors. In Clinton’s 90’s, the fiscal budget was under control while the trade deficit widened due to decrease in private savings, under a phenomenon known as Ricardian equivalence. In the late 2000s, private savings shot up due to the economic crises, thus giving way to a high fiscal deficit with a low trade deficit.

Coming to the current scenario, it is important for the Trump administration to realise that the trade deficit cannot be improved unless they control their fiscal profligacy, for which tax cuts and creating artificial competitiveness are certainly not the way. The situation is even more delicate when you realise that the Federal Reserve has been increasing the Federal Funds Rate, to take up monetary tightening to control the inflation, that was created under the quantitative easing taken up after the Recession of 2008. These rising rates attract foreign capital and appreciate the Dollar which deepens the Trade deficit. Although Trump has been threatening to replace Jerome Powell, by cronies like Herman Cain unless he reduces the rates, the hikes are necessary to counter the impact of over $3 trillion pumped in the economy.

Politicians, in order to elongate their careers take up fiscal profligacy, and America could easily do that due to the it’s Reserve status advantage. But new and better alternatives are constantly coming up. Additionally, the world has started to take notice of the $21 trillion debt the American government owes to the Fed, the Public and other economies, China leading the feat by holding over $1.2 trillion. And the budget must deepen as baby boomers retire. Unless the necessary steps are taken for fiscal consolidation right now, the burden might come crashing down on the shoulders of those who never asked for it.

Riya Kaul,

B.A. Economic Hons.

Shri Ram College of Commerce

IMPACT OF ORGANISATIONAL CULTURE ON THE PROCEDURES AND TECHNIQUES OF ACCOUNTING

Organizational culture represents a company’s common beliefs and concepts that create the social and psychological environment of an organization. It refers to a system of shared meaning held by members that distinguishes the organization from others.

Culture has proven to have an important influence on the transparency of accounting disclosures within organizations all over the world. One influence of culture is resistance to planned change from existing accounting procedures to new accounting procedures.

Accounting procedures are immensely influenced by organizational culture, which includes ethics and value system in the organization. Most of the corporate frauds take place through manipulation of accounting procedure, window dressing of accounts being a common phenomenon.

According to Kotler, organizational culture can create cohesion between the members and the organization as a social control in the company in the face of information systems.

ACCOUNTING INFORMATION SYSTEM

An accounting information system as an organizational component, accumulates, classifies, processes, analyzes and communicates relevant finance-oriented, decision making information to a company’s external parties (Reviews such as current and potential investors, federal and state tax agencies and creditors) and internal parties (principal management)

Organizational cultures and subcultures are important determinants of how people use information and information systems. By grounding information systems in the context of the organization as a larger system, it is possible to realize that numerous factors are important and should be taken into account when ascertaining information requirements and designing and implementing information systems. An important factor in the development and implementation of information systems is identifying, understanding the meaning, norms and power within the organization.

Implementation of information systems in the financial services sector needs strengthening organizational cultural values associated with customer orientation, flexibility, quality, and performance orientation.

Getanjali Bhatia,

B.A(Hons.) Business Economics

Gargi College