Are you a Boss or a Leader?

Through the struggling years of our work life, all of us want to become a boss, or should I say a leader. The two terms sound similar, right? Well, the reality is further away. Most of us, when promoted, become bosses but only a few become successful leaders. While a boss would know how to get the work done, the leader would get it done effectively along with his subordinate’s immense satisfaction in it. Let us highlight a few characteristics that a boss should understand and entrench in order to lead at the front.

  1. The strength of Positivity: Every now and then, we face hurdles in our work. And, as a regular practice, we lookout for possible solutions or resolve it with the help of our boss. A good leader would be the one who does not consider these hurdles as problems; instead converts them into teaching lessons for the team. This sign of positivity would lead to the building of a successful team.
  2. The power of Delegation: Responsibility always comes best with the Authority. While a team normally could put in all its efforts to complete a project, it would be much satisfied and happy to deliver the same project when it is given the authority to take all the decisions with regards to that project as well. However, the leader should never take advantage of getting his own official work, under the project, done from his subordinates. For instance, if preparing annual revenue report of the project is the manager’s responsibility, he must not delegate it to his subordinate in the name of assigning responsibility and authority.
  3. The role of Communication: Communication is one powerful weapon which can build or destroy a subordinate’s confidence and performance. A leader must communicate all the information (related to the project as well as the company). He should further discuss all the areas and decide on the future points accordingly.
  4. The importance of Personal Life: We all know that as a working class we are struggling to maintain work-life balance. We are unable to prioritize our personal lives when needed utterly, mostly because of our bosses. A good leader is the one who can not only understand but empathize with his employee’s personal requirements and allow him for leaves/work from home in days of need. Moreover, he should allow some space during office hours for him to take care of a few personal things, if mandatory.
  5. The must-have ‘Encouragement’ trait: Every boss wants the best performing subordinate to stay with the company for long and the unproductive resources to go. However, a leader would always encourage the low performing resources to perform better by understanding their reasons of inefficiency. The employees should further be encouraged for achieving milestones and success, even when it requires them to switch their jobs.
  6. The Result-Oriented Goal: A leader should always have the mindset of striving towards the overall growth of the organization over the departmental growth. A lot of bosses compare their department with others and run their team on ‘us versus them’ thought process. Great managers have the ability to see the bigger picture and work towards the goal of organizational growth.
  7. The benefit of Discussions: The organizations which have bosses who are open for healthy personal and professional discussions and who make their subordinates feel comfortable at work are always the prospering ones. The managers must discuss their employees’ performance and performance appraisals, whenever necessary. They should also be open to listening to the feedback from the employees in order to improve in an overall sense.
  8. The ability to see ‘Way Forward’: Leaders always know where their team and they are leading to. They should have a clear vision of the path that they are going to follow and lead their team to walk towards the same road accordingly. They should be able to discuss the scope of the project and the role of each team member in undertaking the same.
  9. The power of Decision Making: A strong leader is educated and (or) experienced in the field in which he is working. He has the skill of taking independent decisions and backing the same always, even when the taken decision does not lead to the success of the project. He also makes sure that everyone in his team understands the reason behind the decision taken.
  10. The sense of Praising: Most of the times, when a team accomplishes a target or achieves new heights, it is the boss that owns up the success. However, a leader would always put the team forward to give credits for that accomplishment. He would highlight the team member(s) for their individual performances and the areas where all his subordinate(s) have done a great job. This brings content in the employees and positivity in the environment.

It is easy to be a boss but not a great leader unless you have the capability to create it in yourself. Therefore, a leader must understand and hold certain qualities in order to cater to the problems of his subordinates and make the company flourish in not only in length but in the short run as well.

Manya Kakkar

Academic Associate, ICoFP

Why to buy medical insurance or health insurance?

We often blurt out an old but a true adage, Health is Wealth as friendly advice. Without realising its importance ourselves, the phrase becomes our signature response to one and all. But self-realisation occurs only when life strikes you hard; when on an unfortunate day, either you or a loved one ends up on a hospital bed. The family’s pain becomes worse if they are unable to arrange the money demanded by the hospital.

Family members end up taking heavy debt or mortgage property for monetary support. Some resort to redeeming their investments and fixed deposits midway, which could have secured their future expenses for child education, weddings or would have served as retirement funds.

Given our fast-paced lifestyles, serious ailments (cardiac arrest, liver failure or lung, and kidneys diseases) can affect even the healthiest of us all, irrespective of age. Whether in your ’20s or ’60s, you are at equal risk to fall prey to severe diseases. Thanks to our stressful lives!

How we wish that we never have to face such a reality that bites. Since the future is beyond our control, we ought to be prepared for the unforeseen and ensure that our future plans don’t go haywire or our families don’t go through the ordeal. So, are you prepared to bear the cost of unexpected medical packages that run into lakhs?

A medical or health insurance can keep you covered for the rest of your life. You can understand and learn about Medical/Health Insurance through our simple Q & A’s.

 Q) Why should you get an insurance cover at the earliest? How much does medical/health insurance cost?

A) It’s best to get medically insured in the age group between 25-35 years, as the premium costs are low and generally no health check-ups are required by insurance companies at the time of policy initiation.

Total Premium for a basic cashless INR 10 Lacs medical cover for a 30-year old man with a 27-year old wife should cost around INR 10,000 – 11,000* for 1 year. Paying a 2-year premium together gets you a 10% discount on the policy premium.

If you add features like out-patient treatment and maternity benefit, then the premium will increase to INR 20,000 – 22,000* per year.

The premium can be easily compared online. All the insurance policies can be purchased online directly from the company’s website. Detailed comparison and analysis of the plan feature, price and terms & conditions should be done before buying any insurance policy.

(* Prices are indicative based on a leading insurance company’s online quotation)

Q) Paying premium each year or every 2 years. What works better?

A) If you plan to get married, have a baby, or want to increase your sum insured soon, yearly premium payment is the best option as an addition to a policy can be only made at the time of renewal.

Otherwise, opt for 10% discount by paying a premium for 2years if your budget permits.

Q) Do I need medical insurance; my family and I are protected under the company’s group health insurance?

A) In case you are insured under a company’s group health insurance, it is still vital to have your personal health insurance. A medical emergency may arise at a time when you have resigned from your job (or get fired) or you are on a sabbatical/between jobs. Nobody knows the future.

Q) How should I decide which insurance company to go for?

A) You should do the following –

  1. A thorough comparison of the policy features (both inclusions and exclusions) needs to be done to ensure an apples-to-apples comparison. Inclusion or exclusion of features like OPD coverage, Maternity Cover, Policy-restore benefit, Ambulance charges, Daily Cash, Donor charges, etc can be evaluated based on the requirement.
  2. Network Hospitals: Higher the better! Good hospitals which are closer to home & office should be there on the list.
  3. Evaluate the claim settlement ratio – Again, higher the better!
  4. Room-rent sub-limits – It has become important to look at the per day room cost levied by the hospitals these days.
  5. Renewability – Lifetime is better!
  6. Insurance companies with dedicated team for claim settlement rather than third-party outsourcing.
  7. Check for online reviews – i.e. customer feedbacks and complaints online.

It is extremely important to make full disclosures w.r.t pre-existing illnesses, family health history, and smoking/drinking habits. Any false disclosure can become a reason for the rejection of the claim by the insurance company.  

So buy adequate health insurance coverage and keep your family & your life savings safe.

Kushal Bhateja

Program Head-Financial Analysis

Be Financially Prudent

Science subjects like Physics, Chemistry, Medicine, Technology, Astronomy, etc. are quite complex and unless you have formal education in these subjects, they are difficult to comprehend. However, the same is not true for financial topics and with some interests and efforts, Doctors, Engineers, Architects, and even Housewives can take charge of their money matters and lead a financially confident life.

Most Indians remain obsessed with three popular topics, namely, Politics, Bollywood and Cricket. A lot of valuable time is consumed in reading articles/blogs/news items on these three topics and an equal amount of time is spent in discussing/gossiping the same with family and friends. However, even if a fraction of this time is spent upon brushing up your knowledge on money/financial matters, it can work wonders towards improving your lifestyle as well as the quality of life.

By going through financial news items and by watching business TV Channels, you can constantly update yourself with important developments and crucial financial concepts like rate of inflation, GDP growth rate, interest rate movements and other ups and downs in Equity markets together with returns being generated by Stock Market over one, three, five years and on a long term basis. However, please remember that “half-knowledge” is even more dangerous than “no knowledge” at all. Therefore, develop a habit of getting into meaningful conversations on financial developments with your spouse, friends, colleagues and most importantly with your expert investment adviser.

We share below a few simple strategies for adopting in your life to be financially prudent.

  1. Choose a Family Financial Doctor

All of us ensure that we have an experienced, trustworthy professional family doctor who is available at short notice to take care of any health-related issues for all family members. It is equally important to choose a finance/investment expert who will understand your needs and goals and help you take appropriate investment decisions from time to time to ensure that you remain worry-free on money matters. Your financial doctor must have a long and credible track record with requisite qualifications like Certified Financial Planner (CFP) or a Registered Mutual Fund Adviser or IRDA certified insurance professional etc.

It is preferable to deal with trustworthy organizations that specialize in rendering professional investment advice rather than depending upon one individual who may or may not be well equipped to take care of your variety of financial needs. You must take references from your family members and friends before availing the services of a financial planner or a financial services organization.

  1. Be Transparent with Your Adviser

Once you have carefully selected your financial adviser, you must be totally transparent with him/her by sharing all relevant information on your current investments, various sources of income, your monthly saving potential and details of your future financial goals. You must also be ready to share the exact year in which your future goal will arise and also approximate amount required to fulfill that goal/ responsibility. Your financial planner will also seek other important details like risk-taking appetite, details of dependent family members, income tax bracket and already running insurance policies, etc. through a detailed questionnaire which you must answer accurately and honestly. Your transparency will help your financial planner to serve you better and then you can even hold him/her accountable for the outcomes.

  1. Have Regular Meetings with Your Adviser

Your interaction with your adviser should not be transactional only. You must meet your adviser face to face at least 4 times in a year and understand how your investments are performing and whether any changes need to be made. These meetings will give you a good opportunity to update your own knowledge about developments in the financial markets. Also, if your financial condition has undergone any change like a promotion or an increment or change of job or childbirth etc., you must share the same with your adviser to enable him to reconstruct/revise your investment strategy accordingly.

  1. Involve Your Family Members in financial Matters

Many working husbands make the mistake of not involving their wives into financial matters particularly if they are housewives. It is not a prudent habit at all. Both spouses must take equal participation in discussions with the family financial doctor and even adult children should be consulted/informed about investment strategies being implemented by the family for their own bright future.

  1. Don’t Hesitate to Ask Questions

During your conversations with your professional investment adviser, you may hear some technical-sounding concepts which you may not understand immediately. Please don’t hesitate to ask questions as not only it will remove your ignorance but also make you more confident about the decisions being made about your own financial future. Make sure that you understand the true meaning of investment terminologies like Asset Allocation, Risk-Adjusted Returns, Exit Loads, Balance Funds, Capital Gains, Risk Appetite and Appropriate Time Horizon, etc. These are easy to understand concepts and will greatly help you in taking informed decisions to brighten your future. Please remember an old saying: “Those who ask questions look ignorant but those who don’t ask questions remain ignorant”.

  1. Think of the Worst and Prepare for the Best

Every investment must be held jointly with your spouse or any other family member of your choice. Similarly, wherever a nomination facility is available, it must be used by carefully selecting the family member or any other person that you wish to nominate in case of occurrence of any unfortunate event. If this aspect of joint holder or nominee is not taken care of, the same may lead to extremely complicated procedures for legal heirs to claim the investment amounts. Also, written “will” must be made clearly indicating the distribution of financial and other assets amongst children and successors.

  1. Preserve Important Documents Carefully

You must insist that your financial doctor must provide you with a written document called “Financial Plan”. This document must be referred by you from time to time to ensure that all decisions are being implemented as per the plan. Also, periodic portfolio statements as handed over to you by your advisor must be preserved either physically or digitally to monitor the financial progress. Proper documentation will help you in filing your income tax returns accurately every year.

By following the above steps, you can attain financial nirvana. In a modern-day world which is full of tensions and worries, if you can keep a good control on your financial matters, it will make your life much less complicated and enable you to lead and enjoy financial freedom. It will also give you a tag of a financially prudent and successful person.

Anil Chopra

Director, Bajaj Capital Limited

ALUM Sharon Walia (2008- 2010)

Looking back at the past 12 years, I have grown and learned so much. I never thought that I would actually accomplish my educational dreams and be so successful in my life, but I definitely have proved myself wrong. I love knowing that I am doing great and I give all the credit to my Alma mater International College of Financial Planning.

After completing my graduation in B.A (Hons.) Economics from Delhi University, I could not take the final decision of pursuing my masters in finance by working super hard and giving up that leisure time in life, but finally I decided to just go for it and I am so glad I did because now that I have overcome that fear, I feel that I can accomplish anything and everything on my career path.

After I joined ICoFP, my life changed in a lot of ways, most importantly I learnt discipline, time management, good business ethics and moral values. After one year of completion of my post-graduation in Securities Analysis and Trading, I did a 2 month summer internship with Deutsche bank (private banking).

And then post completion of my course of 24 months, I got placed in HSBC Private Banking and fortunately all of this happened through the excellent placement team of ICoFP. During the four years of work in HSBC, I developed into a strong, bold and wise woman. I faced all sort of challenges but I still made it through.

I would truly like to thank my college (ICoFP) for giving me this opportunity. This is the most valuable gift that anyone has ever given me; it isn’t every day that one gets a gift of education, knowledge and success. Like Nelson Mandela said “Education is the most powerful weapon which you can use to change the world.” International College of Financial Planning has given me that weapon.  It was not only about the college providing me education, but it was the amount of faith that they had in me that pushed me through, they taught me that everybody dies but not everybody lives, that in life we don’t regret the things we did but rather things we didn’t do and the dreams we didn’t pursue. And with them I have lived the dream that was once a fantasy.

After I got married, I also did my masters in Economics from IGNOU. Since the past 5 years I am working in the teaching profession and have served at various colleges, International College of Financial Planning being one of them.

I have proficiency in teaching subjects like economics and financial advisory.

Last but not the least, I would like to say that the TRUE SUCCESS IS THE PERSON WHO INVENTED HIMSELF. 

 

Work Life Balance – Illusion Or Reality

While most professionals are juggling between work and life, WORK-LIFE BALANCE has come to the verge of impossibility in life. Even though many companies have significant work-life balance policies, such arrangements are largely in experimental stage only.

Many global leaders asserted the concept of Work-Life Balance as a path-breaking initiative for employee well being. According to Jeff Bezos –Chief Executive Officer, Amazon stated “work-life balance is a circle; it’s not a balance. And I think that is worth everybody paying attention to it.” He further highlighted “If you shortchange your sleep, you might get a couple of extra ‘productive’ hours, but that productivity might be an illusion.” With respect to work-life balance, Amit Aggarwal – Senior Vice President also added – Amazon India sent out an email to his team to stop replying mail post office hours. This is said to be a very significant initiative focusing on work-life balance by any major brand.

Despite many initiatives across the corporate, a survey conducted by Monster.com (2019) revealed that 60% of professionals have rated their work-life balance hugely deranged. The highly competitive work environment and do or die situations have become a trend in corporate culture. Strenuous working hours, taking office work to home often, working on the weekends, etc are becoming unofficial parameters of employee’s performance metrics. The impact of such imbalance leads to anxiety, hypertension, fatigue, back problems and frequent headache, which further effects employee’s productivity. Due to these reasons, companies are coming up with more work-life balance initiative for well being of their human resources.

Here are a few tips to manage work-life balance:

• Negotiate with your rewarding performance – most of the company offers flexible work option to employees with consistent performance, so strive for efficient and productive performance to avail such benefits.

• Talk to the manager – Better to communicate your family exigency & commitment with managers or management, and get their full support.

• Learn to say “No” –The timely deliverables is the key to work-life balance, stretching the work commitments and staying back for long hours are no more the attribute of productive employees. Try to say “no “for the unrealistic target and focus on the timeline.

• Family time – Work life can only be manageable if there is a clear line drawn between family and work. You should always keep your personal life aside, taking work at home may burn out your family time. Always prioritize your family and work requirements accordingly

In the end, the right balance comes from our own choice; a small step from both employer and employee’s side can bring productive and more content work-life. So, all we can say is

WORK SMARTER, NOT HARDER!!!

Soumya Sahadevan

Research Associate, ICoFP

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.