Equity Valuation: The Perspective

While other modules of the CFA curriculum enables a professional with various tools and ways to reach a conclusion, Equity valuation part of the course helps them develop a perspective as an Analyst. As subjective and as differentiated we are as humans, so are our expectations, this module assists us in analyzing different expectations on the same podium.

The topic area is only worth about 10% of CFA Level 1 exam but is extremely important in the other two levels and through your career as an analyst. Much like the introductory material on Financial Statements, this material will act as base knowledge you absolutely must know. Most of the material is conceptual and will be a repeat for students of finance. If you are new to the industry, spend a little time to get the vocabulary and concepts.

Equity represents a residual ownership on the company’s assets. This implies higher risk but also potentially higher return, hence equity analysts have a reputed position in the industry. Not just when you interview for hard core equity research, but most finance job interviews make you witness questions from this module, cost of equity  and return on equity being the most frequent and favorite starters of interviewers.

A specific part of this course raises discussion on private company analysis, which is not only blur but uncertain due to lack of transparency, what makes it opaque is your analysis. This module helps you discover as an analyst, you not only look at the company from top and down angles but with experience discover loopholes which help you forecast in a much better way. When the time comes, for the real race of life, when we sit in the midst of 100’s of our fellow analysts, this base of our perspective built over the years helps us win the battle.

Can 5% GST on Gold be a U Turn/ Reverse Gear ?

When any reform affects our safe heaven- ‘GOLD’ there is an undoubted prediction for the economy. Indians are thought to, or so actually have more gold than combined reserves of continents. Not only our mothers love it but our fathers still keep gold biscuits treasured in their lockers for our weddings.

Past year saw many tornados in the gold Industry, starting with excise duty imposed on the industry to the 41-day strike by and finally demonetisation affected gold consumption and revenue for the business. Additional restrictions including PAN card norm for purchases above 2 lakh brought in mixed reactions too. Gathering our attention to the main event, the above said scenario became a fact ! Jewellers were open post midnight to absorb the demonetisation shock, or simply to take advantage of excess black money Indians possessed or the pressure to sell at whatever price they could. This sudden panic surely affected them as they hardly gave a bill and mostly accepted cash. Cut to a week later, when the had no buyers, demand had fallen by 80 per cent despite the on-going peak marriage season. Price went down from 31,ooo on demonetisation eve to 28, 942 today.

Before we could absorb all of it, its less than 9 months and we have a premature baby on board. The GST Council slashed indirect tax on making charges to 5 per cent from 18 per cent. The cut will not only reduce the burden on consumer, but also promote greater transparency. The transaction brunt cost has increased from about one per cent to three per cent. From the government’s point of view, this is in line with their scheduling — don’t endow in physical gold, relatively invest in gold sovereign bonds. The consumer will also be enhanced of as there is an interest coupon attached to bonds and it tracks local gold prices but what’s in for the industry is still opaque . In my opinion, the export business will also be wounded as we depend on imported raw material.

Demand is anticipated to climb between 850 tonnes to 950 tonnes by 2020 from an estimated 650 tonnes to 750 tonnes in 2017 buoyed by the new tax regime, the World Gold Council report quoted.There would be surely less probability of informal sector existence as no one would be out of indirect tax net now onwards. While the industry will go through a period of adjustment, the net impact is expected to be positive, but lets not be too positive because its GOLD.The long term outlook is hard to read due to the sheer number of factors impacting the precious.

Life Insurance: Risk Coverage or Investment Gains

Insurance as a word is not unheard, even in the hinterlands of the country. As a concept whether people understand its meaning is a debate which needs a lot of deliberation. Let us focus our discussion on Life Insurance to start with.

Most of the people purchase life insurance products for Tax saving and few understand that it’s a cover for life. Second highest category is of the customers are in for investments and somehow buy this product given the first point that we mentioned. Children education, marriages, retirement etc. are also some of the reasons that have been seen empirically.

There are two types of Life Insurance Plan: Term plan and traditional plans.

Traditional Plans are those which have saving component and risk component. These plans are liked by people but CAGR of these plans around 6%.

Among term plans, we have a bifurcation into:

  1. Pure Term Insurance Plan
  2. Term Insurance With Return Of Premium

Let us discuss each of the above.

  1. Pure Term Insurance Plan: A form of life insurance where the insured is covered for a specific term during which if he passes away, the sum assured is payable to the nominee. If the death doesn’t happen, nothing is payable at the maturity of the policy. This plan is the most effective plan to insure life and is very cost efficient.

The challenge with this plan is that people think their money will be lost if they don’t die. There is no maturity value of the policy. This limitation is the genesis of the second plan discussed below.

  1. Term Insurance with Return of Premium: As the name suggests, the premium is returned in case the insured is alive at the maturity of the policy. Of course, if the insured passes away while the coverage continues, the sum assured is payable to the nominee.

Let us look at the numbers now. For a person aged 26 years, term 40 years for sum assured INR 50 lacs, premium will cost ~ Rs.12,000 p.a. for the second plan but if one is willing to let go of the maturity value, the premium falls to INR ~6,200 p.a. under the first plan.

Let us build on to this. The INR 5,800 of the premium saved for 40 years can be invested into a mutual fund in a SIP which, for this long maturity, can easily generate 10% totaling to Rs.2,823,740 as against the total premium returned which approximate to INR 12,000 x 40 = Rs. 480,000.

The mathematics is very clear. But above all, buying any insurance has a lot of emotions built into it. After all, man is an emotional animal.

What skills are companies looking for while hiring MBA graduates?

The GMAC Recruiters’ Survey list names the skills/traits that employers look for in MBA candidates. Survey respondents were asked to rank the most important from among 12 traits. A candidate’s ability to fit within an organizational culture is now ranked the most desirable trait.

The second most-important trait valued across industrial and regional categories is an ability to work as part of teams; the third most-important is an ability make an impact.

Across industries, these three traits appear among the top five. However, for companies in the energy and utilities sector, leadership potential is the top trait. It is the second most-important quality for the health care and pharmaceuticals, manufacturing, and products and services sectors.

At the bottom of the list, for a majority of industries, are curiosity, ability to work independently, and executive presence.

The table shows Top 10 Performance Traits and Abilities Sought by Industries, Ranked in Order of Importance for Recruitment and Hiring of Business School Talent*

Consulting Finance / accounting Energy / Utilities Healthcare / Pharmaceuticals Technology Manufacturing Non-Profit / Government Products / services
1 Fit with company culture Fit with company culture Leadership potential Fit with company culture Ability to make an impact Ability to make an impact Ability to make an impact Fit with company culture
2 Ability to work in and build strong teams Ability to work in and build strong teams Ability to work in and build strong teams Leadership potential Fit with company culture Leadership potential Fit with company culture Leadership potential
3 Ability to make an impact Ability to make an impact Fit with company culture Ability to work in and build strong team Ability to work in and build strong teams Fit with company culture Ability to work in and build strong teams Ability to make an impact
4 Adaptable Leadership potential Strong business ethics Ability to make an impact Leadership potential Ability to work in and build strong teams Adaptable Ability to work in and build strong teams
5 Strong business ethics Adaptable Ability to make an impact Strong business ethics Ability to use data to tell a story Ability to use data to tell a story Strong business ethics Adaptable
6 Leadership potential Ability to use data to tell a story Adaptable Ability to use data to tell a story Adaptable Adaptable Work Independently Strong business ethics
7 Ability to use data to tell a story Strong business ethics Ability to use data to tell a story Adaptable Strong business ethics Strong business ethics Ability to build external networks Ability to use data to tell a story
8 Insightful Insightful Insightful Insightful Insightful Insightful Leadership potential Insightful
9 Work independently Work independently Curiosity Executive presence Curiosity Curiosity Insightful Curiosity
10 Curiosity Curiosity Executive presence Curiosity Work independently Executive presence Ability to use data to tell a story Work independently

 

Source: GMAC (2016) Corporate Recruiters Survey

Health Insurance – Types of Health Insurance Plans & which ones are apt for you?

In the first article on Health Insurance, we discussed the rationale for buying insurance. Now let us understand the types of Health Insurance / Medical Insurance policies offered in India and how to choose what’s best for you?

Types of Health Insurance Plans

  • Hospitalization Plans / Indemnity Plans:

These plans reimburse the insured or pay up the hospital directly (Cashless Policies @ Network Hospitals) for cost of hospitalization and medical costs of the insured subject to the sum insured or sub-limits for different treatments specified in the policy.

  • Individual Health Plan – Entire sum insured is applicable for single individual

Who should buy? When to buy?

  • Anyone who doesn’t have adequate health insurance cover.
  • Right after first job till happily single.
  • For individuals more prone to diseases (family history), accidents (bikers), they can buy or continue individual policy even after marriage and buy a family floater to cover family.

 

  • Family Floater Policy – Sum insured is applicable for a family as a whole

Who should buy? When to buy?

  • Earning member of any family that is not adequately covered.
  • Right after first job if parents and siblings are not adequately covered.
  • Right after marriage.
    Benefit* by converting existing Individual Health policy to Family floater.

Please Note: SUB-LIMITS may exist for various Non-Major procedures up to certain SI (Sum Insured) level. This means insurance company will pay only up to respective sub-limit amount in case of the specified medical procedures.
These sub-limits are usually not applicable for Major medical illness & procedures like Cancer, major organ transplant, cardiac surgeries, stroke, paralysis, brain surgeries etc. (Read policy document for details)

Eg. In case of ICICI Lombard complete health insurance, for Annual sum insured of Rs.3Lac, Rs.4Lacs and Rs.5Lacs – following Sublimit applies

Surgeries / Medical Procedure Sub-Limit
Cataract per eye

20,000
Other Eye Surgeries

35,000
ENT

35,000
Surgeries for – Tumors/Cysts/Nodule/Polyp

60,000
Stone in Urinary System

40,000
Hernia Related

60,000
Appendisectomy

40,000
Knee Ligament Reconstruction Surgery

90,000
Hysterectomy

60,000
Fissures/Piles/Fistulas

35,000
Spine & Vertebrae related

90,000
Cellulites/Abscess

35,000
All Medical Expenses for any treatment not involving surgery/medical procedure

25,000

 

For Annual sum insured of Rs.2Lac sub-limits are much lower.

However for Annual Sum Insured of Rs.7Lac and Rs.10Lac no sub-limit exists.

(Source – www.icicilombard.com)

  • Hospitalisation Plus / Top Up Plans:

These plans are affordable options to supplement your Primary Health Insurance Plan with a Rs.5Lac, Rs.8Lac or Rs.10Lacs Top-up cover with applicable deductions^ of Rs.2lac, Rs.3lac or Rs.4lac respectively.

^Deduction means you need to pay the applicable deduction amount (i.e. 2lac, 3lac, 4lac) out of your other existing policy/company group policy and use your Top-Up insurance policy to pay the rest of the hospital bill.

Higher the Deduction Amount → Lower the Policy Premium.

Who should buy? When to buy?

  • Individuals/Families with insufficient existing cover
    If Existing Policy/Co. Policy provides cover up to Rs.2lacs or 5Lacs, then one can buy:

    • 5Lac Top-Up policy for family of three with Rs.2Lacs deductible at annual premium of around Rs.11,000 (~ Rs.920/- per month) OR
    • 10Lac Top-Up policy for family of three with Rs.4Lacs deductible at annual premium of around Rs.5500 (~ Rs.460/- p.m.)
  • Check your family’s total health insurance cover. Right time to buy is the time you realize you’re inadequately covered – Could be today.
  • Critical Illness Plans

These plans are defined-benefit based policies which pay a lump-sum (fixed) payment on diagnosis of covered critical illness & medical procedures like heart attack, stroke, cancer, kidney failure etc.

Life Insurance companies also offer critical illness plans as a bundled option with Online/Offline Term Life Insurance Plans.
General Insurance companies also offer these plans as Add-On option.

Who should buy? When to buy?

  • Individuals with family history of critical illnesses covered in such plans.
  • Individuals with highly stressful lives.
  • Anyone who wants to cover themselves against life shattering & wealth eroding critical illnesses.

There are some other health insurance plan categories like Specific Conditions Coverage Plans (Eg. Cancer Care Plans) – These plans are special case of critical illness plans designed specifically to offer health insurance against cancer or diabetes.

 

In a nutshell:-

  • It is imperative to have adequate health insurance protection covering all family members irrespective of your company’s group insurance policy cover. This may not apply for individuals/families covered under CGHS or Railways or Military hospital if they are satisfied with the offered medical care.
  • You should contemplate buying an Individual Health Plan / Family floater as soon as you join the workforce depending on parent’s & sibling’s medical coverage situation.
  • If your company covers you & your family for Rs.2lacs, 3lacs or 5lacs and you cannot afford paying high premium than you can buy a Top-Up Health plan.
    However if your organisation’s group plan doesn’t cover all your family members, buying a family floater makes more sense.
    You should increase the Sum-Insured amount and/or add a Top-Up plan when your salary increases.
  • If you lead a very stressful life and/or have a family history of any critical illness, buying a critical illness cover makes lot of sense.
  • Before buying any health insurance plan, you should thoroughly read the policy document and understand important Conditions (e.g. sub-limits) and Exclusions (both temporary and permanent).

 

In the third and final article on Health Insurance we would shed some light on general health insurance policy exclusions, along with discussing Add-on rider options that one can take advantage of.

By Kushal Bhateja

Keep learning & sharing!

GST BILL: A RAY OF LIGHT “ONE NATION, ONE TAX”

Cenvat, Sales tax, Excise duty, Octroi, Service tax, Entertainment tax, Vat, Security Transaction Tax, Purchase tax, Luxury tax, Lottery Tax are some of the prominent taxes that died after GST.

The GST is a Value added Tax (VAT) is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and state governments. GST is set to become one of the biggest fiscal reforms that our country is going to witness. All businesses, small or large are going to get impacted because of this paradigm shift in the indirect tax regime. Policymakers have consistently resonated the benefit of a unified taxation system in a federal country like India.

Benefits of GST:

  • Estimated to increase GDP by 0.9% to 1.7%.
  • Fewer Tax rates and exemptions.
  • Broadening of tax base.
  • Efficient use of resources.
  • Creation of common national market.
  • Improved compliance and revenue collections.
  • Mitigation of cascading of taxes.
  • Accounting will be simplified and consideration for input tax from raw materials will also become easy.

GST bill is an attempt to bring all these taxes under one act and simply taxation, which will facilitate ease of business in the country.

THE PIVOTAL ROLE OF DYNAMIC EQUITY FUNDS

Wouldn’t you love to buy equities when markets are at a low and sell them when markets are at a high?

Dynamic funds switch between different asset classes, depending on their attractiveness. Dynamic funds aim to switch aggressively between equity and debt and are more opportunistic. When an investor invests in dynamic asset allocation funds, s/he does not have to worry about rebalancing the equity and debt allocations.

The fund managers of these funds do it automatically on their behalf. These funds invest in equities and debt. These funds are invested with the help of valuation metric to regulate whether the markets are affluent or low-priced. They hike their equity exposures, when the markets are low-priced and vice versa. Various metrics i.e. price-to-equity ratio (P/E) and price-to-book value (P/BV) used for determining equity exposure. If P/E goes down, the fund will be substantially invested in equities. It will progressively reduce its equity exposure as the market P/E moves up and then invests entirely into fixed- income products. These funds carry certain tax advantages.

As a fund gets treated as an equity fund, hence gets advantageous tax treatment only if its average equity exposure during the year is above 65 per cent. These funds do the asset allocation on the investor’s behalf. They are all- weather funds and investors may invest in them irrespective of market conditions.

Health Insurance : 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 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.

  1. Q) Why should you get an insurance cover at the earliest? How much does medical/health insurance costs?
  2. 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. Please refer to the table below* for yearly approximate costs.
Yearly Premium Rs.→
Sum Insured↓		 1 Adult 2 Adult 2 Adults + 1 kid(3mths-20yrs 2 Adults + 2 Kids(3mths -20 years)
10,00,000 7,243 10,893 13,651 17,128
7,00,000 6,778 10,196 12,829 16,134
5,00,000 6,340 9,539 11,822 14,733

 

*Premium inclusive of taxes as on 30th June 2016 for age group 25-35years.
Source: Leading general insurer’s website.

If you would want to pay 2 years premium, you get 10% discount on the premium amount. Eg: Instead of Rs.7243/- per year, you can pay Rs.13037/- for 2 years for Rs10lakhs sum insured for an adult.

  1. Q) Paying premium each year or every 2 years. What works better?
  2. A) If you plan to get married, have a baby, or want to increase your sum insured soon, a yearly premium payment is the best option. As any addition to a policy can be only made at the time of renewal.

Otherwise, opt for 10% discount by paying premium for 2years.

  1. Q) Do I need medical insurance; I and my family are protected under company’s group health insurance?
  2. 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.

Scenario 2– If you retire between the age of 55-65years and decide to have a Medical Insurance cover since the Co. group insurance is not active anymore. It might be too late as:

  • Insurance company will ask for a thorough medical check-up and exclude the cover for pre-existing illnesses from the Insurance contract. For example – if you have a heart problem, all heart related issues may be excluded.
  • Insurance premiums will be too high.

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

This is our first article in the trilogy series on Health or Medical insurance.
Please visit us again for the next article on types of health insurance products and the best health insurance policies for you.

The third and final article will follow soon to discuss exclusions (temporary and permanent exclusions), add-on riders. Their pros & cons and more such relevant information.

By Kushal Bhateja

Financial Planning: A Road Map to become Rich

Financial planning is a practice where everyone has to define goals of their life and verbalize a plan which will help us meeting our financial goals in life. We believe that every financial decision in our life should be based on some goal. The goal can be building a retirement nest egg, saving for your children’s college education or wedding, saving for a down-payment for property purchase, protecting your family from financial distress due to unforeseen risks, protecting your family from health risks, protecting your home or business from fire or other hazards etc, but unless you have an objective, you will not be able to make the right decision.

You need to prepare your household budget through which eventually you can draw savings Rs 2000 a month. The amount saved need to be invested in mutual fund schemes, doing so; you can easily build a huge corpus. In the beginning of your job when you are young, you can invest in equity mutual funds where you can even earn higher returns as stated.

If you don’t want to take much of risk, then you can minimize the risk by diversifying your portfolio. This way you can maintain your average returns throughout the tenure of your financial goal.  After investment, you need to regularly review your fund with the help of your financial advisor, who will help you manage your funds. Financial Planning helps you become rich and more rich.

Key Factors For Choosing MBA Course In Top Colleges

Master of Business Administration is one of the best courses for pursuing the postgraduate. Students are choosing the college to get the graduate for higher studies. Most of the colleges are available for business management to learn easily. Today most of the students have like to get graduation. For past years the globalization of Trade, Industry, and liberalization of the economy in the country they included the aspiration with the parents to know the about course. The top mba college guide the student to go higher technical education to make a future as brighter.

The master business administration is the best degree for versatile and used for all over the world. There are more institutions for studying the master business course. MBA course is very easy to learn and more practical classes are available for this course. This course is the one of the most important for business attainment. The thirst for technical education in every corner of society went on an increasing year. For the course, time knowledge became the source of generating of wealth and graduates of engineering colleges became high in need nationally and internationally it will be called as Knowledge workers.

Accreditation
The accreditation is mostly used in the European. The MBA colleges have taken the class with the full effort of the staffs to make the student practice the subject in an easy way. The top mba college provides more job offers to the students to increase their future in the current market. This is mostly processed on the higher education institutions to get certify in the curriculum. The MBA colleges provide ideal programs to the student and it is valid and valuable on certain university or college. The accreditation is obtained to meet extra quality for the standards for nationally and internationally.

Ranking
In the business world, students are likes to pursue their post graduation in top ranking colleges. The MBA colleges provide the world class ranking and they use the methodologies to give completely different education to the student. The top ranking colleges follow different choices to recruiters some programs to the students. They conduct top programs to make their colleges in top ranking.

Academics
The academics are important for choosing the colleges for MBA. Find out the academic events to get more experience and they provide internship to the students. There is lots of private and government colleges are available to pursue the MBA course. The academics will support, graduation rates and reputation to the colleges. The college faculty is teach the subject to differ from the senior, junior classes. The colleges are differing in the eligibility criteria and they select the candidate based on the entrance examination.

Curriculum:

The curriculum is to ensure the student to choose the colleges for MBA course. The colleges will provide the projects, workshops and other to increase the knowledge of the students. Some of the institutions provide the academic syllabus and they guide how to communication with the person in a different situation. Check up if they are providing a placement for the students.