Category Archives: General

Finance Lessons from Hindi Movies

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Happy Republic Day Greetings from PenguWIN !!!

Rather than Verbose text based articles, for a change, I have compiled this. The key content is picked from a magazine and if I had to come up with something similar, I would chose either Tamil or English 🙂

Financial Lessons from Hindi Movies

 

< PenguWIN TITBIT # 104 – Finance Lessons from Hindi Movies >

FRDI bill: Please dont Panic!

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Warm Greetings from PenguWIN:

                            Couple of weeks back, one of our clients, who is 3 years away from retirement, reached out to me with the question of safety of bank deposits. Subsequently I got calls from atleast half a dozen clients and yesterday morning, one of our key clients, senior citizen, spooked by FRDI (Financial Resolution and Deposit Insurance Bill), called and wanted to move his major share of bank deposits to Mutual Funds (Liquid Funds). To allay the fear of investors, I thought that I can put together a write-up and will try to keep it simple.

However good the social media tools like Twitter, WhatsApp are, they have their own drawbacks. Both Twitter and WhatsApp are tools to disseminate information; problem is its mostly copied content and forwards to “N” number of people, many a time without even reading the content. A major share of the rumours that the bank deposits of investors can be used for rescuing them (Banks) in an event of financial crisis, can be credited to WhatsApp and Twitter.

The objective of the bill is to set up a new organization, Resolution Corporation that will closely monitor banks/financial institutions and help them resolve, in case of crisis situation. The controversial clause in the bill is the “Bail-In” option where the savings of depositors can be leveraged to rescue the bank. The opposition parties, including Congress have vehemently opposed the bill in the current form and unless all controversial clauses are modified/removed, it will not see the light at the end of the day. Most bank depositors are ignorant of the fact that the current system in place, where a bank gets into a financial crisis, will compensate only to the extent of One Lakh through insurance provided by Deposit Insurance and Credit Guarantee Corporation (DICGC) under RBI. For all these years no one was agitating to revise the insurance amount and why now? The depositors who knew about DICGC too never complained as they firmly believed that RBI and Government will intervene and set things right.

In India, a large portion of the bank deposits are held with public sector banks, which are owned by the Government of India. Hence, usage of depositor’s funds in the banks to resolve issues will have huge ramifications. Unlike other developed countries, our proportion of savings in banks is also high. So, in case the bill is passed in the current form (which is hypothetical) Bank runs (depositors trying to withdraw funds at the same time) will be triggered resulting in colossal impact to our economy. The reason for skepticism in this case is because the rumours are spread with the rider “The current PM is very powerful and is capable of imposing anything like Demonetization”.

About 15 years back there used to be a private bank called Global Trust Bank (GTB) which got into a crisis and RBI and Government rescued it by merging it with Oriental Bank of Commerce, without affecting the interest of the depositors. RBIs scheduled commercial banks ( PSU and Private banks – not cooperative banks) have never defaulted and depositors interests have never been compromised. So, there is absolutely no reason to fear that hard earned money of depositors will be utilized to resolve bank issues. If depositors are not convinced and still sceptical, then there are multiple threats to worry about like a world war getting triggered because of nuclear weapons usage of North Korea or India losing its patience against Pakistan’s support for terrorism and decides to go for a full-fledged military solution (war). I don’t think we are obsessed and worried about wars breaking out and same should be the temperament in the case of FRDI and “Bail-in”

 

<Blog # PenguWIN 1056 – FRDI bill: Please dont Panic!>

Category: Fixed Income, General

PenguWIN’s 3rd Anniversary

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Dear Friends,

Today, 4th July 2017, PenguWIN steps into 4th year of successful operations. It has been an exciting journey so far with ups and some downs. Our humble and sincere thanks to all our clients, well-wishers and partners for imposing faith and supporting us. There have been many instances where some of our existing clients have referred their friends/colleagues/relatives to benefit from our services and follow up with them on a regular basis, until they become our clients. I presume that only delighted clients would go so far.  

Personally, the learning have been immense and the confidence that we are able to build among our clients has increased significantly with magnitude of returns their portfolios have achieved. We have struck to our original objective of maximizing the value delivered over revenues. In this profession, if your focus is always on revenues and profits, then you tend to compromise on the kind of products and services that you offer to the clients. I believe that certain professions are to be run in this fashion or otherwise the person should not have chosen this. Professions including Doctors, Civil services have to be run in this fashion and not purely for the sake of money. We do keep hearing that doctors are given targets on performing surgeries and ‘Bureaucrats have become more corrupt than politicians’.  It’s not that these professionals should not make money, (and for the hard work that goes into their profession) but have to draw a clear line between what is ethics and what is not.

When we started 3 years back, the business has to be built from scratch with less than half a dozen investors who were very close friends of mine. A significant proportion of our clients that we work with today are new to financial investments, especially equities. However much historic data and facts are presented, unless the investors experience it personally in their portfolios, the conviction will not be there. Now, after 3 years of operation, I can confidently say that clients with whom we have worked for 2 years and above have made excellent returns in their portfolio. Though the market valuations (slightly on the higher side) is one of the reasons, the discipline of investing systematically and the pedigree of funds invested also play a key role.

Sensex from 4 July 14 to 4 Jul 17

 

From 25,962 on 4th July 2014, Sensex has moved to 31,321 (today’s opening) which is annualized return of 6.88%. But all our clients have made significant alpha (Fund returns over Sensex) over this period. The markets are almost at all-time high. But people who think that it is probably a time to sell need to understand that 12k, 16k, 22k and even 25,962 when we commenced operation (4-Jul-14) was an all-time high at that point in time. There is no doubt that Sensex will continue to grow further as long as the companies make profits (earnings) and the macro environment is good in India. While we don’t recommend lump-sum investments at this point in time, continuing your systematic investing (SIPs and SWPs) is a discipline that you have to adhere to. Selling should be done only based on our goals, when we have planned commitments and the fund managers are in a better position on judging the market. 

Equity as an asset class provides the best returns over longer time frames (3 to 5 years, minimum, depending on the product type). Investors who aspire to create wealth, should have conviction on Equity. Yes, it would not be a smooth journey and have minor and major jerks. But, this is the risk premium for fantastic returns that it provides, way above the other Asset classes. Don’t panic (investors typically get worried when the markets tank and at the same time the market touches new highs), remain cool and you will definitely make good returns and we are there to handhold you in this long journey. Please remember that “time” is a very important factor for success in Equity investment and allocation of short term funds to equity is one of the key issues that creates dissonance among people.

I want to repeat the following once again and ‘n’ number of times:  Our sincere thanks to all our esteemed clients for their support and encouragement without which we would not be where we are today. We strongly believe that references and word of mouth of delighted customers is what helps us grow rather than marketing gimmicks which are ephemeral.

 ‘The only place where success comes before work is in dictionary’ – Vidal Sasoon.

 

<Blog # PenguWIN 1054 – PenguWIN’s 3rd Anniversary>