Dwarka sub-city residents prefer moving to larger homes within locality.

Dwarka sub-city is mainly an end-user driven market with the whole infrastructure up and running. It is well-connected with Metro Rail and airport, and a destination of choice for home buying.

We have seen a trend wherein, existing residents of Dwarka sub-city look for better and bigger apartments within the Dwarka sub-city itself. These are primarily the ones who are residents of the earliest launched societies in the area and are now looking towards societies with better maintenance and construction quality. In a way they are looking for upgrade. Those who are already residing in a 3BHK with twin car parking, power back-up, etc and are looking towards 3BHK+servant’s room with other things remaining the same.

We have seen good inventory available in Sectors 21 and 22 and now Sector 19B being a hot spot. The price range for the 1,500 sq ft, 3BHK apartment, with parking facility and power back-up in Sector 7, is Rs 95 lakh to Rs 1.15 crore, depending upon location of the society, infrastructure quality, internal maintenance and many other factors.

Is it the right time to buy?

For Dwarka-Gurgaon Expressway, this is the best time for the first-time home buyers, as they will not only get the property at discounted rates, but also may get further discount of 3-6 per cent, in terms of freebies. The charges like PLC (Preferential Location Charges) and club membership can be waived off, based on the level of negotiation and the type of property.

For Dwarka sub-city, we have seen the prices softening for the past six months, and there is no reason for delaying the decision now.

Is it the time to invest?

For Investors, Dwarka-Gurgaon Expressway still holds a lot of opportunities, provided one can spot the properties under distress. We have been seeing the quantum of distress sales and one can have a great bargain in these times, when short term real estate investors are exiting.

It is not recommended to go for investment in the said stretch as far as the newly launched or already launched properties are concerned as better options are already available. An investor could rather consider other alternative such as Sohna in Gurgaon and also Neemrana.

Neemrana provides the best point of price-entry that many have missed at the Dwarka-Gurgaon Expressway. This is backed by the whole infrastructural development that is coming up to support it, with Japanese city coming into existence along with many other international firms setting up their base.

Rajat Dhar, managing partner, Cogent Advisory

The views expressed in this article are the author´s own. This article was published on magicbricks.com and can be accessed here.

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Is Neemrana an investment opportunity?

It has been proposed that Neemrana, Shahjahanpur and Bahrod be included as three sub-metropolitan cities in the National Capital Region (NCR). Surprised?

Not all deserve enough to be included in the Delhi-NCR and hence, there would be strong rationale for that. Here, we will discuss what has led to this being proposed. Our analysis is for the perspective of the retail real estate investor, hoping to make decent returns over a tenure, with some odds in his favour.

In the current recessionary scenario where property prices are heading towards the downward spiral across cities, everyone is scouting for the best option to invest in the real estate space. In this scenario, there are two aspects that a real estate investor should keep in mind – ‘the price point of entry’ and ‘location & type of property‘.

Gurgaon in the Delhi-NCR space has always been on a real estate investment destination map. However, lately with the rising real estate prices and recessionary environment it may no longer be an ideal investment option available or even qualify for being in the first three choices for real estate investments. Amid such a scenario, a real estate investor has to take an objective and long term view of the real estate investment.

From an investment perspective, it is better to identify satellite towns or cities that are coming up around Delhi-NCR with promising prospects. We have heard about the Gurgaon-Manesar-Bhiwadi-Neemrana-Jaipur belt being developed. These satellite cities/towns can be seen as the Dwarka-Gurgaon Expressway of yesteryears, providing an ideal price point of entry. Here, I would cover Neemrana, the least heard about as an investment destination.

Till a couple of years back, Neemrana was known as the tourist destination only with Neemrana Fort attracting foreign and domestic tourists. However, change in the state government policies with respect to setting up of businesses and attracting foreign companies to set up businesses, turned the tide for Neemrana. This was also because the place was marked by the government for setting up of business and supporting residential units, not to speak about necessary infrastructure support that will come up to support both of them.

Here, we are considering the DMIC (Delhi-Mumbai Industrial Corridor), wherein it has been decided to include Neemrana and Kushkheda, in the first phase, with development of industrial townships here on the lines of Noida, Faridabad and Gurgaon.

Rajat Dhar, managing partner, Cogent Advisory

‘The views expressed in this article are author’s own’. The article was published at magicbricks.com and can be accessed here.

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Does Your Financial Advisor / Agent follow SEBI Circular on Risk Profiling..?

When was the last time your agent / or financial adviser conducted your Risk Profile...?
Do you know SEBI has issued guidelines for financial advisers and advisory firms..?
Is your bank or agent following those and educated you abut those guidelines..?

Financial Advisory is going a sea change in India, with SEBI having come up with new guidelines and refining of the existing one. There are separate guidelines for banks and Independent Financial Advisers and Wealth Management Firms.

The regulatory body had to take strict decisions in reference to the wealth management services being provided by agents, brokers and bankers. The backdrop of this could be found in our blogpost here.

The key changes have recently been done by SEBI is in KYC (Know Your Customer) norms, that would impact your savings and investments, if your adviser or agent is not adhering to the same.

So, What Does SEBI Guideline Say..?

This is in reference to SEBI Circular No. CIR/MIRSD/11/2012, and it says that:

• Intermediaries shall strictly follow the 'risk based due diligence' approach as prescribed by SEBI Master Circular on AML No. CIR/ISD/AML/3/2010 dated December 31, 2010.

• Also, Intermediaries will conduct on-going due diligence  based on Risk Profile and Financial Position of the client as prescribed in the master circular.

• These guidelines are applicable for both new and existing clients.

What does risk profiling actually mean..?
Each individual has different perception and appetite for the risk he can take in his investments. While as, some are aggressively investing in equities or stocks of companies, others are
only comfortable in fixed deposits or government bonds.

So, it is imperative that a process is followed that enables to determine the investor's preference to investing in the type of securities.

What agents are currently doing...?
Currently, it has been widely observed that investor invests in funds or securities as recommended by their agents, brokers and bankers. Now, there had been cases where regulators have noticed that certain products were sold to investors that were totally against the need of the client. These were the cases of mis-selling. And there was no way to prove the same. Now, client has to fill the risk profile and sign the dotted line.

What does it mean for client...?
As clients have to fill in the risk profile, they are now more aware as to whether they are conservative, moderately conservative, balanced, moderately aggressive or aggressive client. While client finalises his investments with his agen, he can cross check as to whether the fund or security he is investing in actually falls in line with his risk profile.

How are clients safer now...?
As per the guidelines, risk profile has to be documented and the same process has to be done once every year. If at any given point in time it is found out that the funds or securities recommended to the investor didn't fall in line with the risk profile or if there is the case of mis-selling; client grievances can very easily be resolved now.

This is the one step more in the direction of investor protection and in regulating the intermediaries. There are a whole set of guidelines that have to be adhered to in the investment management space; and those agents and firms who will not change are surely be moved out of the market by the regulator and the competition alike.



 

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Banks' Wealth Services Under RBI Scanner - RBI Guidelines & Observations

Reference: RBI Circular # DBOD.CO.FSD.No./24.01.026/2012-13

Draft Issue Date # June 28, 2013

Not long ago you might have felt being cheated by your bankers, on account of mis-selling of financial & investment products over past so many years. But, the irony of fact is that, it has been too wide spread across indian banking space; that now even RBI has taken notice and covered it in the draft of wealth management guidlines.

Taking in account recent and ongoing instances of misselling being experienced by clients at banks; RBI has now shown signs of coming down heavily and has issued draft guidelines for Wealth Management Marketing / Distribution Services offered by banks. For the first time RBI has come with the reasons as to why mis-selling has been observed to be so rampant at Banks; and that it is the need of hour to regulate the Wealth Services being ofered by banks.

Wealth Management

In the draft guidelines, RBI has quoted that, banks offering wealth management services are exposed to reputational risk. This has been evident on account of:

• violation of KYC / AML Guidelines
• mis-selling of products,  or selling products unsuitable to clients,
• conflict of interest, 
• lack of robust risk management system & procedures leading to frauds
• lack of knowledge and 
• lack of clarity about products and frauds

RBI has also found out in the recent past that banks were involved in structuring transactions to aid tax evasion and fraudulant transfer of funds. It was observed that many of these transactions centered around WMS (Wealth Management Services) provided by banks as well as marketing of third party products.

 

Marketing & Distribution of Third Part Financial Products

RBI has clearly mentioned in the guidelines draft that, it has been observed that in some cases,

• banks did not have clear segregation of duties of marketing personnel from other branch functions
• bank employees were directly receiving incentives from third parties, such as insurance, mutual funds and other entities for seling their products.

These practices enable tendencies of mis-selling and distortion of staff incentive structure.

RBI has made clear that - "in case of a bank acting as distributor, the customer’s expectation from a bank in terms of the bank’s credibility is significantly different than that of any other agent of the product issuer. Thus banks are expected to take greater care while undertaking such services, including avoiding mis-selling."

As per the guidelines, mis-selling of products and services occurs when :

• products that are unsuitable to the client profile are sold to him, particularly through misrepresentation or by linking it with banks’ own products e.g., making purchase of insurance compulsory along with a car loan. 
• there is a lack of knowledge of the product being sold, and occurs when untrained staff sell products. 
• mis-selling may also arise from the provisions regarding payment of commissions and incentives which distort the selling structure.

Section 10(1)(b)(ii) of the BR Act, 1949 prohibits a bank from employing or continuing the employment of any person whose remuneration or part of the remuneration takes the form of commission or of a share in the profits of the bank, save as exempted in the Proviso thereto. Accordingly, payment of a portion of the commission earned on marketing and distribution of third party products by the bank to the staff would fall under the said prohibition.

Accordingly, undermentioned are a few excerpts from the conditions proposed by RBI in addition to the extant instructions: 

• Banks should disclose to the customers, details of all the commissions/other fees (in any form) received, if any, from the various mutual fund/insurance/other financial companies for marketing their products. This disclosure would be required even in cases where the bank is marketing products of only one mutual fund/ insurance company etc.
• Banks should disclose in the ‘Notes to Accounts’ to their Balance Sheet, the details of fees/remuneration received in respect of the marketing and distribution function undertaken by them.
• As mis-selling is a serious issue in terms of consumer protection, the bank should put in place a policy approved by its Board regarding marketing and distribution of third party financial products which should, inter alia specifically consider the issue of addressing mis-selling.
• The sales process should be transparent with full disclosure as to the details of the product. The selling should be need based and mapped to the customer profile.
• Products should be marketed only in branches having specified trained personnel for the purpose.
• The persons undertaking such marketing/distributions services, should not be entrusted with any other approval/transactional process at bank branches. There should be a clear segregation of functions between marketing and operational staff.
• There should be a Code of Conduct for the sales personnel who should adhere to the same.
• The fact that the bank is acting only as an agent should be clearly brought to the notice of the customer.
• Banks should set up SIDD (Seperately Identifiable Divisions or Departments), so that conflict of interest be handled; and seperating marketing / transactional / advisory divisions.

It may be ensured that there is no violation of Section 10(1) (ii) of the BR Act 1949 in payment of commissions/incentives as well as of Guidelines issued by the regulator of the third party issuer. No incentive (cash or non-cash) linked directly or indirectly to the income received from marketing and distribution function should be paid to the staff engaged in marketing/distribution services of third party products. The staff of the bank is also not permitted to receive any incentive (cash or non-cash) directly from the third party issuer. Banks must ensure that there is no violation of the above in the incentive structure to staff.

There should be no evasion of these regulations by accepting several amounts for lower values from the same client to avoid the stated threshold.

We have taken excerpts from the draft guidelines issued by RBI. The comprehensive document covers PMS (Portfolio Management Services), IAS (Investment Advisory Services), and much more.



What Options Does a Client Have...?

Cogent Advisory has always maintained the stance that "Let The Banks Do Banking, You Should Have a Private Family Wealth Management Firm, managing your funds".

Banks are also limited in respect of products and services, where by it has been observed that they predominantly sell insurance and mutual funds. Hence, this results in the biasedness in the way investments are being managed. 

When your approach a Pure Wealth Management & Advisory Firm, you have a better, diverse and advanced product and service choices; as these firms, in order to remain competitive, bring the best in class services & products to your desk. Moreover, fee based services remove the conflict of interest, with provider being able to meet its costs & client is saved from the risk of being sold higher commission based product. 

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BEAWARE & THINK Before You Accept An OPEN OFFER Put Forth By The Company...!

Situation:

 

Imaging a situation that you are holding a 1000 shares of a company at a prices of INR 500 per share. This makes your holdings in that stock of INR 5,00,000/-. Also, Sensex is Trading at around 20,000 levels.

 

All the things seem in you favour and you get a good news that the same company in which you have invested your INR 5,00,000/-, has declared an open offer of a buy back. Your happiness knows no bound, since buy back price is always higher than the trading price. 

 

Now, you intend to have the best of both the world's by tendering to that offer; intended to reap in better returns and realising the profit in the deal.

 

At this juncture you are unaware about the TAX BLOW that is waiting to happen if you execute the deal.

 

Real Life Example:

 

The above situation is best explained with the case of HUL (Hindustan Lever Limited), when the stock reacted the same way when open offer announcement for buyback was made by the firm. The stock price rocketed up by 17% to INR 583.60/-, when HUL announced its intention to buy 22.52% stake.

 

Share Selling Options Available & Tax Implications:

 

Sale In Open Offer: Whenever you make a sale in open offer, you have to pay tax; even if the shares were held in your portfolio for more than a year. You can not escape the tax net in this case.

 

Sale in open offer is just like any equity transaction; but is considered as a debt transaction, since there is no STT (Securities Transaction Tax) on it. 

 

Now, a long term investor who had held shares for more than 1 year and sold under open offer, may take Indexation benefit on it. That means, lower of 10% with indexation, 20 % without indexation.

 

If however, the share sale has been done in less than the year, then the share holder is taxed as per his tax slab. There will be the additional tax of surcharge tax, if the income exceeds INR 1 Crore.

 

Sale In Secondary Market: Sale in the secondary market does not attract tax on the long term capital gains, if shares have been held for more than a year. Only STT of 0.1% will have to be paid in this case.

 

For the sale made in less than a year, the gains are taxed at 15% as short term capital tax gains. This could be beneficial for those who are taxed at the higher tax bracket of 20% and 30%.

 

For Whom it is Beneficial To Go For Open Offer...?

 

Tendering to the open offer made by companies, shareholders who are in 10% income bracket or retirees who have higher taxation exemption limit will have such offers advantageous. For those falling in 30% tax bracket, secondary market sale offer is the only best available alternative available.

 

 

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BeAware of [1st June 2013] : Dividend Distribution Tax on Debt Mutual Funds hiked to 25%, will become Applicable.

DDT on debt fund investments for retail investors has been increased to 25% from 12.5%

The dividend distribution tax (DDT) on debt fund investments for retail investors has been hiked to 25% from 12.5% (plus surcharge and cess). 

DDT is the tax that debt mutual funds (MFs) pay on the dividend income distributed to retail investors. Although dividends from mutual funds are tax-free in the hands of the investor, your debt fund deducts DDT from the income earmarked for distribution, and gives the rest to investors. 

Currently, liquid funds pay a DDT of 25% (plus surcharge and cess). All other types of debt funds pay 12.5% (plus surcharge and cess) on income distributed to retail investors; and even this is now increased to 25%. 

Retirement Planning Strategy Takes A Hit:

This will be a big hit to those you use their mutual fund debt portfolio as a retirement portfolio, receiving income as dividend distributed to them on regular basis.

Hence, financial planers have a key role to take conscience of the matter and restructure retirement plans of their clients in accordance to the change that has come up.

Clients should ideally invest in growth option with more than a year of horizon in mind. This way they will be able to have the indexation benefits. hose who need regular incomes to be withdrawn from the portfolio, may opt for SWP (Systematic Withdrawal Plan).

However, in case of corporates, DDT paid by all types of debt funds continue to be at 30%. 

A Word Of Caution:

Has your advisor / advisory changed debt funds from DIVIDEND to GROWTH Option. It Not, DO IT BEFORE 1st June ' 2013.

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