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.



 

Read More

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

The article was published at MagicBricks.Com and can be accessed at: here.

 
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 article was published at MagicBricks.Com and can be accessed at: here.

Read More

Avoid Bank Planners, says Law Firm

Indian investor has been at the receiving end, when it comes to their wealth being managed by banks. SEBI accepted that there have been a rampant mis-selling of financial products at banks, and the same was mentioned by SEBI in their Wealth Management Guidelines dated 28th June 2013. 

Based on their observation SEBI came up be the Wealth Management Guidelines for banks and Investment Advisor Guidelines for Independent Financial Advisers. But there is a long way to go as far as Indian Investment Management industry is concerned.

Australia, which is one of the mature financial & wealth management market, with a well defined wealth management process being followed and adequate consumer protection mechanisms in place; has come across a couple of cases of Investor grievances. This has again brought into limelight the fundamental factor that mars the wealth management, when practised by the bankers.

Maurice Blackburn, a law firm, has urged consumers to avoid taking advices from the financial planners employed by the banks. To this, the Principal John Berrill added that major banking institutions wanted to keep their money in-house. You can access details of their observations here, click here.

You, an investor and a saver, can very well identify with this logic clearly due to the fact everytime your banker visits you, he speaks about the Insurance based investment. This results into clients' money being rotated within the sister concerns of these financial institutions and banks, apart from the hefty commissions that banks make on the sale of insurance products (say ULIPS).

What an investor needs is a financial adviser and not bank relationship manager. The reason is quite simple; as the role of financial adviser is to provide the best possible investment alternatives available in the market to the client, alongside the ease to transact and management of the portfolio. Since, a financial advisory & wealth management firm is not a part of any banking group, so it is not limited in the types of product lines available or the platform. On the other hand, it has been observed that the bank has a very limited investment options to address the wide range of  financial requirements of its clients.

The current wealth management set up at banks in India, is marred by conflict of interest; where by bank makes earning everytime the client's portfolio is churned. The portfolio is to be managed as the goal based portfolio and not transaction portfolio.

What is the way out for the clients...?

Simple, go and find a good financial adviser for you & your family; so like you are working to build the corporation you are employed at, so will your adviser build & manage a robust financial portfolio for you and your family.

You can read more about us here.

Read More

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.

 

 

Read More

RBI is responsible for the development of the Government Securities market. Although, debt market in India is not matured; but RBI is taking steps in the good direction to address key concerns.

 

What Are Inflation Indexed Bonds:

 

In the developed debt markets, such as, United Kingdom, USA, New Zealand, Canada, Sweden, and South Africa the Inflation Indexed Bonds issued by the Government are one of the popular debt instruments. These Governments undertake issuance of the bonds at a regular interval with an aim to:

 

(a) provide a new instrument to investors that offers hedging against inflation risk,

(b) enhance credibility of anti-inflationary policies,

(c) provide an estimate of inflation expectations and

(d) create an additional avenue for fund deployment and thereby facilitating widening of Government securities

     market.

 

Out of several variants of Inflation Indexed Bonds, the Capital Indexed Bonds (CIB) is the most popular and widely issued debt instrument internationally. In India also one variant of CIB (viz., 6 per cent Capital Indexed Bond 2002) was issued for the first time on December 29, 1997. Subsequent to that issuance, there was no further issuance of CIB mainly due to lack of an enthusiastic response of market participants for the instrument, both in primary and secondary markets.

 

Some of the reasons cited for the lackluster response are:

 

• it only offered inflation hedging for the principal, while the coupons of the bond were left unprotected    against inflation and
• complexities involved in pricing of the instrument. Taking into account past experience as well as the internationally popular structure of Capital Indexed Bonds a modified structure of Capital Indexed Bonds has been designed.

 

 

Proposed Structure of new Capital Indexed Bonds

 

In line with the international standards, the proposed CIB would offer inflation linked returns on both the coupons and principal repayments at maturity.

 

The Basic feature of bonds would be that the coupon rate for the bonds would be specified in real terms.

 

Such coupon rate would be applied to the inflation-adjusted principal to calculate the periodic semi-annual coupon payments. The principal repayment at maturity would be the inflation-adjusted principal amount or its original par value, whichever is greater, thus with an in-built insurance that at the time of redemption the principal value would not fall below par. The inflation protection for the coupons and the principal repayment on the bond would be provided with respect to the Wholesale Price Index (WPI) for All Commodities (1993-94=100), the leading measure of inflation in India.

 

Repayment:

Based on the Wholesale Price Index for All Commodities, the principal value of CIB would be adjusted.

 

The inflation-adjusted principal value of the bonds can be obtained for any date by multiplying the par value by the index ratio applicable to that date. The inflation adjustment to the principal would not be payable until maturity.

 

At maturity the CIB would be redeemed at its inflation adjusted principal amount or its original par value, whichever is greater, with an inbuilt insurance that the redemption value would not be below par.

 

Taxation

The value of the investment in the CIB and the coupon payable thereon would be governed by the provisions of tax laws as applicable from time to time.

 

 

For further details on the same, you can reach us at:

contactus@cogentadvisory.com
Call Centre  :  +91 - 87 4402 2020

Direct Contact  : Rajat Dhar (+91 - 9654.270.100)
 
 

 

 

 

 

 

Read More