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CAPITAL LETTER Volume 2 September 7,7, 20102010 IssueIssue 99 Greetings from FundsIndia! A season for reforms My name is Srikanth; I’m a director at FundsIndia. Thanks for taking the time out to read this Sep- tember 2010 issue of our monthly news letter. The world of personal investing in India has undergone dramatic changes in the past year. Three significant events are looking to re-shape the way in which investors and advisors form financial plans and implement them: 1. The abolishing of entry loads in mutual funds 2. The re-shaping of Unit linked insurance policies 3. The new Direct tax code Of these, the first one has already been implemented, the second one has just been rolled out, and the third one will be ready for prime time a year and half from now. All three directly impact the investment options that people have for planning their long term finances and retirement. All three have or will significantly alter the way the financial services industry create and distribute the products to the investors. However, in terms of how beneficial they are to the investors there seems to be a spectrum of opinions. The abolishing of entry loads has had a largely positive effect in the mutual fund eco-system. By virtue of this, mutual funds have become the most transparent investment product in the country, and more of investors’ moneys are work- ing for them. A spectrum of servicing options has opened up for the customers to choose from and they are free to pay for them as they see fit. An innovative offering like FundsIndia could not have been successful but for this regula- tory leveling of the playing field. The re-shaping of the ULIP products was hastened by the SEBI-IRDA row that was settled in favor of the latter by the finance ministry. These changes, which took effect from September 1, promise similar goodness in the insurance sec- tor. This class of product itself has been fundamentally redefined (longer lock-in period, mandated guarantees on returns in some cases) by this set of changes. However the more important change was in the way fees and penalties were levied on the investor in various situations. The surrender charges that were as high as 100% in some cases have been brought down drastically. Such reduction in charges should result in more of the customer’s money getting in- vested in their name. A recent analysis even indicates that over a very long period of holding (20-25 years), the new ULIP product out-performs a comparable mutual fund investment. The new direct tax code (DTC) started off with great expectations. It promised significant rationalization of the tax slabs and a radical restructuring of the deductions and exemptions. However, the bill as it was placed in the parlia- ment appears to be only a mild variant of the current tax regime. True, the tax slabs have been relaxed a bit, and the deductions have been tinkered with. But it’s a far cry from what was anticipated. For investors, the good news is that the long-term capital gains remain tax exempt, and they get a bit more take-home salary in their pockets. But the elimination of ELSS schemes from the list of 80-C exemptions is, in our opinion, not a wise move. These mutual fund schemes were among the most favored equity investments by retail investors, and disincentivising them should have been avoided. Overall, we see more good than bad in these reforms. However, it requires the investor to be aware and alert to the effects of all these changes in order to make the right choices for the long term! Happy Investing! Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Top MF schemes in FundsIndia (for August 2010) Equity schemes Debt Schemes HDFC Top 200 (G) Birla Sunlife Gilt plus-liquid (G) HDFC Prudence (G) Reliance MIP (QD) Reliance Regular Savings—Equity(G) Reliance MIP (G) Reliance Banking (G) HDFC MIP_LTP (MD) Birla Sunlife Midcap-A (G) Birla Sunlife FRF-ST (G) What’s new in FundsIndia ICICI Pru Mutual fund schemes now on FundsIndia! Mutual fund schemes of ICICI Pru AMC are now available online in FundsIndia. Build your own equity basket! Now FundsIndia’s equity investors can build their own baskets of stocks to track and invest as a basket. Previously we only had equity portfolios with pre-selected set of stocks based on market caps and sectors. Now, we have made it so that investors can construct baskets based on their own stock selections and invest in them. Do give it a spin and let us know what you think. And you if you don’t have an equity account, please login and click on ‘Equities’ to get started today! New query system for support! We have put in place a new query system for customer support— now, investors can login to their account, and for any support need, open a query with the description of their issue. They will then be able to track the issue online, respond to any follow-up requests, and re- solve it. It would also help us keep track of the efficiency of our customer support and make improvements as needed. Do check it out and let us know your opinion. Thanks! Please note : new numbers for mobile access We recently published new telephone numbers for accessing your portfolio value via your registered mobile number. These numbers are easy to use, and have proven to be more reli- able. The new numbers are: • For Mutual fund portfolio value, 080 300 500 37 • For Equity portfolio value, 080 300 500 38 Please note the change, and whey you want to access your portfolio, just leave them a missed call! Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. DTC—Much ado about nothing Dhirendra Kumar Most commentary on the new Direct Tax Code (DTC) Bill is focused on lower- ing of income tax slabs. The top-line of this bill is that the basic income-tax that everyone pays will be reduced. However, when I look beyond the obvious, what comes to mind is the Hindi proverb ‘Khoda pahaad, nikli chuhiya’. This is just about the best way to sum up the whole one-year-long DTC song-and-dance that is now drawing to a close. Taxes are lower, there are fewer exemptions, the act is (at least at this point of time) simpler than the old one, so there will hopefully be fewer ambiguities once the initial hump of interpretation is crossed. However, these just do not add up to the sort of ground-breaking changes that the origi- nal August 2009 seemed to promise. That document was like a whiff of fresh air, almost all of which has dissipated by now. What has followed is a long process of bargaining at the end of which we have something that offers not much more than the kind of tinkering that goes on in every budget. Not just that, while the code reduces the scope and the number of exemptions, it in no way delivers on the original promise of doing away with the concept of arbitrary exemptions. Similarly, it does not quite deliver on the promise of a simple tax law that would be understand- able by ordinary tax-payers. The new law may be simpler than the forbiddingly complex one that exists now, but that is not the same thing as being simple. For individual investors, the continuation of zero taxation on long-term capital gains is a great relief. The threat of re-imposition of such a tax was the biggest negative in the proposed law, and this is one rollback that is welcome. However, one change that seems to take away from one hand what it gives from the other is that of continuation of income tax deductions on certain invest- ments made under Section 80C of the old act. Though deduction up to Rs 1 lakh continues, there are fewer permitted investment options. Only term-insurance policies, New Pension System (NPS), provident fund and public provident fund are now eligible for income tax deductions un- der Section 80 (c). I suppose this ought to give a fillip to the NPS, which is much in need of one. Unfortunately, much about the new law is still unclear and will have to await a closer reading by tax lawyers. Still, there’s plenty of time to do that since the implementation has now been post- poned by a year to April 1, 2012. — Syndicated from Value Research Online — Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Why value investing trumps all else Dr. Mark Mobius Value investing is the most successful method of investing in equities. It grows out of a common sense approach to investing: that you are more likely to make money by investing in companies with high and growing earnings in relation to the stock price, and those with strong balance sheets. Many successful investors have adhered to and expounded on value investing such as John Templeton and Warren Buffet. Value investors focus on searching for "bargain" stocks. These are stocks that are trading below their "intrinsic" or "true" values. In general, investors look at a wide range of criteria in addition to just price to earnings, price to book value and divi- dend yield to determine whether a stock is a bargain.

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