Suddenly, there's a buzz about ELSS or equity-linked savings schemes. And it does not take a rocket scientist to determine why. "ELSS is the only all-equity tax-saving scheme," says Dhirendra Kumar, CEO of Value Research. What this means in layman's terms is: you can invest up to Rs 1 lakh per annum in this mutual fund-which can give much higher returns than any other tax-saving instrument-and claim the entire amount as a tax deduction. A caveat: ELSS have a three-year lock-in period, so don't invest in them if you want liquidity. "But it is this lock-in that gives fund managers time to plan their investments better," says Kumar. In the long term, bull and bear runs even out, and one can realistically expect 12-15 per cent annual returns. Proof: according to Value Research Online, ELSS have given returns of 71.49 per cent over the last year compared to 62.52 per cent by diversified funds. No wonder, almost every mf worth its name has launched, or is in the process of launching, such schemes (see Tried and Tested...).

"Investors need incentives and good offers," says Sandesh Kirkire, CEO, Kotak Mahindra Asset Management Company, which launched an elss on September 29. The incentive comes in the form of a free life cover for investors who put in a minimum of Rs 10,000. Kirkire thinks that there is an appetite for life insurance across all investor categories and that the free add-on will be a big hit with customers. But Kumar thinks otherwise. "Life insurance is very important and should be treated separately from other investments," he feels. There can, of course, be little objection to such add-ons being a second life insurance; the first, and primary, policy being for a more substantial amount. ELSS-life insurance combos are an attempt to take on the popular Unit Linked Insurance Plans (ULIP) and do offer a more transparent investment option than the latter. That's because, unlike in a ULIP, ELSS fund managers have to regularly declare investments they make under the scheme.

The Chola Tax Saver Fund, another ELSS, is attracting serious investors and does not offer any life insurance or other freebies. "The focus will be on disciplined investment and on stock selection," says Tridib Pathak, Chief Investment Officer of the fund.

Even without the tax shield, ELSS is a good investment option from a pure financial point of view. According to Value Research, a person who invested Rs 1 lakh every year for the last nine years in existing ELSS schemes would have Rs 31 lakh now if he had chosen an average fund. A good fund would have given him Rs 82 lakh. Traditional debt instruments, on the other hand, would have grown that same Rs 9 lakh to only Rs 14 lakh. So there you are; save on taxes and watch your money grow.

SMARTBYTES

Will Airline Stocks Take Off?

Air Deccan has recently filed its IPO documents and kingfisher airlines is expected to follow suit. But what's in it for investors? The two listed airlines show mixed results. Jet Airways is trading at around Rs 1,220, a mere 11 per cent appreciation since listing. The SpiceJet scrip has zoomed from Rs 6 a year ago to around Rs 80 today, mostly because it restarted operations barely four months ago. With oil prices headed north and a severe pilot crunch, Indian carriers might be in for a rough ride. Our advice: don't rush in.

-Kushan Mitra

Make Your Money Work For You

You need liquidity but you also want your liquid funds to earn high rates. Given the measly 2.5 per cent interest your money earns today in a savings account, are you asking for the moon? Not really, if you've been tracking retail banking products. Check out the sweep-in facility, now on offer mostly from banks like HDFC, Kotak, Standard Chartered and ABN Amro. Typically, your account will have a cut-off amount of, say, Rs 25,000. Any amount beyond this is 'swept' into a fixed deposit, where it earns as much as 3 per cent more than your savings account. Some banks like Kotak Mahindra even offer the option of sweeping your excess funds into a mutual fund. And the minute you decide life isn't worth living anymore without that iMac, your money is available again in your savings account. Note: for the mutual fund option, factor in the exit load, if any.

-Krishna Gopalan

Contrarian Play: Oil Your Portfolio

Brokerage firm CLSA Asia-pacific securities recently reported that India is unlikely to see oil subsidies reduced anytime soon thanks to political exigencies. And with global oil prices spiralling, is it any surprise that oil marketing companies have lost close to Rs 40,000 crore? Why are we talking oil at all then? Because while the government might not be able to effect a massive price increase, piecemeal hikes could well be forthcoming. As Pune-based financial planner Murli Krishnamurthy says: "In the long term, it is inevitable that the market will be allowed to find its own price." Meanwhile, new refining infrastructure promises to bring down prices. And global oil prices, which hit $70 (Rs 3,080) a month ago, show signs of easing. The share prices of the three oil marketing biggies are gradually improving: Indian Oil, trading at around Rs 470, has risen roughly 8 per cent over the last month; Bharat Petroleum and Hindustan Petroleum have also risen in tandem. None of the three scrips is near its 52-week high. So, if you want to bet on oil for the long term, you might just strike it rich.

-Kushan Mitra

AUTO COMPONENTS
Zip, Zap, Zoom
With its huge cost advantage, the auto component sector is ready to take on the world.

Clipping along at a CAGR of over 20 per cent, one sector that's been steadily hugging the growth curve is auto components. Investment in the sector is rising, exports have raced ahead and Indian players have begun to aggressively acquire companies overseas in a bid to capture the global market.

What's the secret? Globally, the automotive industry and, in turn, the automotive components industry, are facing huge cost pressures arising from excess capacity and stiff competition. Indian companies have been able to come up with the answer: far cheaper components with no compromise on quality.

Output and exports have zoomed: in 2004-05, according to Automobile Components Manufacturers Association (ACMA), the industry's total output was more than Rs 38,000 crore, up from Rs 19,300 crore in 2001-02. Exports constituted roughly 16 per cent of this at Rs 6,100 crore compared to Rs 2,540 crore four years ago. The biggest export markets are the US and Europe, accounting for over 60 per cent of the total.

Local biggies are looking to expand across the globe. Bharat Forge, the world's second largest forgings maker, poured over Rs 500 crore in the last five years into overseas acquisitions. Says Chairman and MD Baba Kalyani: "Many global auto components players will be taken over by lower cost companies that have the capability and technology."

Technology and market access are also crucial. Khandwala Securities' auto analyst Alpa Shah points out that companies will have to look at joint ventures with overseas companies: "This makes strategic partnership important." Tata Autocomp Systems (taco), for example, entered into a 50:50 JV with UK-based Stadco to form taco STADCO Automotive. Companies are also beginning to customise their products for individual clients.

The market has reacted optimistically. The Bharat Forge and Amforge stocks have doubled since July last year. As Shah points out, with the automobile industry's cagr pegged at 30 per cent up to 2015, the auto parts sector looks increasingly attractive. Overall, analysts are putting Bharat Forge, mm Bearings and Amforge (following the M&M takeover) on the fast track. Invest for the long term with a three-five year horizon.

-Krishna Gopalan

Term Report
It's cheap, it's simple and it does what life insurance is meant to do: cover risk.

When Solomon Huebner, the grand old man of insurance, said the growth of life insurance implied an "increasing development of the sense of responsibility", he certainly could not have envisaged life insurance growing primarily as an investment avenue. That is exactly how most Indians view life insurance-an investment product with exciting tax breaks. However, as financial planners will tell you, insurance as investment can hardly deliver returns attractive enough to justify being locked into those high premiums for so long.

If classic risk cover is what you are looking for- and you should be if you want to get even a basic financial plan into place-a term plan stays your best bet. A term plan, or pure life cover, is the simplest form of life insurance covering your financial dependants against the risk of your untimely death. You dish out premiums for the duration of the cover. If you die during the term, your dependants get the sum insured; otherwise, you don't get anything once the term elapses.

Does that sound like money going gurgling down the drain? Consider this: first, you certainly need life insurance; second, a term policy is the cheapest life insurance (see Terms of Play) to be had. Calculate what you save in premium vis-à-vis, say, an endowment plan, and compute the returns if the amount were invested in equity or mutual funds. You will figure out soon enough why it makes sense to be insured for insurance's sake alone. Says ICICI Prudential Life Assurance Chief Actuary V. Rajagopalan: "Term insurance should be taken by anybody, irrespective of age or risk level of job, who seeks to protect his/her family from uncertainty."

Since most people look aghast at the prospect of never seeing their money again, insurance companies have varied the product (at higher premiums) to make it more palatable. You, thus, have policies where you get the premium back at the end of the term, or plans with riders like accident or loan cover.

In the past few years, the market for term cover has grown. No prizes, however, for guessing that most of the growth accrues from savings-linked products and not pure life. As icici Prudential's Rajagopalan points out: "Most people prefer buying policies where they receive some benefits on either maturity or death."

Ideally, though, a term cover should be part of the insurance portfolio of a young person just starting a family. "Since premiums get higher with age, we advise customers to buy in early to take advantage of long-term cover at smaller premiums," says HDFC Standard Life Insurance Marketing Head Sanjay Tripathy.

Term plans could vary between five and 30 years. Before choosing, be clear about the period it will cover. Insurance needs come down with age, so your tenure should be determined by years to go before retirement. If you take on a term policy way before retirement, select one that allows you to renew it without medical tests.

-Krishna Gopalan

Beware The Duds
Ignore the numbers at your own peril.

It's inevitable in a bull run: thousands of retail investors burn their wallets in stocks that are surrounded only by hype. Consider Malvica Engineering. In the last nine months, the stock jumped over 500 per cent from Rs 2 to Rs 12; the number of shares traded on the BSE rose from 4.73 lakh shares to 24.43 lakh shares. Its results? After posting a net profit of Rs 9 lakh in December 2003, Malvica incurred losses for four consecutive quarters. Or take Luminaire Technologies. Between August and September 2005, its price doubled from Rs 23.90 to Rs 46.45. Volumes rose from 156 shares in December 2004 to 40,613 shares in September 2005. Its EPS of Rs 0.16 means its price of Rs 31.35 is 195 times earnings. Brawn Pharmaceutical follows a similar pattern. Its stock price jumped from Rs 3.04 in October 2004 to Rs 24.15 in September 2005; volumes rose to nearly 4 lakh shares from a mere 35,040 shares. It has not traded at all since September 21, 2005. Says Hemang Raja, MD & CEO, IL&Fs Investsmart: "Investors should look at a company's financial performance, P/E multiple, and trading patterns before investing."

-Mahesh Nayak

Value-picker's Corner

NOIDA TOLL BRIDGE COMPANY LTD; CURRENT PRICE: RS 33.95

If you drive down the DND (Delhi-Noida-Delhi) flyway during peak hour, the wait at the toll gate is three-to-five minutes long, compared to almost nothing a year ago. No wonder the Noida Toll Bridge Company Ltd (NTBCL), which owns the flyway, registered a growth of 46.9 per cent (year-on-year) in sales during the first quarter of 2005-06. Its net loss was also down to Rs 3.66 crore (Rs 5.17 crore). NTBCL plans to commercially develop 100 acres of land that it owns near the flyway. Analysts expect it to give returns of about 150 per cent in the medium to long term.

-Sahad P.V.

Trend-spotting

Usually, the first heavy shower is enough for stock-pickers to get excited about FMCG shares. Good monsoons mean stronger rural demand, always a good sign for FMCG companies. On cue, FMCG players have posted good volumes growth. Says SSKI Securities' VP Nikhil Vohra: "Most players in the segment have either invested in or are looking at expanding beyond their core businesses." Adds Godrej Consumer Products' Executive Director Hoshedar Press: "We believe our wallet problems are behind us." Vohra's top picks: ITC, Dabur, Colgate and Tata Tea.

-Krishna Gopalan