It's a bad time to proffer advice. There's enough of it in the air already: fitness gurus who seem to take a great amount of pleasure in explaining just why new-year-keep-fit resolutions won't work (and then go on to describe just what will); fashion pundits doing the usual in-and-out lists; and sundry others offering counsel on what one should eat/ wear/play/listen to/read/and the like. This writer is loath to add to that list but do that she must. Not just to begin the New Year by bringing herself to the editor's notice, but to ensure that you, Dear Reader, do not make the mistake most others do at this time of the year. That would be to simply say, "Ah, the financial year begins on April 1 and let me worry about getting serious about investments then." February 2005, after all, was a great time to enter the stockmarket. The sweetener: much of what you read here will be simple and practical. First, therefore, rather than simply listing the avenues where you can invest, let's look at how you can handle your finances as a whole.

In 2006, let your first personal finance resolution be to make a financial plan. Sit down and take stock of what financial events (actually, most events turn out to have a financial impact once you get down to the details) are likely to come up this year, and then divide them into major inflows and outflows. Your inflows could be a fixed deposit or Moneyback policy maturing, while outflows could be house renovation, even a luxury cruise. Next, try and match these two columns. Now, as financial planner Gaurav Mashruwala says, if you have a surplus, it's time to develop a good investment strategy. And if there's a shortfall, it's time to make a good redemption plan.

Your investment strategy is, of course, the crux of what we will be talking about here but that does not mean you can take it easy with redemptions. This usually takes the form of selling equity, gold or real estate but your plan should always take into account charges like exit load, brokerages, capital gains and the like.

Now, let's look at the ever-interesting (and increasingly complex) question of investments. First, there's no easy, single answer that can take care of your investments and safely make you a millionaire in one shot. The whole question is complicated by what kind of person you are, what responsibilities you have, and what your personal goals are. Always, and we can't repeat this often enough, always, invest according to your risk appetite and your goals. Is your goal a short-term one like buying that fancy car? Or is it long-term like funding your daughter's education in the US? Each goal requires a different investment. So, as Mashruwala says, if your time-frame is less than three years, go for debt products; if it is between seven and nine years, go for equity; and if it's in-between, choose a combination of the two.

A point that bears repetition is that equity is not for laypeople. If you do not have time or the personal expertise, do not touch equity directly-simply stick to mutual funds. And we mean personal expertise; the expertise of your clever brother-in-law does not count. Mutual funds are by far the smarter route into equity for the average person. And in equity funds, stick to diversified schemes and here, preferably, the flagship scheme of a fund house. Check that the scheme has a track record of six-seven years, which means it ought to have come through both the software crash and the current rally with a performance better than its peers. Don't just buy a scheme that's outperforming all else in this bull market. And for 2006, temper your expectations (in terms of returns). Although the market has yielded high returns this last year, targeting about 15 per cent from equity for the coming year would be safe. And, of course, the good old rules remain: equity-linked savings schemes (ELSS) offer tax breaks (Section 80C) with good returns; and the best way to enter mutual funds is through monthly income plans-where you can invest a minimal sum regularly and make the most of rupee cost averaging.

As for equity, battered mid-cap pharma stocks look interesting, and small-cap pharma stocks could do so in about a year. Stocks in sectors such as auto, auto ancillaries, construction and capital goods continue to look good while those in media, retail, fast moving consumer goods, hotels and telecom will remain growth-driven but expensive. Says capital market consultant Uma Shashikant: "If (government) policy turns positive, banking and PSU stocks could get more attention. "

If you can't stomach risk, stick to assured return investments-PPF, RBI bonds or NSCs still make sense at about 8 per cent returns news round-up

However, if you can't stomach risk, stick to debt. For those in the lower tax bracket, the best bets continue to be the Public Provident Fund, RBI Bonds, National Savings Certificates, and Kisan Vikas Patras (about 8 per cent returns). However, avoid RBI Bonds if you come into the 30 per cent tax bracket-returns are taxable and whittle down to 5.6 per cent with a six-year lock-in. A better bet would be debt funds, preferably floating rate funds whose returns are better than those of liquid funds, although the latter are the safest.

Gold, of course, is making headlines, having broken many previous highs in the last few weeks. Climbing mainly on predictions about the dollar's depreciation, gold prices in India have risen 25 per cent in the past 12 months. However, as Shashikant says: "If the dollar depreciation does happen, it would be so much more attractive for the us to invest in markets like India. Therefore, stock markets could end up moving faster."

Let gold be a part of your portfolio, say 10 per cent, but more for its stability value than for appreciation. As an investment, it's a very long-term buy, although it is very very liquid. Important: buy gold as coins or bars from banks. Gold as jewellery is not so much an investment as an emotionally charged, illiquid asset.

Then there's real estate. Prices have zoomed, with investors making as much as 30-35 per cent in just two years. Still, it remains largely a domain for the high net worth individual (HNI). And it's highly illiquid-can you afford to lock in your money so tight?

Real estate investment funds will soon become fairly common, and fund managers are optimistic. "We are targeting 20-25 per cent returns," says Kishore Gotety, Director (Investment), ICICI Ventures, while HDFC Realty Fund promises a minimum of 15-16 per cent over a seven-year period. Those who can invest can look forward to another great year. Have fun, make money.

-additional reporting by Anand Adhikari and Rahul Sachitanand

NEWS ROUND-UP

Talk Gets Cheaper

Cut-throat Rates: STD goes cheaper

There has been a lot of noise about the Oneindia scheme, with Reliance Infocomm first off the blocks with its OneIndia rates. What Reliance has done-uniform rates for STD (read: domestic long distance telephony) and local calls-is what every telco in the country was expected to do after Telecom Minister Dayanidhi Maran's grand announcement of the OneIndia plan last year. What has happened so far is that multiple STD slabs (50-200 km, 200-500 km and over 500 km) have been replaced by two slabs-inter-circle and intra-circle. When asked when OneIndia tariffs will be launched, Maran comes back with a quick: "They are here."

Still, STD rates have steadily dipped since mid-2005 and there's further good news-with the announcement of a sharp cut in annual licence fees for STD operators to 6 per cent (from 15 per cent) and of the entry fee to Rs 2.5 crore (from Rs 100 crore), STD rates are likely to fall further. Also, telcos like Hutch, Idea and Spice Telecom can now kick-start their own STD operations, not to mention various small entrepreneurs who could launch their own calling cards under the new regime.

Post-paid rates today vary from about Re 1 per minute for STD and local (Reliance's Rs 574 plan) to about Rs 0.60 (local) and Rs 2.64 (STD) for Hutch's Rs 298 plan. However, it's the pre-paid customer (over 70 per cent of subscribers fall under this category), who continues to pay more. For a Reliance Rs 330 plan, they effectively pay Rs 3.96 per minute local and Rs 2.49 for STD, while a Hutch Rs 335-plan user pays Rs 3.83 and Rs 2.64, respectively. Competition could change that.

-Kumarkaushalam

Clause And Effect

SEBI's refusal to extend the deadline for clause 49 was a nice New Year gift to investors. What caused so much corporate heartburn was basically the diktat that 50 per cent of a company's board should be composed of independent directors. One excuse proffered by companies was the alleged unavailability of enough professionals. That's a myth that Prime Database demolishes, pointing out that over 12,500 professionals have enrolled on www.primedirectors.com. But experience shows that managements invariably appoint "friendly" directors. "Independent directors are definitely a source of comfort for shareholders " says Rajesh Mokashi, Executive Director, Care Ratings. Still, while well-intentioned, the clause can only do so much. Individual integrity is vital in keeping boardrooms clean.

-Anand Adhikari

Is The Biotech Story Over?

No way, but watch what you buy. As cynthia robbins-roth writes in From Alchemy to IPO: "The biotech world will never be an easy place for investors." Analysts confirm that biotech is typically a long-term play. As an investor, always look at scrips with a two-to-three year horizon. Among the half-dozen Indian stocks available in the sector (including Biocon, Wockhardt and Panacea) most are only two-three years old. The area that looks really promising now is vaccines, with Indian and multinational companies (take Panacea Biotec or GlaxoSmithKline) eyeing the segment. Vaccines are more realistic and deliverable than other high-profile molecules, say analysts, pointing out that 60 per cent of Panacea's revenues come from them. Says Sarath Naru, MD, APIDC Venture Capital: "Although a biotech company reaching the IPO stage would have acquired more maturity and mitigated risks, you must look at its track record." Note: Make sure you know a real biotech company from a pretender. There are quite a few fly-by-night firms masquerading as biotech companies with nothing more than appropriate names behind them.

-E. Kumar Sharma

REALTY WATCH

What Makes Rajarhat So Hot?

Rajarhat: Good move

"If you have a plot at Rajarhat, let me know first," is the opening comment from Pradeep Surekha, MD, Surekha Group. And he's not the only person itching to get his hands on the literal pot of gold that is Rajarhat today. Located on the eastern fringes of Kolkata, this area is a Mecca for realty investors. Prices are soaring: land that cost Rs 1 lakh per cottah in the late nineties is now selling for Rs 8 lakh per cottah (720 sq ft). Even agricultural land, once Rs 20,000-30,000 per cottah now costs over Rs 1.5 lakh.

What's the magic? Rajarhat is expected to be better organised than Salt Lake, Kolkata's other planned township. It's also expected to have a higher population than Salt Lake. With hotels, banks, and companies coming up, Rajarhat is set to be a better commercial centre too. "Academic institutes like Delhi Public School have already set up base here. And in housing, there's a good mix of small, large and lifestyle projects," says Surekha. Adding to the potential is Rajarhat's proximity to the airport. Should you invest? Definitely. Sajal K. Das, owner of Prayukti Online, bought 10 cottahs here in 1995 for Rs 2.5 lakh. He has just sold half the land for around Rs 8 lakh, netting a neat profit to fund his home on the remaining land. Or you could invest in a service apartment, the new fad. Bengal Peerless Housing Development Company is, in fact, reserving part of its projects in the new township for these.

According to K S Bagchi, MD, Bengal Peerless, 'lifestyle' or luxury projects are also drawing investors. Bagchi's company is developing Axis, among the swankest projects in the area, where Mahesh Bhupathy's Globosport is putting up a roof-top tennis academy. With such marquee names, land prices look set to zoom up further. Buy now.

-Ritwik Mukherjee

SMARTBYTES

Identity Crisis

Back on track: SEBI's Thumb show

After much indecision, the securities and Exchange Board of India (Sebi) has decided to re-introduce the unique identification number (UIN) drive under Mapin, the Market Participant and Investor Database scheme. The Yes Bank scam (where one investor applied for the IPO under 6,315 different names to secure more shares) was the obvious catalyst. An UIN (replate with a thumb-print) will now be mandatory for all investors handling trades of over Rs 5 lakh, while for lesser transactions, investors can give PAN numbers. "The Rs 5 lakh limit will be reduced progressively," says Sebi. The promoters and directors of companies have to compulsorily apply for a UIN, but mutual fund investors are exempt.

-Anand Adhikari

Extra Cover

As most people in the world of high finance know, Indians confuse insurance with investment. This made unit-linked insurance policies (ULIPs), which work quite like mutual funds, all the rage. Now, new guidelines have put paid to that. A five-year lock-in, mandatory disclosures, a guaranteed sum assured, and assigning 25 per cent of premium towards insurance has made ULIPs less attractive but vastly safer. Go ahead and buy ULIPs but first understand what goes towards cover, how much is invested, and where. After all, the first function of insurance is asset protection.

-Amanpreet Singh

Two-in-one: A way to milk your account

Interested In Saving

Do you invariably have a tidy sum languishing in a savings bank (SB) account? If yes, the home-saver option offered by banks like ICICI and HSBC might work for you. When you take a home loan, you also open an SB account with the bank. Thereafter, interest is calculated on the principal outstanding minus any amount in your account, thus reducing your interest burden a fair bit. However, your SB account does not earn any interest. Says Nicholas Winsor, Head, Personal Financial Services, HSBC: "It's a good way of deploying excess cash vis-à-vis earning an SB rate of interest." The option won't work, though, for an active investor who can use something like a sweep-in account to earn much more.

-Mahesh Nayak

A Roaring Quarter
A BT-MutualFundsIndia.com report on how funds fared in the Oct-Dec quarter of 2005.

The quarter ending 31 December 2005 began on a slippery note, with the Sensex falling from 8,800 levels to 7,700 levels in the month of October. Still, it recovered a bit in early November and neither the market nor funds have looked back since.

In the mutual fund space, the quarter undoubtedly belonged to equity schemes, as markets scaled new peaks and the equity diversified category registered returns of 8.48 per cent compared to the Sensex, which appreciated by 8.84 per cent in the same period. Of the 122 schemes considered, 57 were able to outperform the market. However, the AUM (assets under management) of the industry has seen a decline of 0.15 per cent in the same period, which could be due to redemption pressures in December. Mutual funds ended up net purchasers to the tune of Rs 2,224.28 crore for the quarter. FIIs (Foreign Institutional Investors) pumped in Rs 9,679.8 crore in the same period.

UTI Mutual Fund continues to be the biggest fund house in the country in terms of AUM, closely followed by Prudential ICICI MF, but in terms of asset growth in the quarter, it was LIC MF that led the way, registering a whopping growth of 39.93 per cent. DSP ML MF also registered stupendous growth of 36.86 per cent.

Scheme Returns

Diversified equity funds delivered returns to the tune of 8.48 per cent in the quarter and HDFC Equity Fund was the best performer with returns of 14.99 per cent. Large-cap funds generally performed better than the much-hyped mid-cap and small cap funds, with returns of 9.38 per cent against the returns of 8.12 per cent registered by mid-cap funds.

Average returns for balanced funds were 5.89 per cent, way below last quarter's returns of 15.76 per cent. LIC Balanced Plan, with returns of 10.71 per cent, occupied the top slot, a jump of 17 places compared to its ranking last quarter. Sundaram Balanced has also moved up the ladder remarkably in the quarter to occupy the #2 place. In terms of Risk Adjusted Returns (RAR) scores, HDFC Prudence Fund emerged #1 again this quarter. And the benchmark CRISIL Balanced Fund Index clocked returns of 5.35 per cent.

With clarifications regarding tax implications on investments in tax-savings schemes in, there has been a spate of new fund offers in the ELSS (equity linked savings scheme) category. The category as a whole returned 7.97 per cent, but top performing funds like Sundaram Taxsaver and ING Vysya Tax Savings Fund registered returns of around 15 per cent.

The average returns for liquid funds stood at 1.30 per cent, with LICMF Liquid Fund topping the rankings with returns of 1.51 per cent. The fund has an expense ratio of 0.49 per cent, which is on the lower side against the category average of 0.53 per cent. Sundaram Money Fund-Super IP was the best performing scheme on RAR basis for the quarter.

LIC G-Sec Fund emerged at the top of the table in the gilt category, with returns of 1.79 per cent whereas the category average stood at 1.28 per cent. The category failed to generate good returns due to the lacklustre performance of the debt markets this quarter.

The average return of monthly income plan schemes was 1.64 per cent for the quarter. HDFC MIP topped the category both in terms of absolute returns and RAR scores, with quarterly returns of 3.74 per cent. Overall, investing in debt funds has not proved beneficial for investors and all categories in the debt segment have generated below average returns in the quarter.

The category average returns for income plans stands at a dismal 0.90 per cent but topper Tata Income Fund was the only silver lining in the cloud, delivering returns of 7.77 per cent. The benchmark Crisil Composite Bond Fund Index registered returns of 0.52 per cent in the same period.

In the sector fund category, Infotech was the favoured flavour; the top five sector funds for the quarter are all infotech funds, with SBI Magnum Sector Umbrella-Infotech leading the pack with returns of 20.57 per cent. FMCG (fast moving consumer goods) funds performed well with an average return of 7.42 per cent. Pharma funds also performed pretty well, registering returns of around 10 per cent and SBI Magnum-Pharma topped the rankings with 14.54 per cent returns. Banking funds were the only dampener as the category delivered negative returns of 3.98 per cent.

The Indian equity market has delivered phenomenal returns in the recent past and mutual funds have been outperforming every other investment category in terms of returns.

The market looks set to expand further in the coming year, but the important question to ask is whether it has enough steam left to make the coming year as good as 2005 was. We'd recommend caution. Investors should enter the markets in a staggered manner through the sip route with a long-term investment horizon.

P.S: Returns are absolute per cent returns for the quarter, and RARs have been calculated taking one-year weekly rolling return and a RF (risk free rate) of 5.5 per cent.

Hydra-headed Scamster
Why IPOs are bad news once again.

The yes bank IPO share allotment issue has again confirmed that it requires just one individual to play havoc in the market. In what now has the makings of a huge scam, the fate of the small investor still remains uncertain. Sebi's (Securities and Exchange Board of India) decision to revive the Unique Identification Number (UIN) with fingerprinting is possibly the best move towards correction but a lot remains to be done. For one, the UIN (or PAN) should be made mandatory not only in all primary and secondary market transactions but also for bank accounts, property registrations, and any other high-value transaction. As Prithvi Haldea, Managing Director, Prime Database, says: "The only logical solution to these problems is the creation of a unique ID for every investor."

In the Yes Bank IPO, Roopalben Panchal applied for shares under 6,315 different names from the same address to ensure more share allotments. More surprising than the scam is why regulators did not sniff it out earlier-it's so obviously the thing unscrupulous operators would do. In fact, a Sebi order passed just after the scam broke says: "Sebi has been receiving information regarding alleged abuse of the IPO allotment process." Sebi admits it is reprehensible that it should have happened at the cost of genuine investors. Says Haldea: "The Know Your Client concept is not foolproof." Invariably, even in earlier scams like the Harshad Mehta one, the common factor has been the collusion with banks. Says a capital market analyst: "Banks should not handle activities related to the capital market, or function as brokers and depository participants."

-Krishna Gopalan

Value-picker's Corner

INDUSIND BANK; PRICE: RS 56

In a wildly bullish year, the Hinduja-owned Indusind Bank grossly underperformed. Now, capitalising on its merger with Ashok Leyland Finance , it looks set to take off. It has capital funds of Rs 1,200 crore, net worth of Rs 830 crore and in the quarter ended September '05, deposits and advances grew 31.6 per cent and 34.8 per cent, respectively. With a Price-Equity multiple of 9 (peer P-E of about 20), the sweetener is IndusInd's vulnerability to a takeover (always of benefit to investors). That makes the bank a good long-term buy. One-year target: about Rs 85.

-Anand Adhikari

Trend-spotting

In the year of the bull, money would have poured into equity funds, right? Wrong. Money moved out. What came in was mostly into new funds. One reason: investors still imagine that NAV (net asset value) functions like share price. Says Sandesh Kirkire, CEO, Kotak Mahindra Mutual Fund: "Investors think a scheme with NAV of Rs 15 per unit is cheaper than one at Rs 50." Therefore, the rush to exit. Then, investors are comfortable buying units at face value. Of course, money could also be moving out because people are busy booking profits at the peak of the market.

-Krishna Gopalan