|Chandigarh: The coming up of a software
park is drawing the realtors
||Jaipur: Tourism is huge. Hero Honda's
proposed plant is an attraction
Sahu is 33 years old. After finishing his schooling and graduation
in Hyderabad, he moved back to Orissa, where he now takes care
of the family's liquor business. Successful though his business
is, Sahu is clear that he does not want to spend the rest of his
life in a little town called Titlagarh. Part of the reason is
that he is married, with two boys aged six and three. And the
thought of his boys studying in some remote town in Orissa isn't
Therefore, as part of his long-term plans,
Sahu recently booked an apartment in Visakhapatnam's upmarket
"Waltair Upland". But why Visakhapatnam? "It is
about eight hours by road from Titlagarh and it looked like a
good investment," says Sahu. That it certainly has been,
given that the real estate price here has shot up from Rs 1,600
per sq. ft in March this year to close to Rs 2,400 per sq. ft
Sahu's apartment is a little over 1,000 sq.
ft in size and he intends to use it as his guest house till the
time he is ready to send his kids to study in Visakhapatnam. "There
are facilities like a gym, library and a community hall. Besides,
the kids have recreational facilities," he says. The apartment
is expected to be ready for possession early next year. The point:
Sahu is among those who have realised that there is merit in investing
in residential property in India's tier II and even tier III cities.
Priced Out of Metros
The debate on investing beyond the Big Four-Delhi,
Mumbai, Kolkata and Chennai-and even the next rung metros such
as Hyderabad and Bangalore has gained momentum over the recent
years. Real estate prices in these cities have soared, making
an apartment or a house unaffordable for a large chunk of India's
population. That's precisely why the first-time buyer or the savvy
investor is looking beyond the metros. And, indeed, there are
many tier II and III cities to pick from, with Chandigarh, Indore,
Jaipur, Cochin, Coimbatore, Haldia, Pune and, of course,Visakhapatnam
being just some of them.
No doubt, there are issues when it comes
to investing in a city where one does not live. "It is very
important to understand how you will manage your property if you
don't live there," points out Anshuman Magazine, Managing
Director, CB Richard Ellis, South Asia. After all, you don't want
your land or apartment worth several lakhs to be usurped by some
squatter. But if it's still worth the investor's while to take
the plunge, there are good reasons. Typically, those who invest
in the tier II and III cities are those who have come to live
there for a few years or those who hail from that city but do
not live there anymore. More importantly, though, the rationale
for investing stems from the rapid development taking place in
these places. "Large developers themselves are going to these
smaller cities," notes Magazine. For example, Parsvnath Developers
is setting up residential projects in cities such as Agra, Lucknow
and Moradabad. This is apart from townships at Ujjain and Jodhpur.
Here is a ready reckoner on four
cities and the factors which are driving growth here.
AREA IN SQ. KM: 114
POPULATION: 0.9 million
LITERACY RATE (PER CENT): 81.76
MAJOR INDUSTRIES: Automobile & auto parts, bicycles,
machinery, handloom and handicrafts. IT and ITEs is the next
LANGUAGES: English, Hindi, Punjabi
RESIDENTIAL HOUSING RATES (PER SQ. FT):
AREA IN SQ. KM: 64.75
POPULATION: 2.3 million
LITERACY RATE (PER CENT): 67
MAJOR INDUSTRIES: Tourism, exports of gems, diamonds
and jewellery, marble and granite and carpets
LANGUAGES: English, Hindi, Rajasthani
RESIDENTIAL HOUSING RATES (PER SQ. FT):
AREA IN SQ. KM: 94.88
POPULATION: 0.65 million
LITERACY RATE (PER CENT): 94.3
MAJOR INDUSTRIES: Is the next big IT and ITES story.
Other industries include gold, textile retailing, seafood
and spices exports, tourism and shipbuilding
LANGUAGES: English, Malayalam
RESIDENTIAL HOUSING RATES (PER SQ. FT):
AREA IN SQ. KM: 165.17
POPULATION: 2.5 million
LITERACY RATE (PER CENT): 75
MAJOR INDUSTRIES: Automobiles, engineering and soyabean.
SEZ for boosting software exports coming up
LANGUAGES: English, Hindi
RESIDENTIAL HOUSING RATES (PER SQ. FT):
Source: Government websites, industry
Real estate consultancy Knight Frank India's
Chairman, Pranay Vakil, cites the development on the BPO front
as a key factor behind the economic development at the smaller
cities. "It is because of BPOs that places like Jodhpur,
Mohali, Nagpur, Patiala and Madurai are looking very attractive,"
he explains. The implication is that these cities are likely to
gain from the entry of BPOs just like Bangalore, Hyderabad and
Pune did. As organised white-collar jobs got created, the willingness
to work in these cities increased, resulting in higher property
prices. "Look at a city like Jaipur, where prices have increased
by 300 per cent over the last two years. Even in a place like
Mysore, prices have now started going up. It never happened in
the last 10 years," says Vakil. "Places like Jaipur,
Chandigarh, Mohali and Coimbatore look like good bets at the moment,"
The retail boom in the country, too, has
had a role in hiking property prices. A recent report put out
by Knight Frank states that smaller places like Raipur have three
malls with a total built-up area of over a million sq. ft, Jalandhar
has as many as five malls, while Indore has eight, where the total
built-up area is a shade less than two million sq. ft. Evidently,
the development is in full swing and it is only this sort of development
that is driving the prices of real estate upwards. In the process,
the prices of residential apartments stand to gain too. The development
on the mall front also seems to suggest that the potential in
places like Agra, Rajkot and Amritsar has been underestimated.
"There is a lot of latent potential in the second and third
tier. It is merely a question of infrastructure looking up,"
believes Dharmesh Jain, MD, Nirmal Group, a Mumbai-based developer.
Jain, interestingly, points out that a lot of residential development
in places like Indore and Surat is on account of people hailing
from there deciding to invest back home.
Although the case of someone like Sahu is
slightly different-moving to the city from a small town-the fact
remains that there is genuine interest among investors to make
bets beyond the tier-I cities. Take the case of Visakhapatnam
itself. One of the more significant developments here was when
HSBC arrived in 2004 with a large part of its back-end operations.
Though there was never any doubt on the kind of money people in
Visakhapatnam had, it was a question of when the city would become
a part of the real estate story. "The fact that it is a coastal
city has always been an added attraction and also the reason why
property here has traditionally been expensive," says P.
Phani Sekhar, an analyst at Mumbai's Angel Broking. "Now,
there is a plan to build a biotech park in Visakhapatnam, besides
which Wipro and Satyam are looking at it as an it destination."
|Indore: Has a big automobile base and
will soon be a big SEZ story
||Haldia: The West Bengal government intends
making it a trading port
The need to be doubly cautious when it comes
to investing in smaller cities can never be overstated. Anyone
planning to buy property in such cities should first thoroughly
investigate the property titles and local regulations. In a place
like Hyderabad, for instance, there have been innumerable stories
of the same property getting sold to multiple buyers, with each
discovering the fact too late in the day. From a buyer's perspective,
therefore, there are a couple of practical issues that need to
be addressed. "The buyer will need to look at personal factors.
For example, how often will he be able to go there if he does
not live in that city," states Magazine. Even if the buyer
intends to lease out the apartment, he must ensure that the tenant
is financially sound.
Like any other investment, land too requires
a broad outlook and the buyer cannot look at it as the final answer
to all his investment planning. "I would say that investing
in second and third tier cities would be for those who have money
to spare. It is for those who are prepared to wait for at least
five years and who are willing to settle for very ordinary returns
during that period," cautions Knight Frank's Vakil. Like
any other boom-including the stock markets-it is rather easy to
get carried away, although a wee bit of caution while investing
in smaller cities can go a long way in ensuring safety of your
The first rule of caution, then, is not to
abandon logic for hype. If you can't enter a boom (city or locality)
early on, look for the next boom city or locality. Especially
to be avoided are cities where prices are going up for no apparent
reason. For those who live in the city, the decision to buy is
a lot easier, since they look at the issue differently. For the
other buyers, however, the decision will have to be well considered
and that certainly cannot be on the lines of real estate always
being a sound investment. "There is a perception that prices
generally never fall and that is not right," notes Magazine.
|Mysore: The city is seen as an emerging
mini-IT capital of the country
||Coimbatore: Textiles and auto components
are big industries here
As mentioned earlier, the decision to invest
in smaller cities has been propelled to a great extent by the
boom in retail (read: malls). The good news: That phase now seems
unstoppable, with a host of big names like Kishore Biyani's Pantaloon
Retail looking at malls in every conceivable format. "Still,
it needs to be understood that there is too much of optimism on
that front and the investor will do well to be a little cautious,"
warns Angel Broking's Sekhar. He cites the case of Nagpur, where
a large number of malls have come up. "One is not sure if
the city can accommodate so many of them," he says.
So, what should be the buyer's strategy?
Well, one thing for sure-have a long-term outlook and that means
at least five years. Remember, the kind of money that you are
putting in is likely to be much less (compared to an investment
in a big city) and it is only fair to give yourself a longer time
frame. The metro story is expensive and is likely to be out of
bounds for most people at least. "The buying potential is
largely tapped in the metros and the story will come from the
smaller cities," explains Nirmal Group's Jain. Also, the
buyer would do well to identify key events that will act as the
trigger for prices rising. This could be a proposal for an international
airport or a special economic zone, which means the surrounding
areas will gain significantly.
Bangalore and Hyderabad are recent cases
where an airport project has had prices hitting the roof. As Magazine
puts it, "Investing in tier II and III cities needs to be
looked at differently. Things like quality of infrastructure are
not that great here."
In short, the investor will have to pick
and choose very carefully. The opportunities are unlimited, but
that has to be balanced against factors like reasons for investing
and the outlook in terms of a time frame.
Meet The Virtual
everyone, at one point or another, has been a victim of the shenanigans
of property brokers. But now, thanks to real estate portals, deliverance
may be at hand.
the last time you were moving house? Most probably, you went through
the process of collecting weekend newspapers that listed all the
property classifieds areawise, and spent Sundays making phone
calls and travelling around the city with your unfriendly neighbourhood
broker. And that, if you were shifting house within the same town.
If you were moving from one city to another, chances are your
employer put you up in a company guest house or hotel for a month,
in which time you ran about the city-in between meetings-looking
for a flat that you would finally settle into. No wonder, the
last thing any one of us wants to do is to move house.
Thanks to a half-a-dozen or so real estate
websites, renting or buying a property is getting easier and less
painful. With just a few clicks, you can now buy or rent property
in Sambalpur in Orissa or Bharatpur in Rajasthan. Persquareyard.com,
magicbricks.com, indiaproperties.com, indiaproperty.com, 99acres.com,
indiarealtors.com, realacres.com and propmart.com are all realty
websites that have online listings of real estate classifieds
for buyers, sellers, agents, builders and property experts with
information on all the available property, including real estate
news, upcoming projects, a directory of agents and builders and
property rates in cities across the country.
What this means is that if you are looking
for a flat in south Mumbai, you could go to one of these websites,
enter basic search details, like the category of property you
are looking for (which would include, residential, commercial,
agricultural or industrial land), the type of property you want
(everything from an apartment, independent house, township, hostel
or guest house, paying guest in the residential category to office,
retail, warehouse or marriage halls in the commercial category
to farm land, agricultural land or industrial property in the
third category) and the city. The search will immediately throw
up a host of the latest listings (updated to the current date)
with details on property type, built-up area, number of bedrooms,
availability of car park and contact numbers for the price details
(if it's not already there).
| Why You Should
The reasons are many. Take your pick.
Eliminates futile calls to over-budget brokers
properties across regions
you to categorise and sort information easily
are no hidden costs or brokerage fee
you to look at photos/videos of properties
you pick the time and place for property hunting
These sites also have an advanced search option
which allows users to sift through the listings by specifying
locality of preference, keywords, budget, number of bedrooms and
bathrooms, parking required for one, two or more cars and also
additional amenities such as gym, swimming pool, security, vaastu
compliance and even pet-friendliness. In fact, indiaproperty.com,
which was launched in December last year, allows sellers to post
property videos on their site and buyers to apply for property
loans online. It also hosts PropertyBytes, which tracks the real
estate industry in a blog. "The blog format opens up avenues
for discussion of every related topic and article on vaastu, feng
shui, real estate investment and property management," says
Yash Asher, Product Manager, indiaproperty.com, which has drawn
over 0.2 million registered users in 10 months of its existence.
Says Kiran Mayee, a software engineer with a company in Chennai,
who recently rented a flat in Rangarajapuram, thanks to the listings
on persquareyard.com: "I got lots of contacts from the website.
The best part was I didn't have to wait for the weekend free ads
newspaper to find relevant sources."
Highlighting the advantages of these websites,
Rajan Sastri, Head, Research and Advisory, indiaproperties.com,
which has over 55,000 registered users, says, "We give the
customer the power of choice by placing at the buyer's disposal
an entire database to shortlist his property from. To that extent,
it greatly reduces the customer's running around, saves time and
money." The website, he explains, does not dispense with
intermediaries such as brokers; on the contrary, these listings
(which are also put up by brokers and builders/promoters) are
their way of disseminating information about availability of property
to the widest audience all across the country. "It is also
the quickest way to publicise and the fastest mode to receive
a response," he says, adding that by 2007, it is estimated
that 65-70 per cent of property inventories in the metros and
mini-metros will be listed on the internet, and brokers and builders
will receive over half of their responses from such listings.
|Realty check: It takes just a few clicks
Another of the many online real estate sites,
persquareyard.com was started by Sulekha, the largest online community
for Indians worldwide. Originally a part of the sulekha.com site,
persquareyard.com was carved out as a separate service in May
due to the hectic activity and user requirements and feedback
on the section. The company's CEO Satya Prabhakar says persquareyard.com
is not just about helping people buy or sell property, instead
it is about helping a person convert a house into a home. "People
didn't want just classified listings in the real estate section;
they wanted information beyond the regular buying and selling.
Thus, we augmented the section into a separate site and created
an ecosystem of buyers, sellers, agents, developers, experts and
linked it to Sulekha's classifieds so that people could tap into
that community to get information-be it property rates in an area,
lessee/buyer rights on taking possession of a house or facilities
in the surrounding area," says Prabhakar, whose site has
about 0.25 million registered users.
Web brokers also make immense sense for city-slickers
looking to buy property in tier-II towns (see Realty's Two-tier
Deals elsewhere in this section). The real estate websites list
places from Calicut to Ludhiana, perhaps for exactly these reasons-all
the preliminary spadework can be done on the internet, without
having to physically travel to these places .
The advantages of such websites are particularly
more valuable in a country like India. While in the US, the real
estate agents follow a system of putting all the available property
in a common database, which is accessible to all agents, in India,
brokers are secretive about their clients and the properties they
have for sale or rent. These websites help overcome this problem
by enabling all the agents to post their listings on a common
platform, thus making all property information available to all
property hunters and sellers. Besides, they also take care of
the age-old problem of storing weekend newspapers and calling
up agents who might not have the right profile of property you
are looking for.
If this is good news, here is something even
better. All these services are provided free of cost to buyers
and renters. It is only the agents, brokers, developers and builders
who pay for their listings or the display ads on the website,
which also makes them more accountable, professional and trustworthy.
So, let your next real estate broker be virtual.
The Fund Conundrum
mutual fund investors look for before investing: A winning scheme
or a good fund house?
|"We sell products of MFs with
which we have an empanelled agreement. We are trying to tie
up with a few more mutual funds"
Country Director (Investments)/Citigroup
say the words 'mutual funds' to Radha Banerjee. She might be prompted
to throttle you. A team leader at a Mumbai-based BPO, Banerjee
(not her real name) is extremely upset with her mutual fund (mf)
investment. Although the bellwether 30-share index, Sensex, has
gone roaring past the 12,000-mark, her fund (Franklin Templeton's
Prima Fund) is down almost 9 per cent in six months. The Sensex,
in contrast, is up 7 per cent. On the advice of her distributor
(read: mutual fund advisor), Banerjee, 29, had invested Rs 50,000
in the hope of making a quick buck in a rising stock market. So,
what went wrong?
Clearly, she was taken in by her distributor
and the fact that she was being advised a fund from a reputed
house. She did not bother to analyse the fund's performance against
its benchmark and peers. Says B. Sukumaran, MD, Canbank Mutual
Fund: "The distributors run the show in the mutual fund industry.
Rather than performance, they sell schemes of mutual funds that
give them huge incentives."
In fact, organisations like Citibank Investment
Services only sell mf schemes of seven fund houses-HDFC, DSP Merrill
Lynch, Franklin Templeton, Fidelity, Prudential ICICI, Principal
PNB and Birla Mutual Fund. Vidur Verma, Country Director (Investments),
Citigroup, says, "We sell products of MFs with which we have
an empanelled agreement. Going ahead, we are trying to tie up
with a few more mutual funds." Interestingly enough, Citibank's
CitiChoice Analysis Snapshot recommends Franklin India Prima (that
is, Banerjee's fund) as one of its best picks. The surprising
part is that in the one year ended October 5, the fund has been
one of the biggest laggards in its category, with a return of
15.2 per cent. (The fund returned 15 per cent in the last three
months.) On the contrary, Sundaram Select Mid-cap has been the
best performing fund in this category, with a return of 60 per
But since Citibank does not sell the funds
of Sundaram Mutual Fund, investors who depended on Citi for advice
never got to profit from the fund's stellar performance. "You
can't always blame the distributor for MIS-selling," defends
Sony Joseph, a retail distributor. "A few of my customers
only invest in schemes of big fund houses like Franklin Templeton
or HDFC MF and a few others only will invest in funds managed
by Sunil Singhania of Reliance mf and Prashant Jain of HDFC Mutual
| A personal investment strategy
Here are some questions you should ask yourself before signing
Does the fund have the potential to provide the
returns you need to meet your goals?
it provide the right balance of exposure to the different
sectors as well as diversified allocation to large caps and
the investment fit in with your expected investment time horizon?
you comfortable with the level of risk associated with the
Due to their consistent performance, investors
tend to prefer a star fund manager. However, once the fund manager
leaves (huge money and new opportunities have seen a sustained
churn among fund managers, who are resurfacing elsewhere as hedge
fund or private equity investors), the scheme suffers and, in
turn, the investors. For example, Sandip Sabharwal's exit from
SBI Mutual Fund saw its performance suffer for a while. "Rather
than schemes, it is important to opt for fund houses with a process-driven
investment philosophy," says, R. Swaminathan, Associate Vice
President & National Head (Mutual Fund), IDBI Capital Market.
Indeed, there are instances where the performance
of schemes from process-driven fund houses did not suffer following
the fund manager's exit. Take HDFC Equity Fund, for instance.
Even after Chandresh Nigam quit HDFC Mutual Fund, Prashant Jain
has maintained the performance track record of the fund, becoming
the advisors' most preferred scheme. Similarly Kotak 30, an equity
diversified scheme of Kotak mf, despite having seen four fund
managers in the last five years-S.N. Rajan, Vetri Subramaniam,
Rushabh Seth and now Anand Shah-has not suffered.
But the perfect strategy, says Hemant Rustagi,
CEO, Wiseinvest Advisors, would be to look at both: That is, the
scheme and the fund house. "There is no point trusting the
schemes of mutual funds with good and proven track-record, management
style, high quality systems and processes, if they don't make
money for the investor. On the contrary, established credentials
over a period of time certainly give some comfort level to investors,"
Even before you start worrying about the
fund house or the scheme, there are some basic steps the investor
needs to go through. For instance, you must establish your investment
goals, assess your risk tolerance, and develop a personal investment
strategy (see A Personal Investment Strategy).
Once the investment strategy is set, there
are a few sets of information an investor should always look for
before investing in a fund. A fund's past performance is no guarantee
of its future success. But over the long term, the success or
failure of any investment in a fund also will depend on factors
a) The fee and commission of the fund: It
is important to check and compare fee and commissions associated
with mutual funds. This can have a huge impact on the overall
absolute return of a fund.
b) Size and age of the fund: New and small
funds have excellent short-term performance records. Because these
funds may only invest in a small number of stocks, a few successful
stocks can have a large impact on their performance. But as these
funds grow larger and increase the number of stocks they own,
individual stocks have less impact on performance.
This may make it more difficult to sustain
initial results. You can get a better picture of a fund's performance
by looking at how the fund has performed over longer periods and
how it has weathered the ups and downs of the market.
c) Volatility in the fund: It is always better
to choose a fund according to one's risk-taking ability. Volatility
indicators like beta (which indicates the variance in a fund's
performance against the stock market) can tell you how volatile
a fund has been. Generally, the higher the beta, the more volatile
d) Flexibility (how flexible the fund manager
is in changing the fund allocation according to the market scenario)
and the fund's ability to perform in different markets.
e) Tax implications and the different services
provided by the fund such as shifting from one fund to another
in the same fund house, are a few other things one should look
for before investing.
If you think that's too much trouble, fine.
But one thing you must do at least is to look at a scheme's long-term
performance before investing in it. More often than not, behind
the good performance of a scheme will be the good investment philosophy
of a good fund house.
Cake and Eat it Too
Here comes an investment vehicle that combines
the safety of debt and the upside of equity.
|"CPS offer Indian investors
the security of principal protection while allowing them to
participate in the upside of equity"
CEO, Kotak AMC
the last three years, as the equity markets yo-yoed their way
up from 3,000 levels of Sensex to 12,000 and thereabouts, many
investors sat out on the sidelines. At 6,000 they feared erosion
of their original capital investment. But sitting out has its
costs. In this case, for instance, the money should have doubled.
Instead, it stayed locked possibly in a bank account. Recently,
the Securities and Exchange Board of India (SEBI) came out with
guidelines for capital protection oriented schemes (cps) by mutual
funds, which offer interesting possibilities to investors facing
this classic dilemma. A clutch of fund houses such as Pru ICICI,
Franklin Templeton, DSP Merrill Lynch, Reliance and Kotak is about
to hit the market with such products. Portfolio managers like
ask Raymond James and Benchmark already have cps.
But what is cps and why should you care about
it (see The CPS FAQ)? These schemes, as the name suggests, are
relatively low-risk investment options and ideal for investors
who worry more about their principal investment than the return
on investment. So, if you are someone who already invests in RBI
bonds, public provident funds (PPFs), National Savings Certificates
and bank fixed deposits, then maybe you will find cps worth your
while. "Indian investors traditionally invest in fixed income
products," says Sandesh Kirkire, CEO, Kotak AMC, "and
capital protection oriented products offer them the security of
prinicipal protection while allowing them to participate in the
upside of equity."
| The CPS FAQ
| What is a capital protection oriented scheme?
It is a mutual fund or a portfolio management scheme structured
to protect the principal investment.
How does it work?
A large part of the fund's corpus is invested in top-rated
bonds, and the remainder in risky assets such as stocks
for higher returns.
Are returns guaranteed?
No. Only the principal investment, or most of it, is
Who should buy a CPS?
Investors with high net worth, low income streams and
low risk appetite such as retirees.
Rajan Mehta, Executive Director of Benchmark
AMC, believes that CPS are best suited for people with high net
worth and low or negligible current income like retired people
or those who have sold their inheritance or some other big property.
"Young people, however, could benefit from direct participation
in equities, as they are still creating wealth and have longer
investment horizons, which reduces risk considerably," he
The investor, however, must understand that
these products do not assure or guarantee returns. All that they
do is try to protect either whole or part of the original capital
invested, while trying to improve returns. Given their structure,
they are close-ended. But how do they ensure safety of capital?
In its simplest and most generic form, such a product invests
a major chunk of its corpus into high quality debt, typically
government securities and other AAA-rated paper. The yield on
such fixed income instruments is expected to help protect the
original capital investment. The remainder of the corpus is pumped
into riskier assets such as equities. The idea: increase the corpus'
overall return so as to beat inflation.
Liquidity, or the lack of it, is an issue,
since generic cps, particularly the mutual fund products, lock
the investible funds for a fixed tenure. But there are some schemes
that provide easy liquidity. The bottom line is this: There is
no lazy way of making money or even keeping it.
For Gold, Still?
Gold prices are down. So, should you be buying
|Gold shoppers: Indian consumers have
always had a thing for the yellow stuff
no stretch of imagination could you call Bibek Mhatre a savvy
investor. He doesn't spend a whole lot of time reading the stock
pages of financial dailies or devouring a book a day on, say,
stock picking. In fact, he doesn't even work anymore. He's 74.
But when it comes to playing in gold, Mhatre, who used to guard
the country's borders as a Major in the army, could beat Dalal
Street pros hands down. He has such a good feel for the market
movements that, for some years now, he has been buying gold at
its bottom and selling it as soon as it nears its peak. Take a
recent example. In May this year, when experts around the world
were predicting that the prices of the yellow metal would stabilise
at around Rs 10,000 per 10 gm, the bachelor from suburban Andheri
(West) quietly exited from the gold market. So, while other investors
watched the value of their investments in gold shrink over the
next few months, Mhatre was sitting pretty.
Mhatre seems to be naturally good at sensing
gold's movements. But not all investors have that gift. Some investors,
in fact, are still holding on to gold bought at $700 per ounce
(Rs 9,990 per 10 gm), while others are wondering whether investing
in gold still makes sense. The dilemma is compounded by the fact
that gold prices have dropped quite a bit. On May 12, 2006, prices
had touched an all-time high of $725 per ounce (Rs 10,368 per
10 gm), but now rule at $580 per ounce (Rs 8,475 per 10 gm)-that's
a correction of around 20 per cent.
So, purely from an investment point of view,
is it a good time to buy gold? Sunil Ramrakhiani, Head (Commodities),
IL&FS Investmart Commodities, thinks so. "We are quite
bullish on gold, as the speculative positions no longer exist
in the market. We expect gold prices to go up to $650 per ounce
(Rs 9,404 per 10 gm) in the next six months," he says. Ditto,
say other gold analysts. For years now, the yellow metal has generously
rewarded investors and that's reason enough to buy it now. In
the last six years alone, gold has returned over 150 per cent,
next only to equity. If you are planning to increase your stock
of the precious metal this festive season, then you may want to
pick the place where you buy it, more carefully. That's because
the price, quality and even the ease of buying could vary, depending
on the nature of the retail point.
The Neighbourhood Jeweller
Buying gold from jewellery shops is the easiest
and the most common method but involves a higher cost-normally
10-15 per cent higher than the market price. There are also issues
of fair weight, quality and price. The only advantage of buying
gold from your neighbourhood jeweller is that you can sell it
back to them with ease. But, here again, the consumer tends to
lose, since most local jewellers buy back gold at much lower prices
than the market benchmark price. The jeweller route is recommended
only for consumers in far flung areas where there are no bank
branches or those who intend to liquidate the investment in the
The Commodity Exchange
Traditionally, gold has proved to be a good
hedge against inflation and that's what encourages people to buy
gold. As an extension to this principle, gold today is freely
traded just like any other commodity or equity on the country's
two leading commodity exchanges. In fact, you get the best price
of gold at an exchange, compared to a bank or a jewellery shop.
The only hassle here is that you cannot buy gold directly; you
have to buy it through a broker. Then, it takes a week for the
gold to be delivered, in case you decide not to keep it in a dematerialised
(that is, electronic) form. "You are assured of the best
quality and also have the option of keeping the gold in demat
just the way you do with equity," says P.K. Patnaik, Associate
Vice President, Kotak Commodity Services. The icing here is the
facility to pledge gold with the exchange and earn some extra
bucks. The exchange route is best for people who want to buy gold
in large quantities for marriage or for festivals. Commodity exchanges
also provide you the facility to sell the gold back to them.
The Commercial Bank
Of late, the yellow metal has become popular
as a gift item. Not surprisingly, then, there are more than a
dozen commercial banks such as HDFC Bank and ICICI Bank that hawk
gold just like they do credit cards and home loans. The gold "gift
packs" come in various shapes and sizes, ranging from 5 to
8 to 50 gm and from small coins to bars. HDFC Bank, for example,
offers its 24 karat, 99.99 per cent pure gold bar named 'mudra
gold', in tamper-proof packs.
The gold itself is imported from Switzerland
and comes with an Assay certification. "We have seen a four-fold
increase in the demand for gold from retail customers," says
Chitra Pandeya, Head (Liabilities), HDFC Bank. The bank route
is strongly recommended for people who want complete peace of
mind in terms of quality and have no time or the inclination to
buy from the commodities exchange via a broker. The only downside
to buying gold from banks is that you can't sell it back to them,
since regulations don't allow them to buy gold from retail consumers.
How to separate the wheat from the chaff.
|Dilemma: Which close-ended fund to buy?
a close-ended fund hitting the market every second day, so how
do you tell the winner from the loser? By keeping your eyes peeled
and doing some due diligence on the schemes. The first thumb rule
is to avoid small fund houses with portfolios skewed towards risky
equity. Always go for established fund houses with a track record
of performance in both equity and debt funds. Some fund houses
such as HDFC, ICICI, Templeton, and Reliance Mutual Funds fit
the description readily.
Also, carefully look at the scheme's investment
objective and align it with your own investment goal. A portfolio
of mid-cap stocks has the potential to offer extraordinary returns,
while the one comprising large-cap stocks may offer you realistic
returns with guaranteed capital protection. In fact, a close-ended
fund offers ample scope for fund managers to take a long position
in growth-oriented stocks and even try out mid-caps and small
caps. "Longer the tenor, the better it is for the fund,"
says S. Swaminathan, Head (Mutual Fund), IDBI Capital Market Services.
Unlike an open-ended fund, a close-ended
fund locks money for a pre-defined period of six to 15 years.
"Look at the debt component (ideal is between 10 and 30 per
cent), as in the longer run debt has the potential to offer returns,
besides safety of capital," explains an equity analyst. With
Dalal Street back at 12k levels, investors are once again getting
tempted to bite open-ended schemes, but a close-ended scheme makes
more sense for those who can separate the wheat from the chaff.