Inflation numbers which had hit record highs in Aug-Sept’08 on the back of record high commodity prices has declined and touched all time lows of 0.27% for the week ending 14th March’09. This spectacular fall in the numbers is the reflection of the steep fall in the commodity prices. This extra ordinary circumstance has led to Inflation numbers falling to the near zero percent levels and probably turn negative in the course of the next few months on account of the base effect. The Inflation numbers is calculated on a year on year basis. (Current year WPI number / last years WPI number for the same week). Last year the WPI index had seen a huge rise on the back of the commodities rally and then witnessed a steep correction as commodity prices corrected. Hence this low inflation numbers is merely a reflection of the events that took place in the last 1 year. The negative inflation does not indicate that the economy is going into deflation. It is just a statistical effect.

Globally commodity prices had shot up to touch record highs in June’08 resulting in inflation numbers touching record highs both domestically and globally. Energy prices had gone up by nearly 50% while metals and agricultural prices had gone up by around 30%. Domestically, the impact of the high global prices was also felt with prices in the WPI index witnessing huge upward revision. Post the global financial crisis, prices of commodities witnessed a spectacular fall as moderating economic growth was not conducive for high commodity prices. Energy prices have fallen by nearly 70% from their peak while metals have corrected by nearly 50%. Globally agricultural prices too have seen a correction by nearly 40% from their peak. This has resulted in a steep fall in inflation numbers globally. It has also had a positive impact on the domestic inflation numbers which is represented by the Wholesale Price Index (WPI Index). The WPI index is made up of three major constituents. i.e. Primary Articles Index with a weightage of 22.03%, Fuel, Power, Light and Lubricants Index with a weightage of 14.23% and the Manufacturing Index which has a weightage of 63.74%.

Since touching its peak in the first week of September’08, the WPI index has fallen by 5.97%. The Manufacturing index which has the highest weightage has fallen only by 4% while the Primary articles index has fallen by 2.46%. The fuel index has witnessed the maximum fall of 14.47%. It is steep fall in the Fuel index that has contributed significantly to the fall in the Inflation numbers. The reason for the fall in the fuel index is the steep fall in crude prices which has corrected from the USD 147 per barrel levels to USD 50 per barrel levels. The fall in the manufacturing index is mainly on account of a fall in the global commodity prices and the impact of the duty cuts that the government has initiated. The primary articles index has fallen the least despite the fall in the global agricultural prices. The main reason is that in India, the government announces a Minimum support price (MSP) i.e. the price at which the government will buy from farmers. Despite good crop production in the last 2 years, the prices of food grains have not fallen since the Government has increased the MSP for agricultural products which is reflecting in the higher growth in the primary articles index.

Going ahead, in the next few weeks, we might see the Inflation numbers turn negative for the first time. However this negative numbers should not be constituted as deflation sine deflation occurs primarily when the economy is in recession and the prices of goods are falling due to lack of demand. However in case of the economy, the GDP growth is projected to slow down but still grow around 5.5%-6% as compared to the developed economies wherein the GDP is actually shrinking with falling inflation numbers. This negative inflation is only a reflection of the phenomenal rise and the equally spectacular fall in the commodity prices in the last 1 year which impacted the prices of goods.

Formula: Operating Profits/ Net sales.

EBITDA Margin is also known as operating margin. It is a ratio which is used to determine operating efficiency of the company. The ratio is used to measure company’s operating profits i.e. what would be the earnings of the company after paying of fixed and variable costs of production. The higher the operating margins its good for the company as it has a higher income available to take care of its other fixed cost such as interest on debt. One must look at the operating margin ratio on Y-O-Y and Q-O-Q basis and also compare the same with the peer group.

What Does PAT Margin Mean?

Formula: PAT/ Net sales.

PAT margin is also known as net margins. It is a ratio which is used to determine the final earnings of the company on every one Rupee of sales generated. It is used to determine the net earnings of the company after paying the production as well as finance expenses. It is a useful tool in analyzing the company’s earnings after tax. For example, a company’s sales could rise, but if costs also rise, that leads to a lower profit margin than what the company had when it had lower profits. This is an indication that the company needs to curb its expenses.

What Does Earnings Per Share (EPS) Mean?

Formula: (PAT – Preference Share Dividend) / Total outstanding equity shares

EPS is the net earnings of the company allocated to each outstanding share of the company. An increasing trend in EPS shows that the company is performing better. While we are looking at the EPS we must also look at the Diluted EPS as it the equity may expand in future if there are convertibles or warrants outstanding in the outstanding shares number.

What Does Price-Earnings Ratio – P/E Ratio Mean?

Formula: CMP / Earnings Per Share (EPS).

PE i.e Price of earnings ratio is a valuation ratio of a company’s current share price compared to its per-share earnings. The P/E is also referred to as the "multiple", because it shows how much investors are willing to pay for per Rupee of earnings. For example, if a company is currently trading at Rs.100 a share and earnings over the last 12 months were Rs.10 per share, the P/E ratio for the stock would be 10 (100/10). EPS is usually from the last four quarters (trailing P/E), but when EPS is taken from the expected earnings of next four quarters then the PE is known as projected PE.

I know lot of people that are hesitant to use their Credit Cards online due to the fear of fraud and misuse by hackers. Few of them would like to use a Credit Card but may not have one due to the income streams applied for getting a card. Some bank such as Bank Of Baroda offers Credit Cards without fulfilling basic salary limit but then you need to have a fixed deposit with them. Apart from that they would also ask for submitting final income proof. But then I recently came to know about HDFC Bank ForexPlus Card, when I called up customer care people to know whether I could use this card as a prepaid one they said they are doubtful about it. In addition, customer care person suggested to me use HDFC Bank NetSafe, although I was aware of the service I never tried the same but this time I wanted to.

I was excited to try this service and got registered with as the process; once the process was over I registered my HDFC Bank EasyShop Visa Debit Card with them and created a Virtual Credit Card. I could not believe it actually worked! Then the curiosity augmented and I wanted to test this card. So for the first time I tested the card to purchase a domain name from Netfirms and it worked! That was truly amazing and the process went on without any hassle and all you required doing is that set the card limit which is very important to make a purchase. Say for example, you need to buy stuffs worth 50$ then set the limit at a premium to current forex rates it’s an approximately about 3.5% extra. But I really suggest you to set the forex rate as Rs. 50/USD 1.

When NetSafe was newly launched it was accepting only Visa Debit and Credit Cards, however they now have MasterCard too. Not only that, it works amazingly for people that already use credit card for shopping. I feel it is an extremely good out if you are using cards online, why I say this is because when you buy some stuff online with your Credit Card using the foreign sites stores your credit card info in their database. For example, you buy a stuff online which has a recurring fee, then they would continue charging year on year or month on month without your permission. Yes, you could claim it back but then it a pain and you would certainly loose some % of your money in it as Forex Charges. Conversely, if you use NetSafe card it is a one time card only that simply means if you use this Virtual Credit Cards once it will not work next the company try charging you.

This is important – If you try using HDFC NetSafe card on some merchant it may not work. I have discovered two reasons for this:

1. If the merchant’s Credit Card processing is very powerful then they probably know that you are using a Virtual Credit Card and hence they will reject your card.

2. Credit Limit could be a problem with some site. For example, if you are need to buy things wroth $5 and you create a NetSafe card worth Rs. 250, but still the merchant’s Credit Card processing fails. This is because they are using a system which charges say $10 initially just to test your card and to make sure your card it a valid one. So in that case you need to set higher credit limits.

Google AdWords is the best example I could share with you. They charge only Rs. 60 as setup fee but you need to create a NetSafe card with a limit of Rs. 300 for signup else they will decline your card!

Steps to Get a Free Virtual Credit Card:

It is very easy to obtain a Free Virtual Credit Card via HDFC NetSafe card. Just go to HDFC Bank and open a savings bank account with them. It must be a regular savings account as you would be eligible to get a Visa Debit Card. Going with Visa Debit Card is a good option as it works with almost all online merchants. And then you need to pay annual fee of Rs. 100 plus the tax for the debit card/annum. That’s the only charge to maintain this amazing service. Make sure you maintain the minimum average quarterly balance of Rs. 5000 or Rs. 2500 for semi urban.

There is no other additional charge for using HDFC Bank NetSafe or HDFC Bank Regular Savings account, it is totally free, however the bank charges 3.5% of transaction amount, which is applicable for all banks and all cards – be it debit card, credit cards or virtual credit cards. It can make your life simpler as it is universal acceptance – there are no fees for using and creating NetSafe.

NetSafe, is a unique online payment solution that offers you complete security while shopping on the Internet. With NetSafe, you can now shop online through a virtual credit card, without revealing your actual HDFC Bank Credit Card number. What’s more, you can now use your HDFC Bank Debit Card also for online purchases.

The key benefits of NetSafe are as follows:

1. Your HDFC Bank credit / debit card number is never used on the merchant website

2. The NetSafe card you create is a one time use card

3. You can set your own limit for the NetSafe cards you generate

4. You can use it on any merchant website that accepts VISA/MasterCard cards

5. All purchases you make with NetSafe Cards will appear on your statement, just like any other transaction.

6. Registration for NetSafe is a onetime process after which you can generate NetSafe Cards anytime, anywhere.

The NetSafe Card is a virtual card that is generated through the NetSafe offering and can be used for shopping on the Internet. The NetSafe Card can be generated by logging onto the HDFC Bank website and can be used at any online shopping website that accepts VISA/MasterCard cards. Every NetSafe Card can be used for a single transaction only.

If you are using debit card, then your per day limit to generate virtual cards is 5 subject to your daily point of sale. This is possible only if there is sufficient balance in your current or savings account. If you are using credit card then is purely upon the credit limit available on your card. All purchases you make with NetSafe Cards would come with your statement, just like any other transaction. If there is any amount that you did not use it from NetSafe card it would be credited bank to your corresponding accounts. Any risk disclosure on NetSafe card is restricted to the chosen limit. So get registered with HDFC NetSafe and enjoy the secure online transaction now!

Source(s): HDFC Bank, HDFC Bank NetSafe Demo, HDFC Bank NetSafe FAQ

What is an FMP?

FMP stand for Fixed Maturity Plan. These are essentially close-ended income schemes with a fixed maturity date i.e. that run for a fixed period of time. This period could range from 1 month to as long as two years or more. Just like an income scheme, FMPs invest in fixed income instruments i.e. bonds, government securities, money market instruments etc. The tenure of these instruments depends on the tenure of the scheme.

Elimination of Interest Rate Risk

FMPs effectively eliminate this interest rate risk. FMPs invest in instruments that mature at the same time their schemes come to an end. So a 90-day FMP will invest in instruments that mature within 90 days. Holding the underlying instruments up to their maturity effectively mitigates the interest rate risk as there is no buying and selling of the instrument needed.

Taxation of FMP’s

FMP is primarily a debt product and so, the tax incidence would be similar to that on traditional debt schemes. The distribution tax that is payable by the MF on the dividend is fixed at 14.1625%, which is much better than paying tax at the highest rate.

A strategy popularly known as double indexation can also be used. Double indexation gives an investor the advantage of indexing his investment to inflation for two years while remaining invested for a period of slightly more than a year. This can be done if the investor puts in his money just before the end of a financial year and withdraws it immediately after the end of the next financial year. For instance, if an investor put in money in a fund on 25 March 2008 (6 days before the end of FY on 31 March 2008) and withdrawn it on 4 April 2009 (after the end of FY 2008-2009) he would be benefited for two financial years (2007-08, 2008-09) since the investment was made in the FY before last (2007-08). Depending on the quantum of gains in the scheme and the inflation index, the tax liability could be lowered by availing of double indexation.

An Illustration to explain the Double Indexation Benefits of investing in a FMP whose maturity falls in the second financial years post issuance.

In the past few weeks I was wondering whether it makes sense to take a Loan from the bank and then invest that money in Fixed Deposits. Today, I asked the same as a Question in Yahoo! Answers which is a good portal to get immediate response or answers from users all over the world. And I was right I got pretty good responses in minutes. It was a mixed response some said YES and some said NO.

Consider the following case and assume that I don’t mind paying monthly EMIs and there is no processing charges for the loan and no TDS is applicable for me as the total interest earned in a financial year is less than Rs. 10,000 so I don’t have to pay any taxes.

Suppose I take a loan for Rs. 100,000 at the rate 11% for 12 months or one year which accounts to a monthly EMI of Rs. 8,838. So that at the end of the year I would have paid Rs. 106,056. So I paid Rs. 6,056 as interest charges. Now what if I invest my loan money (of Rs. 100,000) in a Fixed Deposit (FD or CD) which offers an interest rate of 8.75% compounded quarterly? At the end of 12 months I will earn Rs. 9,041 as interest. So the net gain would be Rs. 9,041 – Rs. 6,056 = Rs. 2,985.

If you think that I’m crazy then for your information I am not going forward with this plan. I planned like this just to take advantage of Stock Market volatility. I’ve invested around Rs. 300,000 in stock market but at the same time a bit worried about the current volatility in the stock market. Some analysts and bankers told me that don’t enter the market now as it may go down to 12,000 levels. But I don’t want to stay away from the market and want to remain invested in it. So I planned this way either to take a Loan Against Shares or Loan Against Security. But right now getting a Loan Against Shares is difficult due to market volatility but getting a personal loan or loan against security is much easier. But what if the market stays at current levels? I will be losing money ‘because of interest charges. So I thought like this and I feel that does makes sense. What do you think?

Ever since the stock market crashed I began to pick stocks. Here is the my latest portfolio update. These are some quality stocks which you can consider after a careful analysis.

Over the course of the year, the market value of each security within your portfolio earned a different return, resulting in a change in the allocation pie. This might change the investor’s risk profile. While in the short term this may not have an adverse impact, such changes in risk profiles can have a far-reaching impact in the longer run. Portfolio rebalancing is a strategy that allows individuals to keep their risk level in check and minimize risk.

What is re-balancing?

Re-balancing is the process of buying and selling portions of your portfolio in order to set the weight of each asset class back to its original state. In addition, if an investor’s investment strategy or tolerance for risk has changed, he or she can use rebalancing to readjust the weightages of each security or asset class in the portfolio to fulfill a newly devised asset allocation. Assume an investor’s portfolio worth Rs 1,00,000 is invested in equity funds (40%), Bond Funds (40%) and liquid funds (20%). In other words, Rs 40,000 will be invested in equity funds, Rs 40,000 will be invested in bond funds and Rs 20,000 will be invested in liquid funds. Let’s assume that in Year 1, equity funds deliver 50% return, bond funds loose 2% and liquid funds give a modest 4% return. His portfolio, at the end of the year, will look like this:

Overall, the portfolio has returned 8%, but that’s more due to the equities.

In year 2, assume equity markets fall. So assume, equity funds fall by 10%. Also assume that Bond funds on the other hand rebound and return 9%, while liquid funds continue with 4%.

Now assume two scenarios, viz. one where the above investor switches back to his original asset allocation, and the other where the investor doesn’t reallocate his assets as per his original allocation and ignores the change.

As per the above example, while the rebalanced portfolio appreciates to Rs 1,20,480, the value of the ignored portfolio actually falls to Rs 1,18,360. As can be seen, the ignored portfolio got swayed by the equity return in Year 1 and therefore chose not to go back on the original asset allocation, not knowing that equities as an asset class can be quite volatile in the short run. A fall drop in the equities in Year 2 was enough to result in the ignored portfolio to under-perform the rebalanced portfolio. Re-balancing strategy is, therefore, the optimal strategy.

Benefits of portfolio rebalancing

Disciplined investing
Re-balancing is a vital part of investment policy – there can be no asset allocation target without the discipline to preserve that target.

Reduces risk
A plan may incur higher risk if no rebalancing policy exists. This is true particularly for equity allocations, which can rapidly rise in a bull market. For instance, portfolio rebalancing ensures that in rising equity markets, the asset allocation doesn’t get skewed towards equities and the portfolio correctly reflects the investor’s risk profile. It also ensures that the portfolio is adequately diversified.

Buy low, sell high
Rebalancing is a mechanism for sensible timing – the process naturally buys low and sells high. This strategy ensures that the portfolio returns are enhanced. A clear re-balancing policy avoids the risks of ad-hoc and costly portfolio revisions.

Balanced Funds – a better way to portfolio re-balancing

One way to rebalance the portfolio is to do it ourselves. In other words, investments can be made in equity and debt funds separately and then adequate re-balancing can be done depending on how the equity and debt markets perform.

Another simple way to ensure portfolio re-balancing is to invest in Balanced Funds. Here, the fund manager does the re-balancing and not the investor. Usually, all balanced funds invest around 65-70% in equity markets and the rest in debt and money market instruments as per their stated asset allocation mix.

So when equity markets keep rising consistently, Balanced Funds are mandated to book profits and bring their equity allocation back to their stated levels. This way, balanced funds carry a low downside risk as when equity markets fall, balanced funds take a lesser hit than diversified equity funds, as their exposure to equities is low.

Insurance is seen as protection for one’s family against financial uncertainties that may result due to unfortunate demise or illness.

Insurance can also be used effectively as an investment vehicle. Proper planning can help minimize the drain taxation can have on your business or estate. Planning means you choose how your assets get allocated. It involves a step-by-step approach and ensures that you receive only expert advice. The result could be a plan customized just for you.

There are a variety of life insurance products specially structured to provide targeted benefits including – Unit Linked Insurance and Pension plans that offer equity linked returns.

Here are some Financial Goals that you can meet through Unit Linked Insurance and Pension plans:

Build a legacy – for yourself and your family!

The primary purpose of life insurance is to provide for dependents on death of a primary wage earner, but life insurance can also serve as an outstanding tool for transferring wealth to the next generation.

You could select from a range of Plans available depending on how much you want to invest. Starting now, will help you create a sufficient wealth pool for you, your immediate family today and for their future generations! What’s more, you can use a life insurance strategy to build a fund that grows on a tax-sheltered basis.

Build a fund – for your golden years!

During the golden years for your life, sit back and enjoy what you have created! Start investing today and relax during your golden years. At such a time, this tax sheltered plan can be useful to provide a tax-free income* through partial withdrawal* facilities.

Secure your family – financial security for your loved ones!

In event, of some unforeseen events like Critical Illness or death, these plans provide for your dependants.

Some Features of Unit Linked Insurance Plans:

Grow your savings

• An investment opportunity by providing a choice of thoroughly researched and selected investments.

• You can choose from fund options based on your investment needs and risk appetite.

Flexibility: Option to switch between funds anytime during the policy term.

Security: You have given your family the very best. There is no reason that they should not get the very best in the future too. With an insurance plan, you can ensure that. your family remains financially independent, even if you are not around.

Waiver of Premium benefit: Some Unit linked Insurance plans offer this benefit. This means that in case of death during the policy term, the family will get the sum assured immediately.

Thereafter all the future premiums being paid by the Insurance Company on your behalf and at maturity again you will get a lumpsum fund value . Hence your family’s immediate and future financial needs are taken care of.