Tracking your expenses

You know your income, but do you know your expenses? If you were to approach a trained financial planner, he/she would usually would want to establish the amounts you are spending. While some of the expenses are annual ( insurance payments, tax payments, renewal fees), monthly ( rent, utility payments), some weekly and some sporadic. You should also not miss out on those expenses which are unplanned. Capturing those unplanned shopping trips and long drives which burnt 1K worth of fuel are also important. The important part is to capture them and include them in your financial plan.

While most control freaks like me would logically have an excel sheet, going into details in an excel sheet is a very tedious thing. I found this excellent site www.expenseview.com where it allows setting up expense accounts and tracking them. Check it out, its worth a try.

Why am I trying it? I am planning to buy some term insurance and would like to get a hang of how much I am actually spending and on what. Although I have a fairly good idea in big buckets, knowing the details will help me understand how these expenses will behave over the next few years ( shopping is a very small component now, am sure it will explode ;-) ). With greater income, I am trying to see if I can flush in more money to my investments.

Let me know what you think of expenseview.

Are Indian Chit funds equivalent of P2P lending?

This post is primarily triggered by this new (?) concept which is taking off in the west - called Peer- to-peer (P2P) lending. While there are a lot of technicalities involved , at a stripped down level, the concept is - there are a group people who want to lend and there are a group of borrowers. P2P is primarily trying to bring these two through low costs media like internet and social network sites like facebook in the US. So why the need to invent a new mode of lending?

When I want to earn some interest on my savings, ( I would invest in equities !!) but for the portion that needs to go into the debt part ( you should should should have a balanced portfolio mind you!!) I keep them in banks. The banks give me x% and then lend it to corporates and other people who need funds at x+ delta %. The additional interest is called by Net interest margin figure ( NIM) in the analyst statements check it out. The spread is supposedly to cover for the various costs - admin, sales, Delinquencies, salaries etc..... but most banks make a lot of money in profits. While as a shareholder , I wouldn't mind, as a customer from both sides , I would like low cost options - enter P2P lending.

I think it will work fairly well in the US and in other countries with well developed credit rating systems. To be eligible for a loan on most P2P lending systems you need to have a minimum credit rating and even then even if you have large outstandings then you do not qualify. The network charges some admin expenses but the net as a medium will lower the costs significantly. Typically the network will also ensure they get a collection agency to collect ( unlike in India, I assume these guys are not goons !!) and report any default to the credit rating agencies.

So the most important component , the credit score is missing in India. CIBIL , the credit bureau has started in India, but a guy like me who has had no bounced cheques, no credit roll over, a fully repaid education loan, partly paid personal loan will still get treated like the same jetsam/flotsam who have multiple defaults.... so P2P is a far call in India still...

But chit funds, where few people get together, pool a sum of money for a fixed period and one of the participants gets the kitty by bidding for it , is quite similar a setup I think. while currently I think chit funds are being regulated by RBI ( need to check!) , I think its a wonderful instrument for people who do not have access to normal banking channels but have a good social network. Also maybe this model needs to checked by our uber cool Micro finance institutions and not try to become proxy banks and increase the costs...

Caught in an investment bind

Right now I am evaluating a few investment opportunities :

1) locking in some returns by going into a close ended fund heading into redemption in the next 18 months
2) some value picks which came through my filters- where I have not been able to research my them : Currently evaluating : Areva T&D ( has made a move over the last 2 days - maybe a missed opportunity), the other value pickers favourite - Kirloskar Oil engines ltd, Paramount communications, Prajay Engineers, birla corporation.... hmm, where will I go, will study over the weekend
3) An exchange traded fund ( Whats that? - will post the next time) in a sector where I think there is a lot of opportunity.
4) Safe haven investment - bag the blue chips - L&T, SBI, Reliance

Whats the catch - I dont have money :-) ..... so much for planning. I have just booked about 115% + annualised returns on some cement investment ( avg holding 30+ days) - While I still hold some cement stock and am impressed with their pricing power, if it reaches further levels, i will exit further and see if I can move my profits elsewhere.... but atleast till 2009 beginning, I will love the sector - what will happen then - supposedly some supply will come through easing the pricing power.

And as an aside, my experience with my investment in Fixed Maturity Plan of HDFC has been good. If this continues, maybe I will move a higher amount to the FMP mode. ( I intend to post about FMPs and ETFs sometime very soon. Maybe I need also check out if there are any index funds in the sector I am targeting - Good news - SEBI has capped fund management fees at a lower level than active managed funds....

Investor grievance redressal

If you are an investor in India where shareholder democracy is a still born child and companies frequently ride roughshod over the rights of investors, we need some activism. While class activism took off in the west long ago, India is yet to see anything of that sort. Hedge fund activism is now the inthing. Funds like Efficient frontier ( not able to find the link) have forced a discussion about the leverage being carried by vodafone and are atleast forcing a discussion.

The regulatory mechanism in India has improved by leaps and bounds in the last decade. But have we achieved anything for the individual investor is the question. And when I mean by investor here is not just the equity investor but also the debenture instruments and public/ company deposits. Debenture trustees have failed their mandate in India, rarely have they been able to carry out the duty that their role envisaged.

In case of equity investors multiple avenues exist - you could complain to the stock exchanges ( which have a investor cell - funded by various internal sources), or SEBI. Complaints like non receipt of dividend, demat requests, bonus shares, annual reports ( its your right as a shareholder to receive them!!!) and such others. You could also write to the cells of NSDL and CDSL and try to resolve this.

In case of public deposits, the authority for this was (is?) the Company Law Board (CLB) which passes the orders. NBFCs and for those who are old enough those teak, sheep, plantation companies ( remember guru kiran, Anubhav et al?? ) are regulated by RBI.

But there is another glimmer of hope, check out www.investorhelipline.in its run by a group called Midas Touch investor association and supported by the Ministry of Company affairs , Govt of India. While the government has nothing much to do and has no association to this site, I think the group has done a wonderful job of helping investors out. Till date they have helped resolve 730 cases, which is remarkable. While it might seem very small, remember this is when they have no legal power ( as in punitive) to pursue the cases but still ave managed this. Good show guys, keep up the good work.

So if you ever get stuck with some issue and company is playing hardball, you know who your friends are.

"Development of a fair, transparent, efficient capital market having a participative, enlightened and an empowered investor." is what investorhelpline says its mission is, lets clink glasses to that

Responsible blogging

I did not think my blog would be visited by people who do not know me. So if you look at my posts on portfolio advice, they will seem not too deep. I was analysing the page hit statistics and realised 7 of the 10 hits I had till date was when peoples searched for Bhavishya Nirman bonds. I am not sure I gave enough data to people to decide if they were looking for this. Notes to self - I will write slightly detailed posts and post my analysis also. I think I owe it to my readers. Leave a note if you want to see some detailed analysis of the deep discount bond.

Alternate careers?

some days I ask myself if I had not chosen the current path what would I have done ? hmm... I love law - I think its quite interesting but realised it will never fit the scale of my ambitions, I never had any aptitude for the artistic variety ....

I think I would like to do research but yes, It has to wait till I fulfill my wealth creation ambitions - its not the selfish for self kind but to reach levels like the robber barrons or maybe the old wealth families in India but that I think would take a lifetime :-) but just in case, I want to get into academics , but it has to wait.

I will resume my post about portfolio building again , as promised I will check out fixed maturity plans. I was asked by someone what are the good company deposits available now - I think Bata and Raymonds are offering about 11% pa, but I would refrain now as banks like ABN Amro and Karnataka bank are offering 10.25% and 10% respectively for 400 days ( pl refer to the disclaimer in my first post!!!!) , so its not very prudent to go for an unsecured instrument for 75 basis points.

Inbound consumer markets , outbound manufacturing....

someone asked me what kind of organisations are using consultants for market entry strategies in India - my two bits worth

Inbound companies into India are in the consumer markets - the current flavour is retail - people trying to see how to benefit from the fabled ' middle class' ( this seems to be the second coming for the great indian middle class - most FMCG companies fell for the per capita consumption growth story the last time !!) , so most of the companies in consumer markets are inbound stories - luxury retail ( designer jewellery, accessories et al), branded retail

On the other hand the gut wrenching efficiency drive that the Indian manufacturing companies went through in the 90s has left them lean and mean, low debt :equity ratios, access to cheap capital for the first time (???), strong domestic growth and sights well set on the foreign shores.... so they are aiming at the 'developed' markets - buying goods 'higher in the value chain' , buying brands, buying products at a higher stage of evolution ( flavoured water anyone? ) to understand how the business dynamics work or trying to be global players trying for value. So most of these industries drive the outbound market entry strategy.

Interestingly in the latter case, most firms which were family owned have brought in professional managers to drive this and given the overall level of skill available within the organisation ( quality is available, its the quantity which is an issue) consultants are called in...

what do you think?