The Elite 1 Crore Club of India

The Indian Finance Minister Mr. Chidambaram mentioned in the budget speech of 2013-2014 that India has an elite 1 crore plus club - The club of people earning more than a crore rupees a year and the number is somewhere around 40000.

This comes to me as a shock and a disappointment. It is depressingly small considering that it includes every one from CEO of companies to Bollywood actors and producers, to Sports persons (specifically cricketers) to business tycoons. To put things into perspective, it means that less than 0.004% of our population. That means in a population of 10000, there are only 4!!


I don't know, if we should call this club as elite or call this club as the lucky ones as this ratio shows that you need to be more than elite to be a part of this club. You got to be lucky!! This ratio is worse than the selection ratio of IIM, the most competitive exam in the world in terms of selection which selects 1 in 100 or 100 in 10000.

With various business magazines and newspapers showing list of graduates out of IIT and IIM getting more than a crore salary increasing every year, it is not surprising for us to realize that this graduates are paid such high salaries abroad and not in India either because companies feel that the talent in India is good but the work here doesn't deserve that high compensation or that the work done in India is too meager compared to  their caliber and capability. Either ways, it is highly depressing to see such a bad state of Indian economy with more 60 years after Independence.

To add to this, consider that it is difficult to buy a good house in Mumbai for less than a crore. Somehow, the income disparity in the country is making survival tougher over the years.

Comparing it with NRIs, the starting salary of an Indian engineer who goes to USA to pursue an MS and do a job is around 100000 USD amounting to 60 Lakh rupees and generally they reach the 1 crore figure by 5-8 years. Engineers working in India since 30 years cannot boast of even half of this compensation! An MBBS who pursues a post graduate in USA generally starts with a salary of 150000 USD (a crore approx) if pursued in a decently good field whereas there are MD doctors in India who earn a few lakh rupees if doing a job in India.

To look at the top 20 countries with highest percentage of population being millionaires, please check this link
http://images.businessweek.com/slideshows/20110602/twenty-countries-with-the-highest-proportion-of-millionaires#slide20

Life is what separates us; It's fate is what combines us all

The other day, I was watching a movie where the actor and actress try various modes of committing suicide and fail. The protagonists try various methods and experience pain and suffering while failing to take their lives. Those scenes inspired me to the divine revelation that we are all mortal.

We generally are so engrossed in our lives that we tend to forget that sooner or later, it is all going to end. Not that the end is inevitable and most of us know it, but there are very few of us who have actually been able to allow this feeling to sink in our hearts. We all believe that each one of us have a separate life and tend to forget that the fate of it, our death, is the same for every living being. This could lead to a spiritual discussion which is not the actual intent of this article. I did some googling on various ways to die and the one's which are the best, least painful, most inspirational, most painful, worst etc ways to die and was surprised to find lists stretching to 1000s of ways of dying!!! There is a proverb in my mother tongue which says that pray to God that you live a happy life and die easily. We tend to look only at first part of this and fail to heed the second part until the realization of our mortality dawns on us by some life terminating disease or a disastrous accident.

So, after doing various research and going through various polls, here is the list of 5 least painful ones and 5 worst ways to die. Do bear in mind that this list has been combined by the opinions of living people only and none of the opinions of people who have actually experienced death by these means have been considered as they were not available for opinion..!

5 Best ways to die:
a. Die In sleep or Die of old age as it is better known
b. Die of cardiac arrest.
c. Die due to overdose of carbon monoxide
d. Die due to sudden hit of bullet on the head without knowing
e. Lethal injection.

However, its been observed that most people who have led their lives happily and are satisfied die more peacefully than others. So live life happily and hope that you end up dying in one of the above 5 ways.. :P

Investing - How, when, why?

Investments at time can be perplexing considering the number of investment avenues around and lack of proper unbiased guidance. So how should I plan my investments? Generally, though the answer to this question depends on one’s financial goals and current financial state, here is the list of most common investment avenues. I have divided them into primary, secondary and tertiary. The order of precedence is as it was in school viz primary are the first step, followed by secondary and finally tertiary.

Along with every investment vehicle, I have also mentioned the risk profile - Very low meaning then there is very little or negligible risk of losing the capital, whereas very high has high chance of loss of invested capital and is not meant to be for people who are putting their savings into the investment vehicle. Very high risk investments are only for those who have a specific investment goal and do not mind losing a part of their capital for achieving this capital. It is for ones who have high disposable incomes.

Primary

a. PPF - Public provident fund - It has a maximum limit of 1 lakh per year and it gives around 9 percent after tax return which is really good. I think it is the safest place to invest but the investment horizon has to be atleast 10 years. This is a must do for any savings plan.

Risk Profile – Very Low

Return – Medium but steady – Really high considering that there is minimum risk

Investment goal - Safe investment and steady income and retirement planning

Investment reason – Saving and being able to secure future and manage inflation

b. Debt funds - They are little less risky than equity funds though they generate decent returns - Approx 10% per annum. You have to invest in it for a specific period to avoid short term capital gains tax. This is again a low risk investment and returns are also decent.

Risk Profile – Low

Return – Medium

Investment goal - Safe investment and steady income and retirement planning

Investment reason – Saving and being able to secure future and manage inflation

c. Bank fixed deposits – They are not very lucrative if you are in high income bracket. The only advantage is that the invested sum is safe and there is little or almost zero chance of losing the invested capital. But this can be avoided if you are in high income brackets, as the returns on this are taxable and an effective tax rate of 30% makes them highly avoidable.

Risk Profile – Very Low

Return – Medium to Low depending on your tax bracket

Investment goal - Safe investment and steady income and retirement planning

Investment reason – Saving and being able to secure future and manage inflation

d. Government bonds – One can invest in various government bonds and bonds issued by issued by public companies. The ticket size can vary from a few thousands to a few lakhs. They are really good as they are risk free returns and give you returns a bit better than a FD

Risk Profile – Very Low

Return – Medium

Investment goal - Safe investment and steady income and retirement planning

Investment reason – Saving and being able to secure future and manage inflation

e. Insurance – One can look for a savings plan or a term assurance based on ones requirements. If you have invested in most of the above mentioned asset classes, then a term assurance makes more sense as it covers life risk and doesn’t give any return on investment. The benefit is that the life cover comes at a much lower premium. On the other hand, if one hasn’t invested much in the above plans, then one can look for a savings plan which gives benefits of both returns on investment as well as life cover.

Risk Profile –Low

Return – Medium

Investment goal – Safeguarding from mortality risk and getting a life cover

Investment reason – Not a lot of benefit in terms of ROI but mainly for life cover

Secondary

f. Gold – Most people invest in gold believing that gold prices always go up. But, I would say that if you have such a view, you are more likely to be given a rude shock. The reason for investing in gold should rather be the one which is derived from the traditional wisdom of our ancestors. Gold is a very liquid asset and is an investment meant to be liquidated during bad times. Hence, when you invest in gold, you should rather assume it as a consumption which may or may not give you returns but would definitely be a strong base to fall upon during bad times. I suggest it should be atleast 5% of your annual savings.

Risk Profile –Medium

Return – Fluctuating – Can be very high to negative – Long term average is medium to high

Investment goal – Protecting against major macro-economic risks and a physical asset which can be used during volatile times

Investment reason – Physical asset which has value despite depreciation of currency/ equity and is highly liquid

g. Company bonds – One can invest in various bonds and bonds issued by issued by corporate. Ensure that the credit rating of the bond is good and the company has a good track record. Don’t just look into the return on investment. The ticket size is generally high like a few lakh of rupees. They are really good as they are risk free returns and give you returns a bit better than a FD.

Risk Profile –Medium

Return – High and steady if the company is properly selected

Investment goal – Generating steady return on investments and having a fixed annual income

Investment reason – Generally debt is safer to invest than equity and hence should be a part of one’s profile for times which can be volatile.

h. Equity funds - These are mutual funds for equity schemes. These are high risk , high return places. You should not allocate more than 40% - 70% of your capital in these considering your risk profile. Also, most of your extra income should be put in this if you do not have a very strong dependency on that money and would not need it in case of emergencies. You should always do an SIP to invest here. Minimum investment period is 1 year to avoid capital gain tax but I suggest atleast 5 years vision. One should seek help of a qualified investment planner to identify the right places to invest as there are 100s of schemes and each one has a different risk profile and return on investment.

Risk Profile –Medium

Return – Medium to High in the long run

Investment goal – Allocating funds to achieve higher esteem goals like buying a house or making an expensive purchase which may or may not materialise

Investment reason – Gives a good return on investment but one should have the capacity to hold on to them during downturns too. Else, you will end up losing money here.

i. Infrastructure bonds - Besides the 1 lakh income tax exemption limits, there is another 20000 limit for these bonds where you can invest. Here the income invested is exempt of taxes upto 20k and is a good place to invest as the returns are more or less fixed around 8% after tax

Risk Profile –Low

Return – Medium

Investment goal – Tax exemption and decent return

Investment reason – Saving tax and investing

Tertiary

j. Real Estate

One should invest in these after having invested in the primary and secondary sources. The reason behind this being that the ticket size is huge and less liquidity during turbulent times. There is a growing sentiment that real estate prices keep rising. USA has already experienced a rude shock when the prices changed their direction and similar things can happen here so one should invest in this industry only if one has extra income and can hold onto the asset during turbulent times or has the capacity to absorb the risk.

Risk Profile –Medium

Return – Very High

Investment goal – Creating physical asset, Generating rental income, Using it as collateral or re-investments.

Investment reason – High return on investment, creating high returns and creating a physical asset

k. Stocks and shares

Over a period, one should try and pick up quality stocks for the long term at good prices. Few of the wealthiest people have done it so from the stock market. The ability to pick the right stocks by being able to devote quality time to research and understanding and doing fundamental analysis is a must before you venture into it.

Risk Profile –Medium

Return – High

Investment goal – Creating wealth, Retirement planning

Investment reason – High return on investment

l. Strategies on stock markets

There are various strategies on the stock markets floated by NBFCs which can generate very high return. The investor has to be however aware of the rationale of investment and the risks before investing in them. It is meant for people who have strong background into financial investments or who have proper investment guidance. Generally the ticket size is also large – Minimum of 20 Lakhs or so.

Risk Profile –High

Return – High

Investment goal – Wealth creation

Investment reason – High medium term returns after proper risk analysis and mitigation

Stock Market = Gas balloon - Keeps drifting upwards unless acted upon by external unbalanced force

Stock market is like a gas balloon, it tends to drift up slowly unless there is an external unbalanced force trying to pull it lower.

The above statement has a strong message in it which can act as a double edged sword. Before understanding the legitimacy and the sensibility of it, let us explore the various participants in the stock market and understand how prices move.

a.       Mutual Funds

Many of the mutual funds have a mandate to allocate a fix sum of capital into equity and hence no matter what the price is, they would buy into it as long as funds are flowing into it. Besides, they cannot short sell markets and hence are net buyers only. Hence from this side, we have net buyers coming in at every price in a stable environment.

b.      Investors

The investors include various players like pension funds, mortgage funds, insurance companies, NBFCs, Banks etc. They generally have surplus funds and are in the game for a long horizon. They also allocate ever increasing capital into equity funds despite increasing valuations. The only option they have is to decide on capital allocation between various asset classes and in a stable environment, most of them end up being on the buy side only despite any valuations.

c.       Retail investors

This is a very interesting phenomenon and really funny to analyse sometimes. A retailer investor always invariably enters from the buy side only as he feels the prices may go up further. They end up being bullish not just because of their own understanding but also on understanding of various traders who are always bullish in a bullish market. So most times, they are also net buyers in a stable environment.

d.      Traders

They are the only ones who can be net buyers or sellers during a particular phase but most times, they would avoid going against the general market sentiment and hence will not sell into the market unless there is a dampener to the gas balloon. Hence they are net buyers too..!!

So in a stable environment, even if the companies are not performing exceptionally well or there has been over stretched valuations or any other reason, stock markets will still keep going up unless there is a dampener coming from macro-economic factors or political factors or some other areas. The only argument against this is that investors can allocate capital amongst asset classes. That is true, but the general investor sentiment is that allocate more capital to equity when environment is stable and less to debt. This ends up creating a self fulfilling prophecy in which more and more allocation keep pushing the equity market higher.

So it is very common to see over stretched valuations during stable times and this over-stretching can keep on increasing until there is dampener.

The stock market rally in USA in 2013 is the most perfect example of it. Most companies have not shown exceedingly exceptional performance results nor have they been able to do extra-ordinarily different from what they did last year but still the equity market has rallied more than 50% and most analysts still say that the market can be bought into.!

So the next time, you see a huge stock market crash, don’t fear, as the gas balloon has come lower, look for the opportunity to hold onto it and wait for the dampener to go away and enjoy the drift higher ever after..!!

Attractive gravity

Gravity or gravitational force is a force with which every object attracts every other object around it.

The essential words here are that “every” object attracts “every other” object with a force. That means, even a table, chair, tree, human being have gravitational force. Then why aren’t they felt. By definition, the gravitational force is proportional to the mass of the two concerned objects (F = GM1*M2/ R*R). Most of the objects do not have sufficient mass to be able to attract each other. The difference comes in when one or both the concerned objects are of planetary sizes or bigger. As in such cases, the mass of the objects attracting is huge leading to strong gravitational pull between the two.

Hence, we are attracted by the gravity of the earth. This is also a flawed statement. It is actually that the earth is also attracted by us and so are we to the earth with a common force which is the gravitational force. The only difference is that the acceleration of earth due to our gravitational pull is insignificant for the earth considering its mass, leading to almost zero displacement and acceleration whereas it is very significant for us and other objects similar to us leading to huge displacement and acceleration.

On similar lines, the earth is attracted by the gravity of the sun and sun is attracted by some other star and so on. Thus every interstellar object is attracted by every other object which leads to relative motion between them.

Now let us explore how gravitational force affects the launch of a space ship and also the orbit of it. In order to enable that, lets first delve into the understanding of how artificial and natural satellites are continuously orbiting the planet they orbit.

When a space shuttle is launched, it accelerates away from the earth and reaches a point at which it is supposed to leave the satellite into the orbit. When the satellite is launched in this orbit, it experiences a strong gravitational pull from the planet (Earth). Now to ensure that the satellite doesn’t fall on the earth and stays in the orbit, another force needs to be active which is equal and opposite to the force of gravity. To ensure this, the satellite is launched into the orbit with a velocity and starts moving in a circular motion. Due to its circular motion, it experiences a force called the centrifugal force which tends to push it away from the earth. This is the force which tends to balance the gravitational force. To ensure that the force is exactly equal, the satellite must orbit at a velocity called the critical velocity. If the velocity is lesser, it will soon be attracted to the earth. If it is greater, it will move away. If it exceeds a threshold called, escape velocity, it will escape the earth’s gravity and move into space to be attracted by the gravity of some other planet/ star. As this force is pretty weak, it generally tends to drift slowly in space with very little motion.

So the next time when you see a star, feel the force of attraction from it and feel how earth’s gravitational force (which is more powerful than that of the star) helps you on holding on to your ground!

Loyalty program in Consumer goods industry !??

A few days back, I was looking into various industries which organise loyalty programs and the various benefits (mutual) for both the consumer as well as the producer. I was completely astonished to see that a huge industry (a big ticket one) of consumer goods almost completely lacking this program. Most industries having high value purchases like automobiles, luxury brands, luxury hotels, airlines etc generally have a loyalty program. Won’t a company in the consumer goods space benefit by applying similar principles to retain its consumers? Let us look at a crude idea on this.

Let us look at a company like Samsung and see how the program can apply to it. Consider a hypothetical case where Samsung creates a family called a “Samsung family” which has its high value customers (Like customer who has brought a TV of more than INR 80000 or a fridge of more than INR 50000 or a Samsung galaxy S4 etc). These are generally the consumers who have high disposable income or are more tech savvy or have high affinity to expensive goods. Now these consumers are more likely to buy the next expensive tablet that Samsung might launch or more likely to be the first people to buy the next Samsung smart watch. Besides, they are more likely to buy another expensive consumer good at a later date. So targeted marketing into them will be a major benefit for the company. Isn’t it? Also, considering a country like India, where this set is relatively small but growing at a rapid pace, this database can be a major source of strategic advantage in marketing and sales.

Besides, if the company can ensure the “consumer delight” of such clients, they would help in generating more customers through positive word of mouth. They are more likely to be the ‘mavens’ in the tipping point phenomenon thus positively influencing the sales.  Also, it doesn’t make any sense to lose these consumers to a competitor as it is not just one sale lost but a loss of huge amount of business. Generally, these consumers influence the buying behaviour of a lot of people in their vicinity and hence can be a major source of business and competitive advantage. The bigger and stronger the database of the company containing this set, the higher is the chance of the success of the company.

Apple has indirectly been able to do this. They have been able to engage a huge set of mavens who have been able to positively influence their sales as the product is technologically different than most of its competitors products. If the product is similar to competitors, as is the case with Samsung, they can attract mavens by providing something different in their overall product package to be able to stand out from the clutter. A loyalty program can thus provide a huge edge in attracting and retaining mavens who can then be opinion leaders positively influencing the product sales. They have been able to attract mavens and hence have been able to create a mass drive for the purchase of their product.

I am completely surprised that why these principles are not applied in this industry. The next time you buy a consumer good, do look into it!!!

Fjords... Creative Erosion

Fjord is a long narrow inlet of water into land from an ocean which is surrounded by steep mountains on either side. It is generally formed by galactic erosion of mountains into the sea. They are mainly observed in the Polar Regions as these are the places on earth which have glaciers at the lowest altitudes.

They are commonly observed in Norway, Greenland, Iceland and New Zealand.

These are one of the most scenic natural forms as they provide a perfect blend of natural formation and erosion.

As generally observed, a river erodes its bed and thus the depth of the river continuously increases. On similar lines, a glacier which is a slow moving mass of ice erodes its base (which is a mountain in the case of a fjord) leading to the glacier bed getting deeper. After centuries of erosion, this bed becomes so deep that it ends up reaching the sea level and in some cases even lower than that thus giving an impression that the mountain which got eroded never existed. Hence a fjord is formed which has mountains at the edges and the thin slit of ocean or sea in between.

Every year, these fjords attract millions of tourists, researchers, photographers as well as movie directors. It is hardly a surprise that most of the countries that have these fjords end up marketing them heavily as a tourist destination considering their natural beauty as well as the varied flora and fauna found in the region. On many occasions, the depth of these fjords end up being greater than the surrounding sea and oceans which give a lot of clues about the mysteries of the geographical formation of the area. 

Some of the most famous fjords in the world are as follows:

• Hardanger fjord in Norway
• Fjordland in New Zealand
• Geiranger fjord
• Killary Harbour in Ireland
• Scoresby sund in Greenland
• Magdalena fjord.

Norway has few of the most beautiful fjords in the world. New Zealand’s Milford sound is also a very famous tourist attraction. It is 300 km away from Queenstown and is highly inaccessible for the major part of the year still it generally ends up figuring at the top of the most beautiful places to visit in the world.