Friday, November 30, 2018


The NBFC business has grown stupendously in the last 5 years time frame In India.  Rs 10 trillion bad loan mess of the Indian banking industry created by political influence at different times created the opportunity for the NBFC industry to capitalize on the same. 11,500-odd non-banking finance companies grew their business significantly taking this opportunity. Eight of the 10 NBFCs posted handsome growth in their profits before tax in the five years.  The stellar performance of the NBFC came at the cost of NPA of the banking industry.

The NBFC growth cannot be a sustainable economic growth contributor. Their intricate deals and business model are quite dependent on the economy and once there is slowdown it will impact the assets of the Indian economy. Banks, on the other hand, are liquidated easily by various modes where NBFC have many limitations.

NBFCs plays a pivotal role behind elections and hence I leave the rest for my readers to calculate. All NBFC somehow of the other are PE financed which raises further question who is giving them and why.

The tussle between NBFC, RBI and Government stand to be a complicated situation. But this complication has a logical reason if we look from the RBI point of view.  The Indian banking sector has mostly been cleaned and under Basel III norms liquidity injection will be required into the industry. The current government wants NBFC to be financed and given easy of doing lending etc. Now after the books of the banking industry have been cleaned the banks needs to grow so that they can grow profits and also increase their business.

The huge amount of NPA which were created was mainly driven by political influence on the banking industry.  The same influence is being created now to favor the NBFC. The RBI has taken justified a step of not getting under any influence and be vigilant enough to save the economy.

The NBFC model of business has been very much supportive for the Indian economic growth and they have been filling up the gap of unbanked but the unbanked happened due to political influence. This influence on the banking industry has been so strong that they have kept damaging the industry and let other Financing industries grow.

Today if the Indian banking industry grows and fills up the gap of unbanked then there is substantial change over for the long-term growth of the Indian economy. When an NBFC fails hardly anyone comes for rescue but when a bank fails the government comes to save.

This has a significant impact on the long-term growth of an economy. The recent clean up of books has resulted in enough expansion opportunity and efficient utilization of resources by the banking industry.  More branches and more technological advancements will lead to filling up the gap of unbanked in the coming days. NBFC have been growing their business in a reckless manner and their intricate business deals and models are quite a surprising threat for the Indian economy.

The RBI mode of operation should be free from any government or political influence. The election raises many questions about giving leeway to corporate India. But this may not happen now.

If the NBFC is better placed and doing correct business keeping the regulatory aspect in mind then any storm can be faced. Support by RBI should be given but not under any influence but under the business and economic feasibility sense.

Sunday, November 25, 2018


Do Greed and asset allocation have any relationship?  Do your investments make you feel stressed? Spending sleepless nights and looking often towards price is nothing but stressed investments decisions taken based on greed.  How does investment turn out to be stressed investments might appear to be strange but it happens due to greed which drives us to take the decision away from our own objective of investments and strategy mapped according to our various factors? 

Stressed investments are nothing new but we have never thought about the same. Either it was hidden under the glorified carpet of success or eloped under the mounting losses. Stressed investments damage might be beyond numbers and asset allocation. It can damage human life too.

Greed takes control of asset allocation and takes the final shape into stressed investments. Greed threatens and amplifies the risk of asset allocation. Well according to behavioral science greed may rule over asset allocation. Greed takes control of the principles of investing when the market scales new highs. This is one of the most common things we witness when people trend to buy at high levels and stay away when then the market fall.

 Greed also compels investor not to rebalance the portfolio despite warnings from a particular asset class.  Greed compels an investor to create a different mindset for them where the world only looks rosy. This rosy world has a calculative mindset and everything is based on greed driven expectation and calculation of investing or not taking the call of rebalancing.

Investor often follows the herd mindset while doing investing. They always ask their neighbors, friends to get an idea about where and when to invest. Individual risk and financial goals are often forgotten since the other person is making a quick short-term return in the market. Greed-based investments often take one investor into a stressed position. This stressed position can also be termed as stressed investments.

Asset allocation principles depend upon the risk analysis of an individual which varies from one person to another. Further, every individual has different financial goals and has different time frames of achieving the financial goals.  The birth of greed comes when one trend to achieve the financial goal by leveraging the asset allocation road map. This is the place where greed takes control of one’s decision and hence financial planning gets into danger.

Financial planning is a strategy based game where patience and control of greed is one of the most important tools. For example, getting on the nerves of greed, one takes an investment decision beyond his asset allocation map, following the herd. Now when the market goes for a swing since the existing asset allocation has swelled in one asset class he takes more leverage to make more money out of the same overvalued asset class. This leverage is nothing but greed. Similarly when the market falls often this greed compels investor not to sell and stay with his portfolio despite losses mounting over the portfolio. The greed which takes control over here is that the markets will turn around and hence my profit will be back.    The greed factor did not allow selling. In both, the scenario the investment turned into stressed investments. Stressed investments damage might be beyond numbers and asset allocation. It can damage human life too.

In my own real life, I have seen that many investors are under so strongly influenced by greed that they don’t rebalance their portfolio despite the markets alarm of rebalancing. They have a strange perception that investments will grow again from the low levels and on an immediate basis.  The debate of time correction and price correction comes into play and hence greed starts making new calculations of returns which have no signs of reality.

Stressed investments destroy families and even in many cases, it spills over to the next generation where the greed-based losses are being borne. A legacy of losses are high which becomes a nightmare for the family. Greed kills and destroys families when investments are not taken into with proper control.

Asset allocation is completely wiped out in both the scenario. Now the most immediate question will be what should be the strategy for these types of situations. Well, greed will try to control the mind. The only way to avoid it is sticking with the objective of investments and the road map as decided upon on the investment charter.

Yes, the value of the investment charter is immense and one of the most important values is that it acts a mind protector. Reviewing the investment charter is not greed. It’s an important step in financial planning. Greed opportunities may lead to short-term gains but the probability is that in most cases it erodes the value of an investment and finally the financial planning take set back.

Well, how many of you have fallen under the prey of Greed? Do your investments are stressed?

Saturday, November 24, 2018


Recently the Mutual Fund TER has come down significantly for the benefit of clients from the low-cost perspective. Well, this is really a great thing for the investors who are looking ahead for long-term wealth creation. Low-cost products increase the returns of the investments in the long run.  Well as investors get benefit from the low cost it comes at a cost for the distributors/agents or your so-called Broker. For them, it’s a loss since their earnings come down significantly.

For your broker, this business of Mutual fund selling is no longer much lucrative business compared to what it used to be in the past 10 years. The government and every regulatory part are concerned about improving the client return on his investments and this is the place where servicing or approaching clients for Mutual Fund investments becomes detrimental from the revenue side of the broker.

Churning of portfolio and investments might soon be a quality check for your agent/broker. According to the new Total Expense Ratio guideline, many top performing funds where the corpus or AUM  size is significantly high the expense ratio also has been reduced significantly in these funds.  Vice-versa those funds where the corpus or AUM is low the expense ratio has been reduced marginally.

Hence your agent or broker might soon come to you for churning your portfolio from these funds where the corpus or AUM size is too big. They will try to get you invested in other funds where the corpus or AUM size is less. This churning advise would give you a litmus paper test of your brokers or agent about their intention behind managing your funds.

Investment advice should always be unbiased and should be free from any brokerage based influence. The advice of investments should always be on the benefit side of the client and not in favor of the high commission. Commission based sales often led to the mis-selling of products.  

Now in case your brokers/agent approaches you for the churning of the portfolio then ask him these few questions to get the clear picture about his advice. These questions can act as a litmus paper test for your broker/agent.

·        Why is your broker advising you for exiting from existing funds/schemes?
·        What will be the impact if the said actions are not taken on the portfolio?
·        How does the churning of portfolio helps to achieve your financial goals?

·        During investment time did the brokers /agent disclose about this churning at any point in time?

Investment philosophy stands on long-term investment theory and has a negligible place for any brokerage or any other type of biased advice. Many of my friends might mix up churning and rebalancing. Well, rebalancing is getting back to the basics of asset allocation where one shifts his portfolio from one asset class to another. Churning, on the other hand, is buying and selling numerous times where asset allocation basics rules are violated and it has more to impact to dilute the principle of the client. Churning should always be for the benefit of the client provided the same is not acted upon frequently. Frequent churning indicates clearly that your broker/agent is making money at your cost of investments.

An advice of churning can also be beneficially provided the agent/broker has substantial reasons and logic to justify the same. Keep an eye on your agent /broker churning advice.

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