Monday, December 11, 2017

BAIL-IN HYSTERIA.....FEARS, FACTS


Mass Hysteria regarding the safety of FD money is doing the rounds in Social Media...especially in WhatsApp.
Warning message to FD investors that their money is in DANGER is sending Shivers.

Lets understand and see whether we should be worried


1. What is this FRDI Bill?



FRDI BILL is the Financial Resolution and Deposit Insurance Bill.
This Bill’s objective is to monitor the Financial Institutions and Banks, anticipate risk of their failure, take corrective action and resolve them through a RESOLUTION CORPORATION.
This Resolution Corporation will be vested with powers to BAIL-IN a Financial Institution/Bank by way of cancelling, modifying, replacing and even changing any form of a liability with the specific intention to ensure that the Institution/Bank is protected from the risk it is facing.

India’s NPA at 9.6% (as per RBI report) is quite huge and this bill will to a huge extent drastically cut down this NPA levels and makes our Bank strong and hence the reason for bringing this bill.


2. What do you mean by Bail in?


Bail-in means preventing a company (here BANK from failing by converting debt into equity, selling off Bank’s assets, etc) without even needing the approval of Shareholders.





3. WHAT IS CAUSING THE SHIVERS FOR DEPOSITORS??
The Biggest SHIVER comes in the form of the Corporation having the power to CANCEL REPAYMENT OF DEPOSITS, CONVERT DEPOSITS INTO LONG TERM BONDS AND take all necessary action to protect the Bank.

Social Media, especially, WHATSAPP is full of messages which state that your BANK FD is in danger of not getting repaid to you.

In fact an online petition against the Bill NoBailIn has already attracted more than 1 lakh signatures!!!


4. DOES THAT MEAN MY FD IS NOT SAFE IN BANK ANYMORE?

It is a given that people believe that Bank FDs are risk-free.
Yes. It sure is!
All Deposits in Banks in India are insured for a MAXIMUM of Rs.1 lakh by DEPOSIT INSURANCE & CREDIT GUARANTEE CORPORATION.
Note..only  upto Rs.1 lakh even in the current form!!!!
Yes. Even the present Deposit Insurance is limited and you better know this now rather than later.
The DICGC will cease to exist once the FRDI comes into effect.
Does that mean the 1 lakh insurance guarantee also goes away??

The FRBI Bill HAS NOT MENTIONED about this Guarantee in the bill.
But, there is a provision wherein it has allowed the RC to set the insured amount limit.
The present rules say that your 1 lakh is GUARANTEED but above that you may get nothing if the Bank collapses.
But, the FRDI Bill says that above the limit (not yet specified), the balance of your deposit will get CONVERTED into a longer term instrument.
Which actually means that in the present regulations, your entire money could be LOST but in the new BILL.....the Bank WILL ACTUALLY owe you money even over and above the Insurance Limit!!!
Most importantly, the new FRDI Bill clearly says in case the FD is to be cancelled, consent of the Depositor is NEEDED (Section 52(7)).

Even Private Banks were saved by RBI.
Advance and always take care to ensure that you do NOT put your money in CRITICAL BANKS.



SO .....YOU MEAN TO SAY THAT MY MONEY IS SAFE IN BANK FD???
Yes. Upto 1 lakh it indeed is.
And even here the limit of 1 lakh could well be actually INCREASED.
Remember this limit of 1 lakh was fixed way back in 1993...a full 24 years back.


Also, The Insurance limit has been increased several times from the lowly Rs.1500 in 1961 to the present Rs.1 lakh. So, an increase in limit is a given.

And, please NOTE.....your SAVINGS ACCOUNT WILL NOT BE CONVERTED TO FD IN CASE OF A BAIL IN...
In fact, the Bill very clearly has mentioned that FD, RD are EXCLUDED from the Bail-In Provision!!!!

The Government has gone overdrive and issued clarification after clarification that the Depositors will be protected and assured IMPLICIT GUARANTEE.
So...for now..RELAX.
So, whether in the present form or in the new Bill your FD money upto Rs.1 lakh is INSURED.
Thus, the risk is the SAME in future as it is now. The new BILL does not alter this feature.
Conclusion,
Your money in Bank FD is safe for now and even after passing of this FRDI Bill.


By the way....upto 1 lakh ony!!!

HOW TO AVOID RISKY BANKS?


The New BILL will grade all the Financial Institutions including Banks as Low Grade, Moderate Grade and Critical Grade.
Thus, you, as an FD investor, will know the Health of these Banks well in advance and can always avoid Banks which are in Critical Grade.

Worried about the safety of your FD money in Bank with the new FRDI Bill??

Then read http://www.goodfundsadvisor.in/2017/12/bail-in-hysteriafears-facts.html

No bank has collapsed since 1961.
Yes...there are cases like Global Trust Bank..and even though these were private Banks,  RBI intervened and ensured that the same were taken over by some other bank and Depositers were saved.
Indian Banking System is quite strong and RBI has been doing a yoeman’s job for decades now.


FINALLY,
While you already are aware that MUTUAL FUNDS ARE SUBJECT TO MARKET RISK...
It would also be better to be aware that your FIXED DEPOSITS (above 1 lakh) IS SUBJECT TO SYSTEMATIC FAILURE RISK.!!
So, you could look at alternatives to FD like
Liquid Funds,
Short Term Funds,
Income Funds,
Do contact your Financial advisor before investing.






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And as always, do also remember MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS....PLEASE READ OFFER DOCUMENTS BEFORE INVESTING.

Best of luck,
Happy Investing,
Srikanth Matrubai




Friday, December 1, 2017

BITCOIN....FUNDS DOUBLING....IGNORE THE HEADLINES


It is the job of Media to keep posting ATTENTION grabbing Headlines and they spare no efforts in ensuring that.


Let us look at 2 examples both of which were shared by my investors..


FIRST INVESTOR :

This investor...named Mr.VM wrote
"Srikanth Bhai...
Look at this headline...and sent a link to an article which proclaimed FUNDS THAT TRIPLED INVESTORS MONEY IN 4 YEARS!!!
You did not recommend this fund....See this Escorts High Yield Equity Fund it has given 23% CAGR for the past 5 years"

I said "Cool down VM bhai..

Yes.
Tripled! But at what risk?
For Ex: Escorts High Yield Equity fund has an AUM of a paltry 7 crores!@!
7  CRORES FOR A LARGE CAP FUND!!!
(Large Cap as per the image shared....however Value Research puts the fund in Mid Cap Category and Moneycontrol puts the fund in Diversified Equity Fund category)
Even then 7 Crores is not a AUM which gives me comfort.
Here I request you to invest in funds which are some decent size to begin with.....It should be at least 70% to 80% of the Average AUM in its Category.
Also.....Expenses tend to HIGH for such very small funds which could definitely impact performance,especially when the markets tank and stay bearish for long periods.


Will you invest in such a fund?


Just imagine...if an BIG investor (or a group of investors) in that fund having Rs.50 lakhs decide to redeem all investment in one go....the impact on the NAV will be CASTROPHIC!!
About 14% of Fund Corpus will go out in 1 single day.
The Fund Manager will be forced to sell his BEST STOCKS to honour the redemption.


================================================================================================================================================




Lets take 2  more example :
UTI MID CAP FUND..
True it has doubled....nay tripled in 4 years but has been an underperformer compared to its peers and is ranked a lowly 60th out of 94 schemes.
This particular fund has actually UNDERPERFORMED its category both for 1 year and 3 years.

Lets take one more example
HSBC MIDCAP EQUITY FUND 
This fund which has been highlighted at 4 row has been such an UNDERPERFORMER that it has failed to beat its Category for 3 years, 5 years and even 10 years!!
10 YEARS OF UNDERPERFORMACE.
And, just 1 or 2 years of good performance has taken it to some top position and ATTENTION GRABBERS feast on such a bonanza and gullible investors who go DIRECT are trapped.
In Fact, Value Research says this fund is ABOVE AVERAGE in terms of RISK
and BELOW AVERAGE in terms of RETURNS.
Which means...by investing in this fund YOU ARE TAKING ABOVE AVERAGE RISK FOR A BELOW AVERAGE RETURNS.







As I said...numbers can be presented as one wants.
Attention seeking is the name of the game.
Do not fall into such a trap. 
========================================================================================================================================================================================================================

Now..lets move to the
CRAZE OF THE MILLENNIUM .....the BITCOIN!!

Then comes one more investor Mr.MPS and sends me a Newspaper clipping which says BITCOIN gained $1000 in 1 single day and asks me 
"Why did you not recommend me this....??
You are talking about SIPs which give me returns after 10-15 years but look at this...it has given in 1 day what your SIP will not give even in 1 year"!!!
I said :"MPS Bhai...


Is Bitcoin regulated? My God....NO!!!

Is Bitcoin a commodity? ....NO!!

Is Bitcoin backed by any Tangible Asset?....NO!!

Is Bitcoin a Currency?....NO!!
Try paying your Income Tax with it and you will understand..

Is Bitcoin easy to understand?...NO! Even JP Morgan's CEO Jamie Dimon acknowledged that he didnt understand Bitcoins and says Bitcoins is worse than Tulip Bulbs!
If Global Banker doesnt under BITCOIN...will you and me understand it?
Do you want to buy something you dont understand?? NO...right...then why SPECULATE..

Is Bitcoin regulated?? ....NO!!!
No SEBI, No RBI, No FED to regulate...If someone frauds you in Bitcoin...you dont have anyone to turn to complain to and get back your investment..... You want to invest in something where there is no one to go to in case of a fraud?? NO...right..then stay away
Even RBI in its Feb 1, 2017 release has clearly stated that it has NOT ISSUED LICENCES TO ANY COMPANY TO TRADE IN ANY VIRTUAL/DIGITAL CURRENCIES. 
RBI has rubbed its hands off the matter by clearly mentioning that those doing so will be doing at their own risk!!


Finally, Dear Investor....BITCOIN or for that matter other Cryptocurrency are being used by Hawala dealers, Terrorists as its very very difficult to track those who trade in them. 
So...if you want to contribute to the TERRORISTS...go ahead and invest in BITCOIN. 

Having said this....Cryptocurrency could become legal going forward and could come under regulation but till then I follow the principle of A BIRD IN HAND IS WORTH MORE THAN 2 IN THE BUSH!!

For me, BITCOIN is a game of GREATER FOOLS THEORY. 
Someone buying only in the hope that there will be another person who will PAY MORE for it and this cycle as long as its running the dance goes on. 
The moment the music stops we may well see LOTS OF BLOOD on the street.



You seem to be trapped in the FOMO syndrome ....FEAR OF MISSING OUT ....This is where majority of people lose money....
The cream is already gone...who knows whats in store


Remember the Japan Stock Market....
It has still not touched its Life Time High even after 28 years!!!!
You could just get trapped in exactly such a case


Relax. 
Play a game of Pokemon Go or Angry Birds and enjoy the weekend. 
Lets talk about some REAL investments next week!

Let the excitement settle....
Let the regulations set in place"""





As I said...numbers can be presented as one wants.
Attention seeking is the name of the game.
Do not fall into such a trap.

IGNORE THE HEADLINES.
STICK TO THE BASICS
STICK TO YOUR FINANCIAL PLAN.
STICK TO WHAT YOUR MUTUAL FUND DISTRIBUTOR TELLS YOU.


He knows what funds fit into your risk profile, time horizon.

Good luck,
Regards,
Srikanth Matrubai







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