One of the more interesting things I learned while writing about India’s major trade partners was that Switzerland (not China) was the country that India ran it’s largest trade deficit with.

While you’d expect India to import a lot more than it exports to oil producing countries – I was a bit surprised to see that even Switzerland fell into that category.

I looked up further data on what India specifically imported from Switzerland and here are the numbers. The headings of the commodity name are rather long and I’ve retained the same thing that I found on official Department of Commerce website.

I think the first category consists mainly of gold and here’s a pie chart that I think really drives home the point.

Indian Imports from Switzerland

As  you can see the bulk of the imports are gold and pearls and I think gold must be the primary constituent in this category. Further, I think that the gold people buy for investment like gold ETFs and gold bars and coins sold by banks constitute a large part of these imports.

I say that because this category grew by 75% the last year and people suddenly didn’t start buying that much extra jewelery. This category also happens to be the main reason for growth in imports from Switzerland which grew by 68% overall in the last year. This will probably not grow as much this year so the deficit situation may change, but it’s really amazing how one commodity can drive so much growth in just one year.

It will be interesting to see where else does India import its gold from but that needs to be the topic of another post.

Perpetual bonds are bonds that don’t have a maturity date, and to compensate for the fact that investors can never redeem them – they pay a higher rate than other bonds with a similar credit profile.

They are not all that popular and I could not find references of many perpetual bond issues, and there seem to be more dollar denominated perpetual bond issues than rupee denominated ones.

The company that issues the perpetual bonds normally has an option to call them which means that they can decide to redeem the bonds at the end of certain time periods say 5 or 10 years, and the Tata Steel perpetual bond issue had a step up option also which means that if the bond is not called within a certain time frame then the company will have to pay a higher rate of interest on them. They issued the bonds at 11.8%, and if the company didn’t call the bonds within 10 years then the coupon rate would increase by 300 basis points.

They are supposed to be listed on the stock exchange also, but from what I can see there isn’t any trading in them at all. If you know of a perpetual bond that is listed on an exchange then please leave a comment here.

While this may be of interest to pension funds and institutional investors, I don’t see any value in this for retail investors.

I can’t think of a single situation where someone will be better off with one or two extra percentage points in interest income every year with the trade off that they may never see their capital back. That doesn’t appeal to me at all.

These bonds are good for banks and other companies to raise money and shore up their capital and also good for pension funds who would like to lock on to the high interest rates, and if they got the principal redeemed then they anyway need to re-invest it in another instrument, but as far as retail investors are concerned – I don’t see any utility in them.

This post was from the Suggest a Topic page.

Here are the puzzles from OneMint’s Facebook page this week. I couldn’t post last week because I was away Saturday, and didn’t get an opportunity on Sunday.

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1. Simplicity can make your message powerful by carrying it far and clear. But, that was not one of the virtues of my beloved uncle. He told me the following one day:

Winged creatures with a shared identity tend to gravitate to those that have similar leanings.

I was baffled, but it’s apparently a very well known saying. What is the saying?

2. My friend asked, “Should I start my business in summer or autumn?”

“In school I asked you to join the boxing team, but not the wrestling team. Later, I suggested you learn the salsa, but not the ballet, and then I advised to you to become a surgeon but not a psychologist. Doesn’t that tell you what my advice now will be?”, I said.

In which season will he start his business?

3. “A rabbit petting zoo was a great idea!”, my friend said, “little school kids can take care of them, so overheads are really low.”

That was right, I looked at the area and saw only uniformed kids, and cute little rabbits.

“Look at all those ears”, I said – “I can count 120 of them.” “In that case, there must be a 100 more legs there.” said my friend.

How many rabbits, and kids were present there?

4. “Congratulations!”, said my father in law, “Your wife’s mother in law’s only son’s sister in law is going to go to the same college as you!”

Who was he talking about?

5. Can you guess the missing number? It is not part of a sequence, you have to visualize the answer a bit, and do one addition and a multiplication.

6. TIC TIC TIC is a sweet sound, but a pleasant sound is not what I heard when my friend stormed into the room with a newspaper in hand declaring this.

I’m going to send all these _ _ _ _TIC_ _ _ _ to the _ _ _ _ _ _TIC.

Can you fill in the blanks to tell me what he was saying?

About these

If you missed my earlier post about them, and are wondering what these are then I started writing some puzzles a couple of weeks ago, and since they are not big enough for a full post I publish one every day on OneMint’s Facebook page, and then try to publish a week’s worth on Sunday here. There are no prizes for correct guesses, just the pleasure of getting them right.

Piyush Modi had a very interesting comment on yesterday’s post, and this is relevant for people with home loans from ICICI Bank. It seems that he called them up to get something done, and they offered him a lower rate on an existing home loan, and saved him a lot of money!

I’ve been thinking about it, and can’t understand why they did that, and I certainly don’t know of any other such cases.

I thought I’d publish his comment here to see if anyone else has a similar experience, and to let others know about this as well. It will only cost you a phone call, so there is no harm in trying your luck.

Here is his comment verbatim:

Though this comment is not particularly relevant to this post, but I wanted to leave it and want you to write about it cause I am sure it will help many many of your readers.

My dad has a home loan with ICICI Bank which was once taken at a floating rate of 7.5%, and which now stands at 14.5% rate. I recently called up ICICI Phone banking to ask the procedures for a balance transfer to a different bank & I was told that they are running a scheme where existing customers could move to a lower rate of interest. I was skeptical at first, but then went through with the documentation required and apparently its an amazing scheme. Obviously ICICI wont advertise it or inform you, but it is available.

My dad’s rate has been reset from 14.5 to 10.5% a huge 4% difference. His tenure, which was originally 180 months, and had now gone up to 315 months despite making the EMI repayments for the last 4-5 years (60 months approx) stood slashed at one go to 160 something. Alternatively, one can choose to reduce one’s EMI instead of choosing to reduce the tenure.

For those wondering how such a drastic reduction in tenure is possible, it can happen. In this case, the total EMI was approximately equal to the interest charged in a year and only a very small amount (4-5%) of the EMI was being used to repay capital. With the fall in the rate charged by 4%, this shifted up considerably to 25-27% of the EMI, and this means that a lot more of the EMi is being used to repay capital instead of just service debt and this leads to drastic reduction in tenure.

What were the documentation/formalities required –

1. Cheque for a charge of 0.5% of balance outstanding on the loan+service tax on the same.
This is extremely cheap as I will recoup this charge within 2 months
2. Non-judicial stamp paper of Rs 30 signed by borrower & co borrowers
3. Some sort of an agreement which you will get from the bank itself and has to be signed by borrower & co borrowers
4. All outstanding EMI payments have to be cleared (obviously)

Now I am not sure whether the scheme is available for all home loan borrowers or a particular category, as also the amount of reduction in rates will be the same for all borrowers or not. But give a call to ICICI bank and just ask. It will save you a tonne of money.

I have often felt the need to calculate numbers from Crores to Millions because I feel its easier to make sense of larger numbers in millions and billions. Isn’t Rs. 1 trillion much better than 1 lakh crore?

If you think in terms of Millions of Dollars then it also simplifies comparison across geographies. With that in mind I made this simple calculator that will take your input in Rs. Crores and then convert the number into millions and billions of INR and USD.

I’ve started with an exchange rate of 1 USD to 44 Rupees but you have the ability to change that.

There was a very well researched comment on the forum the other day where reader SM Gupta had researched term insurance quotes from various insurers, and presented his findings.

You can see the comparison below.

Sample Quotes:

• Age – 31 Years
• Policy Term – 25 Years
• Sum Assured: Rs. 50, 00, 000

You can see that there is a wide range in these quotes, and the natural question is which one to of these policies should you choose. I haven’t double checked these quotes, but the ball – park seems right to me.

Unfortunately, I can’t answer that question since I’m not well versed with insurance, but I thought I’d post this here with my own thoughts, and also share what I have done myself as far as term insurance is concerned, and then leave it open for discussion.

When I searched for term insurance I found out about this wide range, and ultimately decided to go for a LIC policy even thought it cost more.

One of the primary reasons for opting for LIC was that we have known a particular LIC agent for a very long time, and he has provided my family excellent service in the past for car and other insurance needs.

We have had our share of Mediclaims and car insurance claims that have been processed without hassle, so that added to my confidence in going with him.

No one contemplates mortality, but if something were to happen, then I feel comfort in the thought that this gentleman is more likely to assist my family than a stranger.

The second reason is that LIC has a fairly high claim settlement ratio, and while I’m not intimately familiar with how these numbers are calculated  – it does inspire confidence that they payout on a large number of claims.

The third reason is that I plan to split the total insurance into two policies – one LIC and one other insurer, as that makes it easier to manage the insurance if in the future I decide that I don’t need so much cover, or if one insurer declines to pay, then at least there is the other one.  So far, I haven’t been able to get to the second insurance cover, but that was the initial plan.

The last reason was that while in percentage terms the numbers might vary a lot – in absolute terms it is not very significant, and I’m not too concerned with paying the extra money.

So those are some of my thoughts – please add to the discussion, as I’m sure a lot of you have dealt with the insurance question, and chosen one over the other. You can leave a comment here, or at the forum post.

The Shipping Corporation of India (SCI) has filed its draft red herring prospectus with SEBI, and this Navratna will probably come out with an FPO this November.

The company will come out with an issue of 84,690,730 equity shares – half of which are existing government shares, and half of which are fresh issue. Since this IPO contains a component of a fresh issue of shares – SCI will receive money from this issue even though this is disinvestment, and some of these funds are going to be utilized for its fleet expansion plan.

SCI is one of India’s largest shipping companies with approximately 35% of Indian flagged tonnage as on June 30th 2010. The company owned a fleet of 74 vessels of 5.11 million dead weight tonnage (DWT), and had ordered the construction of an additional 29 vessels to be delivered between 2011 and 2013.

Here is a breakup of the 74 vessels.

SCI Fleet Breakup

The bulk carrier, and tanker division generates the majority of the revenue with 68.5% percent of total income coming from this segment in 2009.

SCI Financials

The fortunes of the shipping sector are closely tied with the global economic conditions, and this is clearly illustrated with the revenue movement of SCI over the years.

The company generated revenues of Rs. 39.06 billion for the year ended March 2010, which was lower than the revenues generated in 2009 of Rs. 45.57 billion. The profit after taxes also follow a similar trend, and the chart below shows how the numbers moved from 2007 – 2010 (in Rs. million).

SCI Total Income and PAT

SCI had Rs. 22.11 billion in cash and equivalents on June 30, 2010, and had a debt – equity ratio of 0.45. The EPS for 2010 is Rs. 9.29 which is down from Rs. 22.66 EPS in 2009, and Rs. 17.82 EPS in 2008.

The company derives the majority of its revenues from the bulk carrier and tanker division, which in turn is dependent in movement of energy related products like crude oil, gas and coal, and this segment is the cause of the drop in revenues and profit from 2009 to 2010.

These three passages from the Management Discussion are quite useful to understand how the revenues and profit of SCI are impacted by external conditions and its own cost structure.

Demand for energy products
Our bulk carrier and tanker division is the primary revenue source of our Company, accounting for 70.5%, 71.7%, 68.5% and 63% of our total income for Fiscal Years 2008, 2009 2010 and the three-month period ending June 30, 2010, respectively. The demand for our bulk carriers and tankers, to a large extent, depends on the demand for energy related products, including crude oil, gas and coal. Due to imbalance in supply and demand of tonnage and its consequential effect on the freight market, our total income and adjusted profits for Fiscal Year 2010 dropped by 14.3% and 59%, respectively, compared to Fiscal Year 2009. We expect that our results of operations will continue to be dependent upon demand for shipping of energy related products in the future.

Fluctuations in charter rates

Our total income and operating margins are affected by the charter rates that we charge for our shipping services, which are largely dependent on supply and demand. Charter rates have declined during the global economic slowdown in Fiscal Years 2009 and 2010 due to the reduced demand for shipping services. During that same period, our total income and profits for Fiscal Year 2010 dropped by 14.3% and 59%, respectively.

Our operational and fixed expenses
Our profitability is significantly impacted by our operational expenses. For Fiscal Years 2008, 2009, 2010 and the three-month period ended June 30, 2010, our operational expenses were Rs. 25,939 million, Rs. 28,103 million, Rs. 27,646 million and Rs. 6,275 million, respectively, or 64.3%, 61.7%, 70.8%, and 63.1%, respectively, of our total income. Some of our expenses, such as those for rent on our properties and interest on our indebtedness, are fixed or subject to limited adjustment by us, and will not fluctuate in proportion to changes in operating revenues. The fixed expenses allow us to control our expenditure. However, if our income from operations decreases due to our inability to employ our vessels at profitable rates or low productivity, we are still required to pay such fixed expenses which will reduce our profitability and operating margin. In addition, any increase in expenses related to bunker (of fuel), maintenance, repairs, spare parts, salaries, consumables and compliance with new rules and regulations will also have a material adverse impact on the results of our operations, if we cannot pass such increased costs to our customers.

To summarize – recessionary conditions lower the demand for oil and fuel products, which drives the majority of the revenues of SCI, and charter rates for the ships are lowered due to the decreased demand. Combine this with a high fixed and operating cost, and the company really feels the squeeze of the slower economic condition, and has its fortune tied to the economy quite closely.

The pricing, or exact dates for the SCI FPO have not been declared yet, and I’ll update this post when the dates and pricing are available.

It looks like the day when you see car drives around on their own without a driver is not very far. Google has developed the technology, and their self driven cars have already traveled 140,000 miles with just a little human intervention, and 1,000 miles with no human intervention at all!

I remember seeing videos of cars that park themselves and get awed, but this is super-awesome!

From the NYT:

The car is a project of Google, which has been working in secret but in plain view on vehicles that can drive themselves, using artificial-intelligence software that can sense anything near the car and mimic the decisions made by a human driver.

With someone behind the wheel to take control if something goes awry and a technician in the passenger seat to monitor the navigation system, seven test cars have driven 1,000 miles without human intervention and more than 140,000 miles with only occasional human control. One even drove itself down Lombard Street in San Francisco, one of the steepest and curviest streets in the nation. The only accident, engineers said, was when one Google car was rear-ended while stopped at a traffic light.

Autonomous cars are years from mass production, but technologists who have long dreamed of them believe that they can transform society as profoundly as the Internet has.

The article later on states that mass implementation may still be 8 years away (optimistic), but that’s not that long now is it? Go read the whole article, and have a dreamy Sunday.

In a funny co-incidence Scott Adams published this Dilbert today, and Business Times published this story about wireless dead zones in the Bay Area – 83% of which belong to AT&T

To top it all – MG Siegler concluded his post on this story by wishing for two tin cans with a really long piece of string.

Prayers continue for a Verizon iPhone. Or a T-Mobile iPhone. Or two tin cans with a really long piece of string. All would be preferable at this point.

Not quite a wood block, but close enough. And you thought only cats were funny.

Gaurav Palvia wrote to me about his investment approach after reading my request on the OneMint poll results post. I am reproducing his email below (edited slightly), as I think it presents an interesting angle to investing, and how he approached the subject.

My favorite part is when he called up all the agents to meet him, and got free advise from them. Pretty clever.

Here is what he says:

I am writing this as a follow up on your suggestion on “Results of the OneMint poll” to write our experiences about investing.

I am a software engineer working in the software industry for last 10 years.

I started looking into investments/finance around 2008 as a hobby/alternate profession ..something to pass my time if I get bored with my daily designing/coding routine.

I got interested in it, so i am pursing CFA from www.cfainstitute.org. Cleared level-1 of it in 2009 and now preparing for level-2 in my spare time.

I thought I will share some info/knowledge/experience I gathered during this period.

I recall somewhere I read that “WEALTH GENERATION IS A VERY SLOW AND BORING PROCESS”. I think it says it all…

I mean… one in a million can become Rakesh Jhunjhuwala who accumulated huge wealth at such a young age.

If you think you have that kind of skill then you should just follow your gut; take as much risk as you can ..in the stock market..do trading…whatever…

For the remaining people like us ; we need to clearly understand the above principal of wealth generation…..and not give up.

In a nutshell – the above principal says…”do your homework on a regular basis and have patience”

Though I have a DMAT account since 2001, and I made a little money during BJP’s disinvestment phase by investing in Shipping Corporation in India and then in VSNL, but that time I was a speculator and I made money just by speculation, – and may be I got lucky.

I had bought SCI at 36 and sold it when it reached 91…so made a real cool profit.

But it’s only after 2005 I started taking investment a little more seriously. I inquired with colleages..and someone recommended me an independent financial advisor who suggested me some XYZ mutual fund using SIP. I sold it last year and made no profits out of it even though I kept it for 3 years or so.

So I said to myself that when everybody is making money from mutual funds…why am I not able to do so? I searched various sites but I was still not able to decide which site to trust for information…so I thought of a different plan..and a witty one

I called CitiBank and asked them for financial planning…in 2 days time their representative came to meet me..and suggested me varios plans and a 4-6 mutual funds.

I did the same with HDFC/ICICI/AXIS and in 2 weeks time i had all the data suggested by all these representatives.

I just zeroed in on those mutual funds that were suggested by all these representatives…the common ones….and then did a SIP on these Mutual funds on my own from my ICICI Dmat account.

And I could double my investment in exactly 2 years of time…last month I sold them as I needed some cash. So this was my first real profitable venture.

But during the time I kept reading…and reached on some conclusions as how investment should be done by a retail investor.

So I am just listing those ideas ……

1. I think for retail investors SIP / Mutual fund is the easiest way, as it shields us from doing all the equity analysis.
Equity analysis is a real full time job, and I suggest let’s leave it for experts. Mutual fund houses spend all their time/money/energy into it so a retail investor should just choose 4-5 well known mutual fund houses and invest money as per his risk appetite.
It also does not mean that choose any mutual fund from these houses. I think one should look for the following qualities in a Mutual fund:

a. Past 3-5 years annual returns. I guess any Mutual fund that gives above 20% return is good enough. But as we compare returns from other mutual funds…we may think even 20% is less so its best to choose a 3-star to 5-star rated mutual fund.

I normally check the rating of the fund from www.valueresearchonline.com. They have rated all the funds.

b. Credentials of the Portfolio Mgr. If the Portfolio Mgr is a C.A + CFA + IIM and has 15 years of exp in the industry and a proven track record..what else do you need? There are very less chances for him to make mistakes than for people like us who dont have that kind of credentials and experience.

c. Net Assets. Its very important to check the Net Assets of the fund. I will never invest in a fund which has say 10-50 crore of Net Assets only. It may return great returns..but it is that risky as well.
I will rather go for a fund which has atleast 500 Crore of net assets; has a established reputation…in the market for quite some time.

2. The second important question when a retail investor starts investing is..which mutual funds he should choose.
We keep hearing abt lot of sectors (Tech/Realty/Power etc) doing good at times…and keep hearing how some made fortunes by investing in these sectors.
But I think some one who is just starting to invest; he should not get bogged down by such stories.
I think if you are  a beginner, and if you can do a SIP in 5 mutual funds then you can choose 3 Equity diversified funds and 2 sector specific funds. But before investing – remember to check their rating/past history from a rating agency.

3. When to invest: I think if you are going the SIP way; it does not matter when you start investing. Because of the regular investing you end up buying units at an average cost…unless one is really unlucky and he bought all the units when the market was doing exceptionally well…and is now not expected to do the same in next 5 years or so.
But I guess it does not happen that way practically..if you choose reasonably well mutual fund and keep invested for 3 years or so ..you will earn reasonable returns.

As I said initially i had invested in a Mutual fund..and kept it for 3 years..but still i could not make much money of it.

It didnt mean that I lost money…I could still recover all my principal. The reason i did not make any money because i was fooled by an independent finacial advisor and I selected a completely wrong mutual fund scheme.

4. When to exit: I can suggest a couple ways as when a retail investor can exit
1. Set a target as when to exit. If i set a target that if i get 35% returns and it is good enough for me; then I should exit when i get 35% returns.

The other way can be that when I will get say 35% return I will just recover my intial amount and keep the remaining 35% to grow.

In this way I will never loose any principal and allow my remaining 35% to grow as well.

One can make it a little interesting as well by first recovering the amount that one could have earned in that much period in a bank F.D and keep the remaining invested. This way one can be sure to earn the bank interest rates on his principal and have the remaining to take all the financial ups/downs. This way I think I won’t lose my sleep atleast.

I think looking at the current times and Indian economy one should be more than happy to achive 35% return annualy and recover his principal when he gets total 50% return. So recover your principal when you earn 50% return and keep the rest of the money invested.

I am not a daily trader and don’t believe in daily trading as my profession is quite time taking and does not leave me with much spare time; but i keep a watch on my funds/economy/markets and I will never sell in panic but I will always sell when I see exceptionally good gains.

Also I am not discouraging some one to not invest directly in equities/commodities. I never found sufficient time to do thorough equity analysis myself …so I cant comment on that. But like an average greedy person I also keep on picking things from time to time

-Safe Investing
Gaurav Palvia

I thought the email was interesting enough and covered so many aspects that it would make a good read for other readers. More than anything else, it shows that investing is a personal journey, and you need to develop a style that suits you the most.

I’d be interested in hearing more such stories, please leave a comment or email me if you prefer that.