Mohan posted an excellent comment on the Suggest a Topic page the other day, and I’m reproducing it here.

Dear Manshu,

I read your blog before taking any financial decision and i thank you a lot as your blog has really educated me regarding the various financial products. Thanks a lot for your untiring work . However, of late, i have been thinking and worked out a way / plan for the financial benefits which are likely to be received against my policies , god forbid, if something happens to me during the tenure of these policies. I want some one/ some trusted agency/ to handle any benefits received from my policies and benefits given by my employer/ in a particular manner . Are there any such agencies? if not, what steps should i take to ensure that the funds received are deployed gainfully in fd’s/ MF’s etc, as my wife is a housewife and is not very knowledgable about financial products and she may have to take care of my 2 kids and my old mother.

If I understand this correctly, there are two concerns here – one is how do you ensure that your family gets all due benefits and then the second one is how do you ensure that the money is deployed gainfully.

This is a great thought, and while I hope none of us have to go through such an ordeal it’s wise to prepare for this.

I have never thought of this question deliberately till now so let me pen down my thoughts on how I’d like this to be handled and then I’m sure a lot of you will have great thoughts of your own on this too.

I must admit that no single person knows about all my investments and insurance but I think between my dad and wife – they will know all of them.

So, the first step should be to make sure that both of them know about everything and get a complete picture.

I think that’s the first step, to have someone you trust know about all your investments. If they don’t know about these investments, then there’s not much they can do beyond that.

The most practical way of doing this is create a list somewhere that’s easily accessible and can serve your purpose as well. I have a Google Spreadsheet which has these type of details and since it is a snapshot of what I own at what price – it’s very useful for me and I update it regularly. Sharing such a thing with my wife and dad will take care of the first thing.

The second step is to specify what should be done with each of the investments. So, if there are fixed deposits then let those fixed deposits mature, and if there are shares then sell off all those shares and get cash for them. This is probably a very uncomfortable thing to talk about and quite honestly I don’t see myself bringing up this conversation but it seems to be the right thing to do.

To claim all of this money – you would need paperwork and this brings me back to Bemoneyaware’s post on succession certificates and wills that I shared some time earlier.

Now, let’s come to the heart of the question which is if there is an agency or organization that handles this money on your behalf and which can invest it properly.

I don’t think there is anything like that at all. The closest I can think of is a financial planner, but I don’t think there is someone who specifically does this type of work only.

I think that if someone finds themselves in this unfortunate circumstance – they should go the ultra conservative and simple route of investing all their money in fixed deposits only.

It is easy enough to understand and administer and while there may be other products that give a higher yield – their complexity may make them unwieldy for someone not too familiar with financial products.

The other reason I say this is probably something a lot of you can very easily relate to and that’s the sad reality of the financial landscape.

A lot of people are out to screw you financially and invest your money for their selfish gains and not your benefit. Given that these type of people are a much larger proportion of the adviser / agent community – I feel that the chances to falling prey to one of these people is very high for someone who is not financially savvy and has no one to fall back on. Losing your loved one is a big enough tragedy and compounding that problem by investing precious little resources in crappy products is the worst that can happen to somebody.

In thinking about this I feel that the extra two or three percentages that someone can earn by investing in some other debt instrument is not worth the risk that comes with shopping for such products without having someone savvy to look out for your interests.

These are my thoughts on the subject – what do you think? Have I become too cynical or would you say the same thing?

Reliance Industries Limited (RIL) announced a share buyback plan along with their quarterly results on Friday, and the main thing to remember about that buyback plan is that Reliance Industries is going to execute it through an open offer and buy the shares from the open market.

This means that the company will go and buy the shares from the stock exchange, and there is no way for a shareholder to offer their shares to Reliance Industries and ask them to buy it for a certain price.

The price of Rs. 870 that’s being discussed is the upper limit at which the company will buy shares, and that in no way indicates that the stock price will reach Rs. 870 in the near future or that you can get Rs. 870 for a share any other way.

Reliance Industries Share Buyback Details

Over a period of time Reliance will buy its own shares from the market as long as the price is below Rs. 870. If the price rises beyond 870 then they won’t buy any more shares. They are not going to keep buying as long as the price reaches 870 – that’s not their intention at all.

The third aspect of this buyback announcement is the Rs. 10,440 crore upper limit, and this is the maximum the company will spend on the buyback. They are not obligated to spend all of Rs. 10,440 crores, and they will probably not use all of that either. That’s just my guess based on what they did last time and the fact that they have debt worth Rs. 74,503 crores and cash worth Rs. 74,539 crores and they did spend Rs. 1,899 crores on interest payments in the first 9 months of this fiscal so the cash can be used to reduce this debt as well.

I can’t think of anything that’s been announced in this buyback that makes such a material difference so as to start an investment position in Reliance. If you want to speculate for some short term gains then I don’t have any input on that but Business Line has a great article on the currently open buyback offers and they found that out of the 15 offers that are currently open, 14 are much below the maximum price offered by the company, so that gives you an indication of how other offers have recently fared.

PFC and NHAI recently came out with tax free bond issues, and two more companies have filed a draft prospectus with SEBI to issue tax free bonds. These two companies are HUDCO (Housing and Urban Development Corporation) and Indian Railways Finance Corporation.

Although the dates and details are still not out – I thought of making a tax free bond calendar much like the 80CCF infrastructure bond calendar.

The benefit of this type of a calendar is that you can view all the rates and details at one place, and not only use them for future but for past reference as well.

It also gives one place for people to leave comments and ask general questions about tax free bond issues. With that in mind – here is a table with details of past as well as future tax free bond issues.

I have taken all the feedback from comments in the 80CCF calendar and increased the number of columns to show more information.

The one thing I’d like to say here is that secured doesn’t mean any kind of guarantee – it simply means that the company has set aside some assets against this bond issue. If anything happens to the company then those assets will be sold to recover the money for the bondholders. That’s all it means – it does not mean a guarantee from the company or the government of India that you will be repaid no matter what.

I’ll have separate posts on the Indian Railways and HUDCO tax free bond issues when their details are announced, and update this table as well.

Like a lot of other things – I came to know about the Reliance Industries (RIL) proposed share buyback program from a comment here.

The details will be out on the 20th but this is a good time to take stock of what a share buyback program entails and what are the things you should look out for.

The first thing is to find out is what type of share buyback offer this will be. As I wrote earlier – there can be two types of share buyback programs – one where the company buys the shares through the stock exchange and the second where they send out a form to their shareholders and ask them to tender their shares for the buyback.

If RIL decides to carry out the buyback program from the stock market then they would indicate a maximum price that they are willing to pay to buy the shares, and carry out purchases from the stock market periodically as long as the share price is below the maximum price they have decided. So, they could say that the company will buy shares as long as the price is below Rs. 1,000. This means that the company is allowed to exercise the buyback as long as the shares are under Rs. 1,000. They could buy it at Rs. 780 or Rs. 900 or any other price as long as it’s below Rs. 1,000.

They will also indicate a maximum amount that they can spend on the buyback but they are not obliged to reach that amount using the buyback. So, they may say that they will spend Rs. 1,000 crores on the buyback but that doesn’t mean they have to necessarily spend the Rs. 1,000 crore on the buyback – they can stop after spending Rs. 500 crore or just Rs. 10 crores.

If Reliance Industries decides to carry out the buyback by asking their shareholders to tender their shares – then they will set up a price at which the shareholders can tender their shares and the company will most probably buy a portion of the shares from the shareholders at this price.

So, in this case the company could say that they will exercise the buyback at Rs. 830 and send you a tender form to see if you’re interested or not. You fill up the form and tell them that you are interested to sell the 100 shares you have but so does everyone else. The company is not looking to completely delist, just buyback a part of its share capital so it will partially accept your tender offer – say buyback 50 of your 100 shares. How many shares they buyback depends on the response to their offer. People who have invested in IPOs can equate this to IPO allotments where you could apply for shares worth Rs. 1 lakh but get only shares worth Rs. 6,000 due to the huge response.

The takeaway from this post should be that you can’t just buy some Reliance shares from the stock market and turn around and sell it to Reliance Industries for a quick buck.

There are many nuances to how a share buyback works and you should familiarize yourself with them so you can ask the rights questions and evaluate the buyback offer yourself.  As more details emerge, I will update this post or write a new one with the methodology they are using as well as the numbers.

You can read these two posts I wrote earlier if you’re interested to know more about buybacks in general.

• Introduction to share buybacks 
• The two types of share buybacks 

IDFC has come up with the second tranche of their infrastructure bonds, and I was a bit surprised to see that they are offering a lower interest rate from the other infrastructure bond issues that are open right now, and even their own earlier tranche 1 interest rates.

The issue is going to open on January 11 2012 and ends on February 25 2012. The issue is secured and rated ICRA AAA and Fitch AAA from ICRA and Fitch respectively.

Here are the other details about the issue.

As you see, the interest rate is lower than some of the other issues that are open right now, and given the fact that most of these issues offer the same level of safety and listing benefits etc. – I don’t see a reason to opt for this one against the others that are available right now.

The only new question about infrastructure bonds that I’ve come across since the last time I wrote about them is if either IDBI or LIC is going to come out with an issue in the future.

I’ve not read anything that says they are and I don’t think banks can even issue these bonds, so I wouldn’t wait for these issues.

Another thing to keep in mind is that a few people mistook infrastructure mutual funds as 80CCF bonds and bought them last year. It’s a rare mistake but one that could occur so just something to keep in mind.

Let me begin by answering the question that’s been on your mind the whole week – why do humans have chins? To mate, to chew and a few other theories on why humans have chins.

Next to something that really surprised me – Caterpillar is telling its workers in Canada that they will close down a factory and move to a lower cost location – and what’s that lower cost location? Why USA of course!

It seems that although the wage difference between the two countries is not much, due to higher productivity, pricier dollar, and cheaper fuel – US is a cheaper destination than Canada, and the article lists down many other companies that decided to move out of Canada.

Factories are not the only thing that get affected by exchange rates – this Financial Express article talks about NRIs getting increasingly interested in buying real estate in India due to the depreciating rupee.

Beyond BRICs writes about the capital requirement woes of SBI and how a cash strapped government isn’t able to capitalize SBI beyond the needs of a few quarters.

An incredible story of a Chicago taxi driver who uses Twitter to grow his business.

Flexo of Consumerism Commentary shares his personal balance sheet which gives a view of how he has fared in the last ten years, and what he has achieved in the last ten years is truly amazing.

Finally, some stunning pictures from Iran.

Enjoy your weekend!

The latest company to come up with a 80CCF infrastructure bond issue is Srei Infrastructure Finance Ltd. and their issue opened on 31st December 2011 and will close on January 31 2012.

They have four options to choose from and the bond issue has got a rating of CARE AA from CARE which indicates a high degree of safety.

The main difference in the terms of this bond issue is that the buyback period is 5 years for all 4 options. So, you have two options with a term of 10 years, and then two more with a term of 15 years, but then all of them have an option to exercise buyback at the end of 5 years.

If you look at the REC infrastructure bond issue – you will see that the rate of interest is similar but the 15 year bond issue has a buyback period of 7 years instead of 5. (In the REC issue 10 year bond had 8.95% and 15 year had 9.15%)

Now, the bonds with a 10 year term have a rate of interest of 8.90% and the bonds with a 15 year term have a rate of interest of 9.15% but if you have the option to exercise buyback for all of them at the end of 5 years – then why choose the 10 year option at all?

For someone interested in this bond issue, I think it makes sense to prefer the 15 year series over the 10 year one, take advantage of the extra rate of interest and then exercise buyback at the end of 5 years. The only issue with this is I wasn’t able to find out how exactly the buyback works.

Srei Infrastructure has said in the prospectus that you have to notify them them about the buyback between six and nine months prior to the buyback date but how does one keep a track of these dates?

Do they send out a letter asking you for your preference or what other method does one follow? If they don’t send out a letter then it’s quite likely that a lot of people simply fail to keep track of when to send them the mail about the buyback.

If anyone can offer more clarity on this then please do leave a comment.

Here are some of the other important terms of the Srei infrastructure bonds.

This is not a government company which is a question that inevitably comes up in comments, and this post has the list of all other infrastructure bonds that are currently open.

PFC (Power Finance Corporation) is the latest company to come out with tax free bonds and the terms are exactly the same as the NHAI bond issue.The only two differences that I noticed was that the minimum subscription for the NHAI issue was Rs. 50,000 and for this issue is Rs. 10,000, and these bonds will list only on the BSE while the NHAI issue was going to list on both BSE and the NSE.

Other than that, everything appears to be the same to me.

The issue opens on Friday, December 30th 2011 and will close on January 16th 2011. It is likely that this issue gets over-subscribed quickly because the same thing happened with the NHAI issue that had similar characteristics.

If that happens then the PFC issue will close the issue before the January 16th 2011, so if you are interested in these bonds then subscribe as soon as you possibly can.

The total issue size is Rs. 4,033 crores and while that doesn’t make any difference to individual investors – I want to keep a track of the size of these issues to see how much money flows into them, so that’s the reason for mentioning it here.

Here are some of the other terms of this issue.

Based on the questions I saw for the NHAI issue – I think a lot of people are confusing the 80CCF infrastructure bonds with these bonds.

So, I want to clarify that these are not infrastructure bonds and they do not come under the 80CCF limit – PFC had issued infrastructure bonds earlier, but they closed for subscription on November 4th 2011. If you came here looking for the Rs. 20,000 additional limit under 80CCF then this is not the instrument for you.

You need to choose one of the open infrastructure bonds from this list.

The next common question is about returns comparing tax free bonds with long term fixed deposits and you can find a very detailed post on that subject here.

I can’t think of anything else with respect to the PFC tax free bonds that I should mention here, so if you have any questions or observations – please leave a comment.

One of the themes that I’ve had trouble thinking through in the past is if a person living in India should invest in developed equity markets like the US, and if so then by what percentage?

For a long time, I used to think that investing in the NASDAQ or S&P 500 will not be meaningful for Indian investors because although these markets are a lot more stable – the returns over a long period just about match what you get in a fixed deposit in India. Combine the dismal performance that these markets had over the last decade with the great returns that emerging countries have had – and you don’t find many takers for investment in the Nasdaq or any of the German, Canadian, Australian or even South Korean indices.

In fact if you look at the list of the international mutual funds available to Indians – you will find that it is loaded with funds from other emerging countries and thematic investments, but only the MOST N100 – Motilal’s Nasdaq ETF is the one that gives you international exposure to a developed market’s index. I think this should also be one of the best performing funds this year returning 14% year to date.

If you look at the performance of the major global indices this year – you will find that the emerging countries have fallen a lot more than the developed ones, and I think you will find that true for most periods in history.

via chartsbin.com

The economic events that have unfolded this year have influenced my thinking from being in a position where I didn’t see any value in investing in US or Germany to being interested in such investments in a moderate manner if you can access a low cost fund. Unfortunately, most funds right now are fund of funds and that too with high fee and they will do no good for getting exposure to international markets.

But something like a Nasdaq ETF or another instrument that gives exposure to the Canadian or Australian market can be useful to protect from volatility and also participate in the upside when it occurs.

Dev left a very good comment on yesterday’s post about the best dividend paying stocks which said that while it’s good to have the list of current yields, it’s also important to look at the consistency with which these companies have paid dividends.

That is a very valid point and I took a look at the dividend paying history of all the stocks that I mentioned yesterday plus SCI which has a very good yield, was present in my earlier posts but I somehow missed yesterday. Thanks to Mr. VKD Menon to point that out.

I’ve taken the dividend history data from the NSE website, and right now I think that’s the best source to get this data. You can find calculated dividend yields on other websites, but I’ve found a lot of the numbers to be inaccurate, and that’s primarily the reason I didn’t use any website but rather took the share price and dividend paid and then calculated the numbers myself.

With that said, here is the table that contains the dividend paying histories of some of the best dividend paying companies in India. (Click to enlarge)

Dividend Payment History

The quarters in the above chart are based on calendar years for ease of use, and when I’ve used percentages it’s because there was a share split or bonus in the share and the NSE website listed the dividend as a percentage of face value instead of the amount, and that may be inaccurate.

Looking at this data shows that while most of these companies have been consistent dividend payers – India Bulls and Sun TV has hiked the dividends only recently, and you never know if that will continue or not. Even Cummins India has had a good dividend payout this year but the only other year when the dividends have been these high was 2009.

I don’t notice anything unusual in any of the other stocks, but if you do then please do leave a comment.