October 2010 – Page 3

OneMint hits a small milestone

Image by OneEighteen

Today I want to take a break from our regular posts and share a bit of good news. OneMint has recently reached a small milestone of hitting a 100,000 page-views in the last 30 days, and I am sure we will hit 2,000 subscribers in a week or so, and that’d be quite awesome too!

I am grateful to all of you for reading, but especially the ones among you who have shared their knowledge with others in the form of comments, ideas or even full posts.

A big thank you to all of you!

I thought it’d be appropriate to write about milestones and failures instead of the usual subjects today.Â Let’s start with milestones first.

Milestones

I keep plenty of small milestones for myself, achievable milestones, and I have some ideas on what I’d do on achieving those too. For example, about a year ago I upgraded to threaded comments here which meant that people could reply to others in comments, and it would be discernible that one comment is a reply to another. I had a certain number of “reply comments” that the site had to have before I made that upgrade. I could have implemented the idea as soon as I thought of it, but I like to set a target, meet it, and then implement the change.

I thought of achieving a certain page-view target (lesser than 100,000) before Diwali, and do a little something to celebrate it here, and you will see a small change soon.

So small things that help keep things interesting, and are also proof that progress is being made.

Failures

I’ve learned that you just can’t get away from failures. I’ve also seen that most of my ideas have flopped, but on balance it doesn’t matter because some of them succeed, and make up for the other failures. So for me, trying out new things becomes really important. Keep trying and see what sticks. Some of you might have noticed a new page on top here called “NEW HERE?” which is one example of what I call a flop. I created that page because I theorized that a lot of people land here, read something, don’t know what to do next, and just exit (of course this is not an original idea). So, to overcome that – I thought I’d create a new here page like the ones you see on several other websites, and some people who would have otherwise exited will say – aha, I am new here, so let me click this instead of leaving.

Nothing like that happened, and as it stands today, the idea is a flop. However, I have another theory that the placement itself is wrong, and by the time someone reaches the end of the page, they have no way of seeing the little text at top, and so the concept itself is not wrong, but the placement. So, I will change the placement in the coming days to either sidebars or bottom of the post, and see how it goes.

Another failure is the ability to generate comments on posts commensurate with the size of this blog. This is one metric where I have never done well, but I really hope this changes. Unfortunately, I don’t have any bright ideas on improving the number of comments other than asking you to comment more. The comments that are left by our readers have great information, and add to the post considerably, so more comments would be quite awesome.

Understanding and embracing failures and flops is one the biggest things I have learned here, and one that is relevant in all walks of life.

As I end this post, thanks to all of you for reading, and please don’t forget to leave a comment!

IDFC Infrastructure Bonds FAQ

Also read about the REC Infrastructure bonds here or the IDFC Infrastructure Bonds Tranche 2 here.

The IDFC Infrastructure Bond post has thrown up some interesting questions from readers which were not part of the post itself, and while I am replying to them in comments – I thought I’d do a fresh post with 5 questions that I thought deserved a post of their own.

1. Is opening a demat account compulsory for investing in the IDFC Infrastructure bonds?

No, it is not.

When this scheme opened there was just the option to invest in it if you had a demat account, but some changes have been made (pdf) and opening a demat account is not compulsory now. You can buy them in physical form also. Their website tells you how to do this.

You can also subscribe to the Bonds in physical form by following these simple steps:

Donâ€™t fill up the demat details in the application form

Compulsorily provide the following three documents with the application form:

Self-attested copy of the PAN card;

Self-attested copy of a cancelled cheque of the bank account to which the amounts pertaining to payment of refunds, interest and redemption, as applicable, should be credited.

Self-attested copy of the proof of residence. Any of the following documents shall be considered as a verifiable proof of residence:

Ration card issued by the Government of India; or

Valid driving license issued by any transport authority of the Republic of India; or

Electricity bill (not older than 3 months); or

Landline telephone bill (not older than 3 months); or

Valid passport issued by the Government of India; or

Voterâ€™s Identity Card issued by the Government of India; or

Passbook or latest bank statement issued by a bank operating in India; or

Leave and license agreement or agreement for sale or rent agreement or flat maintenance bill; or

Letter from a recognized public authority or public servant verifying the identity and residence of the Applicant.

2. Is the interest earned from the IDFC Infrastructure bond tax-free?

While IDFC Infrastructure bonds may not attract TDS – the interest itself is not tax – free. It’s only the Rs. 20,000 you get reduced from your taxable salary that helps save tax.

3. Has the closing date to invest in IDFC Bonds extended?

Yes, the closing date has been extended from 18th October to 22nd October.

4. When do the bonds start trading in the stock exchange?

After the initial lock – in period of 5 years is over, the bonds will list on the NSE and BSE, and start trading there.

5. Which option has the highest yield?

Yield table from the website. Now keep in mind this is just the yield, the lock in periods differ between various series, and that needs to be taken into account while making your decision, however since my earlier post didn’t have this yield table I am including it here.

Click here to read the earlier review of the IDFC Infrastructure Bond.

Coal India IPO price band fixed between Rs.225 and Rs.245

The Coal India IPO price band has finally been fixed at Rs. 225 – 245, and there is going to be a customary 5% discount to retail investors.

So looks like the gray market was quite close because they had earlier talked about a range of Rs. 225 – Rs. 270. The EPS in 2010 was Rs. 15.56 so the P/E multiple at the higher and lower end of the price band is 14.46 and 17.3, so looks like the ministry decided to leave something on the table for investors. I think you are going to see huge over-subscription numbers on this Coal India IPO.

You can read my earlier review of Coal India IPO here.

Infrastructure Mutual Funds List

Infrastructure mutual funds came in vogue a few years ago, and there are plenty of mutual funds that can help you get exposure to the infrastructure sector if you want to.

Here is a list of infrastructure mutual funds in India, and if you feel I’ve missed any, please let me know and I’ll update the list. I’ve taken the returns data from the individual websites, scheme information documents, and in some cases Value Research, so they may not correspond to exactly the same period, but should still give a decent idea on how each of these funds have performed in the past.

Infrastructure Mutual Funds in India

1. Reliance Infrastructure Fund: Here is a mutual fund that I wrote about during its NFO early last year. It has returned 10.31% for the past year, and since it’s not that old, the 3 year or 5 year returns are not available for it.

2. Tata Infrastructure Fund: This is a slightly older fund and was listed in 2004. The one year return for this fund has been 17.54%, 3 year returns have been 6.35% and 5 year returns have been 21.81%. It has done better than the BSE Sensex in all these periods.

3. ICICI Prudential Infrastructure Fund: This fund gained 12.20% in the last year, 9.64% in the last 3 years, and 24.47% in the last 5 years.

4. UTI Infrastructure Fund: This fund also came out in 2004, and returned 11.79% last year, 7.67% in the last 3 years, 23.65% in the last five years.

5. HDFC Infrastructure Fund: This fund was started in March 2008, so like the Reliance Infrastructure mutual fund, there isn’t as much past returns information available for it.

6. Birla Sun Life Infrastructure Fund: This fund was started in March 2006; the one year returns are 24.41%, and the 3 year returns are 4.49%.

7. Sahara Infrastructure Fund: The Sahara Infrastructure fund was launched in April 2006, and the one year return for this fund is 9.43%.

8. Canara Robeco Infrastructure Fund: The Can Infrastructure fund was launched in November 2005, and the one year return for the fund is 26.02%, while the 3 year returns are 7.00%.

9. Bharti AXA Focused Infrastructure Fund: This fund was launched early this year, so there isn’t much performance data on it yet.

10. SBI Infrastructure Fund: This is the only close ended infrastructure fund mentioned here so far, which means that you can’t buy and sell the fund any time, and there are only certain periods of time when the fund opens for subscription, and when you can redeem your units. However the fund did start in June 2007 with a three year lock-in period, so it should be available for purchase now.

11. Tata Indo-Global Infrastructure Fund: This is a slightly unique fund in the sense that it invests in infrastructure in not only India, but other emerging countries as well. The fund was established as a close ended scheme in October 2007 for a 3 year period, and would’ve converted to an open ended fund after the period. Looking at the portfolio as at 31st March, it appears that the fund has invested 77.95% in Indian equities, and 19.75% in foreign securities which includes Invesco Infrastructure C and Credit Suisse Emerging Market Infrastructure Eq0-B. Since inception the fund has returned a total of -9.72% (as on March 31, 2010).

12. LIC Infrastructure Fund: The LIC Infrastructure fund was launched in February 2008, and has returned 13.85% in the last year. The return since inception has been 2.36%.

13. Benchmark Infra BeeS: This is actually an ETF not a mutual fund, but is included here as it gives you equity exposure to the infrastructure sector. The investment objective of the Scheme is to provide returns that, before expenses, closely correspond to the total returns of the securities as represented by the CNX Infrastructure Index. The index includes companies belonging to Telecom, Power, Port, Air, Roads, Railways, Shipping and other Utility Services Providers

As you can see there are quite a few infrastructure funds already available, and if you think I missed any, please leave a comment, and I’ll update the post.

Gold Mining in India

Gold mining in India is really quite small and hardly ever gets talked about. For a country that consumes so much gold, it is a pity that there aren’t more gold mines in India.

During 2008-09, the value of gold mining production in India stood at Rs. 312 crores which is 0.99% of the total metallic mineral production in the country at Rs. 31,533.97 crores.

The gold production stood at 2,464 kgs, and decreased by 17% compared to the previous year with Karnataka accounting for 99% of the total production.

I always assumed that the low gold production is due to the fact that we don’t have much gold reserves, so I was a little surprised to read that the Ministry of Mines estimates the total gold ore resources at 390,289,237 tonnes (pdf). However, this number is so high because the actual gold which can be extracted from the ore is very low. It can be as low as 2.5 grams of gold per tonne of gold ore, but I couldn’t find what the estimated number for India’s gold ore deposits is likely to be.

For reference, India holds 557.7 tonnes of gold as reserves.

Gold Mining Companies in India

Deccan Gold Mines Limited: There is only one gold mining company that is listed in the stock exchange in India. This is Deccan Gold Mines Limited, which is listed in the BSE. The company made a loss last year, and since it was established in 2003 that is probably not a surprise as the gestation period in these type of industries is usually long. The company has revenues based on gold exploration, and other income.

In their annual report I found an interesting piece of data where they write that India is estimated to have about 9% of the global gold reserves, and about a century ago there were more than 100 big and small gold mines in the country.Â (Source: Annual Report of Deccan Gold Mines (pdf)

Hutti Gold Mines Company Ltd: It is the only company in India that mines gold. It is owned by the Karnataka government and mined about 2.5 tonnes of gold last year, and generated a profit of Rs. 95 crores in 2009-10.

Fund of funds that can give you exposure to global gold mining companies

The original idea for this post came from a comment asking about gold mining companies in India to invest in, but as you can see there aren’t many options for those.

If you’re really interested in getting exposure to gold mining companies then there is a fund of fund called the DSP BlackRock World Gold Fund which can get you exposure in global mining companies. 78.30% of its net assets are exposed to gold, and 10.3% to silver among other asset classes.

Conclusion

There’s hardly any gold mining activity in the country, and consequently there aren’t many companies that are engaged in it that investors can get exposure to. This might change in the future because of the untapped potential and scorching gold prices but until then your options are fairly limited.

Have you heard about the car that drives itself yet?

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.

Owl calendars, gold prices, mutual funds and insurance guides

My friend Shivani really loves owls, and you just have to visit her blog My Owl Barn to see what I mean. Some time ago, she came up with this great idea of creating a calendar based on an owl theme, and after monthsÂ it’s completed and all done now. The result is truly beautiful, and you can check out and download her owl calendar for free here.

You can download a pre-made PDF copy, or even customize your own, as there are quite a few cute owl pictures to select from. A great idea and even better execution, go see the calendar now, then return to these other links.

Now let me present to you something else that’s very visual, but not in a cute way – if you haven’t seen the Economist’s world debt interactive , then that’s a good thing to check out as well.

It shows the change in debt level of almost every country since 1999, and has also got a world debt clock, which reminds me of a ticking time bomb. It’s quite something, go check it out.

Here are some other good posts I read this week:

Gold hits our $1350 target; now what? @ The Big Picture

How to buy health insurance @ Value Research

How to invest in a mutual fund online @ Subramoney

Difference between Chariman, CEO and President @ Weakonomics

Mint Money Guides @ Mint Money

Bank accounts for people with bad credit @ Digerati Life

4 Ways to build an emergency fund @ Smarter Wallet

Will the developed economies recover (any time soon)? @ Sandip Sabharwal

And finally, let me link to this great round – up and summary by Kid Dynamite on his blog. There are some good pieces there including the whole deal about firemen watching a house burn because the owner didn’t pay the annual subscription.

Enjoy your weekend!

IDFC Long Term Infrastructure Bonds

Also read about the REC Infrastructure bonds here or the IDFC Infrastructure Bonds Tranche 2 here.

Like NPS, I have not written much about Infrastructure Bonds, and reader Gaurav helped me yet again by providing some information to start off this post about Infrastructure bonds, and a big thanks to him for that.

Since IDFC is coming out with its long term infrastructure bonds – I thought I’d take this opportunity to tell you about the IDFC infrastructure bonds, as well as cover the basic concept as well.

Tax Saving Long Term Infrastructure Bonds

A popular reason to invest in long term infrastructure bonds is because they allow you to reduce Rs.20,000Â from your taxable income over and above the Rs. 100,000 limit under Section 80 (C).

So, the most you can reduce your taxable income without using the long term infrastructure bonds is Rs. 100,000, but investing money in these bonds gets you an extra Rs. 20,000 off your taxable income, and you can reduce your taxable income by a total of Rs. 120,000 by investing in these long term infrastructure bonds.

This increases your effective yield because along with the interest you earn on these infrastructure bonds, you save on tax as well.

These bonds are good for a maximum of Rs. 20,000 as far as the tax saving aspect is concerned, so if you buy bonds worth Rs. 30,000 and nothing else, even then the maximum you can reduce from your taxable income is Rs. 20,000 because that is the cap on tax benefits on infrastructure bonds.

From whatever I’ve read – I think that the Direct Tax Code (DTC) will not impact the tax saving aspect of these long term infrastructure bonds, but if someone knows otherwise, then please leave a comment about it; I think there is a little bit of uncertainty about this.

Features of the IDFC Long Term Infrastructure Bond

The tax aspect that I spoke about earlier is of course one of the major benefits of the IDFC Infrastructure bonds, but let’s take a look at some of its other features as well.

Interest Rate of 7.5% or 8.0%

These bonds are getting issued under two lock in options:

1. Ten year maturity: The bond will be issued with a ten year maturity and offer 8.0% interest per annum.

2. Ten year maturity with an option for buy-back after 5 years: This bond will also be issued with a ten year maturity, but there will be buy back option after 5 years. The interest rate on this is 7.5% per annum.

Further, under each of these options, you can choose to get the interest accumulate or paid out to you annually.

Minimum Investment in the IDFC Long Term Infrastructure Bond

The face value of the infrastructure bond is Rs. 5,000, and you have to apply for a minimum of two bonds, so the minimum investment in this infrastructure bond is Rs. 10,000.

Open and Close date

The infrastructure bond issue opened on September 30th 2010, and will close on October 18th 2010.

Credit Rating

IDFC has received the LAAA by ICRA which is it’s highest rating, and these infrastructure bonds are secured debt also, so in that respect they are relatively safe.

Listing on the stock exchange

After the initial lock in period, the bonds will list on NSE and BSE, and you’d have an option of selling them on the exchange if you don’t want to wait till maturity.

How do these bonds compare with fixed deposits?

A quick look at my fixed deposit interest rates page shows me that most banks are currently offering between 7.25% to 8.00%, so the interest rates on the IDFC bonds are quite comparable.

However, and this is a big however, there are several banks that offer interest rates of 7.5% or thereabouts for lower durations like 2 or 3 years as well.

So, you could potentially be stuck with a lower interest rate if interest rates climb up in the future.

The other thing is that the IDFC Infrastructure bonds compound annually, whereas some of the bank fixed deposits might compound quarterly which gives you a slight edge as well.

How can you invest in IDFC Infrastructure Bonds?

First off, let me tell you that you can’t invest in these bonds by writing an email to me. Regular readers won’t believe the number of emails I get from people who want to invest in Tata Motors or Sriram Finance fixed deposits. I think the people who write these emails are mostly search engine visitors, so I hope at least some of them will see this.

Okay, now that we have that out of the way, you can invest in the IDFC infrastructure bonds by going through your broker like ICICI Direct or by approaching a bank that’s the authorized to sell it.

Here are the detailsÂ from the IDFC page:

To Invest in IDFC Infrastructure Bonds

Direct No. Internal Ext No.

Darshana Thanawala : 022-4342 2860 22860

Pooja Pawar : 022-4342 2887 22887

Pooja Panchal : 022-4342 2849 22849

Contact / Visit : Any of the nearest Lead Managers / Brokers ( listed below )

LEAD MANAGERS

CITIGROUP GLOBAL MARKETS INDIA PRIVATEÂ LTD KOTAK MAHINDRA CAPITAL COMPANY LTD

ENAM SECURITIES PRIVATE LTD IDFC CAPITAL LTD

LEAD BROKERS

Kotak Securities Ltd. Enam Securities Private Ltd

Sharekhan Ltd JM Financial Services Pvt. Ltd

ICICI Securities Ltd RR Equity Brokers ( P) Ltd

SMC Global Securities Ltd Bajaj Capital Ltd

Almondz Global Securities Ltd HDFC Securities Ltd

NJ India Invest Private Ltd

INVEST ONLINE WITH

Sharekhan Ltd ICICI Securities Ltd

HDFC Securities Ltd

Queries : For any Queries on IDFC Infrastructure Bonds
Email : IDFC_StockBroking@idfc.com
Website : www.idfc.com

Call : 022 â€“ 43422 860 / 43422 887 / 43422 849

Issue closes : October 18, 2010

As a final word, thanks to Gaurav for nudging me to write this, and please leave your comments to add any thoughts you might have.

Click here to read some more points about the IDFC Infrastructure Bonds.

Click here to read about the Coal India IPO

My opinion on gold and silver

I try to keep the opinion pieces to a minimum here, and leave the final decision to readers, but the question of gold and silver prices has been coming up a lot lately, and I thought I’d do a post on the subject.

Almost one and a half year ago I did a post in which I said that it looks like gold is where the next bubble is, but it’s too early to call it a bubble yet. I have personally stayed away from gold all this time, and although I was initially interested in it, looking at all the other retail interest scared me away.

One of the rules I go by is that if everyone is interested in something, then it’s best to stay away from it – I feel that it’s only a matter of time that the thing will see leverage and speculative interest build.

To that extent, the presence of retail interest in stocks or oil or gold or whatever itself is a contrarian indicator. Since there is not much leverage built yet, and a lot of people are calling a gold bubble – you may say that it proves that gold is not a bubble, and that may well be.

Source: Kitco

However, keep in mind that asset mis-pricing happens all the time. You don’t really need for gold to get to a tulip mania style bubble for a big crash; just go back a little bit in time and think about how oil prices ran away. At $147 a barrel, oil was never calledÂ a bubble, but was it mis-priced towards the higher side? I think history shows us that it was. At that time, it was very common to hear that China and India were driving oil prices due to their demand but when the barrel dipped below $40 no one talked about China and India driving demand anymore. In fact I did a piece on that about two years ago titled: Are China and India really driving oil prices? in which I said that in the short run oil prices may not come down, but in a longer time frame, they will come down to reflect the underlying real asset value, and though I don’t know what underlying value gold has – my personal opinion remains the same. Something will happen which will prick all this excitement around gold and silver, and the prices will come down to match more sane levels.

I probably don’t need to repeat this to regular readers, but it’s my duty to remind you that you shouldn’t take investment advice from random bloggers on the internet – your’s truly included.

IPO grey market abuzz with Coal India IPO

Business Standard has a story today on how the IPO grey market is really excited by the Coal India IPO, and it reminded me of the Reliance IPO a couple of years ago; here are a few interesting tid bits from the report:

The IPO price hasn’t been fixed yet, but there is already a Rs. 10 – 12 premium!
Brokers are paying up to Rs. 4,000 to retail participants to apply on their behalf.
Some brokers are even helping investors open demat accounts just to invest in this IPO.

I was truly amazed by the details in this article, and it is well worth your time, go read it now.

And if you wanted to read something with that talks about the details of company itself, then read this post I did a couple of days ago about the Coal India IPO.

Among other news, SCI (Shipping Corporation of India Ltd ) shares jumped up 14% today on news of part government disinvestment and Career Point Infosystem lists with a 103% premium!

		Direct No.	Internal Ext No.
Darshana Thanawala	:	022-4342 2860	22860
Pooja Pawar	:	022-4342 2887	22887
Pooja Panchal	:	022-4342 2849	22849

LEAD MANAGERS
CITIGROUP GLOBAL MARKETS INDIA PRIVATEÂ LTD	KOTAK MAHINDRA CAPITAL COMPANY LTD
ENAM SECURITIES PRIVATE LTD	IDFC CAPITAL LTD
LEAD BROKERS
Kotak Securities Ltd.	Enam Securities Private Ltd
Sharekhan Ltd	JM Financial Services Pvt. Ltd
ICICI Securities Ltd	RR Equity Brokers ( P) Ltd
SMC Global Securities Ltd	Bajaj Capital Ltd
Almondz Global Securities Ltd	HDFC Securities Ltd
NJ India Invest Private Ltd

INVEST ONLINE WITH
Sharekhan Ltd	ICICI Securities Ltd
HDFC Securities Ltd