Ralph Lauren’s cars, new CPI, how fish Tweet and others

First off, The Big Picture has photos from the car collection of Ralph Lauren. The toys rich people have!

Next up, a very good account on how STPs are being misused by Dhirendra Kumar.

You might be aware that a new CPI has been announced, and Ajay Shah has an excellent post on it.

Hemant on plans with bonus – this is one of those mental accounting posts where you treat money from different sources differently.

I have written about the next stage of developing this thinking building on a post from Mark Wolfinger of Options for Rookies who wrote:

“If you have a profit, that profit is yours.  It does not belong to ‘the house.’  If the investment turns against you, and your $1,000 profit becomes a $600 profit, you lost $400.

I can hear the disbelief now.  “How can I have lost $400 when I earned a $600 profit?”…. Holding is a decision.  It’s a decision not to act.  Because you can exit the trade at it’s current price, that price represent the value of your trade.  This is marking to the market.”

Mark’s post about this is just great, and if this concept is new to you or just needs re-enforcement you can read it here.

Book review of Jaya: An Illustrated Retelling of the Mahabharata by Reema Sahay.

Finally, here’s some light humor from Mashable that will make you feel good about your Tweets.

Enjoy your weekend!

How do I design my graphics?

This is another post from the Suggest a Topic page, and in this post I’m going to explore how I create the graphics in my posts.

A lot of you have complimented me for these graphics so I think there is a fair amount of interest in them, and although I don’t do anything fancy, there are a few techniques that I follow which I’ll share today.

Why should you make graphics?

If you do any (and I mean any) sort of writing in your profession then you need to consider graphics. They don’t have to be fancy, but they need to be there. It will improve your effectiveness tremendously.

I remember in my second year of college one of my theory professors asked us to make small diagrams as part of our answers.

They were really simple things – she said if you have four points then draw four circles somewhere in the middle of the answer and write the title of the points in the circle or make a pyramid and write your points in there.

When we asked her why? She said so the examiner reads your paper.

That really hit me. It’s a well known fact that students write gazillions of pages worth of content in their theory papers, and I don’t think anyone seriously expects examiners to read all that. If you make a picture then it makes you stand out from the rest of the crowd and makes your life a lot easier.

Following that advice helped my marks and I’ve been looking at sneaking in visual aid wherever I can from that time.

So, if you’re writing documents that are 5 or 6 pages long, see if you can sneak in an image or two and you will be surprised by the response.

This is especially true if you’re not expected to have any images in the document.

That said, let’s look at the tools I use.


There are four things that I mainly use.

1. Keynote: This is the Mac equivalent of Powerpoint, and is an excellent program for making presentations, graphs, charts etc.

2. GIMP: This is an open source equivalent of Photoshop and is a really powerful tool.

3. MS Powerpoint: I haven’t used it so much for my blog but I do use it extensively otherwise.

4. MS Excel: Anyone seriously working with numbers has to use Excel and it’s obviously a great resource.

So, as you see only Keynote is something that a lot of people don’t have access to but other tools are fairly common and anyone can use them.

Even if you don’t have Keynote – Powerpoint has many Themes that you can easily use to create some of the same stuff.

Now, let’s look at the process and some rules that I personally follow. Let me say that I’m no expert in the area of design, and I’m just sharing things that have worked for me in the past.

Design Process


In my mind – the first thing has to be the message that you want to convey. If I’m not clear on what I’m trying to convey then I don’t even think of making a visual of it. The message is really important.

Only when you have a message you will get good ideas on how to represent it.

Like yesterday’s post – I wanted to convey that risk always shadows return and that was the starting point of the graphic.

When I thought of it – I thought it’d be cool if I write “Return” and then give it a shadow, but let the shadow be  “Risk” instead of return.

I tried to write this a few times on a piece of paper, but it didn’t work out, then I tried it on a computer and that didn’t go anywhere. So, then I thought of variations and just played with a piece of paper – finally it occurred to me that you can show it as a reflection and that will be clearer and easier to do.

So after a few revisions I came up with what you see there.

This has always been the case – start with the message, iterate a few times, and eventually you will find something that you like. If you don’t have a message and then start doodling that might be good for your creative juices but as far as I can see – it’s putting the cart before the horse.


Once you have your message ready – you want to find objects that fit the message.

In yesterday’s post this was just text – but this can be something that has the same connotation as what you’re trying to say.

For example – when I wrote about a large market fall eating into returns I wanted to use something that I could associate with eating and it struck me that Pacman is something that can be used for it.

The minute you think of Pacman you have an image of a round thing eating in front of you, so that’s  what I chose to use.

So, now you have your message and the idea of the object you desire to convey the message with.

Create the object

Most objects are easier to create than you might think. If you look at the Pacman I made that’s just a pie chart (60 – 40, yellow, white) with eyes on it. It took 2 minutes to create.

If you look at this graphic about India – South Africa cricket then I’ve made the bats and balls myself on Powerpoint. The bat is a series of rectangles joined together and the ball is a circle with dashed and straight lines through it.

String it all together

Once you have all the objects you need – string it all together to ensure that everything gels well with each other and the whole doesn’t look like an ugly hotchpotch job.

Get rid of all the junk

In my opinion – less is more as far as graphics are concerned.

If you have a presentation that runs into 20 pages with long sentences, or fancy graphics that take time to understand no one is going to listen to you.

You need to get rid of whatever you can so that the final thing is crisp and somewhat minimal. If your design is busy – people will lose interest fairly quickly.

In yesterday’s graphic the first draft had a border that I got rid of. The two words were written in two different colors that I changed to one,  in the initial draft I had a call out that explained my point with a little bit of text but I got rid of that as well.

I was quite close to getting rid of the title as well, but I thought that it lend itself well to the graphic so I kept it. I did end up reducing its size quite a bit.

So, in my opinion make it as minimal as possible.

Compelling and Unique Proposition

This won’t always happen but ideally your graphic should go well with your post and combined they should offer a compelling and unique perspective on the topic.

The graphic on Sachin’s Centuries and India’s Wins has been by far the most popular graphic here (with 625 FB likes), and as far as I know – no one  has done that research before. It’s unique and compelling – it gives a data driven approach to a popular question  – and that tremendously adds to its appeal.


This is definitely something where the sum is greater than the parts, and when all the elements that I wrote about earlier come together you will get a good graphic. Just one or two of these elements may not have all that big an impact though.

Again, this is only stuff that has worked for me, and I’m sure there are many other ways of making compelling graphics known to pros and amateurs alike  – please share some of your thoughts in the comments!

Risk is harder to read

Almost every other day there’s a comment from someone who wants to know what the best investment is – one that will give him the highest return.

There’s no inquiry about risk, and that’s not surprising because people new to investing don’t really understand or even think about risk. It’s only after you’ve burned your fingers a few times that the concept begins to sink in.

Talking about return without talking about risk is meaningless. If you’re going to go after high returns know that you’re taking a greater risk as well.

If you buy debt backed by the US government you will get very little by way of returns but it’s very unlikely that your investment goes to zero.

If you buy a penny stock then it might double next year, but then there’s a very real chance that it halves as well.

So, that’s the simple message I want to convey with this post, and this image which I’ve grown quite fond of in the 15 minutes of its existence.

Risk is harder to read
Risk is harder to read

If you hear someone talk about returns without talking about risk – tell him his folly. And please do share this picture with people new to investing, and others who you think will benefit from the message.

Is investing in FDs alone enough?

Last week someone asked this question in a comment. More specifically: The person estimates that if his daughter were to be married today it would cost about Rs. 5 lacs. He has this 5 lacs today, and wanted to know what would happen if he deposited this in a fixed deposit and took it out after 20 or 25 years.

Will inflation eat into the earnings, or will the interest rate from the fixed deposit be enough over such a long term to beat inflation.

I can’t think of a time in the last five years or so when you could make more in fixed deposits than inflation, but then we all know that people have a short memory and your memory is always colored with what happened recently.

This question is one of real interest rate (Nominal Interest – Inflation), and I looked to see if I could find this data over a really long scale.

Here is what I found on the World Bank website:


World Bank Data on Real Interest Rate in India
World Bank Data on Real Interest Rate in India

They describe Real Interest Rate as follows:

Real interest rate is the lending interest rate adjusted for inflation as measured by the GDP deflator.

I will dig deeper into these numbers and their definitions in a later post, but for now I wanted to show that in the past we’ve had better real interest rates than what we see now. And if oil prices don’t spiral totally out of control, we will probably see the end of the high inflation period we have seen recently.

That said, the way these numbers are calculated lend me to believe that just putting money in a fixed deposit and earning interest on it will not suffice.

So, what should  you do?

The thought of getting into equities is tempting, but for someone who is looking at fixed deposits as an end -  I’d not recommend that.  You’d lose too much sleep and probably won’t be able to handle the volatility the share market brings with it.

Personally, I’d recommend saving more.

Yes, I know we’re not in a recession any more, and this kind of talk is not sexy these days, but you have to understand that there is risk in equity, and you should be able to handle it.

There is no point in getting into shares if you can’t handle risks, and I don’t think you can handle risk very well if you use the money that you’re counting on to conduct your daughter’s wedding in the share market.

The volatility will drive you insane.

Save more, build a buffer, and then if you have money that you think you can lose without losing your sleep over it – enter equities.

Remember, it’s the good times when you get an opportunity to save more and build wealth – times such as these when everyone is talking about hot stocks are the times when you get carried away and make bad decisions.

Stick to the basics; be thrifty, and everything will fall in place.


Free Perfios at TFL, Free Plan at Investologic, Gold Mania and Planned Chaos

Hemant is running a contest on his site where he is going to give away one free copy of PERFIOS which is a personal finance software – the entry rules are easy (as they usually are in these contests), so if you are interested then do check out his post.

I’ve been playing around with the idea of building some kind of an automated planner on the site but that’s in initial stages, and I haven’t made much progress with it.

Investologic however has this free financial plan builder, which is a good start for someone who has some goals in mind, and wants to get a ball park on how much money is needed given the number of years ahead of him, inflation and returns numbers.

Roger Nusbaum has a good post on gold mania, and though his post is written from a US perspective I think the same is applicable in India as well.

A lot of people are getting carried away with gold purchases, and are totally convinced that it can never fall in value. While gold has its place in a portfolio, there’s no reason to go over board on it. It can go down in value just like any other asset so be careful. My own opinion on gold or silver hasn’t changed, and you can find it here if you’re interested.

I’ve saved the best for last.

I’m a big fan of Dilbert and it’s creator – Scott Adams, and have read his blog for a number of years now. Lately, he has been facing some trouble from people taking his quotes out of context and maligning his reputation.

He was trying to fight this by creating an alias and posting comments on blogs and websites where he was being attacked, but was forced to reveal his true identity by the site moderators.

He has written this brilliant post about the whole incident and his thoughts about it, and I think this provides a lot of insights on not only the thought process of celebrities who have to manage their reputation online, but also on how people think, on context, how something can be automatically loaded against you, perception vs reality and other things that affect us in our daily lives.

You can read the great post here.

Enjoy your weekend!

Is it at least better than what you have today?

About 3 weeks ago I wrote about a working paper written by India’s chief economic adviser: Kaushik Basu in which he suggested that for a certain class of bribes which he termed harassment bribes – the bribe giver should be given immunity so that he can later on take action against the person who took the bribe without the fear or getting punished himself.

A lot of you had interesting comments on it, and there was quite a bit of skepticism as well, which is understandable given the nature of this idea.

I had forgotten about it but this week I see the paper getting a lot more attention because other people are discovering it and writing about it, Tweeting about it and generally talking about the idea.

As you’d expect – there is a lot of criticism, but what I find disturbing is that people say this plan will not work to remove all sorts of corruption, or a particular kind of corruption, or it is too hard to implement, or there will be roadblocks by corrupt politicians, or it is not big enough to solve problems and that somehow makes this idea bad.

Not many people (if any at all) are actually asking if this will make the situation better than what it is today? And of course, no one is offering any alternatives that are better than this option.

They’re just there to criticize, and they will leave after criticizing.

There object is not to debate an idea, refine it, come up with alternatives, but somehow prove their intellectual superiority by dissing it and poking holes in it.

I’m sure you know several people who will start telling you why something won’t work as soon as you open your mouth. The next time you meet such a guy ask him for alternatives. Ask them what they would do. It’s very likely that they won’t have a clue – I’m amazed at how people who have so many ideas on why something won’t work have not one idea on how to make something work.

This mindset holds a lot of us back.

I didn’t start blogging for a long time because I was worried I wouldn’t do well, and the blog will not become popular and big.

Then one day I was playing a video game on my Wii, and it hit me that maybe the blog won’t do too well, but it will at least be better use of my time than playing this silly video game.

That was the first time I realized that even if it didn’t become popular I will at least learn to use a comma, and who knows – with a little luck I might learn to use a semi colon as well!

Wouldn’t that be better than where I am today?

If life is a journey then don’t you want to have as many experiences as you can? Shouldn’t you try to do as many things as you can without worrying about how you might fail?

Who knows what will fail and what will work – could you have predicted Twitter’s or Facebook’s rise? Could you have even predicted that a successful company like Google will have as many failures as it does?

With anything you do – you don’t have to solve all the world’s problems; if it has the potential to improve your life then it’s worth trying out.

Do you want to be the smug guy who disses ideas, or the one who takes risks and tries out things in the hope of bettering lives?


India ETF Listed in US: Which one did best?

This post is about ETFs listed in the US that allows American investors to invest in India. There are currently 7 such India ETFs, and the biggest among them is Wisdom Tree’s India Earnings Fund (EPI), which is over 3 years old and has assets worth about $1.5 billion.

Powershares India Portfolio (PIN) is the second largest with over half a billion worth of assets under management.

You can take a look at all the seven India ETFs and see how they performed in 2010 in the table below.

Fund Name Inception Date Expense Ratio 2010 Returns Dividends last year
Wisdom Tree India Earnings Fund (EPI) 2/22/2008 0.88% 19.51% 15 cents
Powershares India Portfolio (PIN) 03/05/2008 0.78% 14.94% 24 cents
Direxion Daily India Bull 2x Shares INDL 03/11/2010 0.95% 29 cents
Direxion Daily India Bear 2x Shares INDZ 03/11/2010 0.95%
iShares S&P India Nifty 50 Index Fund INDY 11/18/2009 0.89% 12 cents
Emerging Global Shares Indxx India Small Cap ETF (SCIN) 07/07/2010 0.85% 24.30% 2 cents
Emerging Global Shares India Infrastructure Index INDxx 08/11/2010 0.85%

(1 Year returns and dividend data taken from Google Finance)

The Direxion ETFs are leveraged ETFs that aim to give you double the daily returns of their index, and by their very nature are not suited for long term investing.

The Emerging Global Shares ETFs focus on small cap and infrastructure in the Indian space, and are only suitable if you want to bet on these specific areas of the market.

That leaves us with three funds – EPI, PIN and INDY that an investor can look at if they want to invest in the broader Indian market.

Large overlap among India ETFs

The interesting thing about these funds is though they follow different indices there is a big overlap in terms of their top holdings and the sectors they invest in.

You can see how they share their top holdings from the chart below.


India ETF Top Holdings
India ETF Top Holdings

These holdings are as on April 20 2011.

The holdings change for these funds but you can see that they do share a lot of common stocks and though the percentage varies, with the exception of SBI – all three have relatively big stakes in the same company.

Despite, this INDY has done much better than the other funds, but it’s anybody’s guess if it will continue to do so.

INDY’s performance made me look at how it performed against the index it was supposed to track and I was surprised to see the following chart.

INDY vs Nifty
INDY vs Nifty

As you can see INDY has beaten it’s underlying index by quite a margin!

I think this is because INDY has benefited from USD – INR exchange rate movement in the last year and while their holdings must have lagged Nifty performance by a bit (due to expenses) the currency movement has juiced up their returns and made them do better than their underlying index itself.

Conclusion on the Best India ETF

For most foreign investors – the larger question is probably whether you want to bet on the Indian market or not, but once you’re done making that decision – these 3 funds give you a good exposure and it’s hard to pick one over the other.

Personally, if I had to invest in an India ETF – out of the 7 currently present in this space – I would opt for INDY because it tracks a popular Indian index, comes from a well known fund provider, has low expenses, reasonable volume size, and has done a good job of tracking its index as well.

Disclosure: No investments in any ETF mentioned here.

FMP: Taxation and FD Comparison

FMP (Fixed Maturity Plans) are the biggest category of mutual funds in India, and when this topic was suggested – my first thought was why did it take so long for it to appear here.

FMP: Close Ended Mutual Funds

FMPs are close ended mutual funds and have gained in popularity due to their relatively secure nature and tax advantage when compared with a FD (fixed deposit).

They are close ended so you can only invest in them during the NFO, and redeem them only on maturity.

They are relatively safe but like other mutual funds – their returns are not guaranteed (or even the principal), and unlike a bank fixed deposit where you know how much interest you will earn – you don’t know how much your FMP will return. You can get an idea based on how other funds have performed, but the fund itself doesn’t tell you much you will earn.

FMP Taxation

Fund companies normally issue a lot of FMPs that are slightly over a year – like 368 days, 370 days etc. so that it enjoys the benefit of lower long term capital gain taxation.

Under the current regime – you can even take advantage of double indexation benefit for calculating long term capital gains if a FMP is issued such that it is issued in say March 2011, and redeemed in April 2012: 13 months in all but they are spread over 2 financial years.

I understand that this will be stopped with the DTC (Direct Tax Code), and since we’re already past March – it’s something that you can’t benefit from right now.

However, if you’re in the top tax bracket – FMP taxation still works out better for you when compared with a fixed deposit.

In a FMP you pay long term capital gains gains at either a rate of 10% without indexation or 20% with indexation (whichever is lower) which is better than interest on fixed deposit that’s taxed at your tax bracket which is upwards of 30% if you’re in the top bracket.

Hemant has written a detailed post about FMP vs Fixed Deposits where he’s shown numbers as well, so you can look at his post to see how the calculation works out.

FMP or FDs

It’s the tax advantage that tips the scales in favor of FMP, and people who are in the highest tax bracket can advantage from it. However, there are no free lunches and what you gain in taxes you could end up by way of lower return since a FMP can’t indicate how much return you’re likely to get, and you may end up getting stuck with a lemon.

You could compare past performance and do all that jazz, but there’s still a chance that the one FMP you chose to invest in performed worse than the others – so appreciate that risk while investing in them.

Here are some other differences between FMPs and FDs.



FMP NAVs and Asset Composition

Fund companies declare the NAV of their respective FMPs, and you can find these NAVs on their website, and they also declare half yearly results which has a list of the assets they own. This may not make much sense to regular investors though because they are usually names of banks with the CDs they own, and unless you’re very well versed with the bank bond market you can’t really tell one from the other.


In my opinion – people in the lower tax brackets are probably better off sticking with safer instruments like high interest rate fixed deposits, or Post Office Monthly Income Schemes that generate a decent return and offer peace of mind as well, but other folks who stand to gain more can definitely explore this option.


NRO vs NRE Account

Updated on Jan 9 2012

A few days ago I wrote about how you could open a NRE / NRO account while still abroad, and some people had a question on which is the better among the two.

Like most other things – it depends on what your specific needs are but now the big difference in NRO and NRE accounts is that the fixed deposits that you open in your NRE account are tax free in India. Here is a list of some of the best NRE fixed deposits with Indian banks.

Here is a post with differences between the two accounts, and you can go through these main points to see which one suits you most.

Difference between NRO NRE  Accounts

1. Interest on NRE account is tax free where NRO is taxable in India: It used to be that NRE accounts paid a lower interest than NRO accounts, but recently RBI allowed banks to set up their own NRE rates, and as a result now NRE fixed deposits pay as much as a NRO fixed deposit.

The big difference is that there is no tax in India on the interest on this NRE account, so it makes much more sense to open a fixed deposit using a NRE account instead of a NRO account.

2. NRE accounts are tax free whereas NRO accounts are not: You don’t have to pay any taxes on your NRE account, but interest income on the NRO deposit is taxed in India. There was a comment the other day from a reader stating that NRO tax rates have gone down, but I can’t find confirmation of that anywhere, so if you have any information on that then please leave a comment.

3. Up to a Million Dollars is Repatriable in NRO Account: Repatriable in this context means money transferred from India to another country, and it used to be that money from a NRO account wasn’t repatriable at all.

However, RBI has made some changes and now up to a million dollars can be repatriated from a NRO account in a year. However, a friend who was trying to do this told me that it’s a bit of a hassle transferring money from NRO account when compared with a NRE account.

If you foresee the need to repatriate more than a million dollars then you should opt for a NRE account.

Conclusion on NRO NRE Comparison

A lot of NRIs need a bank account back in India because they plan to return some day in the future or they have to maintain their family still in India. So you need something back in India – either a NRO or a NRE account.

I’ve seen the rules change in such a way for these accounts that for a long time it made sense to have a NRO account but not a NRE account, and now the situation has been reversed.

When you open an account – the bank gives you an option to choose if you want to open one or both, and you should choose both at the time so that you don’t have to go through the lengthy process of submitting documents and opening a new account in case the rules change again.

Update: Deleted the tax saving line as pointed out by Satie below.

FT India Dynamic PE Ratio Fund of Funds

This is another post from the Suggest a Topic page, and this time we’re going to take a look at what a Dynamic PE ratio fund is, and look at one such fund – the FT India Dynamic PE Ratio Fund in detail.

As the name suggests – a dynamic PE fund allocates its money between debt and equity based on the P/E levels of an underlying index.

The idea is that you use the P/E level of the market to indicate if the market is over – priced or not, and then adjust your investment accordingly. I have written about this topic in an earlier post about P/E levels and market indicators, so you can read that if you’re interested in seeing some numbers and charts explaining the idea more.

At a high P/E level you buy more debt and less equity, and at a low P/E level you buy more equity and less debt.

In the case of FT India Dynamic – the underlying index is the NSE Nifty, and the investment allocation will be according to the following rule:

NSE Nifty P/E Band Equity Debt
Upto 12 90 – 100 0 – 10
12 – 16 70 – 90 10 – 30
16 – 20 50 – 70 30 – 50
20 – 24 30 – 50 50 – 70
24 – 28 10 -30 70 – 90
Above 28 0 – 10 90 – 100

The fund will move your investment from equity to debt based on where the P/E ratio is at that time.

To get equity exposure it will invest in the Franklin India Bluechip Fund, and to get debt exposure it will invest in the Templeton India Income Fund.

So, it is a fund of fund that invests in underlying funds from its own family based on where the P/E stands at that point in time. The expense ratio of this fund is 0.75%, so that’s money you pay in addition to the expenses of the underlying fund.

Let’s look at performance now.

Time Frame FT Dynamic P/E Fund BSE Sensex
Since Inception 20.80% 20.39%
Last 5 years 13.75% 11.50%
Last 3 years 12.01% 7.52%
Last 1 year 8.74% 10.94%

So, you can see that the fund has done fairly, and beaten the index when looked at a longer perspective.

Due to the portion of debt in the fund: while it protects you from downswings – it also limits your gains when the markets do very well.

From the prospectus I see that fund fund rose ~ 53% in 2006 when the Sensex rose ~74%, and it rose ~56% in 2010 when the Sensex rose by ~ 80%.

The fund still beat its benchmark but if you look at my best balanced funds post you will notice that there are quite a few funds that have bettered this performance over the 3 year and 5 year range.

So, when thinking about investing in a PE fund – whether this or another – just take a look at how other balanced funds are performing as well because they are similar in structure.

One last point about the tax structure is that the Dynamic PE fund is not treated as an equity fund (which has tax advantages over other funds), because it can have a lot of debt in its structure as well.

As always, whether to invest or not is a decision that you have to take, and I hope this information can give you some input on that decision.