A Taxing Task

Three years back, I remember receiving my first paycheck when I was worried about the amount going away as income tax. New to the whole idea of tax saving options, which are available, I went to a Tax consultant, to seek his advice on these tax saving instruments.

He suggested the best way, or so did he call it, for tax savings the ULIP or Unit Linked Insurance Plans, which offer both insurance and investment returns. I bought both the idea and ULIP as a gullible rookie as far as tax savings go.

Again in the same year I thought of investing in some other tax-saving instrument and opted for a Mutual Fund, the guy who came to my office again started talking about this wonder called ULIP as the best tax saving instrument and tried to push me into it once again. But failed this time coz I was adamant on buying a MF rather than a ULIP.

So, the question is, Is ULIP the best tax saving option available, what are the Fine prints which go unread and why are the Tax consultants so eager and pushy to sell the ULIP’s.
Let’s analyze this one by one…

Tax saving options can be divided into two types, one which is tied to the market like ULIPs and MFs and therefore risky and others which are least risky like the PPF (Public Provident Fund), NSC (National Savings Certificate), Pension Funds, Fixed Deposits (FD) and Infrastructure Bonds (IB). But the returns of these instruments vary based on the amount of risk you are willing to take.

While PPF, NSC, Pension Funds, FD’s and IB’s offer a fixed rate of return, ULIP’s and MF’s offer varying returns since they invest in stocks and bonds depending on the type of plan which is chosen. Almost all these instruments have a lock-in period during which money cannot be withdrawn; The Lock-in period starts from a minimum of 3 years for ULIP’s and MF’s to a Maximum of 15 years in case of the PPF.

The best investment vehicle should be chosen based on the investment objective of the investor. The investor should understand that tax advantage is just an added incentive for investing in these options and not an objective in itself.

ULIP will be the preferred option if the investor’s objective is to buy an insurance policy which has investment also as an additional goodie. As an investment Vehicle ULIP will always fare far lesser than the Mutual Fund the entry load in an MF is far lesser than what goes in the name of service charges for an ULIP. And Insurance plans are available in the market for far lesser premiums than what is being charged under the name of ULIPs.

So what good is the ULIP, if you see ULIP as an investment vehicle providing high returns, a Mutual Fund will always fare better since for a ULIP the service charges range from 20% for the first year and 5-10% for the second year whereas a MFs are talking about the “No Entry Load” scheme suggested by SEBI means all your money is invested. But these service charges for ULIP are usually mentioned in fine prints or the tax consultant never even mentions it.
Also in an ULIP if the investor defers the payment and was not in a position to pay the premiums in a particular year, there is a risk of the policy cancellation due to the non-payment of premium making him lose the entire money.

As an insurance policy, there are many conventional policies available in the market for a lesser premium than the service charges demanded by ULIP. When I invested 25 K in ULIP 5K went as service charges whereas had I taken a Life Insurance I would have paid a premium of only 2500 to 3000 for the same amount of coverage (In this case 100000).
And ULIP tends to differ from each insurance company differing in terms of lock-in period, Sum Assured, coverage, service charges etc. with fine prints and terms and conditions insulting the intelligence of an average investor.

In spite of all these disadvantages why does the tax consultant push for this product? As Freakonomics puts it, man is an Economic animal who responds to various forms of incentives. The Tax consultants are also Insurance Agents, and always get a better commission by selling Insurance policies rather than the other products. And a flawed product like ULIP, will always carry a better commission rather than both MF’s and conventional insurance policies. So a lesson learnt and my ULIP policy has matured and will soon post on the losses I have made on this investment of mine…

And the Nobel Goes Too

Dec 10 2009, amid controversies Barack Obama was awarded the Nobel Peace Prize. Well there is a controversy looming around this decision of the Nobel committee, where some believe that Obama deserves the prize for not being Bush and others find Obama’s statement on the necessity of war for achieving peace a little more like the statement of a Jihadist.

But as the controversy takes its own time to metamorphose into fact, and finally turn into a butterfly, as does most of the controversies, let’s analyze some of the top 10 controversial decisions of the Nobel committee from its inception in 1901.

No. 10 – The Inventors War

When it comes to Inventions, the first name that will come to anyone’s mind is Thomas Alva Edison. There will be no text-books dealing with Physics or Electronics which do not have the name of Edison in them. But Edison never received a Nobel questioning the credibility of the award itself.

Same is the case with Nikoli Tesla, the man who is credited with not only the Alternating Current, but also known as the inventor of Radio. Whereas Marconi received the Nobel for Radio in 1909, Tesla was not even nominated in that year. The Magnetic field is measured by the name which was not considered for Nobel.
These two inventors, although were nominated during 1916, bad-mouthed each other so much that the Nobel committee decided to skip the Nobel award for physics that year.

No. 9 – E = MC2
In one of my Physics papers there was this question, that “For what did Einstein awarded the Nobel Prize?” I as usual did not go prepared for the exams, but believed that this is an easy one. Although I was a bit confused between “Theory of Relativity” and “Mass Energy Equation”, I took a gamble and went for “Theory of Relativity”.

But after the exams, it was a surprise that neither were right answers. He was awarded the Nobel on his explanation of the Photoelectric Effect in 1921. Even though when compared to his other theories which were instrumental in creating a new term called “Modern Physics” as opposed to the Newtonian Physics, he was never recognized for his path-breaking theories explaining relativity or Mass Energy relation.

Some see this as a fallacy and others say that this is justified because some of his theories were yet to be proved during those times, but at the end of the day, I did not clear my Physics paper.

No. 8 – Barracks Obama
The most recent controversy surrounding the peace prize, guess there is nothing required to talk more on this. It is time for the man to do it in action.
No. 7 – A Pre – Phosphorus mistake

The man who created the first periodic table of classification of the known elements, Mendeleev, never received the Nobel. He was nominated for the Nobel in 1906 but due to the behind the scene politics, he did not get the award. The Chemistry award that year went to a man who isolated fluorine from its compounds.

No 6. – War and Peace

1973 – Henry Kissinger gets the Nobel for Peace.
1969 – 1975 – Henry Kissinger was involved in bombing NVA infiltrators in Cambodia
1975 – Operation Condor, involving the assassination of more than 60,000 people belonging to the left wing in S. America. USA even though played a Supervisory role in this, Kissinger was the man on the forefront, allegedly well aware of the Operation Condor.
Nobel peace was put to good use in quelling all the opposing elements ensuring peace.

No 5 – Hesperisum – What is that ???

In 1938, Enrico Fermi was awarded the Nobel in Chemistry for creating this weird named element Hesperium. But later It was found that he has not created any new elements and the Hesperium is nothing but some isotope produced due to Nuclear Fission.

A Nobel once given cannot be recalled.

No 4 – Sabbatical wars
Anwar Sadat, the then PM of Egypt, who lead the Yom Kippur war, on the day of the Sabbath against Israel, was awarded the Nobel Peace Prize in 1978.
Also another person Menachim Begin, who was an alleged terrorist, against the British rule in Israel, was also awarded the Nobel Peace Prize the same year.

No 3 – The PLO and Peace Prize

1994 – Yasser Arafat, was awarded the Nobel Peace Prize. Arafat, a known terrorist leader, with a long history of violence was awarded the Peace Prize.

No. 2 – Ahimsa’s Way out

While Yasser Arafat, Anwar Sadat and Kissinger were given the peace prize, with known history of violence, the man who wielded his walking stick and travelled the nation promoting peaceful protests was shown the door by the Nobel Committee.

Gandhi was nominated five times and each time the Nobel committee failed to award him the Nobel. In 1948 after Gandhi’s assassination, no award was given stating that there was no living candidate with the word living underlined. This made sure that
Gandhi did not receive the prize even though he was nominated.

But Dag Hammarskjold was awarded the peace prize posthumously for being a fellow Scandinavian and not an Indian.

http://nobelprize.org/nobel_prizes/peace/articles/gandhi/index.html

No. 1 – Hail Hitler

Even though the Nobel Committee did not award the Nobel Peace to Hitler, he was still nominated for the award in 1936.

The list of nominees cannot be published until fifty years by the Nobel Committee, and when the list till 1955 was released, it was a surprise to find Hitler among the nominees.

Bottom up Politics

On 26/11, when Mumbai was attacked by terrorists from Pakistan, the entire city was outraged by the act and at the same time was disappointed by the lackluster populism politics being played by our so called “leaders”. The gallant acts of protests which were organized in Mumbai following the attacks showcased the public discontent, especially among the youth for a change and reform oriented politics as contrary to the populist, vote-bank based, reactive and blame game political approach being followed currently. There was a hunger for justice around the population, hunger for justice for those innocent civilian life lost in the brazen attack, hunger for justice for those who lost their life fighting the terrorist menace all across the country.

But the recent elections for the Lok Sabha, 2009, the voters turnout and the court proceedings against Ajmal kasab, the lone terrorist who was caught by Mumbai police are proving that justice is a mere mirage in a country which is reactive and amnesic in its own nature.

The Judiciary is too busy in determining the age of Kasab, but to be honest does it matter how old he is, looking at the magnitude of his actions and the consequences. And the direction which the court proceedings are taking proves where our courts (With all due respect) are spending their efforts, in pointless arguments which are leading nowhere. Firstly does people like Kasab, require a court proceeding which will take another ten years to come to a conclusion. Does people like him require be defended that too by an Indian lawyer, the country against which the attack was launched. If justice has to be served the court should be able to expedite the case and the intelligence should be able t o extract valuable information about the terrorist infrastructure from Kasab.

While the court is too busy with the age factor, our Mumbaikars who raised there voice and rose together against the publicity politics were no where to be seen when it came to exercising their franchise. Either they have gone to their hometowns thanks to the long weekend or too busy watching IPL. This is clear from the fact that the voter turnout in Mumbai was a mere 43%, which seems to be a dismal figure compared to the furor after the attacks.

The process of change in India has been bottom up, the economic liberty of India in the last two decades are not state sponsored but came from individual growth aspirations. When the Indian growth story was taking place our populist politicians were busy thinking about how much subsidies, loan waivers, reservations, free electricity and other freebies, losing the pulse of the restlessness and aspirations of the country. Whether it is the number of entrepreneurs, the world class industries, the booming IT and services sector, the extra ordinary growth in trade or the change in the lifestyle, all of it came from individuals or communities with the state playing a minimal role.

But when it comes to the elections and politics, there seems to be lack of individual or community based participation is appalling. One side of the argument says that irrespective of the party we vote for, it will be the same wine served maybe in a different bottle. The same old story of populist politics will take the throne irrespective of the elected party. I cannot agree more on that, looking at the manifestos of the major political parties, there was not a single reform oriented action plan but populism seems to be ubiquitous with a rat race for the most subsidies.


But if we look at the individuals and independents who are contesting in the cities (like student groups and youth federations) at least in the city, some of the manifestos where reform based. To the surprise these fledgling political aspirants were able to diagnose the pulse of the populace better than the veterans. And looking at the non-voting populace, which is more than 50%, they have a say in shifting the favor towards reforms than subsidies.

But our non-voting populace is simply indifferent. If the anger shown in the Mumbai protests were channeled into the elections and voted for the right person, we could have seen a shift in the political orientation of the country and there could have been a bottom up shift in the politics of the country as well.

First and foremost of the reforms we require is in the electoral process and the people’s mindset towards politics. Only then the necessary reforms will follow….

Why IPL will not fare in the long run

“The Indian Premier League (IPL) has done wonders for bank balances across the globe” read one of the articles in The Telegraph. But how long is this dream run of the IPL going to last. All of us know that India is a cricket crazy country and rewards any form of cricket with bounties.

If we go back in history, the young India immediately after independence was an insecure country desperate for some recognition among the world countries. The desperation for recognition was only fuelled by the fact that we were constantly being ignored by the world countries. Worst of all, our very survival was dependant on the food and money supplies from the developed countries and the world bank.

When Edmund Hillary and Sherpa Tenzing achieved the feat of reaching the highest point in both the world and in history, there was a controversy over who reached the summit first. Desperate for recognition India proclaimed Tenzing to be the first person to set foot on the everest. Even though Tenzing was of Nepali origin and he was merely helping hillary to ascend the peak, Indians took pride in proclaiming Tenzing to be the first person on the everest with hillary’s name not even being mentioned. So desperate was the need for recognition….

Coming back to Cricket, the first ever test match India won was against England in 1952 in Madras followed immediately by a series win against Pakistan in the same year. These victories were soon forgotten because the next victory came in 1956 against New Zealand after four years. Soon this too was forgotten and it took us till 1971, a whopping 16 years, for a back to back series win against West indies and England respectively under the captaincy of Ajit wadekar.

The country growing more and more desperate day by day, due to the constant economic crisis, sectarian crisis, lack of recognition, bad government policies found a solace in cricket since it brought with it the much needed recognition for India.

Cricket Fever reached the crescendo with India winning the World cup in 1983, beating the West Indies, and then followed the Asia cup in 1984, and the World championship of cricket in 1985.

Cricket, was being crowned from a “solace for recognition” to a religion by itself. The victories after that and the emergence of world class cricketers like Gavaskar, Kapil Dev, Sachin, Azharruddin, Saurav Ganguly etc. made cricket as not only the unofficial national sports of India but also the most money spinning sporting event.

If we look at the history it was not the love for cricket, which made us love the game but the love for the country and yearning for recognition among the world countries which made cricket in India a success. The underlying passions that our country is able to win a championship in the world arena made us Indians exult with joy.

Looking at the IPL with the same prism, the same passion for one’s city or favorite team is either absent or artificially created by roping in film stars. Also in the teams there are more foreign players, stating the fact that the name Chennai or Rajasthan or whatever being prefixed to the team name does not have any significance for the viewer.

And thirdly being a fan of Sachin Tendulkar, I did admire his batting in the first IPL match against Chennai. But logically speaking being in Chennai, and as a fan supporting one particular side, I shouldn’t have done so. Again we Indians love to take sides, even though if we are in the wrong side we love to stick to our stand. So in IPL you have to either enjoy the game not caring about the side which is playing or you should be confused whether to support your city/state side or your favorite player or your favorite film star.

The very novelty of the idea and the marriage between cricket and Bollywood made IPL a money spinner in India, but how long will this dream run last. In view of the above mentioned reasons the long term prospect of IPL filling the bank balances is questionable.

Greed Vs Simplicity

Imagining India, Ideas for the New Century, penned by Nandan Nilekani, is what I am currently reading. Being a dead slow reader, imbibing and savoring each and every word as I read, demands a long time for me to finish any book. It will take another month before I can write about the book, but what made me to buy the book was the name of ‘Nandan’. I happened to hear his speech when he visited the Mangalore DC of Infosys, where I was working two years ago. Even though I have left Infy, the Simplicity with which Nandan spoke to the Associates was something which I will remember. He did not use a lot of Jargon or complicated strategies but relied on his simple ways to explain his ideas for the future of Infosys. As Thomas L Friedman says, Nandan has an unique skill for explaining his concepts, in a simple and easy to understand manner.
Also I enjoyed reading, the autobiography of Subrato Bagchi, titled “Go Kiss the World”, where he explains the virtue called Simplicity, not as a starting point but something which is everlasting. Having come from Simple Background, these gentlemen, did not forget the virtue even as they achieved great heights by venturing into the complicated industry of IT, which is tough to understand for me even today.
Cut from Simplicity, let’s move to the Concept of Greed, one of the seven unforgivable sins, something which will be branded as “BAD” in the black and white world and also in the world with shades of grey. In the movie Wall Street, Gordan Gekko, played by Michael Douglas, says “The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.”
We don’t stop in attributing the current global meltdown catalyzed by the Sub-Prime crisis, and fuelled by the fall of the global banking and finance industry to the greed of a few. But weren’t we happy and contented when the stock prices were moving up, when the real estate investments were sitting comfortably on Apollo 11, going towards the Moon. Something to think about.
Subrato Bagchi, re-emphasizes the concept of Abundance, stating that there is enough available for everyone in the world as against the concept of scarcity. The same principle of abundance also explained by Stephen Covey, in his book, the “Seven habits of Highly effective People”. Both these gentlemen explain that the concept of scarcity leads to greed, and fight to acquire the scarce resources as against the mentality of Abundance which builds in the virtue of simplicity and co-operation to achieve a common goal.
My take, Yes, everything is available to everyone but the question is at what price? Are these resources available? Had I been greedy enough to acquire enough property before two years I wont be spending a fortune in buying real estate now. Same is true for gold also. And what if I am a person who is in dire need for both these commodities. A common comment by bereaved individuals. Does the principle of abundance still relevant to the contemporary world.
The purpose of me writing this is not to reach a conclusion on which one of the concepts (Simplicity Vs Greed or Abundance Vs Scarcity) is relevant to the contemporary world and which one will prevail. But to kindle the grey cells into thinking about the other side of the coin is also valid. Comments Welcome.

Thrissur - This Time

The last two weekends were amazing in the sense, I travelled to Thrissur in Central Kerala and Erode to the West of Chennai. Some of the photographic exploits….

What Makes Benjamin Button a Curious Case?

As a matter of fact, I didn’t want to publish எனி movie reviews in my blog, even though I liked reviewing movies. I made this decision to the stay away from the“masala stuff” and also due to the sheer volume of movies which I am watching nowadays. But, the Curious case of Benjamin Button just kindled the interest in me to write my views on the movie rather than a review. So I take an exception this time and write this review or rather on how I read this movie.

The movie starts with an elderly Blanchett, in her deathbed having her last conversation with her daughter. She starts with a cryptic story of a mysterious Blind Horologist, who designs a clock running backwards, in the hope it will bring back his son who was wasted in The Great War (World War I, was called the Great War before World War 2 Occurred).
Even though the Clockmaker, do not make much impact on the storyline, I found the character quite amazing. It brought to the fore, the human feeling of escaping into the past, when faced with some terrible confusion, but still knowing for sure that you cannot reclaim or relive what has already happened. We live those days in our minds, we think about them and long for them knowing for sure that it is not possible to expect a repeat of the good times in life. Even though the hope of this Horologist, in that he expected to travel back into the good times of his life which he spent with his son by designing a backward running clock, was an extreme hope. The entire movie is about extreme situations which brining out some of the strongest human emotional disturbances to the surface with nuggets of philosophy. And this character sets the tone running for the entire movie.
Moving away from the Clockmaker to Cate Blanchett in her Deathbed, she asks her daughter to read her the diary of a Benjamin Button, whom the daughter hardly knows. (I don’t publish Spoilers in my reviews). The diary stats with the curious birth of Benjamin at the end of the Great War.
The story is all about Benjamin Button, played by Brad Pitt, born with the physical appearance of an 86 year old man, abandoned by his father after his mother’s obstetrical death. Curiously Benjamin grows up or in fact grows down at a retirement home. Yes, Benjamin starts getting biologically younger, as time passes, his biological clock runs backward. Brad Pitt, has done a wonderful job, playing the role of a old man and moving to that of a teenager. Kudos to the Gregg Cannom, for the excellent make up.
The Entire story is about how Benjamin, grows younger with time, and is a kind of a biography. What kindled my curiosity, was the narration, it does not give anybody any impression of a miracle but portrays it as a story of growing up only to realize you are different from the others. I found this interesting as I saw this as an extreme portrayal of the uniqueness of life; no two lives are similar in nature; No two problems are similar; The same decisions will not lead to the same results. Of course, Benjamin was an extreme depiction of the uniqueness, but it is very intelligent creativity.
I particularly liked the definition of the term “Accident” given by the director, as a series of minor unrelated incidents which we ignore as leading to the life changing impact. Also he explains the inability of human cognizance to do anything about the accidental situations.
Towards the end, the movie also portrays the various roles played by different people around you and the uniqueness of these roles. Concluding the movie with the note of uniqueness, this actually runs throughout the movie.
Benjamin Button does make one Curious.

Destination Kozhikode

This weekend I was in Kozhikode, to attend a marriage of my friend. Some of the travel advices I would say regarding Kozhikode are
1) Don’t go there on the 1st of any month – Cos it is a dry day.
2) Always carry some bottles of water- It was very hot, and completely dehydrating, a 100 m walk in the beach itself was tiring to hell.
3) Swim in the beach, only if you know how to swim – Even though it is not advisable to swim in the seas, in Kozhikode the beaches are shallow, and there were some areas were people were swimming. This was unlike Chennai, where the seas normally are very rough and even good swimmers, will not dare to venture into the sea.
4) Do not trust the tourist destinations given in wiki travel – Some of the places are very mundane. When you travel across these places, somebody should be there to let you know these are places of interest. (Ex. The light house on Kozhikode beach, Lions Park etc.)
5) Eat, Eat and Eat – Amazing Culinary, Seafood is the Specialty, if you like seafood, no place like kozhikode.Try some Mussels and Squids in the beach hotel, they were amazing. Also try some local chips , pazampozhi, and halwa.
6) Boating in Kadavu – Some 30 mins drive from Kozhikode are the Kadavu resorts, which are one of the most scenic locations also offering a boating service nearby. The food was also equally amazing. A must go in Kozhikode.

Foreign Exchange rates and Bretton Woods.

Tata Motors, on the second of February, posted a surprising loss of Rs. 263 Crore of which an amount of 226 Crore is being attributed to notional foreign exchange losses.
When the price of crude oil was USD 120 per barrel, there was a considerable demand from the PSU oil majors for the increase in the price of petrol, diesel and LPG. The government followed suit by increasing the prices thereby fuelling inflation. But when the price of crude nosedived to USD 44, it took some time for the government before announcing a cut in the price of petrol and diesel. This delay is again attributed to the volatile nature of the currency market in terms of the USD.
When the rupee was going strong against the USD reaching an exchange rate of 39-40 Rs per dollar, there was again a cry from the industry, and this time it was the blue eyed boys of the Indian IT industry who were in the line of fire.
The impact of the fluctuations in US dollar and its impact on the common man, gave rise to a very fundamental question in my mind. Out of all the currencies in the world, why the USD was chosen as the base currency for trade. I looked at the economic history of the world and came across this interesting agreement, which changed the economic course of the world called Bretton Woods Agreement.
To understand where it all started, we have to go back to the 1930’s, yes the time of The Great Depression, when the countries where separated into different blocs and were following a policy called as “Beggar thy Neighbor” policy. The policy was simple, devaluate your currency so that your exports can increase than that of your neighbor thereby improving the balance of payments. Most importantly during this period gold was used as the base for the trade augmented by British pound so you devaluate your currency with respect to gold or British pound.
This policy improved the balance of payments at the cost of the local demand leading to a deflationary spiral for the countries trying to reduce their money supply. This spiral and the cost of war lead to the origin of the Bretton Woods system. Delegation from 44 countries, took part in deciding on the important aspects of the agreement leading to the formation of the IBRD (World Bank) and IMF.
It was also decided that all the currency rates will be fixed on par with that of Gold augmented by US dollar. In turn US dollar was fixed in parity with gold (35 Ounce per US Dollar) and it was agreed that dollars can be exchanged for gold anytime by the international community.
It was also decided that room for a maximum of 1% volatility in the currency rates will be considered nominal. Any sudden volatile movements in the currency rates will be financed by the IMF thereby holding the exchange rates more or less constant.

So the basic reasons on how USD was chosen as the base currency and the failure of the Bretton-Woods are:
1) US was emerging as the supreme economic power, after the second world war ravished much of the European superpowers like Britain and France. US also provided a loan of 3.8 Billion and 1 Billion dollars to Britain and France respectively resulting in the super powers holding dollar reserves.
2) US also promised an anytime return of gold in return to the Dollar reserves which are being held by France, Britain and the other countries. (At a rate of 35 ounce per dollar).
3) The production of gold was minimal to support the international trade with gold as the base currency. And most importantly much of the world’s Gold produce was from Soviet Russia. So if gold is used as the base currency Russia will be the beneficiary. So most of the war torn countries were given dollar aids further making them hold dollar reserves
4) In 1971, when it was announced that US will not trade gold for dollars, the other countries were left with no option other than to hold on with the dollar reserves thereby becoming a victim of the dollar fluctuations.
5) Bretton woods system in terms of fixed foreign exchange rates, ceased to exist in the backdrop of the US refusal on the exchange of gold.

So the next time you pay extra money for a liter of petrol, or lose some money due to the falling Tata motor prices, it is due to the failure of the Bretton Woods system and also the insistence of the usage of USD for foreign commercial transactions.
Everyone was happy as long as US economy was doing well without much currency fluctuations. But the situation now demands some basic questions on the various aspects of the economic transactions and also a CHANGE is required to avoid the spiraling down of the world economy due to its dependence on the USD.