What makes the Indian Middle Class Great?

Indian Middle Class comprising of 400 million people is the backbone of it’s economy , it is  a  unique mass of humanity not found anywhere else in the world, representative of typical Indian Values (which transcendent regions, religions, castes and tribes ,which are by themselves very diverse in India) and are a marketer’s dream in today’s consumption driven world economies.

What makes the Middle Class Great?

1. It comprises of people who are survivors, though somewhat diffident, conservative and mostly conformists.

2. They believe in God’s grace and want to hold on to what they have. They are risk averse. More Bank Fixed Deposits than Stocks and Shares.

3. They want secure jobs (preferably government jobs) and have learnt to manage within their means. They have learnt to ‘Cut their Coat according to their Cloth’

4. They are thrifty-Indian saving rate at 28% of GDP is one of the highest in the world.

5. They want to give good education to their children and live their dreams through their progeny .They talk endlessly of their U.S and U.K based children while worrying if their children are eating well and not getting corrupted by the outside influence.

6. While justifiably  proud of their well-to-do children  , they are uncomfortable with girls going out at night and the present lesser clad children.

7. Their daughters-in-law save time by spending money while the mothers-in-law have always saved money by spending more time (cook wholesome food at home rather than order fast- food)

8. They believe in God and are reconciled to their destiny .While they listen to grand plans of their children, yet are always apprehensive.

9. They are getting accustomed to modern technology, but still keep their Fixed Deposit Receipts laminated and safe, trusting the bank and post office pass-books more than internet accounting.

10. They are the products of households where younger children accepted hand- me- downs and always affectionately wanted to get their father’s coat altered to their size on growing up. They believe in save and re-use.
Today’s use and throw culture deeply upsets them.

11. They believe in Value-for-Money.

12. They are best represented by the middle middle-class, who buy branded apparel, but at discount sales ( preferably  winter clothing at the season’s end, at bargain basement prices) , who go to see movies at the multiplex but in the morning shows at discounted rates, who comfortably fit in ( a large family) in a small car ( with a large heart ).

13. They manage to live in rented accommodations (if possible, government or company provided) and construct houses against Provident Fund and life Insurance loans. They DO NOT live on E.M.I s and still pay cash for their shopping.

14. God Forbid, if the bread earner was to lose the job (which will mean depression and a feeling of disaster) the homemaker can mange to keep the kitchen fire still burning for a few months by dipping into below -the-mattress-money .In such cases they will profusely offer prayers to the God of their understanding and ultimately leave everything to the Higher Power.

15. They do get snubbed for their middle-class mentality and values by their better-off children and relatives, who want to upgrade their living standards exponentially.

The giant multinational corporations salivating at this large target audience sank in huge amounts in standardized shopping malls, which have attracted foot- falls and eye-balls, but have seen flat sales, in fast-food chains, which struggled till they brought the prices down and customized their food offerings. Ultimately the global consumer goods giants recognized that the middle-age middle-class person still drinks the cola or lemon drink from a bottle, will buy a car based on fuel consumption and will take a cautious and conservative route. Of course the Corporations are lucky in so far as India has the youngest population in the world and hence cold drink cans and flat screen TVs have a chance.


In the global economic meltdown of today, India is relatively safe due to our conservative and cautious policies and the stoic middle class values, with deep faith in the Higher Power.

More power to the Middle-Class. May the economically backward rise to the middle-class level.

Happy and Joyous Life – Post Global Meltdown

The global financial meltdown of 2008 has been unprecedented and the ripple effect will be faced in times to come, though India is much better off.  How to Cope with it and what to do to lead a Happy and Joyous Life?

Here are a few tips you may like to follow:

1. Look for positives and learn lessons for the future. Shed a feeling of gloom and move on with head held high. Look at what you have, a good family, food on the table and life in a young democratic Country which is being applauded all over the world for having escaped relatively easily.

2.  Follow solid middle-class values, cautious, conservative and careful. Be humble and well grounded.

3.  Secure your present, provide for the future on an on-going basis and only then be adventurous.

4. Do not mortgage your future for instant pleasure through acquisitions today.

5. Income is variable (job permanence, business stability and growth etc.) but Debt (loans, E. M Is) is permanent and the meter runs 24X7.

Two Prominent Investment Bankers of the Country have recently quoted their fathers, advising them never to take personal loans and to be risk averse with personal savings. Both claim to have followed this dictum and are happy.

6. Remember that there is no free lunch or free holiday in life. More seemingly enticing a proposition is to make quick or easy money, greater the danger and risk to loose your shirt (due to high risk investments people have also lost their peace of mind, even life)

7. Money is important, never undermine it’s importance. Use it as one of the means and never as an end in itself. Enhance your horizons to increase your earning and wealth creation capacity, but on a sustainable model.

8.Beyond a limit, law of marginal diminishing utility kicks in and the bigger cars, larger  houses , luxury items, size of the business etc. all fail to give the thrill you expected them to provide .Then starts the race for more, which cannot be won, so why fall into that trap.

9. The trick is to stay hungry for success, be competitive, stay focused, stretch your targets (still achievable, though with lots of hard work and effort) but do not get carried away to indulge in big punts and gambles, which seemingly will propel you to a different league.

10. Except very few examples of people who have achieved wealth through huge gambles and betting on very long odds, law of averages does not  favour this model, i.e for every such success, there are countless failures .For staying lucky, be prudent.

11. Economic freedom should be the aim, but it cannot be achieved through borrowed capital. (for conveniences and high leveraged debt for business)

12. Most of the things and events which bring continuous happiness are free or inexpensive. The happiness achieved through physical proximity of the family, smile on the face of the dear ones, creative success of the wife, best performance award to the son for the Quarter’s best sales results in his job have no substitute. Recognize and enjoy these on a regular basis.

13. Prepare a balance-sheet of your life and evaluate all your assets, starting from the kind of  parents , (affection, moral and spiritual values given by them) spouse, children, relatives (much maligned, but we do not hesitate to land up at their door-step un-announced with bag and baggage, so give them some credit), friends, education, money, assets etc.

This will give a holistic assessment of emotional, spiritual and physical assets which surely will far outstrip the liabilities.

14. Value what you have and then look at what you aspire to have. Aspirations and Dreams are good and make life worth living, but we must filter the actionables.

15. Spend enough time in soul searching to figure out what do you want in life what are you passionate about, do your own S.W.O.T analysis (Strengths Weaknesses Opportunities and Threats)  and Go for your Calling-patiently, persistently, without major short-cuts (they cut short the life) and chances of success will increase beyond expectations.


Life is interesting, take charge, enjoy the process and the journey, have faith, surely look at the emotional and spiritual aspects ,be prudent (and upfront about it-Warren Buffet is known to be prudent and thrifty) and Celebrate God’s Grace  every day for a Happy, Joyous and Free life. (….. to be concluded)

Mutual Funds – Key Entities Involved


Consider yourself a mutual fund company in which millions of investors have invested their trust, not just money with a hope of getting good returns on their investment. The criticality lies in the soundness of fund’s management responsible for meeting the expectations of the investors as well as fund’s financial goal. There are multiple key players at the background working together to achieve this common goal. These players and their role is what we will be scanning through here.


A sponsor is an entity responsible for laying the foundation stone of a fund. In real sense, it puts in the seed money in fund’s set up. Any registered company, a scheduled bank or financial institution can act as sponsor. As per SEBI norms it must possess a prerequisite and good financial record in past. AMC and custodian are appointed by sponsor but once AMC is constituted, sponsor is just the stakeholder of fund and is not liable for making up any operational losses of the fund.

Board of trustees

Mutual funds in India are constituted as trusts and have a board of trustees to run the fund. AMC is a third party appointed by trustees for managing the money but the real power lies with the trust that is accountable for investor’s money held in the fund. They can even sack the AMC if it is found doing unethical practices or underperforming.


It is an independent entity appointed for holding and safekeeping of the fund’s assets. Bigger fish, bigger will be the pond. As the portfolio of securities for a mutual fund is so big it need a third party for receipt, delivery of securities and keeping an account of the same. Most of the funds use banks as their custodians but one bank can act as custodian of multiple funds. On a broader side when instead of common public, bigger players like FIIs are the investors; the concept of domestic and global custodian comes into picture.


Asset Management Company can be considered as the heart of any fund. It manages the investments you have made. At the core are fund managers or portfolio managers taking investment decisions on your behalf. They have access to critical market data that helps them analyse the market conditions and explore investing opportunity to meet their financial objectives. In addition, it is responsible for maintaining a record of pricing and accounting data. It also calculates NAV of the fund that is mandated by SEBI to be disclosed publicly on daily basis. The fund charges investors a fee called management fees for the services offered by AMC.

The ultimate aim any fund is benefit of investors and SEBI is keeping an eye on above entities to ensure compliance of rules and regulations set for the investor’s benefit. The fund regulations in India are considered the best in the world and one major strength lies in well coordinated structure with defined roles of sponsor, trustee, AMC that tend to protect investor’s from risk of default.

Mutual Funds - The Beginners Choice

Most people are afraid to invest in the stock market. After all it is their hard earned money. They would rather do with lesser growth of their savings in a bank fixed deposit than risk to lose it all by investing in some stock. Haven’t we heard about all those scams and those fly by night operators who are just waiting in the wings to rip you off your money! The dot com bubble and the Harshad Mehta, Ketan Parekh scam era are still rankling in the memory of people, many of whom lost money in stock market.

Most people have their first feel of the stock market through equity ( mutual ) funds. These funds are managed by professionals who know and understand the stock market better than a lay person. Mutual funds are slowly and steadily emerging as an effective vehicle for a lay as well as a sophisticated investor.  It is amazing to see the way more and more investors are including equity funds in their portfolio. However, there are many investors who have been watching from the sidelines and have yet not taken the plunge. There are many fears that pose a dilemma to these investors. A first time investor needs to understand that every investment carries certain degree of risk and the potential to earn is directly linked to the degree of risk taken. For a long-term investor, it is essential to ensure that he earns positive real rate of returns i.e. rate of return minus inflation. Equities, as an asset class, have the potential to achieve this. No doubt, equity markets can be volatile over the short-term and that makes equity funds a risky proposition in the short-term. However, it is also a proven fact that over the long term the stock markets provide better returns compared to other asset classes.
The good thing about Mutual Funds investing is that the risk can be minimized by adopting a proper strategy to invest as well as by building a portfolio of quality equity funds. On the other hand, a haphazard approach to investing as well as selection of funds can put one’s hard earned money to risk. Therefore, an investment in an equity fund should be made essentially for the long term and not to become rich overnight. It is quite common to see many new investors getting carried away with the euphoria in the stock market and taking extra-ordinary risks.  The most important thing is to understand the consequences of your decisions and do not allow emotions to dictate them The current level of the market at any point of time should not deter a long-term investor from making a beginning.  That’s because investing in equity funds is a process and not one time activity. The best way to benefit from equity funds is by investing on a regular basis and to have a long-term view.

It is a misconception that you need large sums of money to start investing in mutual funds. You don’t need large sums of money to begin your investments. Your investment can begin with as little as Rs. 500. The key, however, is that to make this humble beginning into something meaningful, one need to invest on a regular basis. That’s why; a Systematic Investment Plan (SIP) can be the perfect option for a beginner. Once you enroll for SIP, it is important to continue with that for years and even increase the amount as and when you are able to do so. Remember, equity funds are your best bet to build a lump sum to achieve any of your long-term investment objectives like buying a house, to provide for a child’s education and to ensure a comfortable retired life. While you may experience lots of ups and downs during this long period of investing, you need to carry on.
While one of the major advantages of investing in mutual funds is the variety of funds that are available to investors, it can be quite a daunting task for a new investor to select the right ones. A new investor should begin with diversified funds. In fact, large cap funds can be an ideal way to start and then gradually other funds like mid-cap, specialty and sectors funds can be included in the portfolio. Investing in existing funds, rather than the New Fund Offerings can be a good idea. Remember, existing funds have a track record and a portfolio to ascertain the quality and the future prospects.
There are many sources like individual and corporate advisors, banks and web sites that can help you invest in mutual funds.  To find out a mutual fund advisor in your area, you can visit the website of Association of Mutual funds in India (AMFI) www.amfiindia.com and access information about advisors in your area. However, it is always advisable to do some due diligence before finalizing one.  After all it is a question of entrusting you hard earned money to someone for the long-term. If you are investor waiting to invest in equity or mutual funds, the sooner you begin investing the better it would be for the future of your money.

Hidden treasure in Bear Markets – A Few Tips to find it

Understanding Bearish markets

Market is said to be bearish when it keeps falling for a prolonged period of time. The common thought that creeps into our mind is about triggering event causing such a prolonged downfall. There can be many reasons like economic recession, political events like war and invasions, decrease in corporate profits, stocks being overvalued etc. (Also see what is a Bull market and Bear market?)

The question arises now what keeps it to remain bearish for such a long duration? Consider yourself stuck in a stampede struggling to save your life. You will make every effort to get out of it. Similar is the situation of an investor who speculates huge losses in bear market and wishes to avoid them. When market shows downtrend continuously, selling pressure continues and there are no potential buyers in the market. This creates panic amongst the investors who wish to make an exit by booking nominal profits if they find themselves lucky enough. This situation which leaves selling as the only option keeps the bearish market alive.

What does bear market has in store for you?

The only rule of finding hidden treasure in bear market is to be optimistic and observant of market movements while everyone is rushing out to seek shelter. The reason is simple as indicated in diagram below. There is always a cyclic trend wherein after a period of recession, market recovers and finally booms.

Think of a pendulum which has to come back to its original position and rest assured that bears will turn bullish. The only catch is how to decide what to sell from your current holding and what to buy for further gains.

While selling keep two points in view. First, don’t bother if you don’t book profit; make sure you are not into losses. Second, don’t sell because everyone is selling. To choose the ones to be sold, revisit your portfolio and study the fundamentals of stock. If the stock is overvalued with high P/E, don’t wait much and sell as you get the opportunity. On contrary, if a stock has stable balance sheet and good performance, it falls following the market trend and will surely rebound.

While buying, a wise investor would surely gain; just be prospective. First, if you are long-term investor, identify the recession-hit stocks with good fundamentals. These are a good pick because they are trading low following the market trends. Once market recovers, they will follow the suite. Secondly, blue chips have been a buyer’s choice in such markets because they are the market movers. So keeping in view that recession will be over, they can be most relied upon. On similar note, better stay away from penny stocks. Thirdly, invest in stocks based on items of necessity like FMCG, telecom etc. rather than luxury items because even if the whole economy is in recession, human’s basic needs have to be fulfilled and these stocks will never die out.

The crux is be optimistic and keep investing because sometimes your good investments are the ones which you don’t make.

Basics of Stock Market

Financial markets provide their participants with the most favorable conditions for purchase/sale of financial instruments they have inside. Their major functions are: guaranteeing liquidity, forming assets prices within establishing proposition and demand and decreasing of operational expenses, incurred by the participants of the market.

Financial market comprises variety of instruments, hence its functioning totally depends on instruments held. Usually it can be classified according to the type of financial instruments and according to the terms of instruments’ paying-off.

From the point of different types of instruments held the market can be divided into the one of promissory notes and the one of securities (stock market). The first one contains promissory instruments with the right for its owners to get some fixed amount of money in future and is called the market of promissory notes, while the latter binds the issuer to pay a certain amount of money according to the return received after paying-off all the promissory notes and is called stock market. There are also types of securities referring to both categories as, e.g., preference shares and converted bonds. They are also called the instruments with fixed return.

Another classification is due to paying-off terms of instruments. These are: market of assets with high liquidity (money market) and market of capital. The first one refers to the market of short-term promissory notes with assets age up to 12 months. The second one refers to the market of long-term promissory notes with instruments age surpasses 12 months. This classification can be referred to the bond market only as its instruments have fixed expiry date, while the stock market’s not.

Now we are turning to the stock market.

As it was mentioned before, ordinary shares’ purchasers typically invest their funds into the company-issuer and become its owners. Their weight in the process of making decisions in the company depends on the number of shares he/she possesses. Due to the financial experience of the company, its part in the market and future potential shares can be divided into several groups.

1. Blue Chips

Shares of large companies with a long record of profit growth, annual return over $4 billion, large capitalization and constancy in paying-off dividends are referred to as blue chips.

2. Growth Stocks

Shares of such company grow faster; its managers typically pursue the policy of reinvestment of revenue into further development and modernization of the company. These companies rarely pay dividends and in case they do the dividends are minimal as compared with other companies.

3. Income Stocks

Income stocks are the stocks of companies with high and stable earnings that pay high dividends to the shareholders. The shares of such companies usually use mutual funds in the plans for middle-aged and elderly people.

4. Defensive Stocks

These are the stocks whose prices stay stable when the market declines, do well during recessions and are able to minimize risks. They perform perfect when the market turns sour and are in requisition during economic boom.

These categories are widely spread in mutual funds, thus for better understanding investment process it is useful to keep in mind this division.

Shares can be issued both within the country and abroad. In case a company wants to issue its shares abroad it can use American Depositary Receipts (ADRs). ADRs are usually issued by the American banks and point at shareholders’ right to possess the shares of a foreign company under the asset management of a bank. Each ADR signals of one or more shares possession.

When operating with shares, aside of purchase/sale ratio profits, you can also quarterly receive dividends. They depend on: type of share, financial state of the company, shares category etc.

Ordinary shares do not guarantee paying-off dividends. Dividends of a company depend on its profitability and spare cash. Dividends differ from each other as they are to be paid in a different period of time, with the possibility of being higher as well as lower. There are periods when companies do not pay dividends at all, mostly when a company is in a financial distress or in case executives decide to reinvest income into the development of the business. While calculating acceptable share price, dividends are the key factor.

Price of ordinary share is determined by three main factors: annual dividends rate, dividends growth rate and discount rate. The latter is also called a required income rate. The company with the high risks level is expected to have high required income rate. The higher cash flow the higher share prices and versus. This interdependence determines assets value. Below we will touch upon the division of share prices estimating in three possible cases with regard to dividends.

While purchasing shares, aside of risks and dividends analysis, it is absolutely important to examine company carefully as for its profit/loss accounting, balance, cash flows, distribution of profits between its shareholders, managers’ and executives’ wages etc. Only when you are sure of all the ins and outs of a company, you can easily buy or sell shares. If you are not confident of the information, it is more advisable not to hold shares for a long time (especially before financial accounting published).

Dr. Goldfinger