Investment Valuation in India

Flat rate of interest Very often banks offer flat rate of interest to their consumers on products like credit cards and personal loans or other smaller loans. Flat rate of interest sounds good because the rates quoted by the banks are lower than the reducing balance interest rates and an average consumer understands the flat rate very easily. The simplest explanation - when you take a flat rate loan, you are asked to pay interest on the whole amount (principal) during the whole tenure of the loan even when the principal is gradually reducing during the term of the loan. Suppose you take a loan of 1 lakh rupees at 15% flat rate of interest for 1 year. The EMI or equal monthly loan installment that you pay consists of both interest and a part of the principal. So, as you pay the EMIs, the principal goes on reducing. However, even as the principal is reducing, you are still paying the interest on the whole amount (1 lakh rupees). Flat rate of interest is the interest charged on the full a...

Gone are the days when the investors had the option of investing only in Equity markets, and if there was any diversification needed, they had the option of Debt, Bullion, Commodities and at the very best, Real Estate. But we all have known the constraints of investing in them. High investment, low liquidity in the markets and long term lock in periods. Then came Mutual Funds which are still considered amongst the best options for investors. Let me talk about "Structured Products", the secret of how the investment managers (Yes, of Mutual Funds also) manage to generate high returns or at least, maintain the returns. Investment managers across the globe continuously strive towards designing products that suit various investor requirements. Asset managers in the developed markets (now penetrating in emerging markets like India and China) have been offering structured products across asset classes like equities, debt, forex and commodities for a long time now. However, in In...

This is in response to the queries I received on whether ECB or FCCB is more convenient/liberal/less regulated. For guidelines on each of them, please refer to the links attached in the respective articles. FCCB http://www.icai.org/icairoot/publications/complimentary/cajournal_nov05/703-708.pdf . ECB http://www.icai.org/icairoot/publications/complimentary/cajournal_may04/p1216-19.pdf As regards which is more convenient, it always depends on the company raising funds. Historically, companies prefer ECBs over FCCBs . The RBI data for the month of December 2007 showed only 7 of 44 companies raising funds through FCCBs automatic route and all 7 companies preferring the ECB over FCCB through approval route. http://rbidocs.rbi.org.in/rdocs/ECB/pdfs/83662.pdf Government has said that it is contemplating relaxing norms governing external commercial borrowings (ECBs) to enable Indian corporates access higher foreign capital at low cost. Besides, a review is underway to remove restrictions on fo...

Look for any security on BSEINDIA.COM or NSEINDIA.COM and u'll find this term called VaR mentioned. I always wondered what it is. I just had a vague idea that its a measure of risk. And then, as I m crazy about finding out things that interest me, I ventured to quench my thirst to know what is VaR. Read on and am sure u'll find it interesting too. Lots of technicals though, but for analysts/CAs/Portfolio Managers/Risk managers and those in the capital markets... its imperative to know what is VaR. Introduction to VAR Define VAR VAR summarizes the predicted maximum loss (or worst loss) over a target horizon within a given confidence interval. Consider a trading portfolio. Its market value in Rupees today is known, but its market value tomorrow is not known. The investment bank holding that portfolio might report that its portfolio has a 1-day VaR of Rs 1.7 million at the 95% confidence level. This implies that under normal trading conditions the bank can be 95% confident that a ...

A type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the money being raised by the issuing company is in the form of a foreign currency. A convertible bond is a mix between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock. These types of bonds are attractive to both investors and issuers. The investors receive the safety of guaranteed payments on the bond and are also able to take advantage of any large price appreciation in the company's stock. (Bondholders take advantage of this appreciation by means warrants attached to the bonds, which are activated when the price of the stock reaches a certain point.) Due to the equity side of the bond, which adds value, the coupon payments on the bond are lower for the company, thereby reducing its debt-financing costs The ICAI came out with a detail...

External Commercial Borrowings (ECB) External Commercial Borrowings (ECBs) include bank loans, suppliers' and buyers' credits, fixed and floating rate bonds (without convertibility) and borrowings from private sector windows of multilateral Financial Institutions such as International Finance Corporation. Euro-issues include Euro-convertible bonds and GDRs. In India, External Commercial Borrowings are being permitted by the Government for providing an additional source of funds to Indian corporates and PSUs for financing expansion of existing capacity and as well as for fresh investment, to augment the resources available domestically. ECBs can be used for any purpose (rupee-related expenditure as well as imports) except for investment in stock market and speculation in real estate. External Commercial Borrowings (ECB) are defined to include commercial bank loans, buyer’s credit, supplier’s credit, securitised instruments such as floating rate notes, fixed rate bonds etc., cred...