Tax-saving funds yield negative returns

 The common dictum about mutual fund (MF) investments is that you must not check the net asset values (NAVs) too often. But if you have started your investments in tax-saving funds in the past six months you may be justified in taking a closer look.
    All the top equity-linked savings schemes (ELSSs) are deep in the red with the best ranked fund for the period posting a 25.7% negative return and the worst a 43.46% slump, according to Value Research data.
    In comparison, top performing diversified equity funds for the period have declined 15-20%. "ELSS products have fallen across the board. Given that they follow a passive fund management approach the impact is slightly higher," says Sridhar Parthasarathy, associate VP and head-PMS and research, Cholamandalam DBS Wealth Management. The broad market correction has contributed to the fall in NAVs, he says.

    "This is a good opportunity for new investors. The economy is still strong. In six months things will come under control," says a fund manager of a leading fund house. In tune with the market correction, NAVs of many schemes have hit the nadir. For instance, the NAV of HDFC Tax Saver Growth, a popular ELSS that touched a 52-week high of Rs 208.58 on January 7 reached its 52-week low of Rs 133.54 on June 23. Other popular schemes like Magnum Taxgain and Birla Sun Life Tax Relief show a similar pattern.
    Also, equity as an investment class has consistently outperformed many other options in the long run. And it pays to stay invested for a longer duration, say fund managers. "Equity markets go through a 5-6 year cycle. So, it's normal for a 3-4 year bull period (followed by) a subsequent 1-2 year bear phase. The returns will average out. They (tax-saving funds) still will give a better return compared to other investment options," says Parthasarthy.
    "Investing in equity is a better option. Informed set of investors can use this corrective phase to enter tax-saving funds," says Satish Ramanathan, head, equity, Sundaram BNP Paribas. The top 50 performing funds of last year are believed to have attracted an inflow of Rs 8,000-10,000 crore, say industry sources. The asset base of Sundaram BNP Paribas has gone up 20% since December 30, 2007. As far as Sundaram Paribas was concerned, March has been a good month for tax-saver funds. Since MFs don't hold cash beyond a certain level they are constrained and accordingly get affected with the fall, he explains. This applies even more for tax-savings schemes.

Anil slaps legal notice on Mukesh

It's been a season of growing acrimony between estranged brothers Mukesh and Anil Ambani. Soon after the senior Ambani introduced a legal roadblock in Anil Ambani's talks to buy African telecom firm MTN, the younger sibling has found cause to slap a legal notice on Mukesh Ambani.

The move follows an article on Mukesh Ambani in ‘The New York Times' in which he is reported to have made a remark which Anil Ambani's lawyers have called ‘‘libellous'' and ‘‘deserving of a clear, unambiguous and unqualified retraction and apology'' from Mukesh Ambani and also the newspaper.

What has offended Anil Ambani is a paragraph that speaks about Reliance's alleged intelligence gathering network with which it is said to have obtained data about the ‘‘vulnerabilities of the powerful, about the minutiae of bureaucrats schedules, about the activities of their competitors.''

Mukesh Ambani was asked about the alleged intelligence network to which he reportedly said that all such activities were overseen by his brother (Anil Ambani) before they split, and had since been expunged from his tranche of the company. ‘‘We demerged all of that,'' he is reported to have said.

The letter by Anil Ambani's lawyers says the statement implies that ‘‘our client continues the operation of the said alleged intelligence agency, its network of lobbyist and spies and its various unethical and subversive activities.''

Nano from Singur in October

Setting aside the speculation, Tata Ryerson MD Sandipan Chakravortty assured on Friday that the Tata small car Nano will be rolled out in October from the Singur factory only. Tata Ryerson is one of the key component manufacturers of Rs 1 lakh car, Nano.
    Speaking on the sidelines of an event organized by Confederation of Indian Industries (CII), he added, "To the worst of circumstances, some components would be assembled from factories in other states". Chakravortty also said it is hoping the factory of Tata Ryerson would be operational by August, if the rain does not hinder the work.
    Besides, CII is taking up an 'aspirational role' to unveil Vision India 2022.
    In the Vision India 2022 plan, the CII would deliver advisory services to members in the eastern states, especially West Bengal, Jharkhand, Bihar and Chattisgargh.
    CII intends to set up 30 ITIs this year in eastern region for upgradation and entrepreneur development initiative and will develop 50 entrepreneurs by 2009-end.
    It will also set up three new offices in Bilaspur, Durgapur and Balasore. "Prioritizing what each state aspires, there would be workshops, learning missions, cluster projects and the main focus would be on small and medium-sized enterprises to make them internally competitive," he added.

Scarcity in an age of plenty

AROUND the world, protests against soaring food and fuel prices are mounting. The poor — and even the middle classes — are seeing their incomes squeezed as the global economy enters a slowdown. Politicians want to respond to their constituents' legitimate concerns, but do not know what to do.
In the United States, both Hillary Clinton and John McCain took the easy way out, and supported a suspension of the gasoline tax, at least for the summer. Only Barack Obama stood his ground and rejected the proposal, which would have merely increased demand for gasoline — and thereby offset the effect of the tax cut.
But if Clinton and McCain were wrong, what should be done? One cannot simply ignore the pleas of those who are suffering. In the US, real middle-class incomes have not yet recovered to the levels attained before the last recession in 1991.
When George Bush was elected, he claimed that tax cuts for the rich would cure all the economy's ailments. The benefits of tax-cut-fuelled growth would trickle down to all — policies that have become fashionable in Europe and elsewhere, but that have failed. Tax cuts were supposed to stimulate savings, but household savings in the US have plummeted to zero. They were supposed to stimulate employment, but labour force participation is lower than in the 1990s. What growth did occur benefited only the few at the top.
Productivity grew, for a while, but it wasn't because of Wall Street financial innovations. The financial products being created didn't manage risk; they enhanced risk. They were so non-transparent and complex that neither Wall Street nor the ratings agencies could properly assess them. Meanwhile, the financial sector failed to create products that would help ordinary people manage the risks they faced, including the risks of home ownership. Millions of Americans will likely lose their homes and, with them, their life savings.
At the core of America's success is technology, symbolised by Silicon Valley. The irony is that the scientists making the advances that enable technology-based growth, and the venture capital firms that finance it were not the ones reaping the biggest rewards in the heyday of the real estate bubble. These real investments are overshadowed by the games that have been absorbing most participants in financial markets.
The world needs to rethink the sources of growth. If the foundations of economic growth lie in advances in science and technology, not in speculation in real estate or financial markets, then tax systems must be realigned. Why should those who make their income by gambling in Wall Street's casinos be taxed at a lower rate than those who earn their money in other ways. Capital gains should be taxed at least at as high a rate as ordinary income. (Such returns will, in any case, get a substantial benefit because the tax is not imposed until the gain is realised.) In addition, there should be a windfall profits tax on oil and gas companies.
Given the huge increase in inequality in most countries, higher taxes for those who have done well — to help those who have lost ground from globalisation and technological change — are in order, and could also ameliorate the strains imposed by soaring food and energy prices. Countries, like the US, with food stamp programmes clearly need to increase the value of these subsidies in order to ensure that nutrition standards do not deteriorate. Those countries without such programmes might think about instituting them.
Two factors set off today's crisis: the Iraq war contributed to the run-up in oil prices, including through increased instability in the Middle East, the low cost provider of oil, while bio-fuels have meant that food and energy markets are increasingly integrated. Although the focus on renewable energy sources is welcome, policies that distort food supply are not. America's subsidies for cornbased ethanol contribute more to the coffers of ethanol producers than they do to curtailing global warming. Huge agriculture subsidies in the US and the European Union have weakened agriculture in the developing world, where too little international assistance was directed at improving agriculture productivity. Development aid for agriculture has fallen from a high of 17% of total aid to just 3% today, with some international donors demanding that fertiliser subsidies be eliminated, making it even more difficult for cash-strapped farmers to compete.
Rich countries must reduce, if not eliminate, distortional agriculture and energy policies, and help those in the poorest countries improve their capacity to produce food. But this is just a start: we have treated our most precious resources — clean water and air — as if they were free. Only new patterns of consumption and production — a new economic model — can address that most fundamental resource problem.
(The author is professor of economics at
Columbia University)
(C): Project Syndicate, 2008

• Capital gains should be taxed at least at as high a rate as ordinary income

• Given the rise in inequality, higher taxes for those who have done well are in order

• Rich nations must reduce, if not eliminate, distortional farm and energy policies, and help those in the poorest countries improve their capacity to produce food

DLF to get 5k acres below market rates

REALestate developer DLF will soon get around 5,000 acres near Greater Noida at less than market rate under the Taj Expressway Industrial Development Authority's (TEA) scheme. Jaypee group, too, has qualified for allotment of 2,500 acres, while Unitech and Punj Lloyd are in queue for 2,500 acres each.
    TEA additional CEO C S Verma told ET that the authority will complete the process of acquisition of 7,500 acres in three months, following which it will be allotted to DLF and Jaypee group. "We are negotiating with farmers and should be able to finalise the acquisition rate in the first week of July. Once the rate is finalised, it wouldn't take us long to acquire the land," he said.
    TEA will transfer the land to realty developers at acquisition cost from the farmers, which is likely to be much cheaper than the market rate developers have been paying privately. The ability to buy large tract of land at a cheaper price without spending much time and energy in the process is what is driving realty players to TEA's Special Development Zone scheme. As realty sector boomed in the past few years, land prices too surged and farmers became more demanding while negotiating a rate with developers. Most importantly, with government shifting the onus of land acquisition on to the developers for the special economic zones (SEZ), the hardship in land acquisition increased manifold. Developers needed to acquire contiguous piece of land from farmers at market rate, which shifted the balance in favour of farmers. Therefore, developers had to commit more men, time and money in land acquisition making the entire project more expensive. DLF hasn't yet been able to acquire the land for its 5,000-acres multi-product SEZ in Haryana, according to a company spokesperson.

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