This article was originally published in Postnoon on April 27th, 2012

http://postnoon.com/2012/04/27/the-business-of-deposits/45733

I, Prof. Nicky, had a tet-e-tet with Laxmiamma three weeks back. I was curious to know if she had taken heed of my advice and started investing. So I strolled out of our lush campus and walked into the nearby GPRS quarters. It is in one of these quarters that Laxmiamma had been hoarding her cash every month since the past 10 years in the hope of collecting enough money to release her pawned jewellery.

Laxmiamma was genuinely happy to see me and did not waste any time before showing me the account opening kit which she had got from her bank. She was the proud owner of a bank account now, which came with an ATM card and a cheque book.

She did not waste any time in offering her famous Irani chai and shooting her questions to me. So while enjoying the chai, I answered her primary question related to the difference between a savings account, a Fixed Deposit and a Recurring Deposit.

A Savings Account is meant for saving money, as the name suggests, from your income. The money deposited can be withdrawn any time and you can deposit money into the account as many times as you want. It is generally like a temporary parking place for the surplus funds that you have. Earlier, the banks used to pay a very small interest on the amount in this account. However, the recent deregulation of savings account interest rates by RBI has resulted in the bank giving as much as 6-7% interest.

Laxmiamma: I have opened my account by putting an initial deposit of `5,000/- Should I put my entire savings in the past 10 years into this account then Prof. Nicky?

Prof. Nicky: You could do that. But, you will earn more if you deposit your savings into a Fixed Deposit. The interest that the Banks offer on this account are usually much higher. Though the catch is that, you are expected to keep your money with the bank for a fixed tenure. The interest rates vary according to the tenure and, currently, may range from 7% to 10%.

Laxmiamma: But what if I have a medical emergency and need the money urgently?

Prof. Nicky: Hmmm… you can withdraw the deposit if you wish to. However, the bank will usually impose a penalty of 0.5% to 1% for doing so. Different banks have different rules regarding it.

Laxmiamma: So I will keep my past savings as a Fixed Deposit with the bank. But can I do a fixed deposit of my monthly future savings too?

Prof. Nicky: Once again, you could do that. But it will be a hassle for you to do it every month. If you have an online banking facility, then it is easy. But since you do not have that facility, you will need to fill up the fixed deposit form every month. Instead, you can do a Recurring Deposit of your monthly savings.

Laxmiamma was awed at all the facilities that the banking system offers. She asked, “How do I do that?”

Prof. Nicky: You can fill up a form similar to the Fixed Deposit form and instruct the bank to take out a fixed amount of money every month from your savings account, and put it into a Recurring Deposit. The bank will do it every month, for as many months as you instruct them to do it in the form. You will not need to remind the bank. You only have to ensure that you have that money in your savings account. For a Recurring Deposit, you need to be reasonably certain about the amount of money that you can save every month. The interest rates are similar to those in the Fixed Deposit.

Laxmiamma: So what you are telling me is that all three, Savings Account, Fixed Deposit and Recurring Deposit are going to be useful to me!

Prof. Nicky: Exactly! Can you please get me another cup of the chai?

 

This article was originally published in Postnoon on April 20^th, 2012

http://postnoon.com/2012/04/20/take-stock-of-risks/44467

Srikanth kept mulling over his conversation with Prof. Nicky the entire week. He reached the conclusion that he falls in the category of people who not only have the appetite to take risk, but also have the ability to do so. Equipped with this self realisation, he walked over to Prof. Nicky, who was looking at a piece of paper very carefully.As Srikanth got closer, Prof. Nicky looked up from the piece of paper and gestured to him to look at the graph on the paper.

Prof. Nicky: Hey come on Srikanth. Look at this!

Srikanth: What is this Professor?

Prof. Nicky: Remember that I was telling you that every asset class has its own risk profile?

Srikanth: Yes I remember!

Prof. Nicky: Ah good! So if somebody has the appetite and the ability to take risks, where does he invest his money?

Srikanth: That’s what I came to ask you. I have realised that I fall in that category.

Prof. Nicky: There are various asset classes like real estate, commodities etc. in which such people can invest. However, one of the most popular classes of risky assets is equities. Equities imply owning a share in the assets, liabilities and profits of a company. When a company grows, more money is required for it to expand. The original promoters may not have that money. Hence they approach the public to buy the shares of the company. That’s where the term “investing in shares” comes from!

Thus equities have the benefit of being very liquid, that is, they can be bought and sold easily on the exchanges like the NSE and the BSE. The other aspect of equities which attracts investors to them is the potential to make huge returns. If you look at the graph, you can see that the benchmark NIFTY index has given close to 13.8% returns on an annual, compounded basis over the last ten years. In other words, if you had invested `1000 in the stocks of Nifty in April 2002, you would have `4,645 now. This is a return of 365% over a 10-year period. This is more than what you would earn if you had invested in fixed deposits or other savings schemes like Kisan Vikas Patra or Post Office Saving schemes!

Srikanth: Really? So why do the equities give a higher return?

Prof. Nicky: They give a higher return because they need to compensate the investors for the higher risks associated with equities. It is like demanding a higher salary if your job is more stressful.

Srikanth: Where is the risk? You just now said that an investor can earn as much as 365% over a 10 year period!

Prof. Nicky: Now that is how a lot of people tend to think and that is why they end up losing money. You would make so much money if you invested in April 2002, and if you remained invested till April 2012. But what if you invested in September 2007 and then had to sell around September 2008?

Srikanth: looking more closely at the graph now, gave a gasp, “Oh My God! I would have lost more than 50% of my money in that case”!

Prof. Nicky: Exactly. And that is the risk. You do not know where the market is going to go tomorrow. The share prices depend upon the performance of the company, the economic, political and technological factors, the future prospects of the company and many more! When there are so many uncertain elements in running the company, it is very difficult to know exactly how much return you will get after a given period.

Historically, the equities have performed better than the other risk free investment tools like Government Bonds or saving schemes and Deposits. For those who can take this risk, it might be worth it! So go ahead boy, invest in equities, choose the companies wisely, and keep your fingers crossed!

 

A sieve is a screening (regulatory) device that is used to separate out coarser elements.
Elements of finer quality are admitted and pass through its apertures…

What happens to fine quality elements when stringent regulatory procedures make the holes ever smaller?

“The Customer is always right”

The Market is a sole worshiper of the (GOD) Customer. The trend, demand, supply, depletion, profitability of a company or the sway of the market completely depends or is solely shouldered by a customer’s mindset.

Therefore from launching of a minute pin to the recent launch of Agni-V everything is test run to forecast the future of the item.If it earns applauses it is introduced or else gets vanished.

Hence Customerization is taken up by companies as a marketing tool to retain the customers in a competitive market.

“Designing a product according to the customers’/individual’s requirement” is called customerization. Though the whole concept needs a lot of sweat but the only boost for this is customer’s satisfaction. “Idea is yours but product is from customers end”.

This concept or strategy of customerization can even be found in the fruit juice seller’s counter where he allows his customer to have the combination of his own choice, example: X-needs Apple +Orange whereas Y-needs Pineapple +Grapes…

By this above strategy the company has got a boost in their sales. It is an effective tool to measure the customer’s preference and value. No need to know the personal information of the customer just good feature of your product + good website would raise you to the ladder of success.

Remember: “The secret of success is consistency of purpose.” –Benjamin Disraeli

Contributed by Trishagni Sen ( Class of 2014, IBS Hyderabad)

I was reading a book recently on ‘effective customer care’ and while browsing through a chapter on ‘creating the environment for customer care to flourish’; I came across some leadership traits the author speaks of. The first on the list was ‘visibility and openness’.

It’s imperative to be a visible manager; showing up on the floor frequently to let people know of your presence – not that you have to catch them doing the wrong stuff but ensuring that you see and hear what is being said and done! It is a leadership trait.

There are many however, who use visibility as a tool, assuming it will fetch them recognition. A very short sighted approach, I would say! When it comes to recognition, performance is a higher value than visibility. The recognition your performance earns for you is far greater in impact and reach than any other strategy that people may suggest you.

What is the need but of recognition at work? Recognition is an important motivator for all of us and not just the manager or our boss. To some it is more important than the money. People require appreciation for their work, on a daily basis. Dr. Eric Berne, who gave the concept of transactional analysis, called it as positive stroke/s. He said that in the absence of strokes (appreciation / recognition) the spinal cord would shrivel up!

We can talk of strategies to make you more visible but visibility without performance wouldn’t boost the morale of any or impress many! Performance speaks for most of us; people who over perform and known by all not only within the organization but the whole industry.

Taking a stroll down the aisle in the office and interacting with employees from other teams is not the strategy to earn recognition. You may actually end up annoying few than winning any friends. The real key as discussed already is performance. You name any respected name from any Industry and you will find out there is more to their success and recognition than those occasional strolls down the aisle!

Of course there are people who work in the back end and not many of them earn success and recognition to the extent someone working or staying in continual public limelight would. But there is always an answer to every question. There are strategies to ensure that after doing good home work; you get your due share of acknowledgment. Our next article on strategies to earn recognition at workplace carries detailed discussion.