' Wangiri ' fraud

Why to ignore missed International call with prefix other than +91

Most of us are receiving SMS alerts from our mobile operators  “Please do not to respond to missed calls from unknown international numbers with prefix other than “+91” or calls/SMS about winning prizes/ lottery as these may be fraudulent calls” but no one tells why not to respond. Here is the story why we should not respond to these calls.

Prefix +91 is the International code for making a valid call to India from abroad and if you receive a call prefix other than +91, then it might be International Premium Rate Number (IPRN) and if you call back these IPRN, you may be charged at hefty rates which are transferred to the IPRN owner. The trick is known as the ‘Wangiri’ fraud it is believed that this trick or scam originated in Japan and in Japanese, ‘Wangiri’ means ‘one ring and cut’.

What is an IPRN?
International Premium-rate numbers (IPRN) are typically known as toll numbers which are offered by telecom operators and acquired by businesses (Commercial establishments advertise these IPRN for technical support, voting polls, competitions, directory inquiries, weather forecasts and more). If anyone calls these IPRN, Callers are charged at premium rates (higher than regular calling rates)and the revenue earned is then shared between the telecom operator and the owner of the IPRN.

How a Wangiri scam works?
Once an attacker has acquired an IPRN, he gives missed calls to thousands of mobile numbers chosen randomly. Inadvertently, an unsuspecting victim calls the number back and on other side an individual answers the call and tries to prolong the conversation under some pretext. All this while, the innocent curious caller gets charged a large amount for the call. The rates range from Rs. 50 per minute to Rs. 200 per minute. Prepaid users will find their credit drastically reduced whereas post-paid users would only come to know of these charges once they view their monthly bill.

SIM Cloning

Some of mobile users who has become victims of such fraudulent calls, they make complaints that  they were not only be charged for making an international call, on calling back these missed international calls but also they lose the data stored on their phone such as credit card and bank details.

Now, there seems to be a way of cloning SIM cards simply by giving missed calls. If you get missed calls from numbers starting with #90, +92 or #09, do not call back as your SIM card will be cloned. As per reports, over one lakh subscribers have become victims of this new telecom menace.

What if you answer the call before the caller dropped it?

The caller on the other end poses as a call center representative and claims that it is for verifying the call flow and connectivity. You will then be asked to press #90 or #09 to call back in order to ensure if the connectivity is seamless and as soon as you press #90 or #09, the person on other side make clone of your SIM and then they may misuse this cloned SIM for making calls to any number by using your mobile number.

The best course of action would be to simply ignore such suspicious missed calls and refrain from calling them back. You can also utilize the ‘Call Blocking’ feature of your device to blacklist such numbers and prevent them from reaching your mobile handset.

Rejection of Insurance Claims

Here are the main reasons for rejection you must watch out for in your own insurance

We buy insurance expecting claims to be paid and feel bitter when that does not happen. In an ideal world, insurers would communicate terms in easy-to-follow language; buyers would take the time to read about what they are buying; documents to file a claim would be simple; and helpful customer service executives would ask for bank details to transfer the claim payment. Nothing is farther from reality.

Claim rejection is high and until there is a better grievance handling system, we would do well to understand why. Watch out for the main reasons for rejection in your own insurances.

Health insurance claims are denied because hospitalisation was due to a pre-existing disease not disclosed. The fact that a disease is pre-existing gets found out from the doctor's case history. When insurers smell a rat, they ask for the daily hospital and surgical notes as well. These, almost always, bring out the truth because the patient's medical background is captured accurately for all the medical staff to refer to. The diseases that are hidden most often are hypertension (good medication can prevent this from being diagnosed), diabetes (medicine comes to the rescue again), internal cysts and neurological diseases such as epilepsy. When a claim is rejected patients get indignant but, often, the subterfuge was deliberate. Where insurers go overboard is in their zeal to classify everything as pre-existing. There are situations where an innocuous comment by the doctor, for example, in listing out a possible differential diagnosis such as "diabetic ?" has resulted in rejection. In many cases the root cause of hospitalisation is subjective. For example, was the sharp drop in haemoglobin because of pre-existing piles or newly-discovered ulcers? Once the insurer takes a position on this, generally in its own favour, it is hard to convince it otherwise. Life insurance and overseas travel claims are also rejected primarily due to non-disclosure of pre-existing medical problems.

In motor insurance, claims are often rejected because of negligence. Did you leave the keys in the car? Start the engine when it was flooded? Drove with an expired license? Were you drinking and driving? Insurers look for signs of negligence in police or medico-legal reports. Your description of the accident needs to be consistent to the insurer, surveyor, investigator and anyone else who calls. Another reason for rejections is that the vehicle is in commercial use but the insurance is for personal.

Home insurance claims don't get paid because of specific exclusions relating to normal wear and tear, seepage and short circuits. Fires caused by short circuits, wall damage due to seepage are common rejections. The other issue in home insurance is that they are incorrectly placed. For example a basement, which is a material risk for insurers, is not declared. Or the fact that the house has been unoccupied is not mentioned. Or that there is commercial activity such as paying guests or small offices being run on the premises are not described. A problem recently encountered is that the person who bought the insurance does not have an insurable interest in the home. For example, a tenant buys building insurance or the facilities management company in a high-rise buys home insurance rather than the home owners themselves.

Burglary claims are rejected because the buyer didn't inform the insurer that the house would be unoccupied for an extended period of time. The second most common issue is that insurance covers burglary, as in a forced break-in, but not theft, which is an inside job. Many claims go unreported as it is undisclosed cash or gold that is filched. Severe underinsurance, when the value of goods is understated to keep premiums low, also results in rejection.

Marine insurance covers goods in transit, when you relocate or send material elsewhere. These claims are rejected because standard insurance covers accidents whereas claims often relate to pilferage or damages without an accident. Recently, someone was transferring a valuable figurine in a truck. En route the statue disintegrated. The claim was rejected because there was no evidence of an accident. The customer's vivid make-believe portrayal of how the truck driver had to swerve to avoid a collision struck no chord.

Professionals such as doctors, chartered accountants and architects often buy liability insurances to cover negligence related litigation. The number of claims filed in these liability insurances is still low and it will be interesting to see how often claims get paid in the future. The contracts are stringent and there will be ample opportunity to reject claims. The key here is to describe the scale and nature of your business accurately in the proposal form.

Small businesses buy insurance to cover losses to computers and phones. These claims are denied mainly because the damage was caused by negligence. Laptops are most prone to such denials. Generally, laptops get spoilt due to rough handling, which is not claimable.

Most of us buy insurances with a single-minded focus on price. Claim rejections can be prevented if we had a single-minded focus on product features instead, such as mediclaim with low waiting periods, home insurance with an accurate description of structure and contents, marine insurance that covers all-risks rather than just accidents. These cost more but make the insurance meaningful.

How to Handle small cap funds

Mid and small cap funds have been on a free fall. What should you do now?

Here are a few pointers that will help you to navigate these troubled times.

The meltdown in the mid and small cap space is causing a lot of heartburn among investors. With the stock market entering an extremely volatile phase, many dispirited investors are wondering whether they did the right thing by investing in small cap mutual funds. Though it has been an extremely rewarding investment for them, many investors are thinking of abandoning small cap funds. Some investors are also thinking of playing safe by investing in the so-called less-volatile large cap funds. Are these investors on the right track?

The current scenario should serve as a reality check for investors. When the small caps were on top of the pack and there were funds which were up 20 per cent last year, many investors found it difficult to resist the temptation of these funds. Many of these investors claimed at that time they were aggressive investors and they are willing to take risk, but the fact is that they were chasing performance. Now, these investors are feeling the pressure. These investors should remember that the small cap funds have rewarded them handsomely in the last two to three years and they can be hugely rewarding in future.

Here are a few pointers that will help you to navigate these troubled times.

One, always remember that you can do without a small cap fund, especially if you don't have a stomach for the volatility associated with it. You can invest in a multicap fund that invests across market capitalization to benefit from an upside in mid and small cap stocks. Mutlicap funds will have a small allocation to mid cap and small cap stocks.

Two, don't take short-term bets with your investments. If you see your investments go down, don't be in a hurry to get out of them. Sure, it is very unnerving to be in a scenario like in 2008 when there was an erosion of 70 per cent. But you know what happened later. Always remember that mid and small cap cycles take much longer to regain the momentum.

Three, resist the temptation to play safe and bet solely on large cap funds. Be  a strong disbeliever in indexing.( Indexing is a passive investment strategy. An investor can achieve the same risk and return of an index by investing in an index fund. An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500 ). 

Active management in India still has a long way to go. There will be a big opportunity for investors as many mid cap and small cap companies turn into big companies. Some of these companies may be multi-baggers and you may miss out on the opportunity if you put all your eggs in large cap funds. Also, the large cap space has become very narrow for fund managers to operate in.

Four, don't write off small cap funds in a hurry. On a medium term basis, they still hold out. Look at Franklin Smaller Companies Fund or DSP BlackRock Micro Cap Fund or Reliance Small Cap Fund. If you look at them on a long-term basis and if you look at them from a SIP perspective, these funds turn out to be more rewarding for investors. If you have a long-term orientation, be in high quality small cap and mid cap funds as these funds have demonstrated their capability and strength.

In India, we have a very large listed stock universe and the fund manager is able to bring it down to a universe of about 100-120 stocks and track it closely, validating management. That will be  a significant value addition. If you still need more proof, just look at their three-year returns. They have offered an average return is 27-28 per cent, which is quite substantial.

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Smaller Companies are good , even now

The recent crash in smaller companies' stocks has been traumatic for momentum chasers, but smarter investors have done very well out of small cap funds

There's a course of shock therapy that equity and equity fund investors have to go through every few years. The stocks of small cap companies zoom up sharply for a time, and then they crash down, again much more sharply than anything else. Sometimes this happens as an amplified version of what's happening to the stocks of larger companies, and sometimes by itself when the rest of the market is doing something else. The first part brings great joy and happiness to investors,especially to those who have forgotten the last such cycle, while the second part brings shock, and hopefully, some learning about the risks inherent in small cap investing.

After a boom that lasted two years, we now seem to be entering a phase when small cap stocks and the funds that invest in them are heading down decisively. This was entirely to be expected, and actually works to the advantage of investors in small cap funds. However, there seem to be plenty of investors who are in shock and ready to head for the exits.

To answer this question, investors must consider what they expect from equity investing and whether they are willing to put up with the risk and the volatility that is an inevitable part of the same package that also contains great returns. Investment advisors and analysts often ask investors to evaluate what kind of risks they are willing to take in order to have a chance of getting the kind of returns that equity is capable of. It's an open secret that in answering this question, most investors lie to themselves, even if unwillingly.

When an investment is doing well, it's natural to be full of bravado and be sure that you will take any volatility in your stride because you understand the nature of equity and so on. Equity investing seems like the easiest thing and the world, and those who talk of risk and volatility appear to be nervous soft hearts. However, when the markets start declining and the value of your investment starts going down every day, then the answer to that question about risk-taking changes, as it should.

So what should investors do? Should they quit and run (perhaps switching their investment to large cap funds), or should they stick it out? For some investors, if they feel they can't take the volatility, the answer has to be that they should not invest in small-cap funds. However, the right way to approach the whole thing is slightly different. The first principle is also the oldest one, which is diversification. Unless you have found that you enjoy the volatility, small cap exposure not be more than 20 to 30 per cent of one's total equity assets.

However, the high returns that good small cap funds generate are valuable. The way to exploit these properly is not the momentum chasing of the recent past but steady SIP investing over long periods of time. Those who understand the equation  of SIP investing know that volatility is their friend and the frequent drop in NAVs helps to generate higher returns in the long run. Over the last five years, small cap funds SIP returns have typically outpaced their own point-to-point returns by about 5 to 10 per cent per annum. This is true not just of the better funds, but down the line as well. Over this period, a high rated small cap fund (Franklin Smaller Companies) had lump sum (one time investment) returns of 21.5 per cent p.a. while its SIP returns were 28 per cent. The interesting thing is that even a badly rated fund (HSBC Midcap) had lump sum returns of 10.6 per cent p.a. and SIP returns of 21 per cent p.a.!

And that is the real secret of small cap investing, as it is of all equity investing. Stop chasing momentum and stop worrying about volatility. Choose a fund with a decent track record--doesn't have to be even close to the best--and then sustain it for years on end. You'll do very well out of it.

Become a successful equity investor

When buying a stock, you are buying a piece of a company. Here's how you can find out how successful it is and what are its future prospects

Never mind the vision and mission statement of a company, the reason for existance of an enterprise is to compound the shareholder's capital at a reasonable rate. Do that and survive, or fail and die.

An equity investor should understand that when buying a stock, she is not buying an entry into her stock account but a piece of a company. Efforts should be made to understand the company and its prospects for the future. But how do you understand whether a business is successful or not in its endeavors?

As a shareholder, the company in which you invest should be able to compound your capital at a healthy rate. To ensure this, the business should operate in an industry where it feels it has an edge over competitors in order to extract a reasonable return for every rupee of shareholder money it puts to work.

The first aspect an investor should then look at when selecting a stock is the attractiveness of the business. This would involve the various competitive edges the company has such as brand, technology, distribution, and so on. There is one more important aspect that needs to be considered-sustainability of this edge.

India has witnessed reforms since the early 1990s. In the initial phase, India opened up its manufacturing sector and this unleashed global competition on Indian companies. When we compare the end of 90s with the beginning of that decade, we would realise that many manufacturing companies did not survive. Even though many had huge advantages, most of those advantages were good only in a closed economy and could not survive the global onslaught. Today, the domestic services sector, which has been protected to a large extent from global competition, is being opened up. One would assume that if you are investing in a company operating in this space, you would need to be sure that the company's competitive edge would survive in a more open, global environment.

The second aspect of evaluation would be how high the business compounds the capital it employs. Clearly, if one wants high levels of compounding, then it is better to have a small base. The higher the capital employed, the more difficult it is to produce returns sufficient to justify the employment of such a high amount of capital. A good business would be one which can employ low amounts of capital, for it is easy to compound smaller sums of money.

There are various measures used to evaluate this aspect.

One such measure is ROCE (return on capital employed).

This measure is a reasonable one if the debt levels are low. If debt is a significant component of funding, then as an equity holder, the risk of significant economic losses is high. One should remember that as an equity holder, one gets paid last and hence, if there are more mouths to feed before dividends are paid, the higher is the chance that the leftovers will not be sufficient to take care of the equity holder's appetite.

Metrics such as EBITDA (earnings before interest, taxes, depreciation and amortisation) are dangerously inaccurate. Sawing off the profit and loss statement needs to be undertaken with discretion. One wonders which right minded businessman will accept that his fixed assets are "cashless". Yet there is no dearth of reports which state that "depreciation" is not a cash expense. I wonder how exactly peddlers of such a theory expect a business to invest in plant and machinery. Strangely, it also ignores interest cost, which is fine if the evaluator is a lender but not if she is the owner.

Another metric used to show attractiveness of a business is "growth rate". Higher growth rates can mask basic business problems for a while but will rarely be able to reverse the basic economics of business. Warren Buffett frequently points out to the two great inventions of the 20th century-air travel and automobiles-which grew phenomenally but were a disaster to the providers of capital to these industries.

An example here would illustrate the uselessness of the above two metrics. There is one investment which any one can make easily. It has 100% EBITDA margins and one can generate as high a growth rate of earnings as one desires. Yet, it probably will not even beat inflation! This investment is a bank deposit.

Since, margins did not consider the capital employed, it had no use in judging the attractiveness of the "investment". And one can easily increase the amount one earns from a bank deposit by increasing the amount of principal that is deposited. It is fairly common to find such businesses that keep increasing the capital employed to produce growth rates even though the return per unit equity capital is low.

Surely, great economics in a business is not possible if it is not run by competent individuals. And hence, evaluation of management is critical for ensuring the continuation of favourable economics. A good manager would be one who keeps enhancing the competitive edge of the business and would also simultaneously respect the equity holders and reward them appropriately.

Understanding benefits of Systematic Investment Plan

Systematic investment plan, as the name suggests, allows a user to build an investment portfolio with a small systematic investment at regular intervals.

Arun, working with a media company in Mumbai, is worried over his savings. He is about to get married. The only saving Arun has is a small FD, but considering high inflation, it may not be sufficient to take care of the future needs of the couple. Since Arun could not afford a lumpsum investment in any investment vehicles, a financial planner advised him to invest in mutual funds using a Systematic Investment Plan (SIP).

Investing a fixed amount of money each moth suited to Arun as he did not have to worry about creating a corpus to start investing. 

Many investors today use the systematic investment plan to enter the financial markets and taking the advantage of compounding returns in the best way.

Let us look at various aspects of systematic investment and its benefits.

Understanding Systematic Investment Plans:

Systematic investment plan as the name suggest allows a user to build an investment portfolio with a small systematic investment at regular intervals. The investor can choose his or her preferred mode of investment as monthly, quarterly or annually and invest the funds according to his or her convenience. Users of systematic investment plans can choose from various investment vehicles to invest their money including stocks, mutual funds, ETFs and even gold funds.

Advantages of investing using a systematic investment approach:

Investment discipline:

The one basic rules of investing is to always maintain a focused and dedicated approach towards investment.  A large number of people enter the investment markets with a lot of enthusiasm but fail to maintain a monthly investment towards building a regular investment corpus. Investing in a systematic investment plan allows users to maintain a monthly investment scheme which is far easier to maintain in the long run rather than investing a lump sum amount each year. Investing in systematic investment plans must be considered by all investors who are yet to attain an investment discipline allowing them the convenience to invest a pre determined short sum every month towards their future.

Rupee cost averaging:

Rupee cost averaging, also commonly known as RCA is one of the very significant reasons why investing in a systematic investment plan must be considered by almost every investor. Investors investing a fixed amount of money every month towards any investment vehicle allow them to purchase more units or stocks when the price of the investment is lower. This reduces the average cost of purchasing of the financial asset over time. Considering a long term investment approach, rupee cost averaging can even out any market ups and downs in the long term, allowing the investor to gain maximum benefits on his or her investments over a period of time.

In simplistic terms, let us consider an investor is investing a monthly fixed amount in a mutual fund investment plan. Considering the fact that the investor invests the same amount each month irrespective of the market cycle, be it a bull phase or a bear phase, the average cost of investment is eventually maintained at a lower level allowing maximum gains in the long term. Power of compounding:

One of the basic rules of being a successful investor is to start early. Since all investment and returns are based on the power of compounding, an investor starting out early can earn much higher returns than a one starting out late even with a slightly higher corpus. Since  a systematic investment plan do not seek a large amount of investment and users can start investing with a low sum each month depending on their financial condition, it allows them to start investing much early in life.

Let us consider Mr. A and Mr. B and understand how the power of compounding helps the investor using a systematic approach. 

Mr. A started investing in a systematic investment plan investing a sum of Rs. 1000 when he was 30 years old. By the time Mr. A reaches 50 years of age, he would have invested Rs. 24 Lakhs if the money grew on an average rate of 7% per annum. Now let us consider Mr. B who starts out earlier than Mr. A and started investing the same amount of Rs. 1000 from the time he was 20 years old or ten years earlier than Mr. A. Mr. B's investment growing at the same rate of 7% per annum would end up as high as Rs. 36 Lakhs by the time he is 50 years old. So while both Mr. A and Mr. B invested same amount each month, the one starting out early has made a substantial gain compared to the one starting out late.

Investment convenience:

A systematic investment plan as the name suggests is systematic in nature allowing the investor the advantage of investing small amount of money each month without any hassles. The investor can send a onetime instruction to his or her bank to allow auto debit of the investment amount each month from his or her savings bank account allowing systematic investments without worrying about missing out on any monthly investment.

Other benefits: 

A systematic investment plan offers a number of miscellaneous benefits that make investment quite comfortable and an enjoyable experience. One can start investing in a systematic investment plan with a very low amount of Rs. 500 or Rs. 1000 per month. This allows users of all financial backgrounds to invest in capital markets without feeling the pinch of a lump sum investment.

 SIPs also offer a taxation benefit as SIPs are taxed for capital gains on first in first out basis.

How to measure Your risk tolerance

Measuring the risk profile involves a scientific approach. Typically, you need to respond to a set of questionnaire consisting of multiple choice questions. You are supposed to choose answers which closely reflect your attitude towards money.

Risk tolerance is depended on a number of variables such as the investors’ age, her current lifestyle, emotional temperament and investment experience. 

It is measured under three parameters:

·         Attitude to risk: This measures the understanding of the concept of risk and how it applies to life and financial matters.

·         Risk tolerance: This is to understand how comfortable you are with volatility.

·         Capacity of risk: This is the level of financial risk you can afford to take.

Here are a set of questions which you can ask yourself to assess your  risk profile.

1.Which of the following best describes your current stage of life?

·         Employed and independent.         ( 4 points)

·         Employed with one dependent.    (3 points)

·         Employed with two dependents.  (2 Points)

·         Employed with more than two dependents. (1 Point)

2. How secure is your current and future income from sources such as salary, pensions or other investments?

·         Not secure               (1 Point)

·         Somewhat secure   (2 Points)

·         Secured                    (3 Points)

·         Very secure              (4 Points)

3. When you think of the word "risk" which of the following words come to your mind first?

·         Danger          (1 Point)

·         Uncertainty   (2 Points)

·         Opportunity  (3 Points)

·         Thrill               (4 Points)

4. On the whole, which of the following best describes your investment objective?

·         Capital preservation                                                 (1 Point)

·         A regular flow of stable income                             (2 Points)

·         A combination of income and capital growth      (3 Points)

·         Achieve substantial long term capital growth     (4 Points)

5. Which of these investment plans would you choose?

·         Keep money in savings accounts and the remaining in fixed deposits with guaranteed return. (1 Point)

·         Be well diversified i.e. have a mixture of equity, bonds and cash. (2 Points)

·         Simply invest 50% in equity and the balance in bonds.                     (3 points)  

·         Go for the highest return with the highest risk, safety can be compromised. (4 Points)

6. What will you do with your investments if the value drops over a period of time due to market fluctuation?

·         I do not wish to hold on to any investments at a loss and will sell the investments immediately even if the drop in value is small  (1 Point)

·         I will sell the investments if the drop in value is large (2 Points)

·         I will not sell the investments regardless of the drop in value as I would like to wait for the investment to recover in value (3 Points)

·         I will not sell the investments regardless of the drop in value and will buy more to capitalize on the drop in price.  (4 Points)

7. Investment such as cash and FDs come with fixed returns and inflation may cause the purchasing power of such investments to decrease. Other types of investments such as stocks do not come with guaranteed returns. In the short term, their value may even fall below the purchasing price. However, over the long term, the value of stocks may increase by more than the rate of inflation. So, what is more important to you?

·         The value of your investments does not fall (1 Point)

·         It retains its purchasing power                        (2 Points) 

8. Investments can go up or down in value and experts often say you should be prepared to weather a downturn. By how much could the total value of all your investments go down before you would begin to feel uncomfortable?

·         Any fall would make me feel uncomfortable. (1 Point)

·         20%.                                                                        (2 Points)

·         50%.                                                                        (3 Points)

·         More than 50%                                                      (4 Points)

9.Suppose five years ago, you invested in a company which did not give expected returns and the price of the stock dropped drastically. Given your past bad experience, would you invest in the same company if it is restructured with new management?

·         Yes  

·         No     

10. What will you do if you win a lottery of Rs. 20 lakh?

·         Use all the money without saving  (1 Point)

·         Deposit the money in FDs                (2 Points)

·         Invest 40% in liquid and the remaining  in equities  (3 Points)

·         Invest all the money in equities                                   (4 Points)

11. You have won Rs. 10 lakh in a quiz show. Now, you can either quit or play more. What would you do?

·         This Rs.10 lakh was luck. I would take it and quit.  (1 Point)

·         Take a 50:50 chance of making Rs.20 lakh or zero. (2 Points)

·         Take a 20:80 chance of winning Rs.25 lakh or zero. (3 Points)

·         Take a 5% chance of making Rs.1 crore or nothing.  (4 Points) 

After collecting the responses, it is time for you to determine the risk tolerance based on the scores from the answers.

Investor Profile	Score	Description
a.    Conservative	0 -18 points	She is a conservative investor who does not wish to take any investment risk. The priority is to safeguard your investment capital.
a.    Balanced	19-40 points	She is a balanced investor with some understanding of market behaviour. She is prepared to take some short term risk to get longer term capital growth.
a.    Moderately High	41-65 points	She is most interested in maximising long term capital growth, although does not wish to make unbalanced investment decisions. She takes calculative risks for long term returns.
a.    Aggressive	66+ points	She is an experienced or sophisticated investor. She is an aggressive investor with a strong bias towards investments with high growth potential and is willing to accept higher performance fluctuations for long term returns.

The above table does not apply to Q.9