Disadvantages of SIP

A few years back ULIPs were market’s favorite investment option. Everyone wanted to invest in ULIPs and ULIPs for income tax (IT) savings were quite popular. All financial experts used to recommend it and agents used to call unsolicited, selling ULIPs like hotcakes. They sold ULIPS in one city while sitting in another, using phone to communicate and courier to send and receive documents. Even I got a call from a salesperson selling Reliance Life plans and her promise was: you deposit Rs 30K for 3 years and at the end of the period, you will get back Rs 1.2L; apart from saving taxes! That was a very good return and I was anyway looking to invest some amount for tax-saving purpose, so I subscribed to the plan. When I received the document, the company had clearly mentioned that I could return back the policy/plan within 10 days if I didn’t like it after going through the detailed terms and conditions. I wanted to take a chance, so I went ahead. And today after 3 years, the net market value is no more than half the principle.

The problem with ULIP was that there was a large initial allocation to economically wasteful accounts (for the investor), like to the broker, the agent, etc. Did the financial experts tell us about it? No. But by the time investors found out the hidden truth about ULIPs, the financial experts too became prudent and started speaking against ULIPs. Thanks to the government intervention which has taken the shine off from ULIPs. But till the time investors didn’t know about it, no financial expert thought it his or her duty to tell the fact in the open.

And now, is it happening the same with the SIP?

SIP, or the systematic investment plan, is being touted today as the best investment option. The logic is simple: since market goes up and down, it is safer to invest in small amounts over the long term rather than in bulk at one go. SIP has less risk, as they say. But the question is: will SIP give me higher returns? (Higher than other options available to me?)

If SIP avoids the high risk associated with lump sum investment, doesn’t it also avoid the opportunity along with? For example if I know that the market would move between 16000 and 19000 and the market currently is at 16500. I would like to invest more at this point of time. 2 months afterwards when the market is at 19200, I would know that I am at the top of the curve and would like to sell and book profits and I won’t like to invest more. But through SIP, you would be forced to invest even at these high rates! And after one more month if the market comes down to 18000, all the profits you made while investing at lesser rate gets wiped out and adjusted by the losses made by investing at the time when the rates were high. Anything that is equity linked runs an exact risk like this in the long term. I don’t see the point in making 20K profit for the first 6 months of the year and then making 15K loss in the next.

If market keeps growing, say for a period of 2 years, you shall make less money through SIP than through lump sum investment. Also, SIP doesn’t take our financial wisdom into account. If the market is too low, I would like to invest more. If the market is too high, I would like to invest less or none. But in SIP, you keep investing whether the market is high or low; it doesn’t give you the flexibility which could have been more financially rewarding for you.

I think SIP is good for the finance and share marketing companies. It gives them a constant business, de-risking them from the ups and downs in the market. Even when the market is at sky’s top and everyone knows it will come down, there will be people putting money in, thanks to the SIP plans. SIP makes sure that the brokers and finance companies never get out of fashion. Also, the fixed elements of the cost when users place orders, like stamp duty or brokerage etc, would be higher if we place 100 small orders, when compared to place one big order.

I think SIPs are not the best investment option available to us. It may be a structured and disciplined way to invest, but I think when it comes to money and finances, flexibility helps and a straight line rigid method harms our chances (of making more money). For a lot of investors RDs and FDs are still better option due to risk free growth and for those who can take up some risk, lump sum investment gives much better returns. SIP in my opinion needs better evaluation from the investor’s point of view while for the brokers and financial advisors, SIP would remain the best recommended option because of their own self interests. We need more number of honest evaluations to come out in the open whether SIPs are really the best option for the investors, or if these have been tagged so for milking more money out of investors, just like ULIPs.

- Rahul

Note: The views expressed are entirely personal and don’t express the views of any person or organization associated with the author. The author has taken care to maintain the facts mentioned in the article to be true, but there can be non-deliberate errors and mistakes.

Are Temple Donations Charity?

While visiting temples, I think most of us would be dropping some money or some coins in the hundi or cash collection boxes. We would also offer some coins (dravya) as part of our offering during worshipping the deity. Bigger temples display written notices directing the devotees to drop money only at the designated places. I guess at some point of time all of us would have wondered if such donations to temples are worthwhile. Some of us might be thinking that it is a waste of money and it goes to the overfed priests. I think there can be a serious misconception and lack of awareness if our views are on these lines.

Bigger Hindu temples carry out a lot of social welfare activities. For example, the list of social welfare work being done by the famous Tirupati Mandir consists of:

·         Giving free medical treatment to the poor

·         Maintaining shelters for poor

·         Home for treatment of leprosy patients

·         Free boarding, lodging and education to orphans and destitute

·         Training center for handicapped people

·         Schemes to conserve underground water and rain water

·         Planting saplings and developing forests

·         Protection of cows

·         Preservation of temples and religious symbols

References: [Link1] [Link2] [Link3] [Link4]

Similarly, Mata Amritanandamayi Math carries out a host of social welfare activities including:

·        Homes for the Homeless (Amrita Kuteeram project to build 100,000 homes for the poor)

·         Free monthly pension for the poor

·         Prisoner Welfare

·         Tribal Welfare programs

·         providing free legal services to the poor

·         Mass Marriages of impoverished couples

·         Free food and clothes to the poor

·         Care Homes for the Elderly

·         Running Orphanage

·         Vocational Training & Self Help Groups

Reference: [Link1]

While bigger temples carry out a lot of social work using the money received through donations, a lot of bigger Hindu temples are actually managed by the state governments. In such cases, the money collected in the temples is also spent on developing infrastructure of the cities and areas around it. For example, you can read about how Shirdi Sai Baba Temple funds are being used by the state government for infrastructure development projects like building roads, footpaths, and parking places. [Ref1] Although this is a controversial topic whether state governments should take temple donations to carry out work which they are supposed to do anyway. [Ref2] In my opinion, government’s control over Hindu temples is undesirable and it should be decontrolled over time. (Though the current trend is just the opposite.) Until the decontrol happens, even if the governments take a big portion of temple donations for other work, if there are lesser donations the actual money left with the temples to do social work would be lesser and hence our donations are needed to maintain the current running set of social welfare activities.

Smaller temples depend hugely on donations to maintain themselves and to cover expenses like regular puja, cleanliness, security and infrastructure maintenance. In my opinion, we should donate more at smaller temples than at the bigger temples because of this reason.

If we look at the historical account too, the need for funding our temples is very genuine. For centuries during the Islamic invasion of India, temples of all sizes were destroyed and desecrated by the barbaric forces. Somnath Temple is a classic case, but such cases are scattered all over India, especially the Northern part. Almost all major temples were attacked. The Ram Temple at Ayodhya is a recent example where the court had to rule out the inconvenient fact that there was indeed a Ram Temple at the site of the Babri Masjid. Over a thousand years of foreign rule left our temples in pitiful state. Therefore there was a severe need to start rebuilding our temples post our independence. There have been some extraordinary efforts in this area by the Birlas who built Birla Mandirs in all major cities and institutions like ISKCON who have built world class temple complexes. I think we need more number of grand temples of the scale of Akshardham or Somnath Temples. I think we should therefore definitely fund construction of any new big size temple.

Apart from making new temples, there is a serious need to develop the infrastructure of existing temples. Every year we hear some stampede or calamity at the crowded ancient Temples which were not designed for so much rush. How else will they be able to make better arrangements, than by using our donations?

Now coming to the question if such donations are charity? Why not? Charity is defined as “The voluntary giving of help, typically money, to those in need”, or “benevolence or generosity toward others”. I think without doubt our donations at Hindu temples can be counted as charity. It is a charity towards causes which are both noble and in dire need.

Looking from all positions I think we should continue donating some money at the collection boxes of our temples.

- Rahul

Infosys: Building Tomorrow’s Enterprise

Our generation (those born in the 80s) grew up seeing this strong tagline for Infosys:

“Powered by intellect. Driven by values.”

This tagline was so strong and impactful that it generated a high feeling in the audience immediately. It also gave the employees and the associates a matter of pride and a challenge to make this self-assertion true; every single day and hour. But many felt that this tagline was “inward focused” – to which even I agree. It strongly proposed what Infosys stood for, which was very inspiring in the company’s initial years. I am sure this tagline shaped the way Infosys grew up in the earlier years.

After the above slogan another brand positioning statement came which told where the company was heading to. It said:

“Win in the Flat World.”

This new tag was outward focused. It told about how Infosys can help its clients win in the ever globalized world. It told that the company was in touch with the latest technologies and skills which will enable “winning”. I think this new line put Infosys in the league of world’s best companies and gave the Infosys brand an international feel.

And then, the present tagline has happened:

“Building Tomorrow’s Enterprise.”

The new visual brand identity is here:

This journey is captured in the below description which a TOI article quoted Infosys COO SD Shibulal saying:

Infosys 1.0: (First 20 years):  focused on developing and managing technology applications for customers and on building a global delivery model.

Infosys 2.0: (Next 10 years): developed end-to-end service capabilities, systems integration capabilities, and added consulting and innovation expertise.

Infosys 3.0: (Now and onwards): To be at the intersection of the client's business and technology and of global trends, and use the knowledge and expertise to help them transform and move into new directions.

And hence, "Building Tomorrow's Enterprise" makes perfect sense!

I think the above tagline is a perfect brand-positioning for Infosys. It also is an appropriate one given the legacy of Infosys brand positioning statements. Also, it is an honest one, given that the company is focused on breaking away from linear business model where business growth is proportional to new human resources hiring and is aiming towards more consulting and business transformation projects. I am sure the new brand identity and positioning statement are perfect and will be helping Infosys in its 3.0 journey.

- Rahul

PS: The views expressed here are entirely personal and do not represent the views of any organization or firm. There is no associated claim of 100% factual accuracy of everything that is written in this article, though care has been taken to avoid any error or misrepresentation.