Personal Finance 2.01

 IDBI Bank sold $350 million of bonds due in 5 1/2 years on Thursday at 310 bps over U.S. Treasuries, within its price guidance. The debt traded at 302 bps over U.S. Treasuries on Friday. It has been estimated to have attracted around $1.8 million in orders.

There have been other banks that have sold bonds overseas over the past few months. Which includes ICICI Bank and Bank of India, for $500 million each, Bank of Baroda and Axis Bank ($350 million). State Bank of India’s sale was subscribed 4.8 times and saw a demand from over 350 investors.

Now for those who are new to the terms; Heres a little piece of background information. Bonds are securities. In simple terms it is like a loan. Here the borrower is the issuer i.e. the bank and the lender is the investor that buys the bond also known as the creditor. Depending on the terms of the bond, the borrower is obligated to make an interest (the coupon) payment and/or to repay the principal amount at a later date. The later date is termed as maturity.

As far as IDBI is concerned the maturity is after 5 ½ years. IDBI is considered to pay a coupon higher than SBI because IDBI’s bonds would have a maturity slightly longer than SBI bonds. How is this relation formed??!! ..There is more than just one factor that affects the coupon rate (interest rate) as the maturity time increases.

Let’s take a simple example of a company that wants to borrow $100. It issues a bond that it sells for $100. To attract investors, the issuer of the bond offers to pay $4 a year to holders of the bond, and will do so for 10 years. So, the coupon rate is of 4% and a maturity of 10 years.

There are many risks to the holder of the bond. The best known may be the risk that the issuer of the bond can’t afford to make interest payments or return the principal. But a default, as this scenario is known, isn’t the only risk. There’s another risk also that is interest rate risk.

 Going back to our simple example, let’s say that the day after the bond is issued, interest rates rise to 5%. So if the owner ( lender / investor ) had waited a day, he could have bought a bond that paid 5% a year. That makes the already bought bond less valuable. This is nothing but the interest rate risk as it is related to the risk that the interest rates may rise or fall.

The concept is straightforward: It measures how quickly a bond will repay its true cost. The longer it takes, the greater exposure the bond has to changes in the interest rate environment and other risks involved. Consequently, higher the time to maturity, greater will be the coupon rate (interest).

Coming back to the issue; SBI bonds are rated ‘Baa2’/Stable by Moody’s and ‘BBB-‘/Stable by Standard & Poor’s. IDBI’s foreign currency debt is rated BBB- by Standard & Poor’s and Baa3 by Moody’s Investor Service, the lowest on investment grade. This is another factor that affects credibility and hence the high coupon rate is higher for IDBI bonds.

Statistically, Out of the total percentage of sale; Asia has taken 46%, Europe 4% and offshore US investors include 14%. Asset and fund managers bought 42 percent of the total debt sold, banks 43 percent and insurers, central banks, pension funds and others took the rest.

Bloomberg has reported that the bank’s dollar denominated bonds maturing in five-and-a-half years may have to offer 310 basis points more than the Treasuries. Treasuries are short-term debt obligation backed by the U.S. government with a maturity of less than one year.
This simply means, the risk involved with the investment in IDBI bonds is high, however the coupon rates are also high. Before making an investment, it is essential to consider the tradeoff and see if the bond is suitable to an individual’s portfolio.

With the fluctuations in the currency exchange rate, forex trading seems to be a very attractive market. Foreign exchange trading however demands a continuous monitoring and knowledge of exchange rates.  A country’s exchange rate is dependent mainly on its economic conditions. However, inspite of the risk and time involvement required, trading in the forex market has many benefits of its own. The most important being: superior liquidity, 24 Hrs market, better execution and faster execution at the same time.

Flip side to forex trading is the fact that it’s not easy to make money in this market. Statistically it has been found that brokers believe ; around 90% of the traders lose, 5% end up at only break even while only 5% make a profit. It is very obvious from this that forex trading is definitely not an easy task.

There are reasons for the profits to only 5% of traders. A few of them are listed below;

1. Education: This is an essential factor that governs success and profits. Most of the 5% profitable traders learn the various aspects of trading. A lot of this learning is done through experience. It is good to have a conservative approach towards the market else it could prove you wrong. Understanding the system is also an essential factor involved.
2. Trading psychology:  A winning trader has to understand and accept the fact that every trade has an upside and a downside. There is a risk of loss involved in everything and only this psychology will prove to be a good guideline while trading.
3. Price behavior: This is one of the major aspects. Price behavior has to be understood and estimation comes with experience.
4. Money management and goal: Capital preservation should always be kept in mind while taking risks. It is important to have money in your account if you want to trade and more so ever earn profits.

Trading in the forex market it not an easy task. It is a learning process each time one trades and experience is the best way to earn profits.

There are common assumptions that people make while trading in the forex market. Some traders have an opinion that there is a holy grail of trading. Something like a magic indicator that will make them rich in a very short period of time. In reality there is no such magic indicator. It is very essential to always follow money management goal.  Whether one  has a goal of capital preservation only or capital growth along with preservation is to be accounted for while taking decisions. Not considering money management goals can cause loses and failure in trading.

Underestimation or over estimation is another important factor that should be definetly avoided.

Golden rule: Always consider a risk reward ratio while making decisions.  If you use a RR ratio of 1-2 (willing to make twice the amount risked in one trade) then you only need a system that is right around 50% to make money. If you use a RR ratio of 1-3 (willing to make three times the amount risked in one trade) then you will need a system that is right around 40% of the time to make money. So make sure to use a RR ratio below 1-1.

ISCO is an international stem cell corporation, biotechnology and research , California based company.

International Stem Cell Corporation (OTCBB: ISCO), www.internationalstemcell.com, and Insight Bioventures India Private Limited (IBVI), (www.insightbioventures.in) announced on july 20^th 2010 that they have signed a letter of intent concerning funding and establishment of an Indian affiliate of ISCO (ISCO India). The goal is to establish world-class development and manufacturing operations for ISCO’s research and pharmaceutical products in India, including its Lifeline Cell Technology^® research products and human corneal tissue, CytoCor™, for treatment of corneal vision impairment and testing of chemicals.

IBVI is an experienced biomedical business facilitator with a solid network among Indian corporations, academia and government. In collaboration with Sristi Biosciences (www.sristibio.com), a full-fledged developer, manufacturer and commercial operation and the therapeutic arm of Indian bio industry leader Sri Bio (www.sribio.com), IBVI facilitated the earliest submissions and approvals of the stem cell therapy guidelines of India.

Some of IBVI’s major collaborators include ophthalmology research center and hospital, Sankara Nethralaya (www.sankaranethralaya.org), The Centre for Cellular and Molecular Biology (a federally funded institute run by the Indian government, www.ccmb.res.in), the All-India Institute for Medical Sciences (www.aiims.edu), and the Indian Council for Medical Research (www.icmr.nic.in). IBVI has established a dedicated Biofund to finance novel businesses in India.

According to Dr. Jayaraman Packirisamy, Executive Director of IBVI, “ISCO offers our investors as well as corporate and academic partners a unique combination of Lifeline marketed research products with near-term revenue potential in India, CytoCor with potential to change standard of care for the widespread corneal blindness and vision impairment in India and the rest of Asia, and an opportunity to apply our well-educated work force and industrial grade facilities to develop and manufacture these and other biomedical products cost-efficiently in India. We therefore look much forward to lead the funding and implementation of ISCO India.”

Are you a salaried employee?? If yes, you will get your salary after a tax deduction on it done by the employer. This is called Tax deduction at source (TDS ). The person who is responsible for this tax deduction on payments made to employee is given a tax identification no (TIN ) . If you are an employer your responsibility is to carry out the tax deduction hand handover the form 16.
All salaried employees have to file their income tax returns by July 31, 2010. To do this, it is necessary to have the Form 16 document, issued by your employer. Form 16 gives details of tax deducted and the branch of the bank where it is deposited into the central government account. In simple terms Form 16 gives details about the tax deducted by the employer in behalf of employee. The same will be paid to government by the company

For example, if a TDS of Rs 2,332 and education cess of Rs 68 are deducted from your April salary, Form 16 details the same. It does so for every month in the financial year. It is the final certificate issued by your employer giving details of the salary you have earned and the tax deducted on your behalf.

If you have worked in two different companies in the same financial year, then u must obtain two of Form 16 to file the IT returns.

This certificate is given to you at the end of the financial year, generally by April 30. In case there hasn’t been any TDS from your salary, you just get a salary certificate, and not the Form 16.

There are many other areas where TDS may be applicable like deducing the tax for interest earned by your Fixed Deposit in the Bank. Here bank plays the role of deducting the tax. This again is done on financial yearly basis. The form 16A is used for this purpose which has to be filled and given to the customer.

TCS result has made research agencies bring an upgrade on the stock.
RBS Equities said on Friday that it had raised its target price on the leading Indian outsourcer
Tata Consultancy Services shares to 930 rupees from 900.By doing so, they have reiterated the “buy” rating on the stock.
TCS has had a 8 percent volume growth which has been similar to that of Infosys. This indicates strong demand and the stock will eventually see an up lift due to earnings upgrades and the valution results.

It was late on thursday that TCS announces that they were facing a strong demand after posting a better-than-expected 21 percent rise in quarterly profit.

JPMorgan has also raised price target for India’s TCS
JPMorgan said on Friday it had raised its March 2011 price target for leading Indian outsourcer Tata Consultancy Services to 915 rupees from 850 earlier.
TCS is our top pick among the large-caps in the Indian IT sector, JPMorgan said in a note.