A good lesson for investors

A Very Good Story for Investors

This is a wonderful story which I have come to know from one of my fellow advisor, and it is the story of Chinese bamboo, which I think I must share with you. 

Unlike other trees, growing Chinese bamboo requires lots of time and more of passion.  It takes 5 years and 3 months, that is almost 63 months for Chinese bamboo to grow to the height of 80 feet. So, what’s so unique about this tree?  It’s very good for any tree to be grown to 80 feet in 5 years and 3 months.  

The height to which Chinese bamboo tree grows is not unusual, but the way it grows is very unusual. As for almost 5 years you keep watering the place where you have planted the seed of Chinese bamboo on daily basis without fail, but you don’t see a hack growing out of the soil. 5 years of watering and passion!!! Huh!!! That’s long time. Still during all this time, you see noting but just a small sprout coming out of land which can be measured to couple of inches if you are lucky. In many cases nothing’s visible above the ground for 5 years. After 5 years you can see the first sight of the green small bamboo trying hard to coming out of soil, and that small Bamboo which gave its first appearance after watering the soil for 5 years, grows to 80 feet in less than 90 days. Yes, it’s true. 
 

 

Sometimes the waiting period fluctuates from 4 to 6 years, but the sure thing about the Chinese bamboo is, it’s definitely going to start growing and once it starts growing the speed is definitely going to be unusual. It definitely will reach the height of 80 feed from ground zero, which is equal to the 8 storied building, in the small period of 6 weeks to 12 weeks.

There are great chances of person quitting the idea of growing Chinese bamboo due to the long waiting period. Everyone can find the soil and plant the seeds and also can start watering it, but when it comes to waiting, sooner or later many drop the idea. Only few who keep watering the soil consistently with full faith, can get the 80 feet high bamboo tree. 

Equity investment is also like growing Chinese bamboo tree. One should have passion after planting the seeds. All know that the Chinese bamboo tree takes a time to start growing but once it starts it grows rapidly to the 80 feet. The same way, in case of equity investment also we all know that after investing you should wait for long time but in practical world very few have got that passion to wait.  

You do your own homework or take an advice from someone regarding the best equity stock or equity Mutual Fund scheme. Then you plant your seed of investment by opening up the investment account and start investing into the equity and wait... and wait.... and wait. You are very discipline in watering the plant of your investment seed with the regular investments. Neither market nor your investments are moving anywhere, on the other way it starts falling and eating away the value of your money. You still wait... And wait. Oh sure, you have been told by people that it takes while to grow your money into equity and you are also ok with that. Because you believe “waiting for while is surely going to pay you the premium”.

Year one is over and you are entering into the second year.  You are still watering but started being a little bit of sceptical about the power of your investment seed to grow. You continue to wait and keep on reading and researching about all possible and so called temporary negative factors which are stopping your investment to grow to great heights. Though you have earned nothing, you are a man of persistence and not prone to giving up. But seeing no result is making you to doubt about the power of equity investment. Anyways, you have heard about so many other success stories about many successful people who also invested into the same market and made their fortune. So you kept on watering your seeds by regular investing  your saving into it.

Now, it has been three years and you started wavering and doubting about your choice of investment seed. Some voice inside of you have started telling you that you are a special kind of a fool to believe into the something which was too farfetched. You start thinking about other possible seed which you might have planted instead of equity. You really feel being fooled when someone tells you that they are earning a great fixed income starting from day one by investing into the fixed deposit. You wonder why you had to pick up an equity investment only. You start losing sight of your purpose and your faith starts to diminish…You decided to re-commit yourself for the entire third year. 

Now you’re entering into the fourth year. You are becoming more disillusioned and are experiencing a deeper sense of doubt, regret, frustration and anger. You started wondering,

“Is it when I invested was a wrong time?”
“Perhaps, my Luck isn’t strong enough for my investments to grow.”
 “Could it be that I am hanging out with crazy people and who are lying to me?”
“Am I just too proud to accept defeat and nothing is really going to come out from this?”
“This couldn’t be my fault… my investment advisor gave me wrong advice.”

You were going crazy, because you’ve already spent a lot of time and invested a lot of money. So after the years of lot of dedication and effort toward this investment, you have decided to give it a chance for one last more year. 

It’s a whole lot of 5 years wasted on investment account with regular watering by keep on investing into it every month, but alas!.... nothing happened. So you decided to QUIT. And you withdraw your money with no or little profit which is less than the interest of bank fixed deposit.

The day you QUIT, the equity market starts taking small upward leaps, and you wonder what’s happening. Within couple of years the bamboo of your equity starts growing rapidly and grows to the newer height but unfortunately you couldn’t get anything out of it.

Equity is just like the Chinese Bamboo, it’s possible that it doesn’t give you any return for years but then in very small period of time it starts growing with the unusual and unbelievable speed which eventually you compensate for all your dedication, passion and faith.

Looking at the history of the Indian market, whenever it has not moved upward for few years, it is always followed by a strong bull run that too in very fast speed. Take an example of the period, starting from Feb 2000 to December 2007. During this time the Indian equity market delivered the return of approx 240% absolute (Sensex went up to approx 20.5k from 6k). But if someone entered into the market in Feb 2000 and kept on investing for some time would surely have got frustrated, as after almost 4.5 years, market gave no return. The Sensex was trading at near to 6k in Feb 2000 which went down to 2600 and again in Nov 2004 it came back near to 6k. Now the time of 4 and a half year is long time, isn’t it?

Many of the investors left the train in between and thought of it as a worst mistake to invest into the equity market. But after 2004 it started its nonstop journey and in next 3 years it grown to 20k PLUS. Equity market gave approximately 240% absolute return in span of 7 years, but to get those returns, one has to plant the seed and wait for 7 years. Wherein, for the first 4.5 years, returns were either not present or negative.

Now let’s compare someone planted the seed into the December 2007 itself and waiting till now he has not seen any sign of investment tree growing.  There is no sign of return (Bamboo) so what? It’s definitely going to start sometime in near future, once it starts the speed will also be definitely UNUSUAL.

Be faithful and keep watering your Chinese bamboo tree.

(This article has been contributed by a fellow financial advisor Mr Jigar Parekh from Prudent CAS Ltd, Ahmedabad and it first appeared in www.wealthforumezine.com on August 03, 2013)

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Why Jim Roger so negative on India..?

Why Jim Roger so negative on India ?

Hedge fund manager Jim Rogers, who moved to Singapore in 2007 because he thought the centre of the world is shifting to Asia, says India is set to miss out on the Asian century. The chairman of Rogers Holdings says that if there is one country an individual must visit, it has to be India for its “spectacular sensory feast, beautiful, food, colour and religions”, but it is also the worst country to do business in. Rogers also slammed the Indian government’s recent curbs on gold imports, saying Indian citizens had no choice but to buy the metal because they had very little faith in investing in other sectors of its economy. In an interview, Rogers spoke about the financial crisis and his bets for the future and defended his decision to be extremely negative about India in his just-released book Street Smarts: Adventures on the Road and in the Markets. Edited excerpts:

What lessons have you learnt from the financial crisis that started five years ago and how has your investment mantra changed since then? Can you tell us how your portfolio has changed over the course of this crisis?

Governments and central banks have reacted to the crisis in what they view is the correct manner, but, in my view, it is an artificial manner, and they are only making the crisis worse. The reason it is stretching out as a problem is that they never let the problem cure itself.

For instance, in 2001 and 2002, there were economic problems in the world and they hurt, but they were not that bad. The next one came in 2007-08 and it was much worse because the debt had risen by then. Central banks, especially the American central bank, started printing money and everything felt better for a while. Then the problem came again and central banks led by the Americans, and governments led by the Americans, again ran up even more debt and continue to do so. Many of us feel better, especially the ones getting the money, but, overall, it is worse now and the situation continues to deteriorate because the debt is so much higher now. The next time we have a slowdown, it is going to be a lot worse. In America, the debt quadrupled and a lot of it is garbage—we are floating on an artificial sea of liquidity, and it is wonderful if you are in the right boat.

Problems always come no matter what governments say and we have always had slowdowns in America after every six or seven years even in good times. Be very worried because the next time around, things are going to be much worse, especially in countries where the debt is much higher. In the 1920s and 1930s, the centre of the world moved from the UK to the US, primarily due to financial problems and mistakes made by the politicians. The same thing is happening now, and the centre of the world is moving from the US to Asia, exasperated due to the financial crisis and mistakes made by politicians. In the 1930s, US was a creditor nation, but it suffered badly, but not as badly as some of the European nations. Asia will suffer the next time around, but the West will suffer even more. I would rather be with the creditors than with the countries (that) have huge debts.

Any new reasons why you are shorting India? Have you ever invested in India?

I used to own tourist companies in India at a time. India should have had the greatest tourist companies in the world. If you can only visit one country in your life, my goodness, it should be India—it is an astonishingly spectacular place to visit. There is no place that has the depth of culture that India has. Yes, I have new reasons to short India—just read its newspapers everyday and you will see why.

The government goes from one mistake to another—no matter what the controls are, no matter how much the debt keeps rising, Indian politicians are only looking for scapegoats. Look at the latest thing with gold—Indian politicians want to blame the problems of their economy on someone else, and now it is gold. Gold is not causing India problems, but it is quite the contrary. Exchange controls in India are absurd, the regulations that India puts in place result in foreigners going through 70 loops before they can invest in India. Foreigners cannot invest in commodities in India.

India should have been among the world’s greatest agriculture nations—you have the soil, the people, the weather, but it is astonishing that you have not become one—it is because Indian politicians, in their wisdom, have made it illegal for farmers to own more than five hectares of land. What the hell—can a farmer with just five hectares compete with someone in Australia or Canada? Even if you put together the land in all your family, it is still not possible to compete. Much as I love India, I am not a fan of its government. Every one year, they (Indian government) come up with more reasons for me to be less optimistic about that country.

Do you think India’s democracy is a problem to its success?

I can only make some observations. Japan, Korea, Singapore, China were all one-party states and, in some cases, were very vicious one-party states, but, as they became more prosperous, their people wanted more, demanded more and got more democratic, and they say this is the Asian way.

Greek philosopher Plato in The Republic, says that societies develop from dictatorship to oligarchy to democracy to chaos and then back to dictatorship. Chaos develops out of democracy. This seems to be what is happening in some of the Asian countries.

In the Soviet Union, they did the opposite—they said we will open up and let all people complain and they did. The people there were poor and they complained about being poor and hated the government. When South Korea opened up, the people were rich and they decided to get rid of the government without ruining the place. Taiwan did the same. Democracy being a problem may have credence in some Asian countries. But, I am not sure if India has been really a democracy in the true terms—from 1947 onwards, the opposition has had just one full term at the centre. The first five decades of its democracy, the centre has only seen a government led by a single party.

Power corrupts. Singapore was lucky. There has been plenty of criticism of Singapore’s (founding father) Lee Kuan Yew, and some of them are probably valid, but look at the results. Congo had a dictatorship for a long time, but has nothing to show for it. Singapore had a strong central government and look around you—I did not move to Congo, but I moved to Singapore. So it can go both ways.

In 1947, India was one of the most successful countries in the world relative to others. Even as recently as 1980, India was more successful than China, but then you know how that story turned. It was more successful than South Korea, more successful than most places in Asia—but, for me, it is unfortunate that you have failed to take advantage of some of your most valuable assets. India has some of the smartest people in the world, but it does not have an education system to support it. Infrastructure is equally poor. So, I don’t know if India would have been better without a democracy, and some of the greatest periods in history have been without democracy. But these are just my observations, and it is the Indians who must decide what they want.

What do you think should change in India for it to attract investments? There are several multinationals that have been successful in India despite all its policy and regulatory uncertainties. They have adapted and changed their business practices to suit India.

Yes, but on the other hand, there are not many successful Indian companies, outside those that are associated with the government. Look around in Singapore and you don’t see many Indian products, except for some restaurants. There are very few Indian brands that you would recognize outside India.

In India, many of its companies are successful because of their links with the government. Apart from a couple of software companies, I literally cannot think of Indian firms who have made it big in the international scene. But there are many Japanese, Korean, Chinese, Taiwanese companies that are very big globally. All Indian companies that are successful there are because of their relationship to the government.

If I were an Indian politician, I would make the country’s currency convertible tomorrow and stop deficit spending this afternoon. I would take a chainsaw to government spending as you continue to run up debts, I would free up the economy, especially agriculture, to make India the greatest competitor in this sector. You know, to open a retail outlet in India, even for Indians it is so tough—but for foreigners, it will take years in the current system. You keep companies out of India citing national security—just go to China and there are foreign companies everywhere.

There are millions of entrepreneurial, driven and smart Indians, but most of them want to be abroad because they know that unless they are involved with the right people in India, they are not going to be successful. Fewer than 50% of Indians stay in school till their 12th grade . How many universities are there in India—nothing when compared to the population! There are very good Indian universities, but they are nothing compared to the qualified Indians who need good education. One reason you see so many Indians going abroad is to compete or to get education. It would be such an exciting country to do business, if it were opened up. Historically, it has been an economic power and I would try and restore it to that position. Oxford and Cambridge can fill up all their seats with Indians who would pay their own way.

In your latest book, you have been critical of the numbers put out by the Indian government. I’ll quote from your book: “All growth rate figures are unreliable. It is stupefying to me that India could claim to have a clue to what is going on even in India, much less in China or in the US” or “When it comes to growth rate, Indians base their numbers on what China is reporting, making sure that theirs are better than, or at least in line with, China’s”. But, institutions in India are pretty strong and the numbers, be it GDP or any other put out by the Indian government, are considered to be largely reliable.

All government numbers are suspect. Last week, the US government revised its economic statistics and added a whole economy bigger than the Swedish economy—so America just went up a level in a week because they revised the numbers. I don’t trust what any government says. The Soviet Union used to have great numbers, but they were all made up in offices in Moscow.

I was not just picking on India, but using it as an indicator. If you go back over the last few years, you will see the Indian economy, as per the numbers its government has put out—some of the numbers its government has projected—are comparable with those of China. Then you go see both countries and you’ll realize something is wrong. If India’s growth over the last couple of years was comparable to that of China, where are the schools, the highways, the infrastructure, the housing, where has it all gone?

I was using this to state that we should be very careful about what governments tell us. In one of my books, I’ve come down hard on Germany—the Germans who were supposed to be hardworking and disciplined were also found to be making up some of the numbers they had been reporting related to job creation.

Where is gold headed? When is the good time to buy it? Of late, India has taken a slew of measures to curb its import. Many say that if India were to steeply reduce its import of gold, it will be able to alleviate its current account deficit, which, in turn, would help its economy get back on track?

It is a great question because I too am fascinated with gold and I do own gold. Gold went up 12 years in a row, which is extremely unusual, and there has been no asset in history that has seen something like this. The anomaly in the gold market is how strong it has been—it has never happened ever—technically, gold was overdue for a big correction. But the correction should be different from most corrections because the rise was so different from most rises. I was expecting it to decline and it has.

In my view, the main reason for the correction, other than the fact that it needed it, was on account of Indian politicians who suddenly blamed their problems on gold. The three largest imports to India are crude oil, gold and cooking oil. Since they can’t do anything about crude and vegetable oil, the politicians said India’s problems were because of gold, which, in my view, is totally outrageous.

But like all politicians across the world, the Indians too needed a scapegoat. Is this the reason why gold started correcting? I don’t know. But, India is the largest importer of gold, and whenever the largest buyer cuts back, there will be a correction, whatever is the commodity. The correction may continue for several more weeks, months or even a year or two. A 50% correction is common for commodities, but if gold were to correct 50% before it made its final bottom, that would be between $900-1,000.

In my view, gold is in the process of making a complicated bottom that will last a while. I hope that I am smart enough to buy more near the bottom because gold will go much higher over the next decade, because as I had said earlier, governments across the globe are making mistakes of printing money. When gold went to $1,200, I did buy more. But don’t sell your gold. I am not selling my gold.

If India curbs its gold imports, will its economy be back on track? There is no question that if you have money, it is better to invest it than put it into a stagnant asset—according to this argument, women should not buy dresses or shoes, or we should not be buying houses...the one billion Indians are smarter than the market and also the government. If they see that they are better off putting their money in gold, that is what they will do—the solution is not a ban on gold (import), but to make the economy exciting enough to make people want to put their money into other things. That will be better for the economy, but this is putting the chicken before the egg or the cart before the horse.

In the BRICS (Brazil, Russia, India, China, South Africa) countries, the rising middle class appears to be angry with their respective governments and have been demanding changes, reforms and better living standards. Governments of most BRICS countries—including India and Brazil—are confronted with the youth taking to the streets in protests. Do you think this can derail the emerging markets story?

It could derail, or it could open-up these countries further. If the billion plus people in India demand more and say the current system that is going on since 1947 is absurd, then it might make India a whole lot better. Compared to many of the countries globally, India was on top in 1947, but relatively India has only declined since then. Remember that you move from dictatorship to oligarchy to democracy to chaos—may be they will throw out these absurd oligarchs who rule India and then it may have a vibrant democracy and regain its proper place, its historic place in the globe.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Investment Behaviour

Second level thinking of Investments

This month I was busy with some seminars and investor awareness programmes and taken some vacation with family. I have realized after meeting the investors that there is a lot of confusion in their mind. As a member of adviser community it is our responsibility that to educate the investors about changing scenario about financial world. Today, I am sharing some parts of an email got from founder of Safal Niveshak, Mr. Vishal Khandelwal. I think it is very useful for every investor.

Here is what Howard Marks writes on investing defensively in his amazing book The Most Important Thing…

When friends ask me for personal investment advice, my first step is to try to understand their attitude toward risk and return. Asking for investment advice without specifying that is like asking a doctor for a good medicine without telling him or her what ails you.

So I ask, “Which do you care about more, making money or avoiding losses?” The answer is invariably the same: both. The problem is that you can’t simultaneously go all out for both profit making and loss avoidance. Each investor has to take a position regarding these two goals, and usually that requires striking a reasonable balance. The decision should be made consciously and rationally.

Here is what Ben Graham wrote in The Intelligent Investor…

“The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom.”

The ironical truth about investing is that, despite hundreds of rules that guide the practice of being an investor, there is no rule that works all the time, and in the same manner.

Investing is, after all, not like a game of football where the ground and the ball remain the same throughout the ninety minutes of play. It’s more like cricket where the pitch changes its behaviour with every new ball, and the ball changes is shape every time it’s bowled.

So, when you are an investor, the environment in which you play isn’t controllable, and circumstances rarely repeat exactly. What’s most important then is how you behave when others are behaving oddly.

One of the best tools to think and behave better in investing is what Howard Marks calls the “second level thinking”. Here is how Marks explains it in his book The Most Important Thing…

·   First-level thinking says, “It’s a good company; let’s buy the stock.” Second-level thinking says, “It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.”

·   First-level thinking says, “The outlook calls for low growth and rising inflation. Let’s dump our stocks.” Second-level thinking says, “The outlook stinks, but everyone else is selling in panic. Buy!”

·   First-level thinking says, “I think the company’s earnings will fall; sell.” Second-level thinking says, “I think the company’s earnings will fall less than people expect, and the pleasant surprise will lift the stock; buy.”

In other words, first-level thinking, as the name suggests, is what comes to our mind first. And given that our mind is searching for simplicity, in most cases, this kind of thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority, like in investing).

In essence, if you wish to perform better than the rest – or in other words, perform better than average – your thoughts actions, expectations, and portfolio have to diverge from the norm.

Most importantly, you don’t have to be just different, you also must get it right…not 100% of the times, but it’s good to aim for a distinction…that is 75%. And for that, you need to practice second-level thinking.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Traditional Plans V/S ULIP Pension Plans

Traditional Plans V/S ULIP Pension Plans

I have read very useful and interesting article on insurance in Business Standard daily and I want to share it with all of my reader. It is very useful for all of you.

Pension plans of insurance companies should carry a warning---when it comes to retirement planning, these are more expensive and don't offer the tax benefit of instruments such as Public Provident Fund (PPF) and National Pension System (NPS). PPF is exempt from tax at the investment, accrual of interest and withdrawal stages, while NPS is cheaper (the commission paid to fund managers is just 0.25 per cent).

In the case of pension plans from insurance companies, the annuity paid is taxed at the hands of the policyholder. And, the commissions and charges are higher than NPS. But if you have invested in PPF and NPS and still want to save for retirement, you could consider pension plans. These help you accumulate savings and build a retirement corpus. A third of this corpus is commuted, meaning it is paid to you on maturity. This amount is tax-free. The rest is used to give you regular income through an annuity plan; this income is taxed.

By providing a tool to accumulate and invest your savings, these plans give you a lump sum on retirement, then used to get regular income through an annuity plan. Given the high cost of living and rising inflation, employer pensions alone aren't sufficient.

Within pension plans, there are unit-linked and traditional ones. The basic difference between the two is the kind of instruments these invest in. So, how does one decide which is best for him/her?

Traditional plans are more oriented towards investment in debt funds, as these have a certain guaranteed sum assured for policyholders at the end of the tenure. "A major part of their investment, about 60 per cent, is in government securities. That is why it may not be possible for a traditional plan to give returns that beat inflation," says Prakash Praharaj, founder and chief financial planner of Max Secure Financial Planners.

In the case of a unit-linked or market-linked pension plan, a policyholder can choose the investment limit he/she wants for equity investment. But market risks are involved, as the investment is linked to equity markets. "If you are starting your retirement planning early, you could go for Ulip (unit-linked insurance plan) pension plans, as these would give better returns. Traditional plans wouldn't give very high returns because of the cap on investments prescribed by the regulator," Praharaj says.

According to Anuj Bhagia, chief marketing officer, Policybazaar.com, Ulip pension plans are preferred. "They allow the policyholder a choice of funds, along with investment in equities, which helps in faster accumulation of funds with growing markets," he says.

Ulips also give the policyholder an option to switch between the investments (debt and equity) three to four times a year. But this would help only if a policyholder understands the market risks and is able to switch at the right time.

According to Insurance Regulatory and Development Authority guidelines, both traditional and Ulip pension plans have to provide minimum guaranteed returns, as these are aimed at building retirement corpuses. Traditional plans guarantee a minimum sum assured, along with bonuses, if any, while Ulips provide a minimum guarantee of about 4.5 per cent.

"Ulip plans go through the vagaries of the stock market. So, the returns may not be as high as expected, while traditional plans, with their debt outlook, are a more trusted partner, though these have slow wealth accumulation. Therefore, as an investor, I need to know what product I would want to purchase, according to my appetite," says Bhagia.

As bonus is discretionary, not mandatory, customers choosing a traditional plan should look at the past record of companies in paying bonuses, says Sanjay Tiwari, vice-president (strategy and product), HDFC Life. The company offers both Ulips and traditional pension plans; there are sets of customers for both.

Another advantage of Ulip plans is the option to top-up or increase your investment. This could help inflate the investible amount, which, for a pension plan, is beneficial to build the overall corpus through the long term, Tiwari adds. For a traditional plan, there is no such option.

Amitabh Tapadar, chief marketing officer, Tata AIA Life Insurance, says while equity gives better returns through the long term, according to the new regulations, insurers have to give a non-zero guarantee, even on Ulip pension plans.

Therefore, there are chances companies offering Ulip pension plans would also invest substantially in debt market, as the equity exposure is limited. Hence, their returns might be less than in the case of pure equity investments.

In terms of costs, Ulip plans score over traditional ones, owing to transparency. Traditional plans are cost-heavy and opaque, unlike Ulip plans, for which all charges are confirmed to the consumer upfront. But a few insurers charge a guarantee fee for Ulip plans.

One should check these before purchasing a plan, Bhagia says. Customers should also look at the history of the insurance company, in providing annuity service, as it is now mandatory to buy the annuity from the same company one buys the pension plan from.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

CTS-2010 Compliance for cheque

Do you know about CTS – 2010 compliance..?

The 31st July, 2013 is approaching. Check your bank cheque book once, whether it is CTS-2010 compliant or not.  CTS stand for Cheque Truncation System.  From August 1, 2013 CTS – 2010 would be implemented. The existing cheque without CTS-2010 compliant would be invalid from 1st August, 2013. RBI has issued following guideline about CTS compliance:

·         Cheque printer details along with CTS-2010 mentioned (on the extreme left hand side, near the side where you detach a cheque leaf from the cheque book)

·         Bank’s logo and details

·         VOID pantograph (just below where the account number is mentioned)

·         Rupee symbol " " (where the amount in figures needs to be written)

·         Signature space indicator mentioning "please sign above".

If your cheque book does not reflect the aforementioned details you must obtain a new CTS complied cheque book at the earliest, and surrender the non-compliant one to the bank.

The customer, who have deposited non-CTS cheques as post-dated cheques (PDCs) for EMIs or SIP purposes to a finance company, MF houses or banks will have to replace these with the compliant ones for installment after 31 July. The non-compliant cheques will not be honoured by banks and will amount to non-payment and default on the part of the customer.

These guidelines has issued by RBI for better service to customers. Now onwards the physical movement of cheque will stop and only scan image with some information would be used for clearing the cheque. The new system certainly will speed up cheque clearing process and reduce the clearing related fraud. After implementation the CTS compliance, the cost would also reduce.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com