04 KALEIDOSCOPE ERGO Monday, May 18, 2009

Ask your query

I recently got a call from a bank saying that I have been ap-
proved a loan of Rs. 4 lakh because of my credit card usage
track record. I never applied for a loan, so is it a hoax call? If it
is true, shall I take the loan?
Indu S. V, Texas Instruments
Dear Indu,
What you have received is a pre-approved loan. It surely is
not a hoax call. But, you need to still verify whether the person
who called you belongs to a bank or not.
Do not give out any personal financial documents before you
confirm the antecedents of the person whom you meet or give
your documents. As for whether to take a loan or no, it’s for you
to decide whether you really need the money now. It makes no
point taking a loan without having a requirement.
This could lead to three things: You take the unnecessary
burden of paying an interest for something you don’t need;
Getting easy cash could lead to you spending the money on
things you don’t need and you end up with the liability which
drags you for the term of the loan and your credit worthiness
also goes down as the next time you really need a loan. The
bank looks at the EMI outflow on account of this loan and
reduce your eligibility.
It is better to have a debt-free lifestyle than one riddled with
loans.
(For queries on personal finance, mail them to finergo@goergo.in
with the subject line ‘Doctor’)

Mini Quiz
1: Which company has taken over Satyam?
a) TCS
b) L&T
Making sense
of the Sensex
c) Tech Mahindra
d) Infosys
2: PPF Stands for
a) Postal Provident Fund
b) Private Provident Fund
c) Public Provident Fund
d) Personal Provident Fund SNEHA BAJAJ freely available for transactions in the mar-
Send your answers to finergo@goergo.in or SMS your answers to support@finerva.com ket. Freely available shares are those which
92813 98889. For example if you choose a as the answer to question can be traded with ease; thus it would ex-
1 and b as the answer to question 2 type it as 1a2b and send it.

Winner will be chosen by lucky draw from all correct answers
. growth of over 25 per cent. But during
Answers for last week’s mini-quiz
Foreign Direct Investment
Foreign Institutional Investor
Word in Word
Equity cap on NPS
Although the New Pension Scheme seemed to be a good
opportunity to plan your retirement, there seems to be a small
hitch if you wanted good growth.
The government has put a higher limit of 50 per cent on the
amount of money that you can invest in equities as part of the
NPS scheme. Of the three funds – equity, government bonds,
corporate debt. One can put your 100 per cent investment into
bonds or debt but only 50 per cent in the equity schemes.
T
he Sensex has grown from 9724 in Feb-
ruary 09 to close to 12,272 in May 09 – a
the same period the NAV of your Mu-
tual Fund investment has grown negative.
What is the mystery or is something wrong?
There is absolutely no mystery. There is
this common misconception among most
young investors that if the Sensex is doing
well then their investments too would do
well. Understanding how the Sensex is cal-
culated will help clear the doubts.
The Sensex is an indicator of the perfor-
mance of 30 companies spanning various
sectors, which are representative of the
economy as a whole. The basic premise be-
ing that if the 30 best companies in the
country do well then the economy is also
doing well.
How are the daily numbers calculated?
The Sensex uses something called as the
free-float market capitalisation (FFMC). It is
the current price of each share of the com-
pany multiplied by the number of shares
clude shares with promoters, institutions
etc. which are normally not traded. In sim-
ple terms FFMC means the money that one
would require to buy all the shares of a com-
pany available in the open market.
The sum of the Free Float Market Capital-
isations of all the 30 stocks is then divided
by an “Index Divisor”. It is a constantly up-
dated number which correlates the Index to
its base of 100 (Year 1978) and also imbibes
the various changes in the market place
(Bonus shares, Splits etc.) which would
change the FFMC. The value that is arrived
at is the number which we see splashing on
our news screens and newspapers.
Thus we realise that if the stocks that
make up the portfolio of our investment are
not the same as the 30 stocks that constitute
the Sensex, then there’s absolutely no guar-
antee that our investment will move in the
same direction as the Index. The key learn-
ing here is to invest in Blue Chip funds and
the best way to do that is to ape the constit-
uents of the Index. ■