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Q1. What do you understand by the term Systematic Investment Plan from the point of view of Mutual funds?
Ans. SIP is similar to a Recurring Deposit. Every month on a specified date an amount you choose is invested in a mutual fund scheme of your choice. The dates currently available for SIPs are the 1st, 5th, 10th, 15th, 20th and the 25th of a month. Benefit 1 Become A Disciplined InvestorBeing disciplined - It’s the key to investing success. With the HDFC MF Systematic Investment Plan you commit an amount of your choice (minimum of Rs. 500 and in multiples of Rs. 100 thereof*) to be invested every month in one of our schemes. Think of each SIP payment as laying a brick. One by one, you’ll see them transform into a building. You’ll see your investments accrue month after month. It’s as simple as giving at least 6 postdated monthly cheques to us for a fixed amount in a scheme of your choice. It’s the perfect solution for irregular investors. *Minimum amounts may differ for each Scheme. Please refer to SIP Enrolment Form for details. Benefit 2 Reach Your Financial GoalImagine you want to buy a car a year from now, but you don’t know where the down-payment will come from. HDFC MF SIP is a perfect tool for people who have a specific, future financial requirement. By investing an amount of your choice every month, you can plan for and meet financial goals, like funds for a child’s education, a marriage in the family or a comfortable postretirement life. The table below illustrates how a little every month can go a long way. Note: Had quoted the example with the help of HDFC Bank.
Q2. What is a Systematic Investment Plan? How does it work?
Ans:
What is a Systematic Investment Plan?
A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.
How does it work?
A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank account and invested into a specific mutual fund scheme.You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day.Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.
Rupee-Cost Averaging
With volatile markets, most investors remain skeptical about the best time to invest and try to 'time' their entry into the market. Rupee-cost averaging allows you to opt out of the guessing game. Since you are a regular investor, your money fetches more units when the price is low and lesser when the price is high. During volatile period, it may allow you to achieve a lower average cost per unit.
Power of Compounding
Albert Einstein once said, "Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it." The rule for compounding is simple - the sooner you start investing, the more time your money has to grow.
ExampleIf you started investing Rs. 10000 a month on your 40th birthday, in 20 years time you would have put aside Rs. 24 lakhs. If that investment grew by an average of 7% a year, it would be worth Rs. 52.4 lakhs when you reach 60.
However, if you started investing 10 years earlier, your Rs. 10000 each month would add up to Rs. 36 lakh over 30 years. Assuming the same average annual growth of 7%, you would have Rs. 1.22 Cr on your 60th birthday - more than double the amount you would have received if you had started ten years later!
Other Benefits of Systematic Investment Plans
· Disciplined Saving - Discipline is the key to successful investments. When you invest through
SIP, you commit yourself to save regularly. Every investment is a step towards attaining your financial objectives.
· Flexibility - While it is advisable to continue SIP investments with a long-term perspective, there is no compulsion. Investors can discontinue the plan at any time. One can also increase/ decrease the amount being invested.
· Long-Term Gains - Due to rupee-cost averaging and the power of compounding SIPs have the potential to deliver attractive returns over a long investment horizon.
· Convenience - SIP is a hassle-free mode of investment. You can issue a standing instruction to your bank to facilitate auto-debits from your bank account.
SIPs have proved to be an ideal mode of investment for retail investors who do not have the resources to pursue active investments.
Q3. Concept and Evolution of Mutual Funds in India
Genesis
As the name suggests, a 'mutual fund' is an investment vehicle that allows several investors to pool their resources in order to purchase stocks, bonds and other securities.
These collective funds (referred to as Assets Under Management or AUM) are then invested by an expert fund manager appointed by a mutual fund company (called Asset Management Company or AMC).
The combined underlying holding of the fund is known as the 'portfolio', and each investor owns a portion of this portfolio in the form of units.
History
The mutual fund industry in India began in 1963 with the formation of the Unit Trust of India (UTI) as an initiative of the Government of India and the Reserve Bank of India. Much later, in 1987, SBI Mutual Fund became the first non-UTI mutual fund in India.
Subsequently, the year 1993 heralded a new era in the mutual fund industry. This was marked by the entry of private companies in the sector. After the Securities and Exchange Board of India (SEBI) Act was passed in 1992, the SEBI Mutual Fund Regulations came into being in 1996. Since then, the Mutual fund companies have continued to grow exponentially with foreign institutions setting shop in India, through joint ventures and acquisitions.As the industry expanded, a non-profit organization, the Association of Mutual Funds in India (AMFI), was established on 1995. Its objective is to promote healthy and ethical marketing practices in the Indian mutual fund Industry. SEBI has made AMFI certification mandatory for all those engaged in selling or marketing mutual fund products.
Why should one invest in a mutual fund?
1. MFs are managed by professional fund managers, responsible for making wise investments according to market movements and trend analysis.
2. MFs allow you to invest your savings across a variety of securities and diversify your assets according to your objectives, and risk tolerance.
3. MFs provide investors the freedom to earn on their personal savings. Investments can be as less as Rs. 500.
4. MFs offer relatively high liquidity.
5. Certain mutual fund investments are tax efficient. For example, domestic equity mutual funds investors do not need to pay capital gains tax if they remain invested for a period of above 1 year.
Q4. What are the different types of mutual funds?
Each mutual fund scheme has its own objective that determines its assets allocation and investment strategy.
These are classified according to their maturity period, or investment objective. One can also classify mutual funds as 'open ended funds' - where investors may invest or redeem at any point in time and 'close ended funds' - where investors can invest only during the initial launch period known as the NFO (New Fund Offer) period.
Mutual funds classified according to their investment objective range from Equity Funds (with substantial risk), to Money Market Funds (which are very safe). Other types include debt schemes, index funds, balanced funds, etc.
Q5. How does one earn returns in a mutual funds?
After investing your money in a mutual fund, you can earn returns in two forms:
1. In the form of dividends declared by the scheme
2. Through capital appreciation - meaning an increase in the value of your investments.
What are MIPs and Balanced Funds?
Achieving the right balance of debt and equity in an investor's portfolio is always a challenging task. These decisions are largely influenced by the phase of the investors' life:
Phases in the investors' life
Different phases as per the principles of financial planning:1. Allocation to equity, as an asset class, should be higher vis-a-vis debt during the wealth creation phase.
2. As an individual proceeds into the wealth consolidation phase, the equity allocation should gradually come down and debt allocation should increase.
3. The equity allocation should be considerably low while approaching the retirement age.
4. Investors should refrain from investing into equities during the wealth distribution phase to ensure that they can keep from outliving their assets while maintaining their desired lifestyle.For example, while planning for retirement, one should ideally start with a higher exposure to equities (vis-a-vis debt). However, along with investments into equities one should also diversify by investing in MIPs and Balanced funds.
What are MIPs?
MIPs or Monthly Income Plans are funds that are inclined towards debt. If you are sceptical about schemes that involve high risk and are looking to park your career's worth of savings, MIP's are a safe medium term option; with very limited exposure to risk and more or less stable returns through dividends.
MIP funds offer the following features:
1. The income is not limited to a monthly plan; you can choose to receive it quarterly, semi-
annually or annually2. A tax efficient fund, the dividends declared by MIP's are tax-free in the hands of the investor3. These usually have a debt: equity ratio of 75:25 or 85:15
What are Balanced Funds?
As the name suggests, balanced funds invests in debt and equity in almost equal proportions. Based on the market trends your fund manager may tweak the allocations slightly. These are ideal for investors looking to retire in the near future and have a moderate risk appetite. Compared to MIPs, balanced funds have a greater exposure to equity.
Some of the features of balanced funds are:
1. Provides diversification in its truest sense by investing in bonds and equities2. Invests a sizable proportion in equities, hence the returns you receive are decent3. Provides automatic portfolio rebalancing; an added cushion during volatile markets. Therefore, when markets are positive, the fund manager sells equity to maintain its maximum level and vice versa
Other Factors
Investors should bear in mind that MIPs and balanced funds are subject to market risks as both invest in equities. Neither scheme can guarantee income or returns and one should opt for a fund in line with their risk profile and investment objectives.
High NAV vs. Low NAV – The Tale of Two Numbers
The Net Asset Value or the NAV is the price at which a single unit of a particular mutual fund is traded. It is calculated by dividing the total net value of the assets held by the fund, to thenumber of outstanding units.
NAV = Net Assets / Outstanding Units
How NAV differs from Stock Price?
While the NAV might seem to be similar to stock price, the two differ a lot. Since the NAV is based on a bunch of underlying assets, its value is declared only once (at the end of a day), once the trading in those underlying assets is completed. In comparison, a stock price (although fluctuating) is available throughout trading hours. Moreover, unlike a stock price, the NAV does not give you an idea about the performance of mutual fund scheme.
NAVs - The Highs and Lows of it
If you are planning to invest your money in a mutual fund, do not let the high and low NAV values influence your decision about short-listing a fund. As discussed, unlike shares, the absolute value of a mutual fund NAV does not say much about the performance of the fund.
· Low NAV - When a fund house launches a new fund (New Fund Offer - NFO), the units of the fund are available for a standard NAV of Rs. 10 - this shouldn't be a deterrent. Further, as the formula above states, a fund could have a lower NAV because its net assets are low or the no. of outstanding units is high (due to a temporary transition like NAV split, etc). Also, a fund's NAV decreases proportionately, whenever it pays out dividends.
· High NAV - Similarly, a high NAV could be because of a good performance over the years. But then, with mutual funds, the past performance is never a guarantee for future performance.
Myth 1 - Low NAV means More Units = More Dividends
Investors should refrain from being attracted to low NAV funds just because you realize that your money can fetch you more units and that this might be beneficial when the fund declares a dividend. Here, the investor will not really benefit because a dividend is nothing but their own money being paid out. In fact, after the dividend is paid out, the NAV is adjusted accordingly!
Myth 2 - Fund with High NAV have reached their potential
Another common myth is that mutual funds with a high NAV have maxed out their potential and that they are no longer as lucrative. Now, one must remember that mutual funds have an underlying portfolio of stocks, which are chosen by an experienced fund manager who has a well-thought strategy for entering and exiting stocks. As soon as a particular stock has met its objective, the fund manager sells the stock and buys newer ones that are likely to provide returns in line with the scheme objectives.
One must understand that at the end, it is the fund performance that should matter and not the absolute value of the NAV. The money growth will depend on how the fund is performing and not on the NAV value. Hence, a 20% growth with NAV of 20 is the same as 20% growth with NAV of 200.
Indexed Funds vs. Actively Managed Funds
One of the key reasons for investing you money through mutual funds is to benefit from the expertise and experience of professional fund managers, who are responsible for making wise investments based on market movements and trend analysis. However, if you do not wish to avail the services of a fund manager, index funds could be a good alternative.
Here is how it works:
For an actively managed fund, the fund manager handpicks the best stocks, bonds and other securities that have the potential to fulfill the scheme's objectives. The fund manager closely monitors his portfolio and takes timely decisions to ensure best returns. However, this comes at a cost and some amount of risk associated with the fund manager himself.
On the other hand, index funds (also called passive funds) are equity funds that mirror a particular index (e.g. BSE, NSE, etc.) and invest in the same stocks (in the same proportion) as that index. For example, if you invest in an index fund that mirrors the BSE index, you will indirectly invest in the 30 underlying scripts that make up the BSE index. Index funds have no fund manager or a scheme objective.
A Comparative Study
1. Cost of Investments - The cost associated with the management of an index fund is much lesser than that of a managed fund, which requires active trading (churn). Hence, index funds save on expenses like brokerage and transaction costs.
Moreover, since a fund manager is not involved, the fund management charges are lower and hence the expense ratio is lower. The average expense ratio of actively managed fund is 2-2.5%, while it is 1-1.5% in case of index funds.
2. Management Style - An experienced fund manager, following a structured investment approach is like a visionary leader marshalling his resources. Based on the real-time developments and trend analysis, he or she can take strategic decisions that can lead the fund towards outperformance. This aspect is missing for a passive fund.
3. Limited downside - Unlike index funds that mirror the market, managed funds invest in handpicked securities. A fund manager has the freedom to limit the downside by holding only performing securities. In case of index funds, they fall as the market falls.
4. Fund Manager Risk - There is a chance your fund manager might make a poor decision. He might have an in-favourable fund picking style, or might be subject to some form of systemic pressures or might end-up invest in an underperforming stock. There is a chance of him quitting the fund too. These situations can affect your investments. Index funds negate this risk by passively investing only in securities that represent a particular index.
5. Traded on exchanges - Most mutual funds can be traded only on NAV (i.e. the net asset value declared at the end of the day). However, since index funds are traded on exchanges, one can buy and sell them at anytime and take advantage of the real-time prices.
Performance
While index funds offer the above-mentioned benefits, perhaps the only statistic that interests investors would be the fund's performance and net-returns. And actively managed funds are known to consistently outperform index funds. On the other hand, actively managed funds are also known to be more risky as compared to the index funds, which do not face losses due to the fund manager's wrong calls.
Index funds can be considered if you wish to invest in equities but want to minimize some risks. Investors must be mindful that while index funds can sidestep the fund manager related risks, they do face the market risks.
Different Types and Kinds of Mutual Funds
The mutual fund industry of India is continuously evolving. Along the way, several industry bodies are also investing towards investor education. Yet, according to a report by Boston Analytics, less than 10% of our households consider mutual funds as an investment avenue. It is still considered as a high-risk option.In fact, a basic inquiry about the types of mutual funds reveals that these are perhaps one of the most flexible, comprehensive and hassle free modes of investments that can accommodate various types of investor needs.Various types of mutual funds categories are designed to allow investors to choose a scheme based on the risk they are willing to take, the investable amount, their goals, the investment term, etc.
Let us have a look at some important mutual fund schemes under the following three categories based on maturity period of investment:
I. Open-Ended - This scheme allows investors to buy or sell units at any point in time. This does not have a fixed maturity date.
1. Debt/ Income - In a debt/income scheme, a major part of the investable fund are channelized towards debentures, government securities, and other debt instruments. Although capital appreciation is low (compared to the equity mutual funds), this is a relatively low risk-low return investment avenue which is ideal for investors seeing a steady income.
2. Money Market/ Liquid - This is ideal for investors looking to utilize their surplus funds in short term instruments while awaiting better options. These schemes invest in short-term debt instruments and seek to provide reasonable returns for the investors.
3. Equity/ Growth - Equities are a popular mutual fund category amongst retail investors. Although it could be a high-risk investment in the short term, investors can expect capital appreciation in the long run. If you are at your prime earning stage and looking for long-term benefits, growth schemes could be an ideal investment.
3.i. Index Scheme - Index schemes is a widely popular concept in the west. These follow a passive investment strategy where your investments replicate the movements of benchmark indices like Nifty, Sensex, etc.
3.ii. Sectoral Scheme - Sectoral funds are invested in a specific sector like infrastructure, IT, pharmaceuticals, etc. or segments of the capital market like large caps, mid caps, etc. This scheme provides a relatively high risk-high return opportunity within the equity space.
3.iii. Tax Saving - As the name suggests, this scheme offers tax benefits to its investors. The funds are invested in equities thereby offering long-term growth opportunities. Tax saving mutual funds (called Equity Linked Savings Schemes) has a 3-year lock-in period.
4. Balanced - This scheme allows investors to enjoy growth and income at regular intervals. Funds are invested in both equities and fixed income securities; the proportion is pre-determined and disclosed in the scheme related offer document. These are ideal for the cautiously aggressive investors.
II. Closed-Ended - In India, this type of scheme has a stipulated maturity period and investors can invest only during the initial launch period known as the NFO (New Fund Offer) period.
1. Capital Protection - The primary objective of this scheme is to safeguard the principal amount while trying to deliver reasonable returns. These invest in high-quality fixed income securities with marginal exposure to equities and mature along with the maturity period of the scheme.
2. Fixed Maturity Plans (FMPs) - FMPs, as the name suggests, are mutual fund schemes with a
defined maturity period. These schemes normally comprise of debt instruments which mature in line with the maturity of the scheme, thereby earning through the interest component (also called coupons) of the securities in the portfolio. FMPs are normally passively managed, i.e. there is no active trading of debt instruments in the portfolio. The expenses which are charged to the scheme, are hence, generally lower than actively managed schemes.
III. Interval - Operating as a combination of open and closed ended schemes, it allows investors to trade units at pre-defined intervals.
Q.What is underwriting of shares and debentures?
Ans. Underwriting is an agreement where by the underwriters ensure the company that in case the shares and debentures offered to the public, are not subscribed by the public to the extent, the balance of shares and debentures will be taken up by the underwriters.
The firms or persons who are engaged in underwriting are called underwriters. The commission payable to underwriters for underwriting is known as underwriting commission.
Advantages of Underwriting1. The company is sure of getting the value of shares issued2. It enhances goodwill of the company3. It facilitates wide distribution of securities4. The company gets expert advice from underwriters in the matter of marketing securities5. It fulfills requirement of minimum subscription
Provisions regarding Underwriting1. A company cannot pay any commission on the issue of shares unless permitted by its Articles.2. Commission cannot be paid to any person for shares or debentures which are not offered to the public for subscription.3. The commission is limited to 5% of issue price in case of shares and 2 ½ % in case of debentures. However, in practice, SEBI has allowed underwriting commission only at the rate of 2.5% of issue price of equity shares.4. The amount or rate of commission should be disclosed in the prospectus.5. The directors must state in the prospectus that the underwriters are capable of meeting their obligations under the underwriting contract.
Types of Underwriting1. Open Underwriting (Conditional Underwriting)Under this type of underwriting, the underwriter agrees to take up shares or debentures only when the issue is not subscribed by the public in full.2. Firm UnderwritingWhen an underwriter agrees to buy a definite number of shares or debentures in addition to the shares or debentures he has to take under the underwriting agreement, it is called firm
underwriting. Even if the issue is over subscribed, underwriters are liable to take up the agreed number of shares in case of firm underwriting.
Marked or Unmarked ApplicationGenerally shares or debentures of a company are underwritten by two or more underwriters in an agreed ratio. Usually the forms are stamped with the name of the underwriters in order to distinguish the forms of one underwriter from that of others. Such stamped applications when received are called marked applications. The application forms which are received by the company without any name of the underwriter are called unmarked applications
Journal Entries in the books of the Company1. In case the whole of shares or debentures are not taken up by the public, the remaining is allotted to underwriters. The entry is: Underwriters A/c Dr To Share Capital A/c To Debentures A/c (Balance of shares and debentures allotted to underwriters)2. For commission due: Underwriting Commission A/c Dr To Underwriters3. For payment of commission: Underwriter A/c Dr To Bank (cheque) To Share Capital A/c (shares) To Debentures A/c (debentures)4. For the balance amount due from underwriters received: Bank A/c Dr To Underwriters A/c
Determination of Liability in respect of Underwriting Contracta) When issue is fully underwritten (without Firm Underwriting) When the entire issue has been underwritten by one underwriter, the liability of the underwriter is calculated as follows:
Liability = No. of shares underwritten – Total no. of applicationIf the entire issue has been underwritten by two or more underwriters, all unmarked
applications are divided between them in the ratio of gross liability of individual underwriter.Liability of each underwriter is calculated as follows:Gross liability according to the agreed ratio ………..Less: Marked applications ………..
Balance left ………..Less: Unmarked application in the ratio of gross liability ………..
Net liability ………...b) When the issue is fully underwritten (with Firm Underwriting) Liability of each underwriter is calculated as follows:
Gross liability according to the agreed ratio ………..Less: Marked applications (excluding firm underwriting) ………..
Balance left ………..Less: *Unmarked application in the ratio of gross liability ………..
Net liability ………... Add: Firm underwriting
……....... Total liability …………
* No. of Unmarked application = Total subscription excluding firm underwriting – Marked application excluding firm underwriting + Application under firm underwriting.
c) When the issue is partially underwrittenLiability = Gross Liability – Marked application + Firm underwriting (if there is firm underwriting)Note: If no information is given regarding marked and unmarked application, marked application is calculated as follows:
Marked applications = Total No. of application received x % of underwritingUnderwriting Account This account is prepared by the underwriter to ascertain the profit or loss on underwriting. It is a nominal account and is prepared like a P/L A/c
Q. what is a green shoe option
Ans. A green shoe option is a clause contained in the underwriting agreement of an initial public offering (IPO).
Q. What does LIBOR stand for?A. LIBOR (London Inter-Bank Offered Rate) is meant to give an indication of at which interest rate banks can obtain lending from other banks.
Q. What is a private placement?A. Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. PIPE (private investment in public equity) deals are one type of private placement.
Q. what is p/e ratio?A. The price-to-earnings ratio, or P/E ratio, is an equity valuation multiple. It is defined as market price per share divided by annual earnings per share. Contents. 1 Versions. 2 Interpretation.
Q. what is a hedge fund?A. an offshore investment fund, typically formed as a private limited partnership, that engages in speculation using credit or borrowed capital.
Q. what is inflation and how is it measured in india?
A. Inflation rates in India are usually quoted as changes in the Wholesale Price Index, for all commodities. Many developing countries use changes in the Consumer Price Index (CPI) as their central measure of inflation.
How Inflation is Measured in India:
Inflation is usually measured based on certain indices. Broadly, there are two categories of
indices for measuring inflation i.e. Wholesale Prices and Consumer Prices. There are certain
sub-categories for these indices.
What is an Index Number :
An Index number is a single figure that shows how the whole set of related variables has
changed over time or from one place to another. In particular, a price index reflects the overall
change in a set of prices paid by a consumer or a producer, and is conventionally known as a
Cost-of-Living index or Producer's Price Index as the case may be.
Price Indexes / Indices used in India :
In India we use five major national indices for measuring inflation or price levels.
(A) The Wholesale Price Index (base 1993-94) is usually considered as the headline inflation
indicator in India.
(B) In addition to Whole Price Index ( WPI ), there are four different consumer price indices
which are used to assess the inflation for different sections of the labour force.
(C) In addition to above five indices, the GDP deflator as an indicator of inflation is available
for the economy as a whole and its different sectors, on a quarterly basis
Wholesale Price Index (WPI) :
This index is the most widely used inflation indicator in India. This is published by the Office
of Economic Adviser, Ministry of Commerce and Industry. WPI captures price movements in a
most comprehensive way. It is widely used by Government, banks, industry and business
circles. Important monetary and fiscal policy changes are linked to WPI movements. It is in use
since 1939 and is being published since 1947 regularly. We are well aware that with the
changing times, the economies too undergo structural changes. Thus, there is a need for
revisiting such indices from time to time and new set of articles / commodities are required to be
included based on current economic scenarios. Thus, since 1939, the base year of WPI has been
revised on number of occasions. The current series of Wholesale Price Index has 2004-05 as
the base year. Latest revision of WPI has been done by shifting base year from 1993-94 to
2004-05 on the recommendations of the Working Group set upwith Prof Abhijit Sen,, Member,
Planning Commission as Chairman for revision of WPI series. This new series with base year
2004-05 has been launched on 14th September, 2010. A brief on the historical development of
this WPI is given below : -
Base Year Year of IntroductionNo of Items in Index
No of Price Quotations
Week ended 19th August 1939
1942 23 23
End August 1939 1947 78 2151952-53 (1948-49 as weight base)
1952 112 555
1961-62 July 1969 139 7741970-71 January 1977 350 12951981-82 July 1989 447 23711993-94 April 2000 435 19182004-05 September 2010 676 5482
Earlier, the concept of wholesale price covered the general idea of capturing all transactions
carried out in the domestic market. The weights of the WPI did not correspond to contribution of
the goods concerned either to value - added or final use. In order to give this idea a more
precise definition, it was decided to define the universe of the wholesale price index as
comprising as far as possible all transactions at first point of bulk sale in the domestic market.
Thus the latest WPI has a basket of 676 items with 5482 quotations. The major criticism for
this index is that 'the general public does not buy at the wholesale level', thus WPI does not give
the actual feeling of the amount of pressure borne by the general public. However, the increase
in wholesale prices does affect the retail prices and as such give some feel of the consumer
prices.
Consumer Price Index (CPI)
The CPI measures price change from the perspective of the retail buyer. It is the real index for
the common people. It reflects the actual inflation that is borne by the individual. CPI is
designed to measure changes over time in the level of retail prices of selected goods and services
on which consumers of a defined group spend their incomes. Till January 2012, in India there
were only following four CPIs compiled and released on national level. (In some countries
like UK, Malaysia, Poland it is also known as Retail Price Index).
(1) Industrial Workers (IW) (base 2001),
(2) Agricultural Labourer (AL) (base 1986-87) and
(3) Rural Labourer (RL) (base 1986-87)
(4) Urban Non-Manual Employees (UNME) (base 1984-85),
The first three are compiled by the Labour Bureau in the Ministry of Labour and Employment,
and the fourth is compiled by Central Statistical Organisation (CSO) in the Ministry of Statistics
and Programme Implementation. These four CPIs reflect the effect of price fluctuations of
various goods and services consumed by specific segments of population in the country. These
indices did not encompass all the segments of the population and thus, did not reflect the true
picture of the price behaviour in the country as a whole.
Some of the Data for 2012 for above indices :
WPI (All commodities)
WPI - Inflation Rate
CPI (IW)
CPI - AL - Point to Point
CPI - Rural Labourers
CPI - RL - Point to Point
Base Period2001=100
Point Inflation
1986-87=100 Inflation 1986-87=100 Inflation
PeriodJan-12 158.70 7.23 198.00 5.32 618.00 4.92 619.00 5.27Feb-12 159.30 7.56 199.00 7.57 621.00 6.34 623.00 6.68Mar-12 161.00 7.69 201.00 8.65 625.00 6.84 626.00 7.19Apr-12 163.50 7.50 205.00 10.22 633.00 7.84 634.00 8.01
May-12 163.90 7.55 206.00 10.16 638.00 7.77 640.00 8.11Jun-12 164.20 7.25 208.00 10.05 646.00 8.03 648.00 8.54Jul-12 164.80 6.87 212.00 9.84 656.00 8.61 658.00 8.94
New Series of CPI Started in 2012
Therefore, there was a strong feeling that there is a need for compiling CPI for entire urban and
rural population of the country to measure the inflation in Indian economy based on CPI. Thus,
now Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation
has started compiling a new series of CPI for the
(a) CPI for the entire urban population viz CPI (Urban);
(b) CPI for the entire rural population viz CPI (Rural)
(c) Consolidated CPI for Urban + Rural will also be compiled based on above two CPIs
These would reflect the changes in the price level of various goods and services consumed bythe
Urban and rural population. These new indices are now compiled at State / UT and all India
levels.
The CPI inflation series is wider in scope than the one based on the wholesale price index (WPI),
as it has both rural and urban figures, besides state-wise data. The new series, with 2010 as the
base year, also includes services, which is not the case with the WPI series. However, this new
series will become comparable only in 2013 when the data for 2012 will also be available for
comparison.
A comparison of this new series with WPI is given below :-
WPICPI - New Series
wef Feb 2012Base Year 2004-05 2010
Elemenetary Items 676200 (Weighted items)
Weightage o Food products (%)
243 49.71
Weightage of Energy products (%)
14..91 9.49
Weightage of Miscellaneous Items (%)
Services not included
26.31
Some of the Data Released under this New Series :
PeriodRural - CPI / Annual
Inflation - ProvUrban - CPI / Annual
Inflation - Prov.Combined - CPI / Annual
Inflation (Prov.)
May 2012 119.1 117.1 118.2
June 2012 117.5 118.5 119.6
July 2012122.69.76%
119.910.0%
121.49.86%
Producer Price Indexes (PPI) –
These are indices that measure the average change over time in selling prices by producers of
goods and services. They measure price change from the point of view of the seller. Majority of
OECD countries measure inflation based on Producer Price Indiex (PPI) while only some others
use WPI. Countries like Japan, Greece, Norway and Turkey use WPI. Already WPI has been
replaced in most of the countries by PPI due to the broader coverage provided by the PPI in
terms of products and industries and the conceptual concordance between PPI and system the
national account. PPI is considered to be more relevant and technically superior compared to
one at wholesale level. However, in India we are still continuing with WPI.
Cost-of-living indices (COLI):
This is different from CPI. This index aims to measure the effects of price changes on the cost
of achieving a constant standard of living (i.e. level of utility or welfare) as distinct from
maintaining the purchasing power to buy a fixed consumption basket of good and services.
Maintaining a constant standard of living does not imply continuing to consume a fixed basket of
goods and services. A COLI allows for the fact that households who seek to maximize their
welfare from a given expenditure can benefit by adjusting their expenditure patterns to take
account of changing relative prices by substituting goods that have become relatively cheaper,
for goods that have become relatively dearer. The use or preference for a particular goods may
also change.
In the long run, the various PPIs, WPIs and the CPI show a similar rate of inflation. In the short
run PPIs often increase before the WPI and CPI. Investors generally follow the CPI more than
the PPIs. In India WPI is used instead of CPI.
In News Recently :
What is Core Inflation : The concept is used to estimate the inflation by excluding food and
energy prices from the basket of goods and services that represents a typical household's
consumption. In mid 2012, RBI Governor threw up the conundrum posed by this
"Core"inflation by saying "In our economy, where food constitutes nearly 50% of consumption
basket and fuel has a weight of 15%, can a measure of inflation that excludes them can be called
"Core".
Q. What is Inflation or What is the meaning of Inflation :
In economics inflation means, a rise in general level of prices of goods and services in a
economy over a period of time. When the general price level rises, each unit of currency buys
fewer goods and services. Thus, inflation results in loss of value of money. Another popular
way of looking at inflation is "toomuch money chasing too few goods". The last definition
attributes the cause of inflation to monetary growth relative to the output / availability of goods
and services in the economy.
In case the price of say only one commodity rise sharply but prices of other commodities fall, it
will not be termed as inflation. Similarly, in case due to rumors if the price of a commodity rises
during the day itself, it will not be termed as inflation.
What are different types of inflation?
Broadly speaking inflation is divided into two categories i.e.
(a) DEMAND - PULL INFLATION: In this type of inflation prices increase results from
an excess of demand over supply for the economy as a whole. Demand inflation occurs when
supply cannot expand any more to meet demand; that is, when critical production factors are
being fully utilized, also called Demand inflation.
(b) COST - PUSH INFLATION: This type of inflation occurs when general price levels rise
owing to rising input costs. In general, there are three factors that could contribute to Cost-Push
inflation: rising wages, increases in corporate taxes, and imported inflation. [imported raw or
partly-finished goods may become expensive due to rise in international costs or as a result of
depreciation of local currency ]
What is Deflation ? :
Deflation is the opposite of inflation. Deflation refers to situation, where there is decline in
general price levels. Thus, deflation occurs when the inflation rate falls below 0% (or it is
negative inflation rate). Deflation increases the real value of money and allows one to buy more
goods with the same amount of money over time. Deflation can occur owing to reduction in the
supply of money or credit. Deflation can also occur due to direct contractions in spending,
either in the form of a reduction in government spending, personal spending or investment
spending. Deflation has often had the side effect of increasing unemployment in an economy,
since the process often leads to a lower level of demand in the economy.
What is Stagflation :
Stagflation refers to economic condition where economic growth is very slow or stagnant and
prices are rising. The term stagflation was coined by British politician Iain Macleod, who used
the phrase in his speech to parliament in 1965, when he said: “We now have the worst of both
worlds - not just inflation on the one side or stagnation on the other. We have a sort of
‘stagflation’ situation.” The side effects of stagflation are increase in unemployment-
accompanied by a rise in prices, or inflation. Stagflation occurs when the economy isn't growing
but prices are going up. At international level, this happened during mid 1970s, when world oil
prices rose dramatically, fuelling sharp inflation in developed countries.
What is Hyperinflation :
Hyperinflation is a situation where the price increases are too sharp. Hyperinflation often occurs
when there is a large increase in the money supply, which is not supported by growth in Gross
Domestic Product (GDP). Such a situation results in an imbalance in the supply and demand for
the money. In this this remains unchecked; it results into sharp increase in prices and
depreciation of the domestic currency.
What is Headline Inflation
Headline inflation refers to inflation figure which is not adjusted for seasonality or for the often
volatile elements of food & energy prices, which are removed in the Core CPI. Headline
inflation will usually be quoted on an annualized basis, meaning that a monthly headline figure
of 4% inflation equates to a monthly rate that, if repeated for 12 months, would create 4%
inflation for the year. Comparisons of headline inflation are typically made on a year-over-year
basis. Also known as "top-line inflation".
Q. what is research?A. To research is to purposely and methodically search for new knowledge and practical solutions in the form of answers to questions formulated beforehand.
Research is conducted with a certain objective. The objective that you want to attain with your research is called the research objective For instance, this could be that you want to improve the efficiency of your practicing. To attain this goal you ask yourself questions (research questions). You ask yourself how you practice and whether this is the most effective method. In doing so you are defining the problem (problem definition). In order to do this you can observe your own way of practicing to determine exactly what you do. You can consult with an expert who knows a great deal about practicing effectively and ask him how you can make your way of practicing more effective and efficient. You can also study the relevant literature about practicing methods in music. In all these cases you gain more insight into your own practicing strategies, as well as into practicing strategies which have been proven effective and efficient. You readjust your own practicing method accordingly and check whether the new method is more efficient than the old one, for example by keeping check of how quickly the desired learning objective is achieved with the new method.
Q. How does research develop?
Research in the domain of musicians' professional practice, as all research in the cultural and social sciences, is fundamentally based on the empirical cycle. This empirical cycle roughly takes the following form:
The empirical cycle starts with the identification of a research problem, defining a subject. It is important for the researcher to be interested in the subject matter. Research demands a great deal of a researcher and personal involvement with the subject is an important prerequisite to be able to put in the effort required to finish the research successfully.
Subsequently you immerse yourself in the subject matter by reading about it (what is known about the subject). This leads to new questions to which the literature does not have any answers (yet).
In the problem definition you further specify these questions. You make clear for yourself what the purpose of your research is (what do you plan to do with it?). You formulate the questions which are needed to reach that goal. You decide which research methods you want to use for data collection, which people and/or situations you want to research, and you indicate how the data will be analysed.
The next steps consist of the collection of the research data, followed by the analysing of these data. The interpretation of the results comprises aspects such as, what is the value of the results (how reliable and valid are these) and to what extent do they answer the questions that you had? Frequently the answers to your questions raise new questions.
The entire research process, from the identifying of the research problem to the analysis and interpretation of the data, is described in your research report. In this you also evaluate what you have found exactly, what the limitations of your research are and which questions for further research have originated from it. With this you provide insights into your research for third parties, who can concur with your research, criticise it and/or use it as inspiration for further research.
Practice-based research is structured by a particularization of the empirical cycle namely the practice cycle, also called the regulative cycle and policy cycle.
The practice cycle consists of several phases:
1. In the first phase the problem/the question is analysed. The purpose of this phase is that the researcher gets a grip on the question and through research determines the requirements that the solution (the design) has to meet. This is also called the blueprint.
2. In the design phase (phase 2) the blueprint is made concrete, for instance, by choosing and practicing the repertoire for a concert, the development of a teaching method, or the development of a creative project. It is important at this stage that concrete products are developed which meet the requirements of the blueprint (phase 1). The blueprint can be readjusted during the design phase if necessary (if it is not feasible in that way).
3. In phase 3 the design (concert, teaching method, creative project) is implemented (executed, applied) and the effects, depending on what the researcher wants to know, are evaluated.
A special type of practice-based research is action research also called practitioner research. Characteristic of this is that it concerns professionals (for example musicians) who research an aspect of their own professional practice in order to improve upon it. The process is cyclical by nature. After analysis of the current situation, an improvement plan is formulated and tried out, after which the evaluation takes place. This entire process can be repeated several times until a satisfactory result is achieved. Research methods from various scientific disciplines can be useful in this.
Q. Quality requirements of research
Research has to meet certain quality requirements.
There have to be a research objective and research questions. In the research objective you state what you want to achieve with your research. If the research is commissioned by a third party, it is important to reach an agreement with the client to make sure that the research contributes to the solution of the client's problem. The research questions that you formulate in relation to the research objective indicate what knowledge you need for this. If the research objective is to
improve the practicing methods of music students for example, then the relevant research questions are:
Which practicing methods do music students use? Which practicing methods in music are effective? In what way is the effectiveness of practicing methods connected to the learning styles of
students?
The formulating of the research objective and the research questions is part of the problem definition. In the definition of the problem you state clearly what you want to research and why (with which objective). A whole process precedes the formulation of the problem definition (also called the preliminary inquiry/investigation). You have to read up on your subject, possibly speak to experts about your subject, in order to get a clear picture of what you do and do not want to research. If the research concerns the solving of an existing problem, the problem description and analysis constitutes the problem definition. In the problem analysis you try to figure out what the actual problem is. That is not always apparent in the problem that you observe. It is possible that differences between outstanding students and underperforming students can be caused by the fact that the latter are able to reserve insufficient time for practicing because they need to devote more time to working in order to make a living.
Collecting data
In order to answer all your questions, you use certain methods of data collection and methods for data analysis. There are three ways to obtain data:
1. Using existing information (the study of literature and sources: for example what is known in the literature about effective practicing);
2. The obtaining of data through observation (for example concerning the practicing behaviour of music students who are outstanding and of students who perform moderately or who underperform);
3. The obtaining of data through written or oral interviews (instead of observing students, you can also choose to interview them).
Based on the methods for data collection (quantitative and/or qualitative) are the methods for data analysis. There is a wide diversity of choice here as well. In qualitative research the collected material (texts, interviews, audio, video) constitutes the basis for the analysis. The most important objective of the analysis of qualitative data is the structuring or the putting into a model of the mountain of material. The plan is to come to a satisfactory categorisation as a researcher, through which the relevant terms can be discovered. Starting point for the analysis is the problem definition and the research objective. After all, the data have to answer a question that has been asked with a certain objective in mind.
Another important quality requirement is the writing of a report. This has to be written in such a way the research in all its aspects (as described above) is replicable for others. The reader has to be able to form an opinion of the research, in order to determine the value of it. For this the following quality criteria are important:
1. Is the research reliable? In qualitative research it is important whether the research was conducted correctly with regard to data collection and analysis.
2. Is the research valid? Does the research reflect the researched practice situation adequately and is it generalisable in similar practice situations?
3. Is the research verifiable? Is the research report of sufficient quality that you can follow all the stages of the research and consider the arguments and choices used to form an opinion?
4. Is the research practicable? In what way can the research results be realised practically?
The quality requirements for research can also encompass the extent to which ethical criteria have been met. Test subjects have to be:
free to take part in the research; informed about the objective, procedures and estimated duration of the research; informed about possible risks when participating; informed about what happens to their personal information (whether or not these are
made anonymous in the report); informed about how they can withdraw from the research if necessary.
Code of conduct for practice based research for Higher Professional Education (HPE)
1. Researchers in HPE serve a professional and a social interest
They will contribute to the profession and the professional practice concerned and they will make an effort to serve public interest. They will focus on relevant themes and problems from the professional practice and on creative, innovative and applicable solutions for the professional practice. They will contribute to the development of knowledge and theory, stimulate knowledge circulation about both practice and education and they will strive for making results accessible according to the principles of Open Access (3.).
2. HPE researchers are respectful
They will take into consideration the rights, interests, privacy, viewpoints, beliefs, theories and methods of those involved and of fellow researchers. They will abide by the rules and protocols which apply to the professional practice for doing research. Should research with people and animals give rise to any risk, the interest of the research should justify the taking of that risk. In this case external advisors will be consulted.
3. HPE Researchers are careful
They will consider various scientific viewpoints and related forms of research, the available research methods and the methodological rules which are part of this, as well as the research and professional ethics and values which apply to the professional practice concerned. They will make use of available knowledge from the professional practice and science. They will write reports which are accurate, complete, exact and replicable. They will take into consideration the desirability of a careful preservation of the data and make sure that intellectual property rights
concerning data, results and innovations have been properly dealt with.
4. HPE Researchers have integrity
They will be critical concerning opinions and problem definitions held in the professional practice, independent in their choices of method and honest about the sources they use. They will be communicative about their behaviour during the carrying out of the research, autonomous in their analyses and impartial in their reports.
5. HPE Researchers are answerable for their choices and behaviour
They will be accountable concerning the relevance of their chosen theme, their choice of research setup and the used methods and their restrictions, the care concerning the carrying out, the underpinning of the conclusions, the sources consulted, the implementation in the professional practice, as well as the way it will affect education.
