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Showing posts with label sip calculator. Show all posts
Showing posts with label sip calculator. Show all posts

Monday 27 August 2012

SIP Systematic Investment Plan (SIP) or Systematic Cheating Plan of Some Bankers ?

Systematic Investment Plan (SIP)

Systematic Cheating Plan 
Some Bankers ? 

Beware! How Many Bank systematically cheats NRIs & High Net-worth Individuals

 Calling corporate honchos, high net-worth individuals and Non Resident Indians (NRIs) – who are too busy, too important, too aged or too distracted to keep track of their hard-earned money, and therefore entrust this job to HSBC Bank’s portfolio management, wealth management and asset management services. Have you signed blank forms and letters giving HSBC Bank blanket permissions to trade on your behalf, pay insurance premiums, housing mortgages, bills etc? Has your friendly neighborhood HSBC Bank, through its relationship manager, convinced you that as a “Premier customer”, the best way to grow your wealth is by giving it the absolute discretionary power to buy, sell and hold instruments such as ULIPs and SIPs on your behalf? Have you given a power of attorney that enable HSBC bank branches to take major decisions on your behalf, open bank accounts etc.

And last but not least, does your HSBC relationship manager give you figures and vague reassurances over the phone, but avoid putting them in writing — all in the name of “personalized relationship management”?

If you answered yes to these questions, then maybe you should panic. Call your chartered accountant immediately and get him to study whether your funds have grown or remained steady over the past few years… or whether they have greatly diminished.
In recent times, two cases have come to light, which clearly show the methods by which HSBC siphons off the wealth of ‘Premier’ individuals who have trusted them with money. The first step is to frustrate their efforts to exercise due diligence. This is done by methods which are against the practices and rules as laid down by RBI, SEBI, Competition Commission, IRDA and other regulatory norms.

A slew of customer complaints against HSBC Bank that are already in the public domain, and are supported by the findings of activists around the world.

Like former Nasdaq chairman Bernard Madoff who was jailed for defrauding billionaires, Hongkong and Shanghai Banking Corporation Limited is a financial slaughterhouse that attracts A-listers and cuts the meat off their bones with surgical precision. To gain absolute control over their millions, HSBC gets its customers to give it multiple copies of signed but blank and undated forms which it then hoards for future use. Examples of such forms:

At various stages of the relationship, smooth-talking relationship managers get these high net-worth individuals (HNWIs) and NRIs to sign disclaimer, waivers and powers of attorney that gives HSBC Bank’s various branches uncontrolled access to their funds, and helps impose unfair and illegal terms and practices on such individuals. This is done ostensibly to ‘reduce red tape’ and ‘to better manage the portfolio’. With the clean chit now in hand, HSBC Bank methodically builds a situation where the expatriate or HNWI customers start complying with unreasonable and dubious demands for fund remittance into the HSBC account. Opting for online bill payment and having an HSBC credit card makes this situation even more complicated, and gives the bank a massive leverage for upsetting the customer’s daily life. Busy people are so entangled in this relationship with the bank that they fear a messy financial disruption. Expats are often worried about their family members in India for whom these funds were being transferred. And so, like cattle led to the slaughter, they comply.

Many customers are aware of what is happening, but they are afraid to take on the might and legal firepower of the world’s largest bank. HSBC’s ability to damage their credit history, as they have done in numerous cases (and which takes many years and very lengthy legal proceedings to reverse) helps gag people.

Aged and ailing people, expats with a busy flying schedule or people going through a professional/personal crisis simply have no energy to seriously take up this fight. So they file complaints to the bank’s higher ups, and receive vague assurances, often in exchange for signatures on waivers, disclaimers and more blanket permissions of the sort that caused their problems in the first place! The mechanisms for “dispute redressal” gives customers a false sense of security for a few more months… And as the months turn into years, more of the customer’s wealth goes into HSBC bank’s interest earnings, salaries and commissions. The bank’s stranglehold on the helpless customer grows stronger with each passing month, despite his knowledge that he is being sucked dry.

Expats are extremely vulnerable because of (a) the practical difficulties posed by time zones, market timings and office timings (b) different banking regulatory regimes and banking practices followed in India, USA, UK, UAE, Europe and Malaysia. What is happening is a deliberate abuse of the differences between what is permissible here and elsewhere.


A. THE DETAILED ACCOUNT OF A LONDON-BASED NRI PROFESSIONAL stretches from 2005 till date. This NRI’s story has several layers:

12th Dec 2005 – At the onset the newly designated, the relationship manager and the Branch head inspired the trust of the NRI and persuade the NRIs to cultivate a fiduciary relationship with RM and trust them. The NRI is assured  that HSBC as the largest bank in the world will adhere to Reserve Bank of India guidelines and is independently audited… He is asked to “sign only on the last page … where it says signature” and also asked to “sign a few copies of Letters of Instructions, SIP (systematic investment plan), Redemptions and SWP (systematic withdrawal plan)”.  Believing the representation of the bank funds were transferred for investing and SIPS put in place. HSBC said that this was usual with NRI customers as Indian market is volatile and if the market drops the RM can use the blank forms to stop losses. Little did the NRI realize back then that this was just a ploy to churn the portfolio (as it was done in other instances) and was not to be used for stopping losses. Between 31st Dec 2008, when the portfolio size was Rs 78 lakhs - to 31st dec 2009 the portfolio slid down to Rs 31 lakhs. HSBC has demanded and held blank forms. The bank was supposed to regularly monitor the portfolio, and use these forms for stopping the losses. Not a single MF was sold. The bank failed to act on its on promises which lead to losses of about Rs 47 lakhs.
Dec 2006 – The NRI found Rs 2,00,000 missing from the account. For over 3 years, the bank refused to provide statements (a trait which HSBC is infamous for). Finally, after the NRI travelled from London to Kolkata, some statements were provided. Upon examining the statements, the NRI found that the closing balance of Dec 2006 was Rs 7,00,585 in NRO account. In the statement of Jan 2007, the opening balance on 17th Jan 2007 was Rs 5,02,012. Clearly, money was missing. HSBC says that these accounts are audited; if so, why does such a large amount go missing without explanation? This potentially breaches half a dozen provisions of the Indian Penal Code, RBI Guidelines, SEBI Circulars and other laws… but has this adversely affected HSBC in any manner?
23rd May 2011 – Branch head finally admits to holding blank forms and says that RMs are discouraged from holding blank forms. However, when asked if the Portfolio was managed in accordance with RBI / SEBI norms, the bank refuses to provide such a confirmation in writing.

In both the cases profiled here, we find that HSBC relationship managers systematically look out for extra liquidity in the accounts of these HNIs and NRIs. When they find liquidity, they start selling their preferred ULIP Products. In Feb 2007 when the NRI’s portfolio was circa Rs 43 lakhs (with Rs 22 lakhs in cash), he visited India and met up with his relationship manager (RM). At that point of time, the NRI had recently suffered a health scare that turned out to be benign, and he mentioned it to his RM. The Branch Head and RM used this opportunity to shower their care on the NRI, and impressed on him that if he died, his parents, wife and children would all be left without any money. They marketed an Unit Linked Insurance Plan (ULIP).
The ULIP soon turned out to be nightmare, as HSBC kept on deducting monies from the NRI’s accounts every year without proper intimation. Despite numerous requests for details of the insurance cover and fund size, the bank refused to provide any. This went on for 5 years during which period the Bank asked the NRI to take numerous medical tests (for all of which the NRI had to travel to India).
For the years 2007, 2008, 2009, 2010 and part of 2011, there was no insurance cover and no fund growth. HSBC basically took money for insurance cover that was non-existent during these 5 years. This is clearly violative of IRDA norms and criminal breach of trust.
After 6 years of following up and a trip to Kolkata in 2011, HSBC finally admitted that they had deducted Rs 16 lakhs for insurance that was never provided. At the time of booking this product, HSBC was asked to disclose the commission it was making on the product. HSBC refused to divulge this detail, saying Indian laws did not require it to do so. Is that really true?
Much later, the NRI discovered that over 40% of the first year’s premium was paid to the bank as a commission.
HSBC touts itself as an expert providing “impartial” opinion on the best financial products tailored to the client’s specific needs. Typically, the RM goes through the charade of looking for the best products in the market. However, the RM inevitably comes back and sells Canara Bank HSBC ULIP or the TATA AIG ULIP where it has an exclusive tie up.  If HSBC is truly an “impartial expert” with the client’s best interest in mind (as it is required to under Indian Banking laws) why is it routinely selling only Canara Bank HSBC ULIP out of scores of such products? Isn’t peddling the wares of a sister concern a conflict of interest? And when this is done routinely with all HNI / NRI customers who trust HSBC and believe that the bank is acting in a fiduciary capacity, isn’t this a routine fraud?

(3) HSBC PERSONAL BANKING SERVICES — Mismanagement and Account Transfer Fraud between HSBC UK & HSBC India.
In May 2009 – when there was over Rs 49 lakhs in the bank account, the Relationship Manager called the NRI and told him that there were “insufficient funds” for home loan repayment and asked the NRI to transfer GBP 4000. He later confirmed this in writing on 22nd June 2009.
The NRI made sure that HSBC UK takes instructions to hold the funds in GBP (in the NRE account). HSBC London gave a specific reference number for such a transfer.
HSBC typically makes money on providing very bad exchange rate conversions when NRIs transfer the funds. In this instance, HSBC India, contrary to the NRI’s instructions, converted the funds into rupees, causing over Rs 16,000 of losses.
On 10th July 2009, the NRI wrote to the RM: “The bank has still not been able to establish the reason for the faulty transfer. HSBC India thinks that this was a fault with HSBC UK and as I have understood that HSBC UK thinks the other way around. Siddhartha Das had asked me to transfer funds to make the payment which I had on the 22nd. From my earlier conversations with you, I have understood that this was wholly unnecessary as my account already had funds in it and this transfer was not necessary… you were able to debit Rs 44k (circa) from the account without having to use the £4000 I had transferred. In the meantime, your home loan department in India are still continuing to harass my brother”.
Finally, with HSBC India continuing to lie that there were no instructions for holding the funds in GBP, the NRI customer was forced to escalate the issue to HSBC UK, who investigated the issue and confirmed that HSBC UK had indeed received such instructions and had passed them on to HSBC India.
HSBC promised to resolve this issue. But it did not do that. Instead, HSBC India put the money into fixed deposits @ 2% per annum for a period of three years! This finally came to light after repeated requests for accounts and finally when the NRI travelled 9000 kms to his branch in Kolkata and physically took the accounts from the bank. Is this really the World’s Local Bank?
HSBC offered “prudent financial advice” and recommended that in case something happens to the NRI, he should buy and hold property along with his parents. When a builder issued the letter of allotment in the joint names of the NRI and his parents, HSBC insisted that the mortgage should be be taken jointly. Little did the NRI suspect that there was a catch.
In Sep 2009, when there was over Rs 60 laksh worth of securities in the custody of HSBC and they have promised to use the blank LOIs to pay for the mortgage, HSBC sent collection agents to the NRI’s parents home in Kolkata. These collection agents told the watchman at the entrance of the building that they have been sent by HSBC to deliver documents. But, after coming upstairs, they threatened and abused the elderly parents of the NRI. Finally, when the NRI’s father picked up the phone to call Jadavpur Police Station, they left .
Worried sick, the elderly gentleman visited the bank the very next day and protested such criminal use of force. Sandeep Mishra (VP for Mortgages) justified the use of collection agents , arguing that as the NRI’s father and mother were co-applicants in the loan, they were responsible for non payment by their son.  It is relevant to note that in Sep 2009, there was over Rs 60 lakhs worth of shares and blank LOIs with the relationship manager. Despite repeated follow up, which were documented by the NRI of e-mails, the RM had not been in touch with HSBC’s Home Loan department.

(4) HSBC MORTGAGE LOAN INDIA – Mismanagement, Delays & Lies:
From the beginning of the relationship in the years 2005 and 2006, the RM work very hard to inspire the confidence of this NRI. This was done by (a) initially giving regular monthly visibility to the accounts via e-mail updates; and (b) growing the money.
In March 2007 when the the bank account has Rs 60 lakhs, the NRI travelled to Kolkata and met with the Premier team of  two Vice Presidents, branch head and Head of Mortgages Eastern India. The NRI says, “In the meeting, I repeated what I had been discussing with my RM for a while i.e. the plan was to sell the shares and use the money for buying real estate.  At the meeting I was told by the HSBC team that selling shares did not make sense. I was advised to grow my wealth by staying invested and use mortgage instead to buy property. At the meeting, I let the team know that I was averse to the idea of borrowed money. I was assured by the experts that the mortgage rates of 10.25% were at an all-time high, and the rates were bound to fall. I was advised to invest in a project that was under construction as the property would appreciate.  My RM and the VP responsible for the branch assured me that I need not worry as it was HSBC’s job as experts to grow my money such that it could pay off the mortgage. I agreed with their advice and promised to stick to the plan.”
19th June 2007 – the Builder allotted flats to the NRI who paid the allotment charges. In Oct 2007, the Builder complained that despite reminders to the Mortgage team, money was not released.  When the NRI wrote to the HSBC Mortgage Team and his RM, there was a ping-pong game between the two teams of the same bank. Despite the HSBC promise that the RM would be the single point of contact, the RM put the blame on the Mortgage Team, which in turn blamed the RM for the delay. The end result was delay in paying the builder, and fine was imposed.  On 13th Oct 2007, the Eastern Head of Mortgage retaliated to the NRI’s complaints by saying that (even though HSBC introduced the Calcutta Riverside Project to the NRI for investment), it had approved the project, and could not pay for it. When Anirudha Agarwal (Eastern Head for Mortgages) was confronted with this fact, he retracted and admitted that the project had been approved by HSBC as a Category A Builder, but the reason why they cannot action the loan is because Credit Sanction had lapsed in the last 24 hours! HSBC relied on its own inaction and ineptitude to let the Credit sanction lapse, which now required resubmitting all the documents.
29th April 2011 – HSBC had in the past been getting blank LOIs and other documents signed, which they have kept with themselves. Says the NRI, “They have in the past removed money from my NRE / NRO account without any intimation or mandate. Even upon repeated requests, HSBC has not been able to provide proof of any mandates for the deductions from my account”. To cover their back just before a payment was to be made to a builder, HSBC mysteriously came up with a new letter – a disclaimer — which has been slipped in without any explanation or prior intimation. This letter is a gun to my head as HSBC makes it clear that they are not willing to make any further disbursements and they will not process the payment to the builder. The disclaimer states: ‘…I am well aware that I need to pay EMI / Interest every month and should fund my account accordingly…. I am well aware that HSBC A/c No. 025-374364 – 006 should be well funded for the payment of interest every month …And that I have issued Standing Instructions for the same…. Please note that I am a NRI currently based at London, UK. There is a documentation delay.’ I am unable to understand why such a disclaimer is being taken from me.”
One year later, in April 2012, the NRI travelled to Kolkata to get his accounts and documents from HSBC, and discovered that HSBC had been removing money from his account without any authorization, and hence had sent the disclaimer to protect themselves in the future. The NRI at that point of time had no option as the bank was holding a gun to his head and were refusing to release the payments without obtaining the disclaimer under coercion. The NRI finally gave in to the pressure and after making  some changes send them the disclaimer document – putting on record that he was “very concerned about this practice and that I have no options.”. Are these fair banking practices?
23rd May 2011 – Mr. Jeetendra Mohta (HSBC Mortgage) put pressure on the NRI to sign and send the waiver letter. He wrote directly to the Builder stating that “Despite repeated reminders there is no revert from customer”, thereby putting the blame on the NRI for not signing and sending the disclaimer letter.
In Jan 2012, the NRI got a call from HSBC in Chennai saying that his mortgage EMI was due. The caller sought permission to make necessary deductions. The NRI says, “The caller tells me that since my RM has left and he can’t get payment from my new RM. I discover with horror that HSBC has been deducting Rs1.3 lakhs from my account, instead of the Rs 40k which my last RM had informed me of. I ask for accounts, which, despite numerous requests over three months, is not provided. Finally, when I get a statement, I realize that without proper mandates or instructions and without providing me my accounts, HSBC has been taking money out of my account to pay Rs 23 lakhs to itself. It has however paid all of the money to itself and not one paisa has been used to pay the principal. ALL OF IT IS TOWARDS  LOAN INTEREST.”

In recent times, the case of Suchitra Krishnamoorthy brought to light some of these practices by HSBC. When you compare the financial products and the methods of selling them to the earlier case, they point to a definite modus operandi – uniform practices being followed by HSBCs branches throughout the country, be it in Mumbai or Kolkata.
In September 2006, Suchitra Krishnamoorthy entrusted Rs 3.6 crore to HSBC Bank for investment. HSBC Bank caused her losses of over Rs 79 lakhs before December 2011, when she finally withdrew the power of attorney and authority. The legal notice issued by her points out, “HSBC charges a 2% entry load for every purchase made by it on behalf of our client. To inflate this entry load, HSBC sold investments made in mutual funds at unwarranted very short spans of time, sometimes within just a few weeks. These rapid sales or purchases were without any cogent basis, warrant or justifications. In this manner, HSBC was able to overinflate the 2% charge to an aggregate amount of Rs 29,34,450. These excessive sales and purchases of investments was not done in our client’s interest, and in fact was against our client’s interest. Mutual funds were sold when the market index was low, and purchased when it was high.
“In or about 2007, our client needed money for investment in a personal home. Our client wanted to withdraw money from her investments for this. However the HSBC officials deliberately mislead and misguided our client that she should take a home loan from HSBC Bank. Accordingly, our client was misguided into taking a loan of Rs 1.69 crore from the Bank. Our client had to pay a monthly EMI of Rs 1.89 lakhs… our client was never informed by the Bank that she was entitled to a smart loan from the Bank for her home. By such smart loan, our client’s interest burden would have been greatly reduced if not nullified. When our client learnt of this smart loan facility from a third party, she immediately requested the Bank for this facility, but to avoid giving her this facility, the bank delayed on one pretext or another… Finally, our client sold a property she held in Karjat to repay the loan in 2011. By this time, our client had paid the bank about Rs 58 lakhs towards interest on this loan, and Rs 1.65 crores towards the principal amount…” the legal notice says.


Mutual Fund investments are subject to market risks, please read the offer document before nvesting. Investors may note that securities, which offer higher potential return, will usually display higher volatility. Equity securities by nature are volatile and prone to price fluctuations on a daily basis due to macro & micro factors

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Mutual funds must launch direct plans and offer higher NAV MUTUAL FUNDS MUST LAUNCH DIRECT PLANS AND OFFER HIGHER NAV

The latest round of mutual fund reforms that the Securities and Exchange Board of India (Sebi) has announced has generally been welcomed in the media and by investment analysts. The new rules could re-vitalise the mutual fund industry and create an incentive for fund management outfits to expand to smaller cities and towns. However, there's no doubt that the price of all these will have to be paid by investors. Funds are going to be more expensive than they used to be by a margin ranging from 0.1% to 0.3% a year. Apart from this, investors will also have to bear service tax on at least some part of the expenses that are charged from them. This is undoubtedly a negative. It hardly needs to be pointed out that higher expenses are never a good thing for investors.

However, I have no hesitation in saying that on balance, the current round of reforms are a positive force and the higher expenses are a justifiable side-effect of achieving some desirable outcomes. The main point here is that higher expenses are contingent upon fund management companies successfully expanding their reach to a greater proportion of the country's population. It does mean that if a fund so expands its reach, then its existing investors will have to pay some of the cost of expansion to smaller cities.

On the face of it, this looks like a sort of a subsidy charged to investors from larger cities. This is not different from similar cross-contributions in other areas. For instance, banks' agricultural and other priority sector business is subsidised by more affluent customers. In life insurance, longer-lived customers implicitly pay for less healthy ones. There are many more examples like this. No financial service, probably no business, runs on the basis of charging from each customer precisely what that particular customer costs.

Having said that, there is now greater responsibility on Sebi for ensuring that fund companies live up to the task that they are charged with. The better economics of the business must contribute to a genuine broad-basing of the business. This will mean that AMCs, specially the larger ones, will have to spend more on business development in the real sense of the word; and Sebi will have to make sure that they do.

Another way in which costs can be kept under control is by making sure that Sebi's new direct plan initiative meets with a broad response. The idea is: AMCs should launch separate plans under various funds which can only be bought directly by investors without going through distributors. Since distribution costs get greatly reduced, these plans should have lower expenses. They will thus have a different (higher) NAV than the distributor-sold plans and thus higher returns.

According to what Sebi has said so far, it appears that AMCs are under no obligation to launch direct plans for every single fund. On the other hand, it's very likely that AMCs will be under pressure from distributors, especially large and powerful ones like the banks, to not launch direct plans. This is something that the regulator and even the media will have to guard against. AMCs must launch direct plans for their equity and hybrid funds and the expense levels of these funds must genuinely reflect the absence of distributor remuneration.

Sebi's new regulations begin a new phase for Indian mutual funds. The regulator has made clear its intentions of treating higher expenses as an incentive to create a new kind of fund industry, which will ultimately benefit the investor. As in all new regulations, there will be weak points that no one could have visualised beforehand. However, it would be good if all stakeholders can appreciate the underlying spirit of the changes and work towards genuinely expanding funds. It would conversely be very bad if the usual suspects set about to figure out loopholes and ways to game the system.

Er Reema Chordiya [ BE, MBA, Member of the Advisory Board at
Minu-Sepehr AeroSpace University,USA ]
Manager HR


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