Friday, November 23, 2012


I am against all MLM schemes including Amway India: V C Sajjanar, Police  Officer
Mr V C Sajjanar is the first police officer who filed criminal cases against the fraudulent companies like Japan Life Bed, Amway India, GoldQuest,, etc., which are indulging in money circulation schemes in the guise of selling products. A recent meet with the popular Indian Police Service officer, Mr V C Sajjanar revealed that the police officer has fire in him against the daylight robbery of these crooks and he goes to any extent to check this menace in the larger interest of people. Presently, Mr Sajjanar is the Deputy Inspector General of Police (Intelligence).
Q: Sir, you are the first police officer all over India and in fact all over world, to file a criminal case against Amway India. You are also instrumental in breaking the Japan Life Bed racket even before Amway India. What made you to take that stand?
Sajjanar: I have been against the multilevel marketing or money circulation schemes from the beginning. Money circulation schemes have been exploiting the gullible since 1960s and it was the Andhra Pradesh State Government which first enacted a law banning money circulation schemes. Later, the Government of India enacted a comprehensive law--the Prize Chits & Money Circulation Schemes (Banning) Act, 1978. However, in the name of selling products and services, many companies are cunningly indulging in money circulation schemes. We have to break that corporate veil and bring these culprits to book.
Q: Apologists of Amway say that you are against Amway India since your family members suffered loss after joining Amway India. Is it true?
Sajjanar: That is nonsense. As a police officer I could sense the criminal activity. It is not the question of Amway India. There are many such copycats operating in the country.
Apart from multinational companies, there are also some indigenous companies indulging in money circulation schemes. For the simple reason, they are Indian we cannot allow them to unjustly enrich themselves. We are after every such operator who wants to make easy and quick money at the cost of our economy.
Q: Amway India says that AP Police falsely registered case against them?
Sajjanar: Cases are registered as per the provisions of Criminal Procedure Code. Sec.10 of the Prize Chits & Money Circulation Schemes (Banning) Act, 1978 says that all the offences under this Act are cognizable. It is the duty of police to register FIR immediately and conduct investigation whenever he receives information of a cognizable offence. Top 5 Advocates in India -- Soli Sorabji, Rajiv Dhavan, Anil Kher, Bhargav Desai, R.F. Nariman -- have appeared for Amway India in the High Court of A.P. and the Supreme Court of India and argued for days. Still the Hon'ble High Court of A.P. and the Hon’ble Supreme Court of India have held that the sponsoring scheme of Amway falls within the definition of illegal Money Circulation Scheme. The Hon'ble Courts would have passed strictures against the police, if the action and investigation of police against Amway is illegal.  After analyzing the business model of Amway India, the Hon'ble Courts held that the scheme of Amway is illegal.
Q: Amway apologists  say that you are against only Amway India not other companies?
Sajjanar: Being a police man, I am not against any particular company. The concept of MLM violates the provisions of the Prize Chits & Money Circulation Schemes (Banning) Act, 1978. As per the Constitution of India, violation of law is liable for punishment and no violator should go unpunished. Throwing allegation of bias is a tactic of criminals. It is only to divert the attention of public and dilute the issue. When I was working in various districts as Superintendent of Police cases were registered against Goldquest, Agrigold, Tupperware, Herbalife, Hindustan Unilever Network,, Japan Life etc including several other companies whoever violated the provisions of the Prize Chits & Money Circulation Schemes (Banning) Act by promoting illegal money circulation schemes. This shows I was against all these companies. Recently the Supreme Court of India in Kuriachan Chako case clearly held that binary scheme 1:2 sponsoring scheme by whatever name called including Multi-Level Marketing is nothing but illegal Money Circulation Scheme. Being a police man, initiating proceedings as per law does not amount to bias against particular person.
Q: Do you think these companies could damage our economy?
Sajjanar: Certainly. These companies have been immensely damaging the economy of our country. Not only that. These companies have also been damaging the social fabric of our society. These companies encourage people to enroll their family members, relatives and friends into such schemes. After joining such schemes, all these friends and relatives are bound to lose in such schemes. Once they lose their precious earnings, they never trust their friend or relative who joined them in such schemes in future. That is how the social fabric is affected.
Q:  Tell us more about economic damage.
Sajjanar: It is estimated that these companies have been draining out more than Rs 10,000 crores every year. In addition, the indigenous companies have been lining their pockets with Rs. 100,000 crore every year. If this money is rightly invested in the infrastructure the quality of life of Indians would immensely improve.
Q: What should be done?
Sajjanar: People should realize the futility of joining such schemes. Apart from that the Government of India should initiate steps to close down such companies forthwith.
Joining, participating, promoting or helping otherwise in the Multi-Level Marketing   (illegal money circulation schemes camouflaged as sale of products and services) are illegal and punishable. Some people are misrepresenting it by saying that you are not joining but just purchasing the products, but purchasing products under these illegal schemes also amounts to promoting of these schemes and are punishable under PCMCS Act. That the Government is not taking action against them promptly does not mean that these schemes are legal.
It is very painful to note that several people are informing that the police are not accepting their complaints to register cases. The office of the DGP has issued circulars to all the police stations in the State to immediately register such cases. It is unfortunate that many police officers are not aware of the circular.
I appeal to the journalists all over world to take up this social cause and create awareness about these scams which dwarf even the 2G scam. The worth of 2G scam is hardly 1 or 2 lakh crore but the scams of MLM is several times more than it.


Checklist to Evaluate Multi-Level Marketing (MLM) Programs that may be Pyramid Schemes
Use the questions below to evaluate a multi-level Marketing program that you are considering to see if it meets a government definition of a pyramid scheme.

1. Is there a joining fee?

Pyramid selling schemes often have start-up fees which are not for purchasing commercially viable goods or services since most earnings come from introducing others to the scheme.

2.   Does the promotional literature indicate unrealistic earnings (eg "make Rs.100,000 a month legally")?

Promoters who make unrealistic claims risk breaking the law.
If you answer yes to (1) and (2) then regardless of whether the scheme is pyramid selling or not, you should seek financial advice before entering.

3.   Do participants earn commissions primarily from selling products or services, or are financial rewards largely dependent on recruiting others into the scheme?

Pyramid selling schemes are based on recruiting others into the scheme.

4.   Are the products commercially viable?

A legitimate scheme has as its main feature products which consumers want to buy.

5.   Are the products sold to genuine customers?

Legitimate multi-level marketing depends on selling to customers and establishing an ongoing market.

6.   Are the number of products required to be purchased or ordered by the participants reasonable?

Legitimate businesses require participants to buy or order only as much stock as they can realistically expect to sell.

7.   Does the promotional literature offer benefits such as "a life of happiness and prosperity", or "it’s easy to sign up new distributors"?

Such statements need to be read carefully as they may make unrealistic promises which conceal the amount of hard work necessary to actually achieve such goals.

8.   Does the promotional literature contain testimonials from people who are not easily available for possible checking (eg "Chandubhai Mehta from Surat writes ..")?

People giving testimonials may not want to be identified for reasons of privacy. This may raise suspicions about whether the testimonials are genuine. Even if they are, there is generally no way for consumers to check. References to testimonials should be read with this caution in mind.

9.   Does the promotional literature contain claims such as "this is not a get rich scheme" or "this scheme is legal"?

Again, statements like this need to be read with care. You need to ask yourself why such a statement is necessary. They may disguise the fact that the scheme may be illegal, or contain illegal components.

10.                Does the information about the scheme suggest that the Ministry of Consumer Affairs,  or another government department or agency has endorsed or approved the scheme?

Neither the Ministry or any dept of the Govt. endorse or approve any schemes. If this statement is made, it is untrue.

11.                Does the promotional literature fail to provide a street address, so that you cannot contact a person for further details?

Legitimate schemes are unlikely to do this.

12.                Does the scheme provide ongoing training and sales support?

Legitimate multi-level marketing businesses have a vested interest in ensuring that participants are well trained and supported.


The idea behind multi-level marketing (MLM) is simple. Imagine you have a product to sell. A common MLM product is some sort of panacea, such as a vitamin or mineral supplement. You could do what most businesses do: either sell it directly to consumers or find others who will buy your product from you and sell it to other people. MLM schemes require that you recruit people not only to buy and sell your product, but who will also recruit people who will not only buy and sell your product but also recruit infinitum. Only there never is an infinitum to move towards. This may seem unusual to traditional business people. Why, you might wonder would you recruit people to compete with you? For, isn't that what you are doing when you recruit people to sell the same products you are selling? MLM magic will convince you that it is reasonable to recruit competitors because they won't really be competitors since you will get a cut of their profits. This will take your mind off the fact that no matter how big your town or market, it is finite. The well will go dry soon enough. There will always be some distributors who will make money in an MLM scheme. The majority, however, must fail due to the intrinsic nature of all pyramid schemes.
Multi-level marketing is system of marketing which puts more emphasis upon the recruiting of distributors than on the selling of products. As such, it is intrinsically flawed. MLM is very attractive, however, because it sells hope and appears to be outside the mainstream of business as usual. It promises wealth and independence to all. Unfortunately, no matter what the product, MLM is doomed to produce more failures than successes. For every MLM distributor who makes a decent living or even a decent supplemental income, there are at least ten who do little more than buy products and promotional materials, costing them much more than they will ever earn as an MLM agent. The most successful MLM scheme is Amway. It has millions of distributors worldwide with sales in the billions. At the turn of the century, the average Amway distributor earned about $700 a year in sales, but spent about $1,000 a year on Amway products. Distributors also have other expenses related to the business, e.g., telephone, gas, motivational meetings, and publicity material (; Klebniov 1991).
The reason MLM schemes cannot succeed is because MLM marketing is, in essence, a legal pyramid scheme.  The basic idea is for a sales person to recruit more sales persons. This is very advantageous to those who own the company and supply the products, especially since the sales persons in MLMs are also customers. But it is puzzling why a sales person would think it is to his or her advantage to increase the number of competing sales persons.
This is not to say there is no benefit to MLM membership. You get certain tax write-offs. You get to buy products, some of which you will be happy with. You get to go to inspirational meetings, some of which will make you feel good. You may meet new friends and you may even make a few bucks. But more than likely you will end up alienating some family and friends. You will probably end up buying more stuff than you sell. And you will learn a lot about deceiving yourself and others. You won't be allowed to tell anyone how you are really doing, for example. You will always have to think positive, even if that means lying. You will have to tell anyone who asks that you are doing great, that business is wonderful, that you've never seen anything go so fast and bring you income so quickly, even if it isn't true.
A word of advice when looking into a network marketing business opportunity - unfortunately some pyramid schemes have tried to mimic the network marketing business model before being discovered as fraudulent, therefore you have every right to be initially concerned. For your benefit we have put together a list of questions that you can ask yourself prior to signing the dotted line to help you identify a legitimate company from a fake one.
In particular, the following 2 questions:
1.  Is there a legitimate product involved?
What do you get in return for your start up investment, other then the potential to earn good money? If you're not getting a product or service or if the training tools appear to be overpriced you could have discovered a scam.
2.  Do you get commissions based on product distribution or on recruitment?
If they are paying commissions based purely on recruitment, walk away now.
Additionally, you should also consider the following factors that might influence long term success.
Be aware of hype and ground floor opportunities
Although some people might claim you earn more money if you get in first, this is never the case and these are companies that normally fold within the first couple of years. It is much safer to join a company with a proven track record.
Does the company have a proven track record?
If the company has been around for a few years then there is a fair chance that governing bodies that police pyramid schemes have already pulled the business model apart and given them the ok. Publicly traded companies are normally your best bet.
Will the company buy back any unsold product?
Most network marketing companies have a money back guarantee which means that if you are unhappy with the products you can send them back for a refund. Given that the majority of your start up kit was product, if you’re not happy with the business you should be able to send back any leftover product to refund most of your start up costs. Try network marketing and potentially become very wealthy, or if its not working for you send your product back for a refund, its a win-win! Naturally a pyramid scheme is not going to refund your money.
Is this a get rich quick scheme?
Although there is a lot of potential to earn very good money in network marketing very few have made it quick, most make their millions through consistent effort. So if it sounds to good to be true, it probably is.
Shop around
If you are looking into the industry for the first time dont be scared to look at other business models and products, particularly if you dont know which company to join. There are many discussed within this webpage.
What training do they provide?
A good company has a solid training system.
To finish with, we strongly advise that you take the time to make your decision, dont be pressured into joining right away, do your homework.
Remember it is better to be safe than sorry.

Tuesday, September 11, 2012

Safeguard yourselves from Financial Frauds

Safeguard yourself from financial frauds

You might be a victim of a financial fraud and chances are you do not even know about it. This can happen and there is nothing you can possibly do to control this. It does not matter who you are or whom you know or where you are from or what position you are at.

Consider this. Out of the blue someone from some financial company calls you for bounced cheque and EMI recovery. You are shocked as you have not even purchased a thing in the last six months. The caller then verifies your name, address, date of birth, mobile number, office number etc. None of this that you can deny but suddenly there is a large loan standing in your name.

You have not visited the store in question, not made any payment, perhaps you were not even in town but still somehow someone purchased goods in your name, on your credentials and has now absconded with the goods leaving you in a lurch. You cannot believe this and you call for a fresh CIBIL report and you can clearly see a new loan/s glaring at you. Naturally you are in no mood to pay for some fraudster’s purchase but as a result while you figure out what to do that loan has already started messing up your records and credit score. There is just nothing you can do to deny and the fact remains that you have not bought any goods. What will you do?

No recourse

The police will not be forthcoming and register an FIR. This obviously is a clear case of fraud, identity theft and other criminal offences as well. The police will ask you to submit a letter and they will stamp their acknowledgement – nothing more.

When you demand documents from the financial institutions, they will not co-operate easily; emails you send will fall in some black-hole and you will not know whom to telephone in such large companies. The store where goods were sold may not readily cooperate and give you video footage till a case is registered. CIBIL can be most hostile in such situations.

Any financial institution can freely play havoc with your life, destroy the reputation you have built so far and CIBIL will not only abet it but also play a vital role in distributing that information to each person or company who calls for your credit information. Everything is one sided, everyone is against you and you have no recourse.

How it happens

Greed & Hunger: All are in a hurry. Consumer companies have sales targets to achieve and financial companies are desperate to lend money, garner more business and achieve their business targets. Documents are checked briefly, processes are shallow – more for compliance reasons than for reasons of accuracy and genuineness. Sanction of loan is done on the spot and goods are shipped out of the store. There is either no inclination to verify anything further.

Fake documents: Fraudsters can easily get hold of our documents. We are to blame here as we are just far too careless about how we destroy/ discard vital papers we do not need. Try stopping by for a sandwich on the road; chances are you will be served the sandwich in someone’s demat statement or credit card statement.

Further, anyone can apply for anyone’s PAN card. All the fraudster needs is a copy of your PAN card and some address details, which are so easily available. Every now and then everyone keeps asking us for some sort of ID and address proof and we have no idea of how they safeguard our information. Hence it is easy to infer that our data is generally available. Fraudsters will merge or make a collage of parts of 2-3 documents and produce, for e.g., a bank statement with your name on it or any other official looking document. They may stamp it or notarise it, then make copies of photocopies etc. Even bank accounts are faked as banks do not insist on destruction of old, invalid cheque books hence there are lots of cheque books where the account owner’s name is not printed on the cheque leaf. All such fraudulent documents are put together and loan is applied for and obtained very easily.

The Deviation: There is no real check that actually happens and “deviation” is a popular word used by persons in this line of business which essentially means “Let us do the deal now and get the paper/s later or lets bypass some part of the process”. Everyone is happy at the end of the day; thieves get the goods, lending company’s officers made good business; salesmen will earn good commission; all are happy, except you the victim.

What to do?

The primary thing is you should not sleep over this. This is serious and you should get serious too. Do not think I am too busy now and will worry about that later.

Firstly, as a routine, call for your CIBIL report every six months. If there is a problem, raise an online dispute with CIBIL. Do not expect much, however. Write that letter to the police station anyways. Insist on registering an FIR or at the least file your official statement. Write letters to companies concerned. If emails do not work send registered letters. Write to ombudsmen if you have an issue with a bank.

You will need to undertake a multi pronged attack approach to safeguard your life and situation. Cross your fingers then and hope that things work out for you else continue the paper war.

Steps to Safeguard yourselves

Safeguard Yourself
Treat unsolicited offers with suspicion
If you receive a request or offer via email, pop-up message or phone that requires you to provide or confirm personal information, call the business using a phone number other than the one given to confirm the legitimacy of the request or offer. If the inquiry seemingly originates from a known and trusted entity, use the number on the back of your card or on your monthly statement.

Make payments electronically when possible
Electronic payments reduce the amount of paper floating around with personal information on it, and many financial institutions offer online bill paying services.

Shop carefully online
If you initiate an online transaction and must provide personal data, look for indicators that the site is secure, like "https" in the Web address or the closed padlock icon in the bottom frame of your browser. Avoid sites without these indicators. It is also wise to conduct financial transactions only on wired Internet connections. Wireless connections can be more vulnerable to attack.

Use updated anti-virus software, anti-spyware and a firewall
Some phishing and pharming attacks contain software that can harm your computer or track your activities on the Internet without your knowledge.

Review account statements regularly
Verify all transactions by matching receipts to checking, savings and credit card account statements. Frequently reviewing activity online helps identify unauthorized activity between monthly statements. Many financial institutions offer free email alerts for routine account activity, as well as for unusual transactions.

Protect your purse or wallet
e report, log on to One of the leading causes of identify theft is lost or stolen belongings containing personal information. Minimize the number of items you carry that contain personal information, such as your Social Security card.

Close accounts
If you become a victim, close all affected accounts immediately to minimize the damage. Change existing passwords on all other accounts, including any new accounts you open.

Opt out
Limit the disclosure of your personal information by contacting your financial institutions, mortgage brokers and the three major credit reporting agencies. Tell them you want to opt out of programs that share your information. You can also block inquiries that result in pre-approved lines of credit.

Additional steps
  • Shred all personal and financial documents before disposing of them
  • Destroy unused debit, ATM and credit cards
  • Remove mail promptly from your mailbox
  • Memorize PINs, passwords and Social Security numbers – do not carry them with you
  • Use longer, more complex PINs and change them often
  • Sign all debit and credit cards immediately
  • Never use your PIN as a password
  • Never disclose your PIN or account password to any individual for any reason

Wednesday, August 29, 2012

Letter to Finance Minister on Impact of SEBI's new regulation for Mutual Funds

( Initiave of Pune Investor Grievances Forum (Regd))


Dear Sir,
Sub: Impact of SEBI’s new Mutual Fund Regulations on the Small Investor.
On the 16th of August, SEBI has come out with a Press Release announcing changes in Mutual Fund Regulations.
Currently, it is a press release which means we only get the outline of the changes proposed. Soon, this will be followed by a circular (more than one, likely) which will contain more details. The circular(s) will be analysed by the mutual fund compliance officers (and probably, AMFI) and they will come out with guidelines of implementations which is when we will really know the true import of the changes.
The SEBI’s Note starts with “Steps to Re-energise Mutual Fund Industry”. It states that SEBI took note of the lack of penetration of Mutual Fund Products, inadequate distribution network, need for greater alignment of the interest of various stake holders, regulation of distributors and issues concerning investor protection, and has approved some immediate steps, which are:
·        Increase in penetration of mutual fund products and energising distribution network,
·        Improve reach of MF products beyond the Top 15 cities,
·        Alignment of interest of investors, distributors and AMC’s
·        Investor protection – issues of mis-selling and churning
·        Strengthening regulatory framework for Mutual Funds
·        Long term measures
·        Rajiv Gandhi Equity Savings Scheme
As per the SEBI press release, Mutual fund space has got fungibility with regards to expense ratio. Now the AMC can pretty much decide under what head it wants to spend, how much. The exit load will now be credited back to this scheme and this is really to curtail the high churning that goes on in each of these schemes.
Another important change is 30% of the incremental sales come from beyond the top 15 cities, the expense ratio can be increased by 30 basis points and this will be proportionate to the incremental sale. The service tax will now be charged ultimately to the investor which is at the rate of 12.5% which is currently borne by the AMCs.
Sebi will also set up a self regulatory organisation to regulate selling of mutual funds. It has also asked mutual fund advisory committee to come out with a national mutual fund policy that will deliberate on the tax issues and the disclosures obligations which it has placed on the asset management companies.
It has also recommended to the government tax benefits to equity MF investors under the proposed Rajiv Gandhi EquitySavings Scheme (RGESS).
However, it would be a mistake to imagine that these steps will actually, by themselves, re-energise retail investment in mutual funds and capital markets. These are no more than enablers—important and crucial, no doubt—but in the final reckoning they are part of the supporting cast.
Investments will get re-energised when savers feel that they’ll get good returns, get drawn to investments and enthusiastically put their money into equity-backed investments.
In mutual funds, the thrust of the changes is to set up an incentive system that will allow asset management companies to charge higher expenses if they succeed in making inroads outside the larger cities where fund investors are currently concentrated in. The new rules also incorporate a series of other changes that collectively improve funds’ economics while imposing a somewhat higher cost on investors.
There are three or four items in the press release that warrant closer look in this regard:
Firstly, higher expense ratio for promoting MFs in Tier II cities – SEBI has proposed that an MF can charge up to 30 Basis points (bps),  (one bps is one hundredth of a percent, so 30 bps is 0.30%) more in its total expense ratio towards promoting mutual funds in places outside of the top 15 cities.
However, this raise is tied to the goal of getting 30% of the new inflows from these places.  If an AMC gets less inflow, they will be allowed to charge only up to the % of inflows they get – that is, if 5% of new inflows to a scheme are from these places, then the expense ratio will go up by 5 bps only.
Currently, the inflows from these Tier II or lower places are negligible. Bringing them up to 30% is a huge task and it is very likely that for the first few years at least, this increase will be in the 5 to 10 bps range at best.
The permission to charge an additional 30 basis points (bps) as total expense ratio (TER) on sales beyond the top 15 cities may look attractive, but mutual fund industry executives have taken it with a pinch of salt.
Barring a few top fund houses, most others do not enjoy widespread presence outside the top 10 cities. Moreover, according to the latest statistics, close to three-fourths of the overall industry’s assets pour in from the top five cities—Mumbai, Delhi, Bangalore, Kolkata and Chennai. And after including the next top 10 cities, the industry gets a whopping 87 per cent of its assets
We fail to understand this regulation – asking the top tier cities’ investors to directly bear the cost of getting tier-II cities’ investors into the big tent of mutual fund investing.
Second issue is regarding the ‘service tax’.
SEBI has announced that service tax that has so far been borne by the AMCs can now be passed through to the investors.
In all other industries anybody who has received an invoice for a service is familiar with the “Service tax extra” remark in addition to the quoted amount.
AMCs provide a service (fund management service) to investors and can now rightfully start charging the investors the requisite amount. This charge, however, is apparently likely to be 2-3 bps (according to the press release).
We feel that this 2-3 bps is more likely to increase the overall impact across schemes. For equity schemes, it is likely to be higher, more in the 7-8 bps range for big funds and 10-12 bps range for smaller funds (service tax is charged on the amount that an AMC gets to keep from the expense ratio, so it will differ from AMC to AMC and scheme to scheme).
The service tax impact will also be affected by the new “fungibility” clause which allows AMCs to be unfettered with regards to how it wants to manage the expense ratio. The amount that will be subject to service tax will depend on how much the AMCs choose to charge from the expense ratio.
The third item is the clause about exit loads. However, this is likely to be a zero sum game between the AMC and the investor. The press release states that the exit load charged to premature exit investors will now need to be credited back to the scheme account (and not the AMC account),  and an equivalent amount (up to a limit of 20 bps) can be added to the total expense ratio to compensate for the loss to the AMC account. What this means is that the credit of exit load to the scheme account will be balanced by the expense ratio. So neither the AMC nor the investor stands to gain.
There is another angle and that is the distributor. Thus far, the distributor  was getting paid by the AMC in the form of upfront commissions by the AMC from the exit loads. Since that money will now come distributed across time in the form of expense ratio, this commission will now go away and probably be replaced by a slight bump in the trail commission.
This move is to discourage “churning” by distributors to earn upfront commissions.
SEBI’s attempt to curb churning in this manner is confusing. The release states, “The entire exit loads would be credited to the scheme while the AMCs will be able to charge an additional TER to extent of 20 bps. This will not result in any additional cost to the investors”, which means that the upfront commission that was being paid out from the exit load would stop as the entire amount would be added back to the fund. The AMCs would be compensated with a higher TER of up to 20 bps. But what if the amount generated through TER is greater than the amount generated through exit load; this would then be an additional cost to the investors.
The real impact on the investors at least in the initial years is likely to be between 10-15 bps bump in the expense ratio.  It will be determined by two factors – what the service tax is computed on and how successful AMCs are in achieving their social target of MF penetration.
The relaxation in the requirement for PAN card for applying for mutual funds, appears to be a cosmetic move. It is unlikely to result in hordes of farmers queuing up to purchase units by paying in cash. But more pertinent, there is no clarity on how the redemption proceeds will be processed. It is highly unlikely that it will be in cash. This may be a bigger impediment than the PAN Card for such prospective investors.
Mis-selling and churning are widespread evils. However, as in the case of insider trading, it is difficult to pin down offenders who mis-sell. Usually, agents make clients sign on undertakings that they have understood the features and are cognisance of the various risks involved. If at all, push-comes-to-shove, agents could always hold up that document as evidence that they were in compliance.
The additional 20 basis points towards penalty for early redemptions may not really deter inveterate traders, as the figure is fairly insignificant. However, it is a non-event for investors who remain invested.
To sum it upt, SEBI’s proposed changes to mutual fund regulations are oriented to enrich AMCs while small investors, who have lost money on several funds even after holding them for years, have been   brushed aside.
We request you to look in the matter urgently and grant us an appointment to present the views and expectation of the Small and Retail Investor.
For Small Investors Forum,

Yogesh Kulkarni                     Dayanand Nene


It is very important to understand the electricity bill and it's components to make plans for energy savings. Our electricity bills have quite a lot of information to give us a good insight to our electricity consumption patterns. A good understanding of various components can help one plan for money saving exercise. Here, we will discuss various sections/information on electricity bills that are important:
o    Tariff / Category: Tariff and Category determine the rate structure applicable on the bill. Typical tariff codes start with LT (Low Tension) or HT (High Tension). LT codes are typically used for residential connections and small offices . HT codes are typically used for bigger industries and complexes. Category in the bill determines if the connection is residential, commercial or industrial. Different rates/slabs are applicable for different tariff codes and thus it is important to validate that the right tariff code is applied on the electricity bill. This information is available on bill header as shown below:
o    Type of Supply & Connected Load: Connected Load is the total pool of supply that is given to a meter. This is calculated in kW (or Killo-Watts). This is the total peak kW given to a meter based on the appliances connected to the meter. This is not your actual energy consumption and only impacts fixed charges on your electicity bill. Connected load also determines if the connection will be a single phase or three phase. If load is more then supply is three phase and thus fixed charges are more. Utilities also charge more fixed cost for incremental connected load. Below is a screenshot from Reliance Energy bill in Mumbai:
o    Units Consumed: Units consumed is the number of kWh (Killo-Watt-Hour) consumed in a month. 1 kWh is equivalent to keeping a 100 Watts bulb on for 10 hrs. This information is calculated by finding the difference between meter readings of two consecutive months. This is the total monthly consumption by all the appliances that are connected to the meter. This is the value that needs to come down in order to reduce the electricity bill. An observation of consumption history can give an indictor of the appliances having higher electricity consumption (typically Air Conditioners increase consumption in summers).
o    Tariff Structure: It is very important to note the tariff structure on your bill, as this is the best indicator of how the bill can be reduced. Typically for residential and SMB commercial connections, the structure is slab based (unlike industrial connections where units are charged at a high flat rate). The intent behind the slab structure is to reward low energy users and charge extra to those who have high consumption. The slabs are based on the "Units Consumed" that we discussed earlier. As the number of units consumed increase, energy charge changes and also the fixed costs associated with the slab increases. Below is a sample of tariff structure from a bill from Mumbai:
o    Fuel Adjustment Charge (FAC): As you can see in the tariff structure above, there is a FAC rate applicable at each slab. This is the additional cost of power incurred due to fuel price increments during a year. Fuel in most cases is Coal. As per a study, after 2011, the production rates of coal will decline, reaching 1990 levels by the year 2037, and reaching 50% of the peak value in the year 2047. So invariably FAC will increase till alternate sources of electricity are not developed to a state where they can generate electricity that cheap. So electricity costs will surely increase in future. 
Understanding the elements of electricity bill mentioned above can help you understand your electricity bill and will also help you to plan your electiricty consumption reduction project. Two things that should be targetted are: Units Consumed and Connected Load. Reduce the two and your electricity bill will surely come down.

Have you ever wondered why your electricity bill amount is not the same even when you have the same number of units consumed on the bill? Why is it that the electricity bill is different even when you have not changed your electricity consumption? If you look at your bills you will just find that there is an amount mentioned as FAC or FCA or FPPCA, which is either positive or negative and is creating the difference.
What is FAC/FCA or FPPCA?
FAC (Fuel Adjustment Charge) or FCA (Fuel Cost Adjustment) or FPPCA (Fuel and Power Purchase Cost Adjustment) is amount that utilities apply on bills based on varying price of fuel or Coal. The price of coal or fuel changes every month based on demand and supply of coal and thus cost of producing electricity changes accordingly. The electricity generation companies pass on this cost to distribution companies who there by pass it on to consumers.
Why FAC is not included in the tariff slabs?
Electricity regulatory commissions of various states fix tariffs for electricity in India periodically. The revision happens every few years (every year in some cases) and a new tariff is set based on the cost of production and distribution of electricity. But the prices of fuel or coal changes throughout the year and the utilities have to manage these changing costs by passing it to the consumer.
How frequently does FAC change?
It varies from state to state. In some places like Mumbai, FAC is calculated every month. In most of the states it is Quarterly. In Madhya Pradesh it is Half Yearly and in West Bengal it is yearly. In some states like Chhattisgarh and Tripura it is revised on need basis from time to time. In case new tariffs are not defined frequently, the FAC component in electricity bill can be as much as the electricity tariff amount.
How is FAC calculated?
Every state has a different formula to calculate FAC amount. We are in process of collecting this information. We will update the readers of Bijli Bachao as soon as we get this information handy.
How does FAC impact my electricity bill?
It is a charge that is applicable per unit of electricity consumed. Unlike fixed charges it is a variable component on the electricity bill and changes as per your consumption of electricity every month. At times it is negative as well but mostly it is positive. Any reduction in monthly consumption of electricity will surely help in bringing down the amount in this component. So keep reading Bijli Bachao and reduce your electricity consumption.


Have you received your electricity bill recently and you are trying to understand what are the energy charges on your electricity bill? If that is the case then you are not alone, as electricity bill is the most complex bill that one receives.. In case you are trying to understand what it actually means, then it is the charges for the electricity you have used (excluding the fixed charges and other rents).
How are energy charges calculated?
Electricity consumption is recorded in terms of kWh (Kilowatt Hour) or Units by the electricity meter installed in your premise. A Kilowatt Hour is equivalent to running an appliance of 1 Kilowatt (or 1000 Watts) for 1 hour. A person from your utility (or DISCOM or distribution company) visits your premise at a selected frequency (in most states it is monthly, but in some states it is bimonthly or even quarterly based on choice) and records the reading on your meter. This meter reading is subtracted from your previous meter reading to come up with the units consumed (or kWh consumed) for the period. The units consumed are then applied to a slab based tariff structure to come up with energy or electricity charges.
How is slab based tariff structure designed?
In all states the tariff structures for residential consumers are designed in such a way that per unit charge is less if your consumption is less and more if your consumption is more. In fact it increases significantly as you increase your electricity consumption. For e.g. in Mumbai Reliance energy has following tariff:
First 100 units: Rs 2.96/unit
Next 200 units (from 101 to 300): Rs 5.56/unit
Next 200 units (from 301 to 500): Rs 9.16/unit
Any units after that (above 500): Rs 10.61/unit
So taking the above case, if your consumption is less than 100 units, you just pay Rs 2.96 per unit. But if your consumption increases beyond 500 units, every unit above 500 is charged at Rs 10.61 per unit. So if you consumed 540 units in a month, your bill will be calculated as:
First 100 units @ Rs 2.96 = Rs 296
Next 200 units @ Rs 5.56 = Rs 1112
Next 200 units @ Rs 9.16 = Rs 1832
Final 40 units @ Rs 10.61= Rs 424.4
So if you see you pay higher amounts per unit as your consumption increases. The motive behind such structure is to motivate people to consume less electricity.
In case you want to see the tariff structure applicable in your location, you can check our link: Domestic LT Tariff Slabs and Rates for all states in India in 2012.
Average billing: how it can make your bills high?
There are times when the person who comes for meter reading does not find you at home and you get a bill with average amount (or average consumption). Most of the times there is no basis for this number and is typically calculated based on your past consumption. The actual consumption is adjusted on number of units in the bills in following months. There can be 2 possibilities on this assumption:
  1. The estimated consumption is more than your actual consumption: In this case, if your actual consumption was in a lower slab but the estimated consumption is on higher slab, you pay more per unit for some of the units. Even if the numbers of units are adjusted in your next bills, you may have paid more per unit when you should have actually paid less.
  2. The estimated consumption is less than your actual consumption: In this case the differential units get accumulated and can possibly make your consumption go to the higher slab, and you again pay more per unit of electricity consumption.
Thus it is very important that the person coming for meter reading is able to do his job everytime. In case you get into a situation, make sure that you validate your amounts (you can do that using our calculator) before making the payment.
Smart Meters: How can they help?
In the age of improving information technology, we have a solution for the problem discussed above: Smart Meters. These are electronic meters that are connected back with the utility through the Internet. With these meters, no one need to come to your place to take a meter reading as the smart meters send this information back to the utility. There are several places where projects are going on for smart meter implementation and we hope that we have such meters everywhere in our country soon.