management by matrices

a fresh perspective on management.

Brokerage Comparison - ICICI Direct, SBI, HDFC Securities etc

Out of curiosity I did a comparison of brokerages across various providers of trading and demat accounts in India. Here are the findings:

For a delivery based volume of less than Rs. 50 Lakhs per quarter, here are the brokerages across some leading providers of trading and demat accounts.

ICICI Direct =fixed plan of 0.50%, (and a variable plan of 0.25-0.75% which is beneficial only for large investors)

HDFC Securities = 0.50%
SBI Demat = 0.50%
Reliance Money = 0.45%
Geojit BNP Paribas = 0.25% to 0.30%
Edelweiss = 0.30% to 0.50% 
Fullerton Securities = Upto 0.50%  on pre-paid plans
Angel broking = 0.35%

[Readers may drop in brokerage charges for other service providers and I will update the post accordingly.]

Life Settlements - The next sub-prime crisis

Undeterred by the mess that it created with securitization of mortgages (the Subprime crisis), Wall Street is now working on a new kind of securitization, that of life insurance policies. 
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

... And investors are not interested in healthy people’s policies because they would have to pay those premiums for too long, reducing profits on the investment...
More here
Some clear flaws that could make this the next bubble are:
1. With better health care facilities and medical research, people will end up living longer thereby reducing returns on these 'life settlements' for investors like banks.
2. Some currently fatal diseases may soon have cures, causing the value of this new product to plummet.
3. A large market may emerge where people buy insurance policies just to 'flip out' and sell it to a bank. This is exactly what happened with real estate mortgages, where a whole bunch of people bought houses simply hoping to flip out as the underlying value of their homes went up.
4. Life insurance companies will blow up due to larger payouts being paid as a result of a greater percentage of policies NOT lapsing (a lot of long term policies lapse because the insured / dependents may no longer need the benefits).
5. Life insurance premiums will go up, implying that more and more people who actually need insurance will no longer cover themselves. As it is the poor are already on the fringes of the mainstream financial market.
6. The best returns on this investment product will be gained when the insured person dies sooner than later - there may well be some strange consequences to this.
7. A big market would develop for sub-prime policies (policies of people who are likely to die sooner). This product would be in the highest demand. Some rating agency will slap a AAA rating on it.  Either 1. or 2. listed above will cause a major blowout.

The article linked to above implies that Wall Street is going ahead full steam on this new product. Awesome.