The Seven Habbits!

Not sure of how many of us are still actively interested, but for those who are, I thought of initiating this discussion.

May not be in sync with whatever we may currently doing, but am sure this will be good for all in the long run.

A good read...and hope some more follow....

If there is one habit that you can elaborate on it will be good for others to follow and imbibe :)

Chetan Shah

http://www.quickmba.com/mgmt/7hab/

Summary of Stephen R. Covey's

The 7 Habits of Highly Effective People

In his #1 bestseller, Stephen R. Covey presented a framework for personal effectiveness. The following is a summary of the first part of his book, concluding with a list of the seven habits.

Inside-Out: The Change Starts from Within

While working on his doctorate in the 1970's, Stephen R. Covey reviewed 200 years of literature on success. He noticed that since the 1920's, success writings have focused on solutions to specific problems. In some cases such tactical advice may have been effective, but only for immediate issues and not for the long-term, underlying ones. The success literature of the last half of the 20th century largely attributed success to personality traits, skills, techniques, maintaining a positive attitude, etc. This philosophy can be referred to as the Personality Ethic.

However, during the 150 years or so that preceded that period, the literature on success was more character oriented. It emphasized the deeper principles and foundations of success. This philosophy is known as the Character Ethic, under which success is attributed more to underlying characteristics such as integrity, courage, justice, patience, etc.

The elements of the Character Ethic are primary traits while those of the Personality Ethic are secondary. While secondary traits may help one to play the game to succeed in some specific circumstances, for long-term success both are necessary. One's character is what is most visible in long-term relationships. Ralph Waldo Emerson once said, "What you are shouts so loudly in my ears I cannot hear what you say."

To illustrate the difference between primary and secondary traits, Covey offers the following example. Suppose you are in Chicago and are using a map to find a particular destination in the city. You may have excellent secondary skills in map reading and navigation, but will never find your destination if you are using a map of Detroit. In this example, getting the right map is a necessary primary element before your secondary skills can be used effectively.

The problem with relying on the Personality Ethic is that unless the basic underlying paradigms are right, simply changing outward behavior is not effective. We see the world based on our perspective, which can have a dramatic impact on the way we perceive things. For example, many experiments have been conducted in which two groups of people are shown two different drawings. One group is shown, for instance, a drawing of a young, beautiful woman and the other group is shown a drawing of an old, frail woman. After the initial exposure to the pictures, both groups are shown one picture of a more abstract drawing. This drawing actually contains the elements of both the young and the old woman. Almost invariably, everybody in the group that was first shown the young woman sees a young woman in the abstract drawing, and those who were shown the old woman see an old woman. Each group was convinced that it had objectively evaluated the drawing. The point is that we see things not as they are, but as we are conditioned to see them. Once we understand the importance of our past conditioning, we can experience a paradigm shift in the way we see things. To make large changes in our lives, we must work on the basic paradigms through which we see the world.

The Character Ethic assumes that there are some absolute principles that exist in all human beings. Some examples of such principles are fairness, honesty, integrity, human dignity, quality, potential, and growth. Principles contrast with practices in that practices are for specific situations whereas principles have universal application.

The Seven Habits of Highly Effective People presents an "inside-out" approach to effectiveness that is centered on principles and character. Inside-out means that the change starts within oneself. For many people, this approach represents a paradigm shift away from the Personality Ethic and toward the Character Ethic.

The Seven Habits - An Overview

Our character is a collection of our habits, and habits have a powerful role in our lives. Habits consist of knowledge, skill, and desire. Knowledge allows us to know what to do, skill gives us the ability to know how to do it, and desire is the motivation to do it.

The Seven Habits move us through the following stages:

1. Dependence: the paradigm under which we are born, relying upon others to take care of us.
   
   
2. Independence: the paradigm under which we can make our own decisions and take care of ourselves.
   
   
3. Interdependence: the paradigm under which we cooperate to achieve something that cannot be achieved independently.

Much of the success literature today tends to value independence, encouraging people to become liberated and do their own thing. The reality is that we are interdependent, and the independent model is not optimal for use in an interdependent environment that requires leaders and team players.

To make the choice to become interdependent, one first must be independent, since dependent people have not yet developed the character for interdependence. Therefore, the first three habits focus on self-mastery, that is, achieving the private victories required to move from dependence to independence. The first three habits are:

• Habit 1: Be Proactive
• Habit 2: Begin with the End in Mind
• Habit 3: Put First Things First

Habits 4, 5, and 6 then address interdependence:

• Habit 4: Think Win/Win
• Habit 5: Seek First to Understand, Then to Be Understood
• Habit 6: Synergize

Finally, the seventh habit is one of renewal and continual improvement, that is, of building one's personal production capability. To be effective, one must find the proper balance between actually producing and improving one's capability to produce. Covey illustrates this point with the fable of the goose and the golden egg.

In the fable, a poor farmer's goose began laying a solid gold egg every day, and the farmer soon became rich. He also became greedy and figured that the goose must have many golden eggs within her. In order to obtain all of the eggs immediately, he killed the goose. Upon cutting it open he discovered that it was not full of golden eggs. The lesson is that if one attempts to maximize immediate production with no regard to the production capability, the capability will be lost. Effectiveness is a function of both production and the capacity to produce.

The need for balance between production and production capability applies to physical, financial, and human assets. For example, in an organization the person in charge of a particular machine may increase the machine's immediate production by postponing scheduled maintenance. As a result of the increased output, this person may be rewarded with a promotion. However, the increased immediate output comes at the expense of future production since more maintenance will have to be performed on the machine later. The person who inherits the mess may even be blamed for the inevitable downtime and high maintenance expense.

Customer loyalty also is an asset to which the production and production capability balance applies. A restaurant may have a reputation for serving great food, but the owner may decide to cut costs and lower the quality of the food. Immediately, profits will soar, but soon the restaurant's reputation will be tarnished, the customer's trust will be lost, and profits will decline.

This does not mean that only production capacity is important. If one builds capacity but never uses it, there will be no production. There is a balance between building production capacity and actually producing. Finding the right tradeoff is central to one's effectiveness.

The above has been an introduction and overview of the 7 Habits. The following introduces the first habit in Covey's framework.

FROM DEPENDENCE TO INDEPENDENCE

Habit 1: Be Proactive

A unique ability that sets humans apart from animals is self-awareness and the ability to choose how we respond to any stimulus. While conditioning can have a strong impact on our lives, we are not determined by it. There are three widely accepted theories of determinism: genetic, psychic, and environmental. Genetic determinism says that our nature is coded into our DNA, and that our personality traits are inherited from our grandparents. Psychic determinism says that our upbringing determines our personal tendencies, and that emotional pain that we felt at a young age is remembered and affects the way we behave today. Environmental determinism states that factors in our present environment are responsible for our situation, such as relatives, the national economy, etc. These theories of determinism each assume a model in which the stimulus determines the response.

Viktor Frankl was a Jewish psychiatrist who survived the death camps of Nazi Germany. While in the death camps, Frankl realized that he alone had the power to determine his response to the horror of the situation. He exercised the only freedom he had in that environment by envisioning himself teaching students after his release. He became an inspiration for others around him. He realized that in the middle of the stimulus-response model, humans have the freedom to choose.

Animals do not have this independent will. They respond to a stimulus like a computer responds to its program. They are not aware of their programming and do not have the ability to change it. The model of determinism was developed based on experiments with animals and neurotic people. Such a model neglects our ability to choose how we will respond to stimuli.

We can choose to be reactive to our environment. For example, if the weather is good, we will be happy. If the weather is bad, we will be unhappy. If people treat us well, we will feel well; if they don't, we will feel bad and become defensive. We also can choose to be proactive and not let our situation determine how we will feel. Reactive behavior can be a self-fulfilling prophecy. By accepting that there is nothing we can do about our situation, we in fact become passive and do nothing.

The first habit of highly effective people is proactivity. Proactive people are driven by values that are independent of the weather or how people treat them. Gandhi said, "They cannot take away our self respect if we do not give it to them." Our response to what happened to us affects us more than what actually happened. We can choose to use difficult situations to build our character and develop the ability to better handle such situations in the future.

Proactive people use their resourcefulness and initiative to find solutions rather than just reporting problems and waiting for other people to solve them.

Being proactive means assessing the situation and developing a positive response for it. Organizations can be proactive rather than be at the mercy of their environment. For example, a company operating in an industry that is experiencing a downturn can develop a plan to cut costs and actually use the downturn to increase market share.

Once we decide to be proactive, exactly where we focus our efforts becomes important. There are many concerns in our lives, but we do not always have control over them. One can draw a circle that represents areas of concern, and a smaller circle within the first that represents areas of control. Proactive people focus their efforts on the things over which they have influence, and in the process often expand their area of influence. Reactive people often focus their efforts on areas of concern over which they have no control. Their complaining and negative energy tend to shrink their circle of influence.

In our area of concern, we may have direct control, indirect control, or no control at all. We have direct control over problems caused by our own behavior. We can solve these problems by changing our habits. We have indirect control over problems related to other people's behavior. We can solve these problems by using various methods of human influence, such as empathy, confrontation, example, and persuasion. Many people have only a few basic methods such as fight or flight. For problems over which we have no control, first we must recognize that we have no control, and then gracefully accept that fact and make the best of the situation.

SUMMARY OF THE SEVEN HABITS

Habit 1: Be Proactive

Change starts from within, and highly effective people make the decision to improve their lives through the things that they can influence rather than by simply reacting to external forces.

Habit 2: Begin with the End in Mind

Develop a principle-centered personal mission statement. Extend the mission statement into long-term goals based on personal principles.

Habit 3: Put First Things First

Spend time doing what fits into your personal mission, observing the proper balance between production and building production capacity. Identify the key roles that you take on in life, and make time for each of them.

Habit 4: Think Win/Win

Seek agreements and relationships that are mutually beneficial. In cases where a "win/win" deal cannot be achieved, accept the fact that agreeing to make "no deal" may be the best alternative. In developing an organizational culture, be sure to reward win/win behavior among employees and avoid inadvertantly rewarding win/lose behavior.

Habit 5: Seek First to Understand, Then to Be Understood

First seek to understand the other person, and only then try to be understood. Stephen Covey presents this habit as the most important principle of interpersonal relations. Effective listening is not simply echoing what the other person has said through the lens of one's own experience. Rather, it is putting oneself in the perspective of the other person, listening empathically for both feeling and meaning.

Habit 6: Synergize

Through trustful communication, find ways to leverage individual differences to create a whole that is greater than the sum of the parts. Through mutual trust and understanding, one often can solve conflicts and find a better solution than would have been obtained through either person's own solution.

Habit 7: Sharpen the Saw

Take time out from production to build production capacity through personal renewal of the physical, mental, social/emotional, and spiritual dimensions. Maintain a balance among these dimensions.

The upside of the downturn !!!

Well, of course, all of us are either affected or going to be affected soon by the turn of events over the past year, and the coming year(s).

Some predict it to be a 18 months to 5 years time range for most economies to walk upright again.

Yet, in these difficult times, there need to be brilliant ideas that originate in and be developed by inspiring minds.

Our group has been pretty stagnant recently, what with the current state of the economy and therefore the minds !!!

I want to start this thread with the intention of throwing ideas that can turn out to be spark of an engulfing business fire !!!

So lets leave any inhibitions behind, and start afresh to look at every and any evolving opportunity !!!

Thanks in advance for sharing to this pool of ideas !!!

Inspiration - Nothing less will do !!!

March 11, 2008

Shah: The man who makes 'crorepatis'

Rashesh Shah is not your typical Gujarati businessman. He was among the first in his family to study in an English-medium school at a time when his elder cousins and siblings were in Gujarati-medium ones.
He didn't just step into his father's business -- manufacturing and selling school exercise notebooks -- as all good conservative Gujarati boys tend to. He went on to study higher and higher (he followed a BSc in statistics with a one-year diploma from the Indian Institute of Foreign Trade, and then a two-year MBA from IIM, Ahmedabad), something very few hard-core Gujarati business families consider worthwhile.
Then, he decided to marry Vidya, a Kannadiga girl of his choice, at a time when marrying even a Gujarati outside your own small community was frowned upon. And if all that wasn't enough, Shah convinced his father to mortgage their Peddar Road house in the mid-1990s, to raise seed capital for his fledgling firm, Edelweiss, a step that's brazen enough to give many a conservative Gujarati nothing less than a coronary attack.
Somewhere in his knack of breaking the mould, Shah's father probably spotted the inherent fire in the belly of his then 33-year-old son and though his father is not here to see the fruits of what he backed, the 44-year-old chairman and managing director of Edelweiss Capital has more than lived up to his father's expectations.
Edelweiss Capital today is one of the few fully home-grown diversified financial services companies (broking is one of its business; 47 per cent of its revenue is from treasury and wholesale financing), competing for clients and employees with the Morgan Stanleys and Jardine Flemings of the world.
It's set a scorching pace of growth: its revenue in the first nine months this year is Rs 680 crore (Rs 6.8 billion), as compared to Rs 370 crore (Rs 3.7 billion) for the entire 2006-07. It has a market capitalisation of Rs 5,500 crore (Rs 55 billion), an equity base of over Rs 2,000 crore (ten years ago, raising Rs 1 crore had been "quite a challenge"), 1,600 employees and over 40 offices all over India.
We are meeting at the Tea House of the August Moon, Taj Palace's long-surviving Chinese restaurant, where Shah has a lecture to deliver later that afternoon. We order two vegetarian soups, dimsums (a must-have at Tea House) and a vegetarian starter.
After passing out of IIM-A in 1989, Shah joined ICICI [Get Quote]. "I had never wanted to be a businessman. I wanted to be a professional, wear a tie and suit, work in a corporate set up," he recalls. His ICICI job exposed him to the best in the business. "I dealt directly with the newly emerging companies that were getting formed at the time -- Infosys [Get Quote], Bharat Forge [Get Quote], United Phosphorous, Mastek and their CEOs. I saw inspired people who were grabbing opportunities everyday," he adds.
It was also a key turning point in the economy. Then finance minister Manmohan Singh had started opening up India as never imagined before. The capital markets, thanks partly to Harshad Mehta, had started to boom. A host of high-quality entrepreneurs with new ideas were accessing them.
Shah and his former colleague and co-founder Venkat Ramaswamy kept toying with the idea of starting a home-grown financial services company, but Shah realised at some point -- after having lived through the coup in Uganda during a one-year assignment -- that "if I don't pull the trigger now, I never will." An avid tennis player, Shah quit in April 1995 (he was then with Prime Securities [Get Quote]) to give Edelweiss -- an idea that had been growing in his head -- his best shot and his undivided time.
Fate, however, played tricks with Shah. Just when he took the final gutsy plunge, the market started climbing down (it went from a peak of 4,600 to 3,000), interest rates climbed up and the early impact of lowering duties began to show on industry. The Asian crisis made things worse. By the end of 1995, the state of the economy was looking bleak.
No one can be blamed but a few of the other proposed partners (all of whom were to bring in equity) got cold feet. He had no silver spoon in his mouth and savings, borrowings -- all they had -- were proving short. That's when Shah asked his father to mortgage their house at Peddar Road with Citibank to somehow touch the magical Rs 1 crore figure.
The tiny start-up (with just three employees) was operating out of a grubby office next to Akbarallys in Mumbai's Fountain area. "No one was willing to join us. We couldn't afford to pay much. We were unknown, had no history, very low capital. The odds were against us. The first three years (1996-98) were very bad," he says. Personally too, it was a time when Shah was grappling with change; he lost his father and, in the process, his guidance and support and his responsibilities mounted with the birth of his first child.
Things began to look up a bit in 1998-2000 and by 2001, Edelweiss had grown to 11 employees. But things were to get worse before they got any better. 2001-03 was what Shah calls "the worst phase for Indian capital markets" (there was a massive drought in India, GDP growth fell to 3.5 per cent, 9/11 happened). "We hit real lows and I used to often think: when will this end?"
But what comes down must go up. 2003 proved to be a sort of take-off point for Shah and Venkat, and ever since, there's been no looking back. In the last four-and-a-half years, the firm has added 350 employees each year.
From a single sleek and gleaming new floor in Express Towers at Nariman Point in mid-2004, today it's spread to five floors and is threatening to slowly but surely take over the building. There are eight other offices at Nariman Point alone. Shah himself has moved from a 2,000 square feet leased flat to his own 3,000-square feet apartment in Worli.
What were his guiding principles and didn't he ever want to give up when the chips were down, I ask. Three golden pieces of advice from Infosys' chief mentor Narayan Murthy ring in Shah's ears even today ("he's had a deeper impact on us than even he may be aware of"). Do not give equity cheap, share benefits with your employees and attempt to build a high-quality organisation.
Shah says he's been very conservative with equity, except when it comes to his employees ("I think we have the maximum number of crorepatis as a percentage of employee base in India"), and that somewhere along the way, "organisation-building became an end in itself." The company compensates people with a combination of cash and equity (800 out of 1,600 own stock), so in bad times, costs are under control and in good times, you make hay while the market shines. "Hopefully, one day, it will be an institution," he adds.
Good advice is just one part of it. Hunger, says Shah, while picking doubtfully at his food. "We are hungry for growth. If the financial services industry has grown at 50-60 per cent for the last five years, Edelweiss has grown at 120 per cent every year for the last five years. One of our targets is to consistently beat the industry growth rate." His colleagues say that Shah keeps a little yellow notepad on his desk, on which he meticulously lists and crosses out his priorities every day. I picture it saying, "Make sure you beat the industry hard today."
Faith helped too. "You can't have an India story without robust capital markets. So, we kept our faith in the bridge," referring to the capital market, "the bridge between the providers and users of capital." And giving up? He looks at me so blankly I'm sure he doesn't comprehend what that means.
Forget giving up, Shah is quite willing to go through the entire ordeal again if he had to. "I have played tennis for 18 years and I don't like social tennis. I play to win."
He may play to win but believes that luck too has its own role to play. "No matter what you may or may not do, you need to be at the right place at the right time," he says. He says he's been lucky to ride the "India wave" from 2003 and there's definitely been an element of good fortune.
As he finishes his coffee, we open our fortune cookies and I find Shah somehow has two messages in his, while I have only one in mine. Clearly, lady luck is shining on him, in more ways than



http://www.rediff.com/money/2008/mar/11bspec.htm

Writedowns may be masking some good news

Here come more financiers' writedowns

Another day, another prediction of red ink for banks and financial firms. But some analysts caution against taking these numbers at face value.

By Colin Barr, senior writer

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NEW YORK (Fortune) -- Another winter writedown storm hit Wall Street Monday. Shares in Citi, Fannie Mae and Freddie Mac sank after analysts predicted another round of multibillion-dollar losses at the struggling financial firms.

The expected writedowns, which reflect rising loan defaults and sharp declines in indexes tracking debt-related securities, come as falling house prices and a slow economy weigh on U.S. consumers. Shares in Citi (C, Fortune 500) dropped 2% after Oppenheimer analyst Meredith Whitney slashed her full-year earnings forecast to 75 cents a share from $2.70 previously.

Whitney, who made headlines late last year by being the first analyst to predict Citi would cut its dividend - which it soon did - said the bank's profits will be hammered by Citi's need to reduce the value of loans and bonds on its balance sheet. The analyst, who rates the stock the equivalent of sell, predicts "further writedowns to their carrying values of [collateralized debt obligations] related to sub-prime mortgages, further writedowns from leverage lending commitments, and further writedowns associated with on balance sheet consumer loans."

That's a lot of writedowns, but Citi isn't alone in facing big hits to its earnings. Goldman Sachs downgraded Fannie (FNM) and Freddie (FRE, Fortune 500) to sell from neutral, saying it expects $4.2 billion of writedowns at Freddie and $2.6 billion worth at Fannie when the government-sponsored enterprises report fourth-quarter earnings this week. The downgrade comes on the heels of a similar move Friday by analysts at Merrill Lynch. Goldman even recommended that investors short Freddie Mac shares ahead of Thursday morning's expected earnings release. And it also significantly reduced earnings predictions for other Wall Street giants, including Bear Stearns, Morgan Stanley, Merrill Lynch and Lehman Brothers.

By now, huge writedowns are old hat for investors in the financial sector. In just the past two months, Citi took an $8.1 billion writedown of its mortgage-securities holdings, UBS (UBS) took $13.7 billion in mortgage-related writedowns and AIG (AIG, Fortune 500) took a $4.9 billion hit to its credit derivatives portfolio. The river of red ink comes as no surprise, as banks and brokerage firms find themselves carrying billions of dollars of loans and mortgage-related securities whose value has declined along with a sharp slowdown in the debt markets.

The mysteries of 'mark-to-market'

But some skeptics say writedowns may in some cases overstate the extent of problems at financial firms. Many writedowns result from the need to "mark-to-market" the value of illiquid securities - such as CDOs and leveraged loans - or the debt that banks took on to finance the recent private equity buyout boom. Because many of these securities rarely trade, managers are left looking to market indexes for guidance on the size of the appropriate writedown - as Whitney noted Monday in a discussion of the recent 6% drop in the leveraged loan index, or LCDX.

"The decline of the price of the LCDX reflects the markets' priced perception of increased credit risk of leveraged loans, causing a sharp pullback in investors' demand for these types of loans and has caused a backup of the leveraged loan pipeline and assets to build up on balance sheets of banks," she wrote in Monday's report on Citi. "As banks and brokers are required to use these indexes and other market data to 'mark to market' their outstanding loan commitments, we expect banks to be forced to reflect such market declines in their 1st quarter 2008 results further hampering results already hampered from the most challenging market environment most have ever seen."

While no one doubts that the market environment is challenging, some observers say the mark-to-market writedowns don't always help investors seeking to accurately assess a firm's health. For one thing, the writedowns generally don't reflect actual cash losses. In the case of Fannie and Freddie, Goldman sees more writedowns ahead in part because declining interest rates reduce the value of the hedges the firms use to protect the value of their mortgage portfolios - even though the declining rates don't cause Fannie and Freddie to lose actual money during the period.

Similarly, many of the leveraged loans now trading at a discount continue to perform; the drop in the index partly reflects investors' fear that debt-burdened companies will go bankrupt if the economy heads into recession. Similarly, the bonds underlying many illiquid securities such as CDOs continue to pay interest on time, even as related indexes show readings that would suggest widespread default.

Assessing management

That's why Christopher Whalen, managing director of Institutional Risk Analytics, calls fair-value markdowns "madness," saying they tell investors nothing about the economic value of a business. Jeffrey Miller, CEO of investment adviser NewArc Investments in Naperville, Ill., tells investors to delve into the details of writedowns rather than being scared away from possibly attractive investing situations by scary headlines. He says the fact that the banks are keeping loans and bonds on their books rather than selling at fire-sale prices indicates the value of the underlying assets may well climb.

A case in point comes from bond insurers Ambac and MBIA. Back on Jan. 16, Ambac posted a fourth-quarter loss of more than $32 a share, reflecting a $5.4 billion writedown of its CDO holdings. Ambac said about $1.1 billion of the writedown reflected credit impairment, but the rest was a mark-to-market loss tied to the declining value of its bond insurance contracts. "Ambac continues to believe that the balance of the mark-to-market losses taken to date are not predictive of future claims," its press release read, "and that, in the absence of further credit impairment, the cumulative marks would be expected to reverse over the remaining life of the insured transactions."

Similarly, MBIA last month posted a fourth-quarter loss of more than $18 a share, after a $3.5 billion writedown of its CDO holdings. The actual credit loss reflected in that giant writedown, the company said, was $200 million. If other financial firms have been involved in overstating potential losses out of a sense of diligence, that could lead to increased profits once markets stabilize.

The financial guarantors' situation illustrates the questions confronting investors in writedown-riddled companies: Is it fair to believe the portfolio will avoid further credit losses even as the economy slides toward recession? Is it reasonable to assume that the company is presenting a full and fair accounting of its situation?

David Merkel, chief economist at broker-dealer Finacorp Securities, urges caution. "It comes down to assessing management," says Merkel, not referring to any particular company. Though most execs surely make what they believe to be appropriate judgments, he says, "some are prone to fear and greed."

source : http://money.cnn.com/2008/02/25/markets/barr_writedowns.fortune/index.htm?postversion=2008022514

Don't Let Setbacks Stop Your Momentum

Don't Let Setbacks Stop Your Momentum

By Donald J. Trump

“The bigger your business, the bigger your life, the bigger your problems are likely to be. Being prepared for that will save you a lot of emotional turmoil . . .” - Donald J. Trump

I feel strongly about the importance of wholeness. It's a combination of all the components of life that make us healthy, happy, and productive. To my mind, the opposite of wholeness is failure. If it happens, and sometimes it does, the best remedy is to move forward, to realize that failure is not permanent, and to immediately focus in the right direction. Ultimately, a solution will show up.

I don't mean to sound like a faith healer, but there is something profound and yet simple about viewing failure as a lack of wholeness. I will also add that it's effective. Believing that a negative situation is temporary and wrong will give you the impetus to do something about it, to feel righteous and energetic about fixing it. Being unhappy and unproductive is simply not part of my game plan, and it shouldn't be part of yours, either. See a situation as unacceptable, as taking you away from wholeness, and you will be motivated to get out of it as quickly as possible.

When I had a financial setback in the early 1990s, I saw it more as an aberration from the norm than as a final sentence. I knew what it was like to be whole, and all I had to do was get back to that place. I felt that a comeback was what was expected of me, and I expected it of myself. All I had to do was take the next step and get my momentum going again, which is what I did. It didn't happen overnight, but eventually things started to sort themselves out.

I've seen some people get completely swallowed up by failures. The worst thing you can do to yourself is to believe that bad luck is your due. It isn't! It's not just intelligence or luck that gets us places, it's tenacity in the face of adversity. Some people see problems as bad luck, but I don't. Problems are a part of life and a big part of business. The bigger your business, the bigger your life, the bigger your problems are likely to be. Being prepared for that will save you a lot of emotional turmoil, unnecessary deliberating, and even illness.

I've known people who have come back not just from adversity but from tragedy. There's adversity and then there's tragedy. Thinking about both is a good way to get an objective view of what you may think your problems are. Your situation may be tough, but you can bet others have had far worse things to deal with. One way to pave your way for a comeback (or for a first victory) is to read about people who have been courageous against long odds. My guess is they felt they had an obligation to succeed, and in some cases, an obligation to survive. That's how I feel. I had the privilege of a great family and a great education, and I am serious about honoring those privileges -- which means expecting the best from myself.

You can have the same attitude, no matter what your situation or background. When failure comes your way, you must believe that you matter, that you can overcome it, and most importantly, that success is what is expected of you. You'd be surprised at what you can accomplish when that's your attitude. It's not just survival, it's not just success, it is your obligation. A sense of duty toward wholeness will go a long way toward your personal and professional success.

What I learned at the time of my worst financial problems is that I was resilient and that I had this indomitable sense of success that couldn't be taken from me no matter what the newspapers said. That brings me to another level of thought, which is faith. Faith is a bit like wisdom. People can help you along the way with it but above all you have to develop it yourself. Faith in yourself can prove to be a very powerful force. Work on it daily. Sometimes when you're fighting a lonely battle, keeping yourself company with positive reinforcement and faith in yourself can be the invisible power that separates the winners from the losers. Losers give up.

In summary . . .

Strive for wholeness, believe in yourself, keep your momentum at full throttle, and be strong and tough in your resilience. Don't expect anything less than that from yourself, and I can assure you that success will become a permanent situation for you, even when your external circumstances may not show it.

Never Give Up!

Midlife Madness (ii) - Masters of their own destiny? VIEWS AND COMMENTS INVITED

Masters of their own destiny?

Anjuli Bhargava / New Delhi January 19, 2008

Running your own business is a constant learning process, a few corporate honchos-turned-entrepreneurs.

Rakesh Seth, 49, quit the corporate world after 16 years with Nestle and three years with Pepsi, when he was 40. In November 1998, the government started the Freephone service (instead of the caller paying, payment was made by the called). That gave him the idea of setting up Finedge India, a call centre and brand activation company, in February 1999. Seth says the move from the corporate world to the world of business allowed him to strike a better work-life balance. �You can do things on your own terms. I follow a system but I follow a system on my own terms.�

In contrast, in the company, you do many things because �it doesn�t look nice�. For instance, executives often stay till their boss leaves � even if they have no work � because it doesn�t look nice. �In a large MNC, it�s all about impressions and how you manage your bosses. In business, it�s all about reality. And success depends on how you manage your clients and employees,� he adds.

�If one needs to be at work at 7 am, one will � no matter what anyone thinks. And if you feel like an occasional round of golf before office, well you can.�

Rahul Chadha, who quit the corporate sector five years ago after putting in 11 years � his last job was with consulting firm A T Kearney � to start CRS Health, a chain of drugstores, says that �being your own boss� was a primary driver but not as important as the opportunity to �take a concept to the market quickly�. The going, however, hasn�t been a bed of roses. �People can be a challenge. People, as in the powers that be; people, as in the demanding Indian consumer; people like those one interacts with in civil dealings�even attracting the right people is a challenge,� he explains.

But, unlike what many believe � according to Chadha, there is no going back. �Once bitten by the entrepreneurial bug, it�s difficult to imagine getting back to a job,� he adds.

That�s a lesson that needs to be kept in mind � while it may appear easy to return to the corporate sector in the unlikely event that your business fails, especially in today�s high-growth scenario, it is easier said than done. Once you�ve tasted blood, few can deal with the placid environment the corporate sector offers.

In this transition from having a boss to being your own, the biggest pitfall, many feel, is the quality of your peers and colleagues.

As an entrepreneur, you are mostly giving �learning� and shape to the organisation whereas as a salaried manager you are moulded by the organisation and colleagues.

�Getting good people to join you is a challenge; unless you go the VC way and start big, you will not work with the kind of minds you were used to,� feels Seth.

He chose to bootstrap his operations with his own funds (his company did a turnover of Rs 28 crore last year) and not to go the VC way because then the �VC drives you like he owns you� and also because he feels that �tension and risk� depend on the pace at which you want to grow. (It�s interesting that all the three examples in our cover story on page 1 have no VC funding as yet � though 9.9 Mediaworx could be the first to go that way.)

Seth points out that in the initial stages, small things like the type of office, managing your own travel bookings and so on � stuff handled by big administration departments typically � can get to you, but one gets used to it.

For instance, Seth has an administration department of four, but the quality of people he has is not what he was accustomed to. The other issue is that the buck stops with you. �I was running a 1,700-agents call centre for Hutch. In spite of all the administrative staff, if the toilets were dirty there, I could get a call. In Nestle, I�d be doing the shouting,� he explains.

Forget the shouting, you may even find yourself eating humble pie. According to Rajat Goel, CEO and managing director of Eye-Q, which was set up last year, �You have to be prepared to swallow your pride and stand outside your erstwhile subordinates� room for two hours to get business.� And mind you, you may not even like the guy.

Running a business requires you to be a bit of a �reasonable master-of-all-trades�. �You need some skills in every area � legal, marketing, finance, administration...� says Seth, so it helps to have worked in the corporate sector for a while before taking the plunge. It also helps you empathise better with your client, and he with you.

�I found clients want to help you out because they can understand your language. They prefer dealing with you rather than a hard-core businessman,� he says. Since Seth also knows the inner workings of a large company, it helps him frame his proposals in a way that the boss and the boss�s boss will approve it.

One of the major benefits of being an entrepreneur is that while as a salaried manager you are �selling your skills and time� and the organisation is benefitting from your value addition, as an entrepreneur you pay the salaries but keep the value addition each employee creates.

In the process, you create an organisation which will work for you when you are unable to, or choose not to work! Call it the benefits of a calculated risk...

Midlife Madness (i) - Sailing in the same boat? Anybody ready to take the plunge !!!

Mid-life madness

Anjuli Bhargava / New Delhi January 19, 2008

Why are successful, powerful professionals opting out of high-potential careers in favour of entrepreneurial uncertainty?

What makes a 42-year-old, slightly balding, well-settled senior executive in a steady, cushy job in a multinational set-up, rock the boat?

Someone with two kids going to one of the best schools in the city, a wife who hosts great parties and a career trajectory aimed straight for the top echelons of the company, if not the very top. Ambition? Money? Boredom? Opportunity? An urge to prove you can make it on your own? A burning desire to tell your boss to go, take a walk? Or as many of Roy K Cherian�s friends first asked when they heard he�d taken the plunge: �Is it just his hair he�s losing or maybe a part of his brain too?�

Roy says his wife Rani was �slightly scared� (yet brave enough to be supportive) when he decided to quit his new job with the United Breweries group in Bangalore. Prior to that, Cherian � a product of IIM Ahmedabad � had spent close to 13 years with Nestle and Ulka Advertising. Why then did he take what his friends and family think is an �outrageous� step? Cherian (he says his hair loss is genetic) says none of the above alone, or all of the above together, motivated him to throw in the towel.

�I wanted a sense of independence. The thrill of building an organisation and seeing the tangible results of one�s hard work excited me.�

His point � left unsaid � is that, in the corporate sector, you don�t always work for results. Almost everyone Business Standard spoke to felt that those in the corporate sector often work not for results but for their bosses. That can prove frustrating, especially when you�re stopped from doing something you know is the right thing for the business. That�s when some bravehearts jump ship.

Cherian and his partner, 39-year-old Anunay Gupta, set up Marketelligent five months ago, an analytics company based out of Bangalore. At least two parties have already endorsed their faith in what many think is a bizarre move � IIM Bangalore, which is allowing the start-up to incubate out of its campus, and their first client Zelcom, a US-based consulting company. Gupta, the analytics whiz, says he �felt the urge to do something unique and build something of value from scratch�. It helped that he was able to find the right partners to start the venture and leverage his experience and expertise in the business analytics space, an opportunity that, in India, is heating up and is at a stage similar to the software industry 10-15 years back.

Marketelligent is not VC backed; several friends and acquaintances have invested small and large sums, which the duo is quite nervous spending. Nor are Cherian and Gupta alone.

The entrepreneurial bug seems to have caught a large number of people � almost surely each one of us can think of at least a couple of friends or acquaintances who�ve taken the mid-career plunge.

What�s interesting is that in many cases, those opting out of the corporate rat-race had no apparent reason to do so. They had whizzing careers, most were already earning salaries that could feed a small village for a month, had one � if not two � real-estate properties in their name, and were comfortable in the corporate set-up. In all cases, money didn�t appear to be the motivator but a by-product.

Still, throwing caution to the winds mid-career appears to be the flavour of the season.

In a move that surprised many, 43-year-old Pramath Sinha, former CEO of the ABP Group and ex-partner at McKinsey, on �the ninth day of the ninth month� last year, set up 9.9 Media-Worx, a diversified media business. Sinha had worked 14 years in the corporate sector, at the very top of the pyramid, and had �never imagined I�d be an entrepreneur�.

He grew up in a fairly conservative environment where his father always said that �business is not for us�. Members of the family who�d ventured into business had been �spectacular failures�.

Then why did Sinha go against the family grain? One of his reasons, he says, is that the timing was correct. �India is opportunity-rich at the moment. So, if you have a new idea or have some insights on how to take forward an old one, this is a good time to do it.�

Also, setting up a new company � unlike in the old days � is easy. �Getting a company started today is smooth and can be done like clockwork,� he explains, something that often deterred prospective entrepreneurs in the old era of licences and red tape.

But above all, Sinha�s experience with the Indian School of Business (he set it up and was its first dean) set the stage for where he finds himself today.

�Initially, after the ISB experience, I thanked god that I hadn�t become an entrepreneur � the sleepless nights [on account of] 9/11, students not getting jobs, not enough companies coming to campus, and the onus of this great dream that had been built�� he recalls.

�In consulting, in contrast, you are an advisor and the buck never really stops with you. When I got back to McKinsey, I realised that all the excitement had gone out of my life,� he says.

Instead of �playing the game and being on the field�, he felt like a �commentator�. �As ISB started to do well, Sinha began to get credit for what he�d been instrumental in creating. He realised that the urge to create � once it bites you � probably never leaves you, and 9.9 is living proof of it.

Rajat Goel, the 42-year-old founder, CEO and managing director of Eye-Q, a super-speciality chain of eye-care hospitals, quit his position as director (surgical business) of Bausch and Lomb after 16 years, in March 2007. After being identified as a �high potential� manager in 2006 in a leadership course at Oxford and Rochester, and having been nominated as the best regional head within his firm for three consecutive years, he began to wonder, �What next?�

For 16 years, Goel had been doing the same thing, he says, but the clincher was something else. At Bausch and Lomb, his colleagues and he had, for 10 years, been promising an eye-care revolution in India. A visit to Rewari showed him the hollowness of that claim.

�No instruments, pathetic care � I found you couldn�t offer even a chair to the patient, let alone high quality care. Ten years of talking and we hadn�t made even a slight impact 70 km outside Delhi.�

He says this really upset him. Rewari (he studied there for seven years and it is �where my roots are�) was where he set up his first state-of-the-art eye hospital. Contributions from seven of his IIM colleagues in terms of their domain expertise and resources helped him start with six hospitals in the first year, which will be taken to upto 100 across India in due course.

When he first mentioned his plan (of setting up three-four quality hospitals), his friend � a former CFO of Patni Computers � laughed aloud. He said with the kind of scale he had in mind, he wouldn�t get anywhere. It was then that Goel and his partner started to think big.

One thing Goel says he was ready for was a loss of status; he talked to everyone who mattered in his life before he went ahead. �It was a bit like an arranged marriage. All my relations � my sister�s husband, my wife�s brother, my father, my wife � met my partner before backing me,� he adds.

He even discussed the move with his kids. �Carrying your entire eco-system with you,� he argues, �can make or break what you do.�

Goel�s life has changed in more ways than one, some good and some bad. He used to take eight flights a week in his old job; over the last year he�s taken three. He used to work 12 hours; now he works 17.

�Life has been extremely tough � but good. Most of the assumptions we started with were turned on their heads. There have been many moments of crisis. It�s been a great journey and an experience � and everyone is looking at me with new respect,� he says. Now, people tell him he�s done what they want to do too but haven�t been able to.

That new, earned respect is perhaps what�s motivating Sinha, Gupta and Cherian to step into an entrepreneur�s risky, challenging and not-so-steady shoes. They will now be in control of their own destinies � and will have no one to blame or to credit whether they flounder or flourish. Source : http://business-standard.com/general/storypage.php?&autono=

Three Things You Did Not Learn In School

Three Things You Did Not Learn In School

Back in the summer of 2002 our son completed 9th grade and was on target to attend Woodinville High School. On our annual summer hike, as we conversed about the challenges and opportunities of the next year, I said: "By all means excel in your studies and in the subjects you like. Just know that school, with all its many good things, is not going to teach you the three most vital skills that are a struggle and preoccupation for adults. You have to learn to manage these skills in this life if you are to be independent and free, and to succeed and thrive."

Hiking the Pacific Northwest provided a great background for our conversation. The turns of the trail offered natural commas, periods and exclamation marks; the forest provided the cathedral of nature and the mountain lake we were heading toward made for a natural point of realization. We played the "Can you guess the three skills?" game and then zeroed in on them:


The three skills are:

First - Learn to manage your energy

Second - Learn to manage your relationships

Third - Learn to manage your money

I sought to be a good father preparing his son for the future and said: "School will not teach you these skills. You must discover for yourself how to best manage your energy; you have to find out how to build and hold relationships and you've got to learn to manage your money."

Let's see what areas of knowledge are included in each of these three skills:


First - To manage your energy you need to

1. …know yourself.
2. …understand your strengths and talents.
3. …recognize your vulnerabilities and weaknesses.
4. …use your body wisely.
5. …manage your emotions.
6. …discover what relaxes you and how to rest well.
7. …appreciate what energizes you and gets you going.
8. …identify what drains you and minimize its presence in your life.
9. …discover what you enjoy and what helps you grow.
10. …clarify your goals, aims and purpose.


Second - To manage your relationships you need to…

1. …learn to be a good listener.
2. …build the capacity to appreciate another person's viewpoint.
3. …practice clear and eloquent communication.
4. …seek to understand before you expect to be understood.
5. …develop inter-personal effectiveness.
6. …understand the anatomy of trust and how to build it.
7. …cultivate emotional and social intelligence.
8. …learn to say NO.
9. …develop genuine interest in other people's experience.
10. …be an effective leader, a wise follower and a great collaborator.


Third - To manage your money you need to…

1. …understand the nature of money and your relationships with it.
2. …appreciate the difference between "want" and "must" in all areas of life.
3. …recognize that what matters is not how much you earn but how much you spend.
4. …make a commitment to pay yourself first. Automatically save at least 10% of your income. If you can do more, do more.
5. …build an emergency cushion of cash - three to six months expenses.
6. …interview as many financial planners as you need in order to find a trusted advisor. Make sure you understand what they say.
7. …have a financial plan. Identify the best retirement account you can have and make the maximum contribution allowed.
8. …simplify your life: automate your bills. Accelerate paying your mortgage payments.
9. …be clear about the difference between good debt and bad debt. Don't do bad debt.
10. …understand the difference between working for money and money working for you. And remember the one you work for is waiting for you at home.


In an enlightened 21st century world youth would be coached in these three areas. Every 18-year-old needs to know how to handle and manage these three important currencies that will ultimately determine how much he or she can enjoy life:

1st - Energetic currency

2nd - Relational currency

3rd - Financial currency

Now it's your turn. Turn the key. Be your own leader.

IIM C overhauling curriculum - may be LD is also included...

IIM-C going in for curriculum overhaul

Pradipta Mukherjee / Kolkata July 09, 2007

To keep its students up-to-date with new management and business strategies, the Indian Institute of Management-Calcutta (IIM-C) is going in for a major curriculum overhaul after a gap of nearly eight years. The last time it did this exercise was in 1999.

A skeletal framework of the revised curriculum has been submitted to the board of governors and the faculty. A final call will be taken in another two months with the new curriculum scheduled to be introduced from the 2008 session.

“So far, we have been able to decide on the framework. We should be able to take a final call on what we should include and what all should be dropped from the current curriculum in another two months,” said Shekhar Chaudhuri, director, IIM-C.

“Although all teachers at IIM-C keep making changes to the syllabus from time to time, a major curriculum overhaul is done after every 10 years or so. This is important to ensure that IIM-C will teach what is latest and best in business and management. Also the course itself should be likeable to the students and at par with other overseas institutes so that there is ease during student exchange programmes and cross-cultural learning,” Chaudhuri explained.

The revised curriculum will be a mix of topics that would include subjects that have been the trademark of the institute and at the same time new subjects that reflect a trend in business management programmes across the globe.

So, while theory, finance and analysis will continue to be a part of the curriculum, courses in behavioural science, conflict management, psychology, human values, business communication and entrepreneurship development could also be included.

The new syllabus is also likely to be a mix of case studies, problem solving in real life and at the same time include the traditional method of theory and finance.

“We have looked into the syllabus of some of the best B-schools of the world, like Wharton-Kellog, Harvard, University of Chicago,” added Chaudhuri.

The new syllabus would also include feedback taken from the faculty, students and the alumni. Once the framework is approved, the faculty at IIM-C may need to go in for a short training on the new curriculum before it is finally rolled out in 2008.

Preview of the revised syllabus

Theory, finance and analysis to stay Behavioural science, conflict management, psychology, human values, business communication and entrepreneurship development could also be included Likely to be a mix of case studies and problem-solving in real life Cues taken from some of the best B-schools of the world -- Wharton-Kellog, Harvard and University of Chicago Will be finally rolled out in 2008

CEO Etiquettes - The missing link

Kindness Pays Dividends

It might sound like an oxymoron, but Steve Harrison is a business ethicist. He's worked at the outplacement firm Lee Hech Harrison for 25 years helping fired employees get back on their feet. In that time he's witnessed some pretty despicable behavior by companies.

With the bad comes the good, though. And it's the kind behavior that he discusses in his new book, The Manager's Book of Decencies: How Small Gestures Build Great Companies (McGraw-Hill, $24.95). Aside from just being a nice person, Harrison argues that small gestures such as learning employees' names goes a long way toward creating a loyal staff. His argument: A loyal staff equals a productive staff and a productive staff equals a successful business.

In Pictures: Big Impact From Small Gestures

Among his observations: CEOs who answer their own phone hear fewer complaints and the best day to fire someone is a Wednesday. Harrison recently explained that logic to Forbes.com.

You say that managers should fire employees on Wednesday. Why? What makes Wednesday better than say, Monday?

Harrison: It's all about preserving the dignity of the terminated individual. Being terminated means rejection. It's a personal setback. Avoid Friday because the person's support systems aren't there. The outsourcing service and human resources people who will help them aren't there to give advice on the weekend. If you get fired on Friday you have two days to stew and get really angry.

In the middle of the week the employee has a support system and several days to adjust before the weekend arrives.

Why should a company be concerned with making the employee feel better?

There's a talent shortage these days. Why make enemies? You never know if you're going to ask that employee to return to work for you. There's no such thing as a perfect downsizing. But people always know when you try to make a well-thought-out event.

We've got the day of the week down. Is there a "best" place and time to fire someone?

Yes, in the office of the individual being fired or at a nearby conference room. That way he or she doesn't have to walk through an office full of people who may know what's going on. Also, the employee can sit and get recomposed; make a call if necessary.

As for time of day--late in the morning or at noon when people are going out for lunch. Or, later in the afternoon as people are leaving and finishing up their day. The idea is to set up the prospect of the fewest possible people being there. The worst time to do it is 5:00 p.m. or 5:30 p.m. on Friday.

Never say, "It wasn't my idea. I'm just carrying out orders." That's not leader-like. It requires courage, sensitivity and decency. The little things count.

Firing someone with decency is also good for the remaining people. It shows that the company has compassion during a difficult time.

Why write this book?

We're an outplacing firm so we are observers of leadership performance. I became interested in this topic in particular after Enron, when federal sentencing guidelines for corporate malfeasance came out. One way companies can lessen their fine is if they tried to "promote an ethical culture." But the feds couldn't say exactly what that meant.

I decided to write a book proposing what an ethical culture means. They're small acts that are not part of the corporate conduct manual or a company's policy manuals. I studied companies that did the little things that don't cost anything that are tangible. After all, the boss of a company isn't just the boss. He or she is the mayor of a community.

Which companies are best at this practice?

Five CEOs really get it. Reuben Mark of Colgate-Palmolive (nyse: CL - news - people ). He's the poster child for decency and humility. His philosophy is, "I make sure nothing important or big-time creative is ever perceived as my idea." He'll walk onto the factory floor in Mexico City and tell a joke in Spanish. He's a mensch.

Ken Iverson, former CEO of the American steel company Nucor (nyse: NUE - news - people ). He answered his own phone, did not permit privileged parking spaces or luncheon spaces. He had everyone--including himself--on the same compensation plan. He was the laureate of egalitarianism.

Doug Conant, CEO of Campbell Soup Co. (nyse: CPB - news - people ). At the end of many workdays he sits with a few of his direct reports and asks about things people have done that have gone above and beyond. He listens to the stories and he writes "thank you" notes on cards in his own hand specific to what the employee did. In terms of a retention character, it's huge.

Herb Baum, former CEO of Dial. He did "hot dogs with Herb." He walked onto a factory floor or an office unannounced and served lunch and answered questions until the last person's question was answered.

Herb Kelleher, founder and CEO of Southwest Airlines (nyse: LUV - news - people ). His motto is "there's no such thing as little people." He identified people in unglamorous jobs and made heroes of them. Facility people were given the Top Wrench award and the maintenance crew was given the Top Cleaner award. He looks to put people into the spotlight people who weren't in the spotlight.

In Pictures: Big Impact From Small Gestures

source: Forbes.com

Pay zero tax on unlimited gains!

India has truly become a tax haven. If you are willing to take market-related risks, you can arrange your affairs in such a fashion that you don't have to pay even one single rupee as tax, irrespective of the extent of your gains.

And, it's all perfectly above board and legal! Here's how.

With a view to giving a boost to the Indian equity market, successive recent finance ministers have doled out many tax concessions to the income and gains from:

• Shares traded on a recognised stock exchange in India, and
• Equity-based mutual fund schemes (equity funds).

Now, all you have to do is to park all your funds available for investment in either of these two avenues -- and relax.

The dividends are tax-free, and so are all long-term capital gains. The only question that needs an answer is -- which of the two avenues should you choose?

Table 1 below presents a comparative gist of all the currently prevalent costs and taxes on shares and equity funds.

Table 1: Comparative Analysis between Shares & Equity Funds

Transactions		Equities	Equity-based MFs
Purchase	- Brokerage	Around 0.5%	Nil
	- STT	0.125%	Nil
	- Entry Load	Nil	Around 2%
Sale	- Brokerage	Around 0.5%	Nil
	- STT	0.125%	0.25%
Dividend	- Income Tax	Nil	Nil
	- Distribution Tax	16.995%	Nil
Capital Gains	- Short-term	10.3%	10.3%
	- Long-term	Nil	Nil
Exit Load		Nil	Load on Early Exits
Effect of Dividend on Price / NAV		Small	Full Reduction
Annual Management fees of AMC		Nil	Around 1%
Risk		High	Medium

Let us compare these two avenues, item by item. At the first glance it might appear that equity mutual funds are superior to direct investment in shares because:

1. You don't have to pay brokerage for equity funds whether at purchase or sale. This, however, is more than offset by the entry/exit loads and AMC (Asset Management Company) fees.

2. No STT (Securities Transaction Tax) for mutual funds at purchase. This is compensated by double the STT at sale by mutual funds. Good for long-term investors in mutual funds.

3. Mutual funds are exempt from Dividend Distribution Tax (DDT) of 16.995%. (The Finance Act 2006 extended this benefit to closed-end equity funds as well.) Don't get overly lured by this, however.

DDT is charged to mutual funds when they receive dividends from companies they have invested in. Charging DDT to you when you receive any dividend from a mutual fund would amount to double taxation.

Personally, I don't like either the dividend or the dividend reinvestment options of mutual funds. The quantum of dividends paid, whether by mutual funds or by companies, is, both, variable and uncertain, rendering the planning of day-to-day expenses difficult.

• All these incomes are tax-free for FY 2007-08
• Tax: Which ITR form should you use?
• Wrong PAN on Form 16? What to do

The growth option of mutual funds bypasses this difficulty. The growth option is better than the dividend option only for this one reason and not because it bypasses DDT by converting the dividend into growth. Purely from a taxation point of view, the two options are equivalent since in both cases there is no DDT, the dividend is tax-exempt, and so are the long-term capital gains.

The real edge equity funds have over shares for most investors

As we saw from the above comparison, there isn't much to choose between shares and equity mutual funds so far as their respective costs and taxes go. Yes, mutual funds charge loads to cover their expenses of market transactions and also a small fee for nursing and monitoring your investments. But it is worth paying the price because:

1. Mutual funds make personal monitoring unnecessary: Mutual funds undertake the rigours of the monitoring and keeping tabs on your portfolio. You receive the benefit of their expertise in handling and tracking the market.

2. Mutual funds are akin to savings bank accounts: When investing in an open-ended equity fund scheme, an investor can deposit money any time s/he has investible funds and, similarly, can redeem, partly or fully, any time s/he needs funds. The repayment is effected within 5 working days at most. Thus, such schemes have virtually become savings bank accounts -- and with tax-free returns, to boot.

3. Systematic withdrawal facility: A good strategy is to withdraw as much as you need at some fixed periodicity of your choice. For instance, you may withdraw on a monthly, quarterly, 6-monthly or annual basis to meet your expenses.

Tax-smart: Zero tax even on short-term capital gains

If you are forced to redeem your mutual fund units in the short-term horizon, namely within 12 months of their purchase, whether partially or in full, tax is payable @ 10.3% on any short-term gains thus made.

Can we avoid this? Let us see how:

Remember that you have parked all your investible funds in the growth option of an equity fund. Now, imagine that you had a capital of Rs 100 lakh (Rs 10 million) with which you bought 10 lakh (1 million) units of Rs 10 each. Suppose the NAV (Net Asset Value) has grown by 10% to Rs 11 per unit, and thus the value of your investment has become Rs 1.10 crore (Rs 11 million). Of this, you redeem 90,909 units worth Rs 10 lakh (Rs 1 million) before 12 months, which still leaves your original investment of Rs 100 lakh invested in the mutual fund intact.

Now comes the best part.

The short-term capital gain you have made is Re 1 per redeemed unit, i.e. Rs 90,910. You have no other income. The tax threshold, below which no tax is payable, is Rs 110,000. Ergo, you have Rs 10 lakh (Rs 1 million) for your household expenses from short-term capital gains - and, at zero tax!

Convinced now that India is truly an incredible tax haven for an informed investor? The only pre-condition you need to fulfill in order to benefit from this big-bang tax break is to familiarize yourself with the basics of investing in equity funds and grasp some simple strategies that can significantly reduce the market-related risk of equity investing.

• Guidelines to filing your income tax return
• How to design a tax-smart salary package

Excerpt from:

Taxpayer to Taxsaver (F.Y. 2007-08)

By A N Shanbhag

Publisher: Vision Books

source: Rediff.com