Indian Stock Market - Fundamental or Speculation

Everyday business channels and news papers are full of articles and statements on stock market movements and fundamental linked to it. I have been following up stock market from more than six years now and I have never been able to figure out the basis of market movement in real sense.

Our market is heavily dependent on western and European world from few years, so our economic fundamentals gets overwritten by sentiment coming from outside world. The situation is such that if we hear a morning news that Dow Jones is down 2%, our Sensex and Nifty would open in red for sure, irrespective of the fact how much impact Dow Jones 2% reduction will  have on our economy.

Ever since we allowed FII to jump into Indian Stock market, small investor have been running clueless on market reaction. Hell lot of money flows into India through FII and they take artificially market to the sky with huge fund infusion, they stay invested for few days to weeks and book profit. Since selling happens at very large scale, market falls down and that is the time when they infuse more funds at lower levels. Today's BSE turnover figures shows INR 60,048 Crores (1/1/10 to till date) against DII only INR 19,826 Crores (1/1/10 to till date). So much of money has been invested by FII since 2010 inception and as per my understanding lot of credit goes to FII buying for taking Sensex to 21,000 levels. In this scenario can we say that Stock Market progress is the reflection of our economic progress ?

Everyone is clueless in this kind of market. It is the largest stakeholder who are able to make money and small investor loose money in such scenario.

Let's take this to lower level of market which an Equity Share of a company. There are shares which have doubled and tripled in 2010, when I look at the fundamentals of those companies neither their sales have grown two to three fold nor EBIT. Also all other fundamentals from Company profile, industry profile, product portfolio, Future business strategies to overall financial position, nothing has improved two to three times. In such cases what is the driver of overpricing ? The answer is artificially generated demand and who creates that ? The one who has largest wealth to dominate the market.

Sensex was trading around 17,400 in Dec 2009 month end which is now 19,600 and it touched 21,000 mark couple of weeks back. We can not correlate this evolution with any of factor of our Economic performance be it GDP Growth, Inflation, Employment or anything else.

In such a situation would you be jumping into this market with a hope to get some share of profits ?

How to make most out of your Credit Cards

You would no less be tortured by calls for various banks for personal loans and credit cards. The normal reaction is "Sorry I dont need it". Well today I would ask you to pause for a while and think before your response. What should be your reply, you would come to know about it by the end of next paragraph.

Enormous revolution and LIBERALIZATION in banking sector has taken competition to a level wherein we are using bank's funds for around 45 days at zero % interest rate. But every bank has its billing cycle and if your big shopping is due on last few days of billing cycle, you end up loosing full credit period. So is postponing spend is the solution ? I would say "NO". The solution to this is to keep multiple Credit Cards of various banks with various billing cycle. So every time you go for shopping, use the credit card which had last billing cycle. This way you will be able to utilize full credit period offered by banks.

So check out your wallet, how many credit cards you have and next time you get a call from bank for credit card, just say "Yes I need it."

However word of caution :-

1. Credit Cards need to be kept under safe custody to avoid any kind of misuse
2. Keep a track of payment cycle without fail, else you will end up paying charges more than you save

When banks are offering period credit for 45 days, why should customer leave such options. So go ahead and pluck low hanging fruits.

Minimize the Risk - Diversify your investment portfolio

Till 2007, Financial crisis, Economic slowdown and global recession were dragon kind words in books for me and I had worked on lot of case studies as part of curriculum. 

As a young professional with little experience in building a robust portfolio I had more inclination towards Equity. In 2006 and 07, the focus was towards studying company profile and IPOs for investment. By the end of 2007 my 100% investments were lying in equity shares of various companies and I use to treat that as diversified as my investments were not concentrated in only one sector. 

Sensex was soaring at 20,500 plus and my last equity buying was somewhere in first week of Jan 2008 and guess what ? Immediately next day Sensex fell down by 5% and global recession started showing a dent on my portfolio.

Entire 2008 I neither could dare to buy any other Equity shares nor could exit the market. By the time year ended I had lost more than 50% of money. So I learnt hard the meaning of diversification.

In context of diversification of portfolio one need to first of all study the risk appetite and short term and long term goals from portfolio.

Human tendency is that we get attached or familiar with one kind of investment mode and forget to balance our portfolio to insulate it from external dents. There are people who love to invest in Equity only (my old version), some in real estate, some in jewelery, some in mutual funds and some leave the money in bank as FD etc. However everyone dream to get highest return out of their hard earned money. 

Also do not choose any product or instrument which you find difficult to understand or interpret. Normally people find it difficult to understand ULIPs with their complicated structure of return and charges, and those are meant to cheat people. So stay away if you dont understand it.

Here are some ways to diversify the portfolio :-

• Invest some money in Equity as per your risk appetite.
• Consider Mutual Fund products for sustainable return
• Invest in Real Estate if your portfolio is bigger enough for such investments
• Consider Fixed Deposits to stay away from stock market uncertainty
• PPF a good tool to get fixed return and income tax benefits
• Bonds, NSC and Debentures for fixed rate of income
• Insurance, a good tool for investment and Insurance cover
• Gold, for returns in line with market and a shock absorber in adverse times.

Proportion of allocation depends on your risk appetite and goal.

If you have done this, one thing is sure that you will continue to get a sustainable return from your overall portfolio and risk is minimized.

Fixed Deposits and Public Provident Fund - How different both are from each other ?

Investors who does not like stock markets, mutual funds and ULIPs etc, they invest their money either in Bonds, FDs or PPF. Many a times people tend to confuse Fixed Deposit in bank with PPF deposits. Fact of the matter is both are completely different with it pros and cons.

Key differences between Fixed Deposit and Public Provident Fund :-

• FD has maturity period ranging from months to couple of years whereas PPF has maturity period of 15 years.
• Fixed Deposits can be opened in any bank in India whereas PPF account can be opened only with State Bank of India or Post Office.
• Fixed Deposits (practically) does not have any minimum and maximum limit of investment. PPF has minimum investment limit of Rs 500 per year and maximum of Rs 60,000 per year.
• Fixed Deposits Interest rate varies from bank to bank and depends on period of investment as well. In case of PPF the interest rate is 8% annually (government changes it from time to time).
• Interest on fixed deposits is a taxable income where interest on PPF is tax free income.
• Taxable income Rebate on Fixed Deposits amounts can not be availed in the financial year of investment whereas in case of PPF, rebate from taxable income can be availed in the financial year of investment.

Public Provident Fund comes handy for investors who are looking for long term investment and income tax benefits. Also PPF Account creates a physiological pressure to save money every year and invest some amount in it. However PPF can not be treated as cash ready to use in immediate funds requirement. Therefore liquidity to that extent goes down.

Loan can be availed against FD and PPF both, that is the only similarity both products has.

If in case your objective is to invest for short term and not looking for income tax benefits, then Fixed Deposits are the deal for you.

If in case your objective is to save Income  Tax and investment for long run, PPF is the product made for you.

Write down your end objective, do basic mathematics of net benefit from both options and go ahead with the most suitable option for you.

Basics to evaluate Mutual Fund Product before making an investment

Planning to invest in mutual funds but not sure about which fund to choose ? Keep all your worries aside, by the time you finish reading this post you will be pretty confident about your decisions. 

Let's go straight to the topic. Also be assured that for making basic evaluation of any fund you dont necessarily need to carry a heavy degree in Finance or Economics. Internet has made our lives extremely simple by putting everything at your desk. You run a search in the name of any mutual fund, Google would through you countless websites giving their analysis to you as per your need.

Mutual Fund has primarily two categories :-

1. Equity Linked Mutual Funds :- Such funds have their portfolios invested in Equity shares of various companies. As a result, NAV of these funds move in line with weighted average of prices of equity shares of those companies in which funds are invested.
2. Debt linked Mutual Funds :- Such funds have their portfolios invested in other than Equity shares, such as debentures or other instruments which assures a fixed return like Fixed Deposits.

The cut throat competition has yielded its benefits in Finance Sector as well. Today there are so many mutual fund products are available in the market that after one point of research one gets lost in the cloud of minor differences in offerings.

At this stage, you need to decide whether you want to sail with market fluctuations or need to sail smooth with fixed income from debt linked mutual funds.

Once you decide the category in which you wish to invest (Equity linked or Debt linked), the next step would be to decide on AMC (Asset Management Company) and fund. At this stage make use of Internet and search engines. For all kind of mutual fund related analysis I mostly refer to www.moneycontrol.com.

Things to consider while choosing product :-

1. Asset Base/Size :- See the asset size of AMC. Higher the better. Lower asset size has more risk of losses due to lesser diversification of funds deployment.
2. Risk Capacity :- Choose fund as per your risk capacity, it can be a fund with specific to only one sector or you can choose a diversified fund with lesser risk. There are options with allocation of funds in to  Debt and Equity.
3. Return History :- The most important part is to see Return history. Its good to see last three years return graph but past trend is clearly not the mirror for tomorrow. Study past trend along-with market history. Check out average Sensex and Nifty change, Check main competitor fund's growth and most importantly the growth of sectors in which your funds would finally be invested.
4. Dividend / Growth Fund :- Mutual funds gives an option to investor to either opt for Dividend funds or growth funds. In case of dividend funds AMCs announce dividend from time to time and based on the option exercised at the time of investment, announced dividend either will be paid or reinvested in same fund. The NAV of funds will take a downward correction in line with dividend announced. In case of Growth funds investor will not get any dividend and accordingly there will be no downward correction of NAV. Therefore one fund will have two different NAVs at any point of time, one for Dividend Fund and other for Growth fund. In normal scenario (except new funds) NAV of Growth funds will always be higher than Dividend fund. Choose dividend fund if in case you wish to have some income from dividend from time to time.
5. Investment Objective of Fund :- Offer Document (carries A to Z details of fund) has a clause of Investment objective of fund. Read through this and it will give you a flavor of top line strategy and direction of fund. If objective of fund is contrary to your objective of investment, look for other funds.
6. Fund Manager :- Mutual Fund performance largely depends on Fund Manager's performance.At the end of the day, all documents are lying in offices, its a fund manager who's skills will bring you good or bad return. You can read brief data about Fund Manager and other big guns of the fund in offer document. Its a good to have information, sometimes this clause can change your investment decision taken on previous five clauses.

Its your hard earned money, deploy it in such a manner that you are able to multiply your wealth faster. It deserves your wise and prudent decision before it is given in someone else's hands.

Have Happy Investing.

We all carry Money destroyers(Credit Cards) with us

Technology has changed our lives drastically in last one decade. Starting from Telecom revolution, IT Sector revolution, BPO and outsourcing sector, Banking, Insurance to online shopping. Things are one click away. Undoubtedly technology has made so many things faster and possible that we have silently agreed to ignore its side effects.

There were times when we had to stand in long queue for cash withdrawal in government bank and bear with inefficient and arrogant staff. Now a days we live in an era where we can not even imagine a situation like this and whole credit goes to technology revolution in our country and competition from private sector. Cash withdrawal and shopping on credit are just a matter of few moments.

Well those are the real benefits we have and no one would deny it. However I see Credit and Debit Cards as money destroyer. These cards made our purchasing power very strong and enable us to take instant decisions on spending money. I believe that these cards should be used basis planned expenditure rather than decisions taken in the haste. One need to really look into the REAL Purchasing power of his/her portfolio before shelling out the money through Credit/Debit cards. I give some advantage to Debit Card over Credit Card.

Credit Card is a devil which goes beyond your net-worth and shows you a rosy picture, however when questions comes to the payment of bills we realize that we have spent more than what we were suppose to spend.

How do I manage my Credit Card usage :-

1. A detailed plan of big spends in the beginning of the month
2. Identify source of funds for such expenses
3. Any unplanned spend, if needed would be done in Cash. This helps me a lot because if my Cash in hand is not allowing that spend then that means either I need to postpone the expense or drop it.
4. Keep some buffer in Credit Card limit for friends meet etc

Never :-

1. Convert your big amount expenditure on Credit Card into installments. Bank will charge you an interest of around 35 to 40% annually. It is done so intelligently that no one realizes the exceptionally higher interest rates
2. Delay payment of due bills. You will end up paying extremely higher charges of delayed payments

Some more facts :-

1. If in case your payment has got delayed, make a call to Customer Care and you will get late payment charges reversed. It happens due to competition from other banks.
2. Loans on Credit Card limits are extremely high. Simply ignore it.
3. If you do not have funds to pay Credit Card bill, take personal loan and pay it on time. Else late payment charges would be way higher than interest on personal loan.
4. Encash bonus points accumulated on your spend before it expires. In small letters banks print the last date of encashing points after that your accumulation of points will start from Zero.
5. Keep Credit cards in safe custody.

Credit Card in everyone's life has become a vital part, the need of time is to manage it properly and efficiently. Have Happy and Safe Shopping.

Systematic Investment Plans (SIP) of Mutual Funds ensure balanced income

Systematic Investment Plan in mutual fund products is very lucrative option among small investors who are consistent in their savings on monthly basis.

In normal scenario an investor can buy online mutual fund units as one time transaction at market rate of transaction day. If the amount of investment is high one would be very skeptical to take a call on when to invest this money in mutual fund.

SIP is an option wherein you can choose a mutual fund product online and opt for monthly equal investment amount. In this scenario a particular amount (ofcourse you only would define that amount) would be deducted from your bank account on defined predefined day of every month and will be invested in mutual fund you have chosen.

The key benefits from SIP are :-

Averaging of Market fluctuations :- SIP over a period of time gives a consistent return as compare of one time transaction. If your one month buying is at 1% higher rate, the next month buying could be 3% lesser than earlier and this goes on till the maturity.

Lower Brokerage :- Brokerage would be marginally lower than one time transaction, so it gives an edge over one time transaction.

One time effort :- Once you opt for this transaction online, you need not do anything except ensuring that you have money in your account to the extent of SIP monthly installment amount. Balance part of investment exercise would be taken care by bank with whom you have demat account.

Part of Market :- Your SIP Mutual Fund investment returns would be the real representation of market journey of SIP period as every months Mutual Fund's NAV would be recorded in your investment.

The due diligence need to be exercised while choosing mutual fund product for SIP purpose. Make sure you pick up best of the product in line with your Investment Goals, Risk Appetite and Liquidity situation.

To re-iterate from my last post, look at the longer period of any mutual fund product for performance and compare it with peers and stock market evolution. Check out their investment portfolios, higher diversification of investment can be a good indication towards consistent returns. On the contrary Sector specific products can either bring very high returns or just nothing.

Equity Shares or Mutual Funds ? An analysis with pros and cons

You might not have come across much write up on comparison between mutual funds and equity shares as common impression is that both are for different segment of investor. However the question is what are those criteria which decides the segment in which you fall.

Let's take Equity Shares first as things are pretty simple in it. Buy shares of any company, any sector, any scale, the risk involved is as large as to the extent of full investment. On the other hand the returns can be extremely high in long or short run. It is "High Risk Uncertain Return" deal rather than high risk high return. The reason for high risk is lack of diversification in funds deployment. 

An example, if INR 100,000/- is invested in Bharti Airtel at any point of time, your returns are purely on the mercy of Bharti's Business Performance, Long Term Strategies and Telecom Regulations by Govt of India. Anything going adverse or favorable in all these elements will have direct impact of market value of your investment. Imagine if you were intelligent enough to divide INR 100,000 into two parts and invested INR 50,000 in Bharti (Telecom Sector) and Balance in Colgate-Palmolive (FMCG Sector). Your risk is diversified to the extent that if in case something major goes wrong with one sector your another investment will either recover the loss or equalize investment amount.

The example above is only theory, just think if you have to invest money in shares and you are skeptical about the complexities of Stock market, how difficult it would be to you to decide the allocation of funds in such a manner that you minimize the risk in a  way that you hope to get higher returns.

Mutual Funds on the other side are the perfect product to people who intend to take part in Equity Shares market but due to lack of expertise in this sector they are not able to do so. Mutual Funds are regulated Fund houses which makes a pool of funds from various investors and deploy it in Equity Shares (only in case of Equity Diversified) of various sectors and various companies. These allocation of funds are done basis historical trend, company profile, future business strategies and lot more about the companies in which money would be invested. There are large teams of expert keep doing research on our invested funds round the clock so that we get best out of it.

Let's continue with example of INR 100,000/-. Since you are not the expert of stock market you decided to invest money into mutual funds. Even if you invest entire money in one product, your risk would get diversified because AMC would invest your INR 100,000/- in, may be, 100 different companies from different sectors. Now if in case 50 companies returns loss or no return, other 50 would ensure that you get good return overall.

Mutual funds not only provides you consistent return but also protect your investment from big shocks. AMCs review their investment portfolio every moment and take immediate corrective action to avoid any losses or to grasp any opportunity. They have all kind of market intelligence which is vital to earn money from stock market.

Further, mutual funds ensure that they have products for all kind of investors. There are products which will give you return like Fixed Deposit and no risk and there are products with high risk (as full money would be invested in equity shares) and high return. Now a days buying mutual funds is exactly like buying equity shares through Demat account.

Taxation structure is such that it will not have any incremental effect on your income tax in both the cases. If you sell your product (be it Shares or mutual funds) after 12 months of purchase, there will be Nil Tax on your income. The same applies to brokerage, it is almost similar for both the cases however it might change from broker to broker.

At last, I would say that Equity Share market is for those who are really the experts of it and can absorb few shocks on their fat wealth. On the contrary, Mutual Funds are for those who are not the experts of stock market and wealth is not fat enough to absorb any shock from stock market.

There are countless mutual funds in India which provides you returns of 200 to 300% in three years period.What else one need, this is best return after Real Estate Investment.

Starting of Career and not clear about Financial Planning ? Here comes your Portfolio Manager

Portfolio Management term is used mostly in context of large funds management but fact of the matter is whatever the size of wealth one have need to be invested/utilized in such a manner that it provides required liquidity as well as best return to the investor.

People at initial stages of career tend to ignore funds planning due to lack of awareness and miss out so many benefits which would flow in if investment starts happening since first month of earning. This is the stage where one need to be extra careful about the balance between required liquidity and risk appetite.

Gone are the days that people use to keep money in Fixed Deposits  and get double money in five or three years. Our economy is growing at ~9% annually with solid growth in Industrial Segment and this is the time to be the part of much awaited double digit growth.

In general, first year of income should have following types of investments in portfolio :-

1. Life Insurance Policy :- A great tool to get healthy return (if policy is carefully chosen) and Risk Cover. It will enable investor to get Income Tax concession on the premium paid in respective years. Avoid Unit Linked Insurance Plans in this category. THE YOUNGER YOU START POLICY THE LESSER IS PREMIUM, SO GET MAXIMUM OUT OF YOUR YOUNG AGE HERE AS WELL.
2. Mutual Funds with Income Tax Rebate (ELSS) :- There are various mutual fund products available in market with 3 years lock in period. These products enable you to avail Income Tax benefits to the extent of investment made in a year. If in case you are not willing to buy Life Insurance Policy and not willing to block money for longer period say 15-20 years which is the case with Insurance Policies, then this is the product for you. Keep your money in market for 3 years and get best of the return over and above tax saved in first year. DONT GET INFLUENCED BY MARKETING STUNTS OF MUTUAL FUND COMPANIES. CHECK OUT WEBSITES LIKE WWW. MONEYCONTROL.COM FOR COMPARISON OF RETURNS FOR EVERY PRODUCT IN THIS CATEGORY AND DECIDE. LOOK FOR BIGGER AMCs oly.
3. Mutual Funds (Equity Diversified) :- First year of income would also require higher liquidity. So instead of keeping money in Bank Saving Account or Fixed Deposit, Invest this money into open ended Mutual funds (Equity diversified) which will ensure you the higher return as compare to Bank.
4. Gold :- Now a days this product comes handy for all type of investors. No matter where the world move this is the one investment product which will continue its north rally. This is needed to diversify risk of money invested in Mutual Funds, especially equity diversified products.

I would urge you to not to get into share/stock market at initial stage of your career as risk involved is extremely high and your portfolio is not robust enough to absorb any shock.

Mutual Funds can be bought through Demat account in Bank, directly from AMC or borkers (traditional way and I do not recommend it). Technology has made life so simpler that mutual funds can be purchased in few minutes and same applies for sale. Infact it has become easier than encashing a Fixed Deposit.

Keep track of all your investments regularly and take corrective actions wherever needed to make sure you get best out of it. The detailed tracking of your portfolio will help you learn from your mistakes and ensure that   the same are not repeated in future.

Small rivers make an ocean and one day will come that your wealth would be fatter enough to make you think of buying a house in posh area of Delhi or Mumbai and owning luxury sedan. So do not miss even a single day and start investing today. India is land of opportunity and this is the right time to catch the train of Growth.

Have Great Investments and Highest Returns. Good Luck.