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Showing posts from June, 2008

Hold On to Cash - CASH IS KING

While there’s no silver bullet here are some advice that gob smacked small retail investors can use to mitigate their nightmares RAJESH (Just a Name used in this article) works as a system analyst at one of the top IT companies of India. Apart from forwarding emails, which his job requires him to do, he passionately tracks the domestic equity market. His favorite anecdote about the market until recently was: “Each time the market crashes, if you sell your house and invest in the stock market, in a month, you’ll be able to move a couple of suburbs closer to South Mumbai.” Two months ago, all you had to do was name a stock and he would have told you its last traded price. You name a brokerage and he would have told you which stocks they were betting on. Any news or rumor, no matter how trivial, as long as it was remotely related to the equity market, he had it covered. A day didn’t pass by without him arguing, disputing, advising or seeking advice on various message boards on the interne

Why Inflation goes Up?

Inflation is part and parcel of any economy. High growth economies usually have high inflation. So what is inflation and how it fluctuates and what causes this variation. Here is a small note on that. Inflation Inflation is a measure of rise in general price levels of goods and services. Inflation is measured by taking a set of goods and services, and then the prices of the items in the set are compared to prices one time period ago. In India, inflation is measured based on the wholesale price index ( WPI ) which measures the change in prices of a selection of goods at wholesale prices. Types of Inflation Inflation is primarily of two types - inflation due to cost push and inflation due to demand pull (supply side). Cost push inflation is due to rise in costs of input materials or labor, whereas demand pull inflation is due to increase in demand beyond installed capacity. Controlled inflation is good for the economy as it increases motivation levels of people. The government, in co

Arbitrage Funds - Smart way to improve your returns

Investing money for short-term, say up to 1-11/2 years has generally been an issue. As it is the interest rates / returns are quite low. On top of this, there could be taxation issues, which will further reduce the effective returns. Equity/equity funds may not be a prudent option for short-term. Therefore, we need to consider mainly the interest-based investment options. What do we usually do? Since it is quite convenient, very often the money keeps lying in the Savings A/c itself (also, maybe it is psychologically satisfying to see a big balance in one’s account). But don’t forget - this earns you just 3.5% p.a. interest and that too taxable. Hence, it is not good to keep too much money in the Savings A/c. The next common thing to do is to make a Fixed Deposit ( FD ). This may earn you 6-9% interest depending on the tenure. But this too is taxable (if you are in the highest tax bracket, even a 9% FD will fetch you just 6.3% post-tax returns). So, given the fact that there are better

Putting old PF in a new job

Your provident fund is your social security. When you switch jobs, make sure you update your PF account also THE ONLY thing constant in life is change. Golden words. But it’s one stark reality that you may have to face one day. Harsh Mehta, a middle-level executive, was in a similar state of mind while handing over his resignation letter. For the 36-year-old, who worked for more than a decade in the company, it was an emotional moment, since this was the place from where he started his career. Mehta, in need of funds, decided to withdraw money from his provident fund account, little realizing the implications of the decision. A year down the line, Mehta, unable to perform in line with the expectations of the new firm was thrown out of the job. The old company refused to reinstate him. He was caught off guard. He took up a job in a little-known company at a much lower salary to support his family. Most people in India don’t realize the importance of a PF account. Here’s a lowdown on wha

Personal Finance - Inflation v/s Volatility

Mr. Iyer made very clear to his investment advisor that he does not like taking risk. A normal thought that would cross any advisor’s mind when an investor states what Mr. Iyer said is either that the investor does not want to risk his capital and wants to ensure that his capital remains intact or the second thought is that the investor does not want to face the risk of running out or falling short of money when he is nearing his financial goal. While a lay investor might struggle to put both the above in perspective, reality is there can be vast difference in perseverance of risk. When normally an investor opts for so called safe investment avenues such as fixed deposit, he is protecting himself against the risk of volatility. He seeks comfort under the disguise shelter of safety of capital. However at the very same moment he is risking himself against the risk of losing out to inflation in the long run. His investments earn negative real rate of return . This means he may not have en

Personal Finance: Making your credit card pay for you

Everybody cautions users about plastic money and debt traps, but if used intelligently, you could reap many benefits When they picked London as the destination for their summer holiday this year, Nina and Rajiv Malhotra had a plan in mind. They wanted to fly business class, stay in luxury hotels and have a blast in London, but they also were sure about keeping the trip a low budget affair. “It was a grand plan, but with meticulous planning it all fell into place,” says Rajiv, “most vacation plans start with saving months in advance, but ours started with spending. This might sound crazy but really what worked for us was transferring all our everyday expenses to our credit cards. This gave us enough reward points to convert them into Asia miles and get free tickets to London!” All expenses paid: Almost eight months in advance, they started using their credit card for everything, right from groceries, electricity bills, phone bills, insurance premiums, petrol bills and even donation to c

Mutual Funds: Winners & Losers

Peter Lynch of Fidelity, used to mentally classify stocks as: Perennials Growth Cyclicals Utilities Perennials Perennials like FMCGs offered predictable growth. Utilities (in the 1980s US context) meant power and telecom companies that offered stable dividends . Growth Growth is self-explanatory and so is cyclical. His take was that growth stocks usually offered the highest potential returns but carried the highest risks. Perennials offered steady returns but ideally offered best value during bear markets. Utilities Utilities, he felt were dividend plays or quasi-debt instruments. Cyclicals Cyclicals offered great returns only if bought in downtrends. Lynch's classifications are interesting in the context of India over the past two years, and especially, the past two months. The Sensex climbed from around 10,000 in February 2006 to a high of over 20,000 in December 2007. It has since corrected to a recent low of 16,608 and it's now trading at about 18,000. So we've seen a

Stock Market: IPO payment after allotment is final

SEBI has changed the payment process for IPOs and this will benefit individual investors There is some good news for the investors. The market regulator, Securities and Exchange Board of India ( SEBI ), has changed the payment process for subscribing to initial public offers ( IPO ) and rights issues. Under the new process, the application money will remain in the bank account of the applicant till allotment is finalized. Currently, the money is debited from the bank account, and based on the number of shares allotted, the excess money is returned. According to SEBI, the new system would eliminate the refund process. The modalities of the entire process will be worked out separately. The SEBI Board has approved, in principle, the concept of making a lien on the bank account an alternative mode of payment in public/rights issues. This means the money earmarked for the IPO will not be used for any other payment obligation during that period. At the same time, the applicant will get t
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