Prajna Capital - An Investment Guide

The three options available in mutual fund schemes to help you choose one. Most mutual funds offer an option to investors to either receive the dividends or to have it reinvested in the fund. This is an interesting choice that investors have to make while making investments in mutual funds. The investor has to decide whether he wants to receive the amount of income earned in the form of dividends or to accumulate the gains through the growth option. The option of dividend reinvestment can be used favorably by investors depending on their specific needs. There are three options available for an investor: • Dividend option • Growth option • Dividend reinvestment option Dividend option Under the dividend option with a payout facility, the investor receives regular income in the form of dividends as and when the fund declares dividends. In case the investor opts to take dividends, he gets a current income. Also, he gets tax benefits on such a payout. As per the current income tax rules, ...

IT WAS greed that got the BSE Sensex to 21,000 points. Investors were willing to pay any price for a stock expecting that stocks would go up forever. They turned a deaf ear to any sane advice. Now, this greed is replaced by fear. There is so much of fear that the investors have become loss averse. They want to get out of stocks. Why a sudden change in sentiment? First , it is due to margin trading. Investors had become so greedy that they bought beyond their capacity through the futures and options. The brokers encouraged this and now when the client cannot pay the margin calls and they are liquidating the positions at a substantial loss. Second , investors borrowed from banks against shares. Now, since the value of shares is going down, banks are selling stocks in the market to reduce their losses. Third , investors are stuck with declining or non-saleable stocks. To nurse their losses, they need to liquidate. Most of the stocks being unsaleable due to price circuits, investors are fo...

They can be bought and sold throughout a trading day like any stock An exchange-traded fund ( ETF ) is a basket of securities that are traded on an exchange. They first came into existence in the US in the early 90s. Initially, these were looked upon with suspicion. However, of late, these funds have been attracting the interest of investors globally. ETFs are different from mutual funds. ETF units are not sold to the public for cash. Instead, the asset management company that sponsors the ETF takes the shares of companies comprising the index from various categories of investors like authorized participants, large investors and institutions. In turn, it issues them a large block of ETF units. In case any dividend is accumulated for the stocks at any point in time, a cash component to that extent is also taken from such investors. A large block of ETF units called a 'creation unit' is exchanged for a 'portfolio deposit' of stocks and the 'cash component' . Unl...

While FY09 may be a crunch time for India, given the situation of a rising current account deficit and lower capital flows, the pressure could ease a bit from FY10 IT IS difficult to make a call on how FY10 is likely to pan out, but one thing is clear, the days of 9%+ growth are over, believes Citigroup. As per a recent Citigroup Global Market report, India has lost the opportunity to sustain those levels for now, with growth coming in around 7%+ levels in FY09-10. With supply side measures not really being effective in bringing inflation down, Citi expects RBI to continue to raise rates to temper demand-side pressures. Much further monetary tightening however poses downside risks to both Citi’s FY09 and FY10 GDP estimates of 7.7% and 7.9%, respectively. Rising interest rates and input costs are also likely to result in a deceleration in investments to 10.4% and 7.9%, respectively. But what could possibly offset this are the low real interest rates and improvements in productivity. Wh...

Take stock of your risk appetite and diversify across sectors in these conditions Someone recently asked what it takes to be an equity investor. The question was not out of place considering the current market scenario. As the index has been hitting a low at regular intervals, the time has come to define the attributes required to be an equity investor. To simplify, just check out if you have these qualities to consider yourself a good stock market investor in these conditions. Long-term thinking Wealth creation is all about systematic approach and that automatically requires patience and discipline. While short-term investment strategies can prove profitable in the short term, it is the long-term planning which helps an investor in capital appreciation. As a result, one needs to look at equity as a long-term investment option and more importantly, an investor needs to stick to his long term approach. Not only will it bring in the much-needed focus but will also insulate the investor f...

Investors can use the services of professional portfolio managers if they cannot set aside enough time to manage their investment portfolios themselves It's quite natural to want to grow one's money. But the process for achieving this simple goal is actually rather intricate, and requires experience and expertise. Preserving and growing capital is as difficult as earning it. In the last four years, we have seen favorable markets. But the recent crash has certainly taught us a significant lesson. Investing is a full-time activity that entails timely flow of information, and requires thorough understanding and sharp execution skills. When the markets were buoyant, many investors turned into self styled fund managers. But the dangers of this are comparable to self-medication. It would be tragic if they were understood only after incurring a huge cost, like seeing one's portfolio shrunken to half the invested capital. The way to avoid such a problem is through disciplined inves...

If you want to maintain a simple portfolio and yet have the benefits of diversification, a systematic investment in balanced funds is a great option AS AN investor, if you are saving regularly for the long-term and want a low-involvement, hassle-free instrument, then balanced funds is the right choice. Balanced (mutual) funds have been around for over a decade — and manage assets of over Rs 16,000 crore between them. They, by mandate, invest at least 65% of their portfolio in equities, and up to 35% in debt and related instruments. In practice, the equity component of most balanced funds varies between 65% and 80%, depending on the fund manager’s outlook of the markets. Long-term and discerning investors would no doubt have heard of the UTI Balanced Fund, Magnum Balanced Fund and HDFC Prudence Fund. Of course, today, there are over 15 balanced funds offered by different fund houses. They have systematic investment plans (SIP), growth/dividend options, and all the other investor-friendl...

Desperate for your 15 minutes of fame? Here are some art of making home videos and getting the best possible publicity for them online. Where others have succeeded, why shouldn’t you? LonelyGirl15 is undeniably a legend as far as home videos go. The breakout web hit, shot at home by amateurs, drew a massive cult following internationally and eventually brought lead actress Jessica Rose and the rest of the crew to fame in Hollywood. It is now inspiring young wannabe actors and directors. Internationally, there have been plenty of such homegrown video series that tried to emulate the success of LonelyGirl15, but slowly the bug seems to have bitten creative young minds in India too. If Rose can make it big in Hollywood with just a webcam and a one-room studio, what’s stopping creative minds from shooting to fame on the internet? With umpteen video hosting sites and dirt cheap video cameras, truly, the world is your stage. So, if you think you can direct like Karan Johar, here’s a two step...

DSPML World Gold Fund invests in stocks of companies engaged in gold mining & production. The fund's assets have more than doubled in a span of 6 months, all thanks to the returns it earns... DSPML Gold Fund's returns have given investors reasons to cheer The previous year gave investors of the DSPML World Gold fund many reasons to smile. The fund, which listed in September, last year, has delivered 42 per cent returns since its launch. This year (till February 1, 2008), the fund, which is part of the Equity Specialty category has delivered around 8 per cent returns compared to the category's 11 per cent loss during the same period. The Sensex and Nifty were down 10 per cent and 13.4 per cent respectively during this period. In the December 2007 quarter, the fund's returns at 16 per cent were much ahead of the benchmark FTSE loss of 0.15 per cent. However this is less than the Sensex's gain of 17 per cent in that quarter. The DSP World Gold fund does not buy gol...

How many of you would use a mobile phone predominantly as a calculator? I guess, not many. In fact, you would be wondering if there would be anyone in this world who would answer in the affirmative to this question. Now, if I were to offer a phone without SMS or address book facility, but with a scientific calculator functionality attached, would you still buy it? Not really. Surprisingly, in the world of financial products and services, it is not the case. Assume the margin for the distributor in selling calculator-enabled mobiles were 10 times that of selling plain vanilla mobiles phones. What would he do in such a case? Most likely, he would only sell phones that had a calculator feature attached — whether or not the customer wanted it. He would wax eloquent about the advanced nature of the calculation facility. Only if a knowledgeable customer insists, would he even show him / her the ‘simple’ phone. An unwary customer would be subjected to a barrage of ‘features’ and ‘benefits’, w...

Planning to buy your dream house? Take a look at rental rationale as well BUYING a house is “simple”. All you have to do is to ask for an advice. And voila, they come in dime-a-dozen. Besides, if you look around, you’ll find real estate portals, hoardings and various self-styled real estate gurus advising you where and how to buy your dream house. But in this commotion, you may often overlook a simple calculation — the buy v/s rent comparison. Here’s a reality check on what should really influence your decision. ARE YOU READY TO BUY? Personal finance experts believe that emotions, family and personal reasons all come into play in any home-buying decision. Also, there are lots of non-financial factors that affect this decision, including your hobbies, lifestyle, and personal psychology. Even before you plan to buy a house, it’s better to assess if you want to live in that city. If it’s your first house, then you should see it as a long term investment. After all, you want to spend your...

The Securities and Exchange Board of India ( SEBI ) has given its final go-ahead to Mutual Funds to launch 'Real Estate Mutual Funds' (henceforth referred to as REMF ). 1) According to the newly issued guidelines, existing Mutual Funds are eligible to launch REMF, if they have adequate number of experienced key personnel/directors. 2) Add to it, sponsors willing to set up new Mutual Funds, for launching only REMF should have been carrying on business in real estate for a period not less than five years. 3) Besides, they have to abide by other eligibility criteria applicable for sponsoring a mutual fund. 4) All REMF shall be closed-ended and their units shall be listed on a recognized stock exchange, thereby providing investors, much needed liquidity. The regulator took a daring step by asking fund houses to declare NAVs of such schemes daily. 5) As far as the composition is concerned, at least 35% of the net assets of the scheme shall be invested directly in real estate assets....

From over confidence, to over-enthusiasm to panic selling, there are many mistakes that an investor should avoid while playing in the stock market. Investing is not just about picking winners, but also about avoiding mistakes. Retail investors can be better off if they avoid making the following mistakes. • Overconfidence — Don’t be unrealistically optimistic A bull market makes retail investors believe that they are geniuses — after all, anything they put money into goes up. This overconfidence in their own abilities leads to a complete disregard of the risks involved. Every new generation that invests in the market ignores past experience. These new investors wrongly believe that stock prices only go up. Don’t be overconfident and don’t start believing that you have superior skills compared to the market. Recognize that in a bull market you are benefiting because the whole market is going up. If those around you are getting unrealistically optimistic, start managing your risk accordi...

A considerable proportion of people investments are in the form of the stock options. As it happens, this company is prone to periodic rumors about being in trouble of one kind or the other. In recent weeks, just as all of peoples' investments have fallen, those of his employer (and other potential employers) have fallen the most. Then there are many couples who both work in a large IT company. Predictably, a good amount of their investments are in the form of their own company's stock options. They are now coming to grips with the possibility that if the rupee keeps gaining strength, employment growth in the IT industry could slow down and perhaps even sharply reverse. That's a double problem . 1) Realization dawns that the permanently bright future that their industry was supposed to have may not exist. 2) And, at the same time, their investments in their own employer have declined to less than half in about an year's time. Like many IT stocks, their employers' st...

Unit-linked insurance plans ( ULIPs ) - which are similar to mutual funds in design - will soon get prudential guidelines that are in line with those applied to mutual funds. The Insurance Regulatory & Development Authority ( IRDA ) is set to unveil exposure limits that will place caps on how much of ULIP funds insurers can invest in a single company. The IRDA is vetting a proposal to make prudential or exposure norms mandatory for ULIPs to mitigate possible risks arising from investments in a few companies. "Although the investment risk in ULIPs is generally borne by the policyholder, minimizing the contagion risk is a regulatory concern," a senior official said. The policyholder makes gains or losses on the investment, depending on the performance of the fund. Most insurers offer a wide range of funds to suit the policyholder's investment objective, risk profile and time horizon. Different funds have different risk profiles. The potential for returns also varies fro...

Indians find life insurance the most suitable retirement planning tool, followed by bank deposits. As much as 75% of the working population and 55% of retired respondents in the country cited life insurance as their primary retirement plan tool. Indians are pretty clear that they do not want to take risks as far as their retirement planning is goes. Therefore, life insurance and bank deposits, which virtually do not have any financial risks, are the most popular. However, two Indians out of 10 find high-risk, high-return products more appealing. This annual study was launched in 2004. This year’s research compares findings in 26 countries that were surveyed. The research has India as a first-time participant. Respondents from Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad and Pune included both working and retired population in equal proportion. As many as 839 persons were interviewed in India, about 400 retired and another 400 working. This is an extract of the study...

In spite of their size, small and medium companies can beat the biggies. The need is to implement certain unconventional ‘opening’ strategies CHESS is composed of three distinct phases: an ‘ opening’ , a ‘ middle game’ , and an ‘ end game ’. Successful players learn early that while logical methods help them win ‘end games’, these are entirely inappropriate during earlier stages of the game. Across every field studied – from chess to sport to music – scientists have confirmed again and again this fundamental dilemma: ‘What helps you win in the end is not what helps you start winning at the beginning’. Yet in the field of business we seem to have missed this lesson. Like novice chess players, we tend to cling to logical methods. The business best seller list is stocked with books that deal only with ‘end games’. They show big companies how to play in mature industries with established players following accepted rules. You can summaries the lessons to the three-move playbook. To sustain...