Prajna Capital - An Investment Guide

The refund banker makes it easier and faster to get the IT refunds due to you Securing a refund of income tax was a long-drawn process. The completion of assessment takes considerable time. And in case there is any amount of refund due to the assessee, it used to take even longer. In order to reduce the time taken to issue refund orders, the government has initiated the scheme of refund banker. The bank will pay the assessees directly, based on an advice from the Income Tax Department. So the assessee will not have to follow up with the IT Department to check the status of his refund. According to the Income Tax Act, if any person convinces the assessing officer that the amount of tax paid by him for any assessment year exceeds the amount he should have paid, he will be entitled to a refund of the excess amount. The assessee needs to file an income tax return before the due date of filing returns. The scheme for sending IT refunds through a bank was inaugurated by the Finance Minister ...

Range bound trades, whipsaws and false signals All technical indicators will fail in range bound stocks / markets and will generate whipsaws and false signals. Whenever you can get a buy / sell within 10 days (order is immaterial), it means the stock is range bound. At this point, one should visually check the chart and identify areas of support and resistance. Only a break above these levels will create a new trend. Support and Resistance levels / targets This is nothing but a "peak" and "trough" based on 5% change. These levels form the basis for calculation of targets. A break above a "peak" gives a resistance break. Similarly a break below a "trough" generates a support break. Oversold and overbought stocks Interpretation of this is difficult and should be done in the context of the prevailing trend. Overbought means great strength. It does NOT mean stock will correct immediately. It is normal for a stock to remain overbought for conside...

Sharp Correction Provides Good Value Buys For Investors With A Long Horizon. So how an investor can identify the good stocks to by for long term. In this article we discuss a method to do it. THE stock market is known to over react on the way up as well as down. So, it should come as no surprise that the market price-to-book value of many fundamentally-sound companies has slid to its lowest level in many years as a result of the recent turmoil. An analysis reveals that 181 companies (with strong fundamentals) are currently trading at a discount to BSE-500 index average price-to-book value (PBV) of around 4.75. And stock prices of 70 companies are trading at a PBV of less than 2. Such a sharp correction provides good value buys for investors with a long-term horizon. To give a fair picture, only those companies whose revenues and net profit grew at a CAGR of 15% or more in the past three years have been included in the study. Companies with 3-year average return on capital employed o...

An aggressive portfolio with 12 funds and 12 stocks. Mid and small caps account for 52.5 per cent of the overall portfolio. 43.67 per cent of the portfolio is invested directly in equities with most of the stocks being of small and mid cap companies. The remaining portfolio consists of riskier funds which predominantly invest in small and mid cap exposure. Standard Chartered Premier Equity and DSPML Tax Saver are two such funds. The stocks portfolio too is dominated by small and mid cap picks like Tantia Construction, Asian Electronics and Rico Auto Industries. 8 of the 12 mutual funds have a portfolio allocation of less than 5 per cent. Such small holdings would add no value to the overall portfolio. When the stocks invested in directly and the stocks that the mutual funds invest in are clubbed, the overall portfolio gets spread over 744 stocks! And 160 of these stocks have a meagre allocation of less than 1 per cent. On the other hand, the portfolio has negligible exposure to debt (1...

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...

The most commonly used valuation metric by investors is the price to earnings ratio or commonly referred to as the P/E ratio . Though commonly used, it is also misunderstood for various reasons. Here is an attempt to simplify this valuation metric. How is P/E calculated? It is calculated by dividing market price of a stock by EPS (earnings per share). EPS in turn is calculated by dividing the net profit of the company by the number of shares outstanding. Having calculated the P/E, what does it stand for? Lets assume a stock is trading at Rs 100 and its EPS is Rs 20. The P/E multiple is 5 (100 upon 20). Assuming that the company’s EPS is likely to be Rs 20 each year, it will take 5 years for the investor to realize Rs 100. Of course, the assumption here is that the company’s EPS is not growing at all.Now taking the example of commonly traded stocks like Infosys and Tisco. While the former trades at a P/E multiple of 25 times, the latter trades at 7 times. Why is it so? It is believed t...

With the upswing in the rate of inflation and the high rate of interest, investors are finding it tough to invest in instruments that give them a good rate of return. Both equity and debt market have been quite volatile for the past few months. Debt options like fixed deposits are not giving good returns and most banks on an average offers 8%-9% returns. So what should an investor do in such a scenario? Look for debt instruments that give a good return even if inflation is high or the market is down. Wealth managers feel debt funds can be a good option to invest as it help during times of high inflation since interest rates also go up at such times. Debt funds helps in preserving capital and the returns you get from it are sufficient to keep up to inflation but not beat it. Investing in debt funds also offers tax advantage compared to interest bearing instruments like deposits and bonds. The frequent fluctuation in the stock markets has led to a new interest in debt funds. A debt fund...

What are stock splits? A stock split simply involves a company altering the number of its shares outstanding and proportionally adjusting the share price to compensate. This in NO WAY affects the intrinsic value or past performance of your investment, if you happen to own shares that are splitting.A typical example is a 2-for-1 stock split. A company will announce that it's splitting its stock 2-for-1 in one month. One month from that date, the company's shares (having traded the day before at, say, $30) will now be trading at half the price from the previous day (so they'll open at $15). The company, which had 10 million shares outstanding, now consequently has 20 million shares outstanding. The price has been halved in order to accomodate a doubling of the share total. The most common splits are 3-for-2, 2-for-1, 5-for-4, and 3-for-1. But they can happen any which way: 5-1, 10-for-9, etc. They can even happen in "reverse": 1-for-10, etc. But why the heck would a...

A fire insurance guards against the unforeseen. But don’t ignore the finer points in the policy DOUBT and uncertainty are an integral part of life. Ask Delhi-based businessman. After a lot of planning and research, the 27-year-old’s dream project, a high-end apparel showroom, catering to HNIs , was supposed to be launched soon. His planning was comprehensive and execution almost complete. Till that day, he had not taken a step wrong. Well, almost. On the night before his launch, a short circuit gutted his showroom. His whole world came crashing down and the loss was irreparable. But if he had taken an adequate fire cover, the loss could have been easily avoided. In fact, people hardly realize the importance of a policy till a casualty nails them down. Here’s an insight into why you should buy a fire insurance policy, and how to easily navigate through a claim process. THE FINEPRINT According to insurance brokers, you should always opt for a reinstatement clause while buying a fire insu...

Earning ( P/E ) is one of the most widely term used in the share market. Every investor now a day supposed to know the term P/E. If the term is so important then what exactly it mean? The meaning of the term is in its name itself. It is ratio of Price to its Earning. In other words, it is the equilibrium of what market expects and how company has performed? Confused? What is price of the stock? How the price of the stock is determined? 1) Stock Price: It is just the demand-supply concept. Price of any stock is determined on the basis of demand of that script and its supply in the market so in short it can be considered as the expectations of the investor from the script. 2) Earnings : Earnings mean earnings after depreciation and tax. In calculating P/E, earnings are considered per share to bring uniformity in calculation. So EPS is the actual performance of the company, which is calculated as follows- EPS = Profit after Tax( Profit for Shareholders) Number of shares outstanding. Sin...

Now that we know about your portfolio, here are a few pointers about what you should be doing... Small allocations would not add any value to the overall portfolio. If a fund outperforms but has a meager allocation, the portfolio would not benefit from it. Make sure you allocate a significant part of the portfolio to a stock or a fund. Avoid speculating and stick to funds that have proved their mettle. Invest in well rated funds. Look at a 3-5 years performance history and ratings before investing. Quality is more important than quantity . Investing and managing so many funds can become a tedious task. Invest in fewer funds and do not get lured to the new fund offerings. Add a new fund to your portfolio only if it adds a unique diversification. Some significant component of debt is always helpful to a portfolio. Debt plays a major role in a bearish stock market and provides the cushion when markets tank. Ensure that the portfolio has a healthy debt component irrespective of the r...

Guidelines applicable to portfolio managers as prescribed by SEBI A portfolio manager advises his client on the management or administration of his investment portfolio. He may either be a discretionary or non-discretionary portfolio manager. A discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client. A non-discretionary portfolio manager manages the funds according to the directions of the client. An applicant for registration or renewal of registration as a portfolio manager is required to pay a non-refundable application fee of Rs 1 lakh. Every portfolio manager is required to pay a sum of Rs 10 lakhs as registration fee at the time of grant of certificate of registration by the SEBI. SEBI takes into account all matters which it deems relevant to the activities relating to portfolio management. The applicant has to be a body corporate and must have necessary infrastructure like adequate office space, e...

An insight into real estate mutual funds that allow small investors to benefit from the healthy returns investments in the real estate sector offer Real estate mutual funds ( REMFs ) make it possible for everyone to use the real estate boom to earn handsome returns. You don't need to buy property to actually benefit from the high capital gains it offers. You can go the real estate mutual funds way. Advantages of REMF Retail investors will be able to participate in the real estate sector. In case of venture capital funds, the minimum investment size is around Rs 1 crore. For REMFs, this is expected to come down to about Rs 10,000. Retail investors will have one more investment option to diversify their portfolio. Institutional investors will get a good exit option by way of transfer of assets to REMF. Real estate as an asset class provides excellent risk adjusted returns along with low correlations with other asset classes. The real estate sector will get an additional source of cap...

Of late, there has been an avalanche of bad news flowing out of the Indian stock markets. The Sensex tottering around the 14K mark, the Nifty around the 4K mark, the plummeting stock prices of most companies, mutual funds failing to garner any positive returns... the list seems to go on and on, and on. Amidst all of these sob stories, we have become almost desperate for some positive information. Well, look no further. While the markets have been crashing around us, there has been one category of mutual funds that have actually generated returns in the green. They are the Arbitrage Funds . Quite often referred to as equity-and-derivative funds, arbitrage funds are an ideal way of earning a reasonable income from equities with the modest amount of risk, And here's how. The objective of an arbitrage fund is to capitalise on a stock's price difference between the spot market (cash segment) and the derivatives market (futures & options segment). These funds basically generate...

1. Create an affiliate program. A good affiliate network allows you to grow your e-business efficiently and affordably, channeling additional traffic to your site without the expense of pay-per-click advertising. Provide your affiliates with links and ads that carry your branding message. 2. Start or contribute to a blog. Look for a highly trafficked and searched blog in your industry, then write and post relevant articles about your business. Let your personality shine through in the tone of your writing. 3. Print your logo on labels or stickers and place them on all communication with customers. Stickers appeal to our tactile nature and add interest to just about anything. They don't need to be fancy, but they should feature your logo and colors. 4. Attach your tagline to your e-mail signature. If you don't already have a tagline or motto that communicates a key difference between you and your competition, create one and consider trade marking it. 5. Print your logo on an...

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

What’s the biggest financial commitment of a parent today? At least two out of three say, “It’s to meet the rising costs of their child’s education.” The fact is that most financial planners say that as inflation rises, the first thing to get impacted is the education sector. Planning for the child’s future is an important step. Child insurance plans are one of the tools that help parents secure the financial future of their child. Children’s insurance policies have always been popular in India, but their significance has gone up of late due to rising costs, particularly in education. Earlier, the trend was that a policy was taken in a child’s name, which was a simple money-back plan. Now, parents take a term cover in their name, which would be replaced if there is any loss of income due to the untimely death of any of the earning parents. So, it has the twin benefits of investment and protection. How do these plans work? Most of these child insurance plans aim to meet your financial n...

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

A guide on the laws governing tax on windfall earnings. DO WINNINGS QUALIFY AS INCOME? It’s indeed painful to forego a part of your winning amount, and hence it’s your right to know why you are subjected to pay income tax on winnings, especially when they are not regular source of income like salary. The Income Tax Act 1961 has a quick answer to your query. Under section 2(24) of the Act, windfall earnings in the nature of winnings from lotteries, crossword puzzles, card games, any form of gambling, betting or any type of race (including horse races) which do not have an element of regularity, have been specifically clarified to be income. Being a form of income, it is then subject to taxation. As per section 56(2)(ib), windfall earnings are classified under the head income from other sources. However, when you are paying your tax at the end of the year, if your total income includes income from sources such as lotteries, card games and so on, under section 115 BB, the total income tax...

Here are some parameters that give you an indication of a fund’s performance The performance of a mutual fund scheme is reflected in its net asset value ( NAV ) which is disclosed on daily basis in case of open-ended schemes and on a weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published. All mutual funds are also required to put their NAVs on the web site of the Association of Mutual Funds in India ( AMFI ). Investors can access NAVs of all mutual funds at one place. The NAV is the most common denominator which summarizes the entire performance of the fund. The mutual funds are also required to publish their performance in the form of half yearly results which also includes their returns/yields over a period of time i.e. past six months, one year, three years, five years and since inception of schemes. Investors can also look into other details like expenses as a percentage of total assets as this has an affect on the yield. In addition, mut...

Although gold ETFs and gold mutual funds belong to two asset classes, both offer good investment options This article gives you a low down on how to buy Gold Exchange Traded Funds ( ETFs ) and gold mutual funds. DIFFERENT ASSET CLASSES The basic difference between gold ETFs and gold mutual funds are that they belong to two different asset classes. Gold ETFs give the investor the opportunity to invest in units of gold, which are then traded on the exchange as a single stock. The units issued under the scheme represent the value of gold held in the scheme. Gold ETFs hence fall into the category of commodities. Gold mutual funds, however, fall into the equity category as they invest in equity and equity-related securities of gold mining companies. Since gold mining companies are not listed on Indian stock exchanges, the gold mutual funds invest in world gold funds that invest in gold mining companies across the world. RETURNS AVAILABLE The predominant criterion for all investment remain...