Prajna Capital - An Investment Guide

At no time in recorded financial history has the benefit of portfolio diversification been so evident as today. The expression “ don’t put all your eggs in one basket ” is most apt for investing, and diversification is one of the most important principles to keep in mind when constructing an investment portfolio. We are in a truly global investment environment and the definition of portfolio diversification too is constantly changing. It used to be just equities, bonds and cash but over the last few years, partly due to increased risks as well as opportunities, the list now includes commodities, currency, art, foreign market investments and a host of other options which were once termed exotic or ‘ alternative’ . An ideal diversified portfolio should contain different asset classes, investment styles, and mixed assets from different geographic regions. Studies have conclusively shown that a diversified portfolio of non-correlated investments reduces risk and improves overall return....

Any emerging investor, would have studied all the avenues of investments and understands cash based investments like FDs have a fixed term and a fixed return but at times the returns do not match inflation. Debt investments like income funds yield a moderate rate of return but again though there is a high level of capital protection the investment may still lose out to inflation. Equities and equity mutual funds give a superior return over time but can be highly volatile. Gold works well with high inflation but gold allocation is limited. Real estate has been an excellent investment avenue but requires higher investments and liquidity could be a problem. How to control risk and yet generate a positive return over inflation? The first step would be to determine the ideal asset allocation; this could be derived by deciding what time horizon is and how much volatility. Further concern about what would be the right strategy for investing quarterly surplus and his cash in bank. As...

How these monthly income plan (MIP) plans serve the needs of those looking for capital preservation with a steady income A monthly income plan ( MIP ) is a good investment option among mutual funds. Individual investors are perpetually in search of investment avenues that yield good and regular returns. MIPs have been floated by various mutual funds. These plans are picking up fast. Investments of these plans in equities have increased. They have increased their allocations towards equity in their portfolios. Mutual funds have been focussing on the individual investor segment. A MIP is among the best products available to the individual investors. Most of these plans offer three options - Monthly income, Annual income, and Cumulative income The face value is Rs 10 per unit. Generally, the minimum investment is Rs 10,000 in case of the cumulative option, while there is no maximum limit. As is applicable to other schemes, the returns from these schemes are not guaranteed. The...

IF the bull run during the last few years had encouraged retail investors to shed their apprehension regarding equities, the subsequent downturn has made them retreat to traditional safe havens like gold and fixed deposits. While it’s not surprising, this short-term view may prove to be detrimental when investing for a long-term goal such as creating a retirement corpus, which necessitates an investment horizon of at least 15-20 years. For those who are comfortable with this kind of horizon, there is no need to look beyond equities, as it is the ideal wealth creation tool, feel market experts. As per data provided by IDFC Mutual Fund, top-rated diversified equity funds have outperformed other asset classes over a period of 15 years. Between January 1994 and January 2009 , they delivered a return of 14.22% against 6.09% from gold, 8.64% from fixed deposits and 9.97% from real estate. Equities have always earned a premium over other investments options over a longer period of ti...

With the stock market showing little sign of any serious recovery, and inflation high, some of you are likely to be considering investing in gold. If you are, you need to know the pros and cons. Experts differ widely on the matter. Some feel this is just not the right time to invest in gold, considering the commodity's price has risen sharply, and may soon do what the stock market did under similar circumstances --crash. The price of gold is already at its peak and even a gain of 5% at this level seems quite difficult. Investment is not advisable at this price. But there are others who feel just the opposite. This is the right time to get into gold as forecasts suggest that the price is set to touch Rs 15,000 or more. Wealth managers feel an investment portfolio with an allocation to gold improves the consistency of portfolio performance during both stable and unstable periods. It's also liquid in nature and can be easily converted into hard currency. Since gold is likely to do...

Examine Sector Weightings and the Fund's Concentration: The funds that have large stakes in just one or two sectors are expected be more volatile than the evenly diversified funds. A concentrated portfolio may also get more successful if its stocks are performing better. You may add a concentrated fund in your portfolio but mostly the concentration should be in a diversified fund which is more predictable. Invest in a few funds and develop a Plan: But it would not mean you should invest only in one fund. Even though the funds are diversified, many funds go though a few years of poor performance. When you invest in only one fund, you might lose heavily. On the other hand, investing in too many funds may lead to duplication of many securities and a portfolio with no focus. For the long-term financial goals, equities are the best option. Keep It Simple: To keep the selection of fund simple, you should stick with well diversified and well established equity funds, an index fund for equ...

INVESTING in equities is riskier than and definitely demands more time than other investments. However, it can probably be more rewarding than you can imagine and certainly very exciting! World over, and even in India, stocks have outperformed every other asset class over the long run. Stocks are probably your best bet against inflation too. If equities tempt you but you are scared to take the plunge during these volatile times, here's a complete step-by-step guide on investing in equities. Step 1: Understand how the stock market works When you read you begin with A-B-C. When you sing you begin with Do-Re-Mi. And when you invest in stocks you begin with business-company-shares. Before you embark on your journey to invest in equities, teach yourself how the stock market works. Step 2: Learn how to choose a stock Having understood the markets, it is important to know how to go about selecting a company, a stock and the right price. A little bit of research, some smart diversificati...

IF you want to invest in equities, there are only four things you need to remember. 1. Choose the right company Look for superior and profitable growth. The company should earn at least 20% return on its shareholders’ capital. Ideally a long-term investment perspective (more than five years) allows you to participate in the company’s growth. At the short end (3-6 months), share performance is driven more by market sentiment and less by company fundamentals. In the long run, the relevance of the right price diminishes. 2. Be disciplined Stock investing is a long, learning experience. You will make mistakes, but also learn from them. Here is what you can do to ensure a smooth ride. --Diversify your investments. Do not put more than 10% of your corpus in one stock, even if it’s a gem. On the other hand, don’t have too many – they become difficult to monitor. For a passive long long-term investor, 15-20 is a healthy number. Use this asset allocation tool to find out if you need to invest b...

Here I have tried to lists out some investment options that are relatively safer in volatile market conditions The stock markets are on a downward trend from the beginning of this year. Volatility in the markets is also quite high. There are many factors that contribute to negative market sentiments. For example, a persistent high inflation rate (especially the core inflation rate that is driven by basic commodities), rising commodity prices in global markets, anticipated slowdown in the global economy etc. Foreign investors were investing heavily in emerging markets. They are now taking out money, especially from emerging markets. Large foreign investors are bearish on global growth and expect the global economy to deteriorate. They believe that in the era of a global slowdown, emerging markets will under-perform their global peers. Foreign institutional investors ( FII ) have taken out around $5 billion from the domestic markets so far this year. Since the stock markets are ...

Consumers have been feeling the heat of rising inflation for the last few months. Though the number seem to have come down marginally to 12.14 per cent (for week ended Sep 26), there seems to be little respite. Such times force the individual to take a relook at their savings strategy and monthly budgets. The basic idea is to do things smartly to save on costs. Of course, there is a rising interest burden as well that makes things worse. In such uncertain times, your investments need to deliver higher returns to break even. For instance, if the inflation is touching 12 per cent, you will have to earn 17-18 per cent pre-tax (for the highest income bracket) so that there is no capital loss. While keeping idle cash in banks may seem like a safe and secure strategy, it can never protect the purchasing power of your money and will lead to wealth erosion. But cash certainly has its uses. It can be used to retire or reduce high-cost loans. Also, make long-term investments in gold and equities...