Prajna Capital - An Investment Guide

When it comes to investing, it is commonly observed that investors tend to replicate the investment strategy followed by their colleagues, friends or relatives. It is generally believed that an investment strategy that has worked for one will also work for others. However, this is the wrong approach, simply because 'one size does not fit all' while investing. Instead, investors need to build an investment portfolio that is right for them. Building an investment portfolio requires the investor to put in a fair degree of thought and time. The need for the latter is only accentuated in light of the overwhelming choices available. In this article, we present a 4-step strategy that will help investors build an investment portfolio. 1) The investment objective The first step should be to identify the investment objective and tenure. In our view, no investment must be undertaken without defining these parameters. For this, you need to ask yourself - "what am I investing for"...

Staying invested may not be the best option if you have chosen wrong funds or poor script If you were to take a look at the performance report of the mutual fund industry, you won't find too many impressive performers in the last couple of quarters. While the stock market in general has lost over 30-35 percent in the last two quarters, the scenario is even more ghastly in the case of mutual funds. Many aggressive funds have lost as much as 40 percent and most new funds are sitting on a loss of nearly 50 percent. The current scenario is bound to make the investor worry. For those who made an entry into equity a few years, ago, the current scene is bound to be more painful as they are faced with negative returns for the first time. The uninterrupted Bull Run from 2004-08 had made many forget the realities of risk associated with equity . In fact, many dabbled in mutual funds too like stocks . Some even thought that with mutual funds, there was no risk as the fund manager was expecte...

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...

“When the going gets tough, the tough get going” That really sums up what it takes for a retail investor to survive in these volatile times – nerves of steel and lots of courage. If you have poured in a substantial amount of your savings in equity shares or equity mutual funds, and are crumbling under the pressure of the falling markets, all’s not lost. It’s unanimous: Stay put for the long term Equities are for the long term. Anyone who has been investing for the long-term should not be affected by the market fluctuations. By long-term I mean 7-9 years. People should continue holding their investments. The current fall has been too sharp and it will take some time for the market to recover. The pain will be longer this time but the market will recover. Remember that a loss is not a loss till you sell. So don’t panic simply looking at the notional loss. Hold on to your investments and watch them turn to profits in the long run. Why long term pays A little bit of number crunching suppor...

A professor of mechanical engineering has been a regular investor in traditional investment products for the last 30 years. His investment portfolio includes instruments like LIC, public provident fund ( PPF ), national savings certificates ( NSC ), fixed deposits ( FDs ) and infrastructure bonds. For him, investment in equities was never a priority. He thought they were risky. More recently, he ran into a wealth m a n a g e r who told him that investments in traditional products are important but it shouldn’t occupy a major chunk of his portfolio. Now he is beginning to invest a little in mutual funds and equities. Everyone hates losing money. But by playing too safe, you could also lose money by earning negative real returns (after taxes and inflation). Traditional investments were hugely popular 20 years ago. They were safe, gave decent returns and were easy to invest in. However, they have not borne the onslaught of private investment options very well. Today, most of Sunder’s c...

5 points that matter while buying MF More often than not meritocracy of investments is often decided by the returns. Quite simply then a fund generating more returns than the other is considered better than the other. But this is just half the story. What most of us would appreciate is the level of risk that a fund has taken to generate this return? So what is really relevant is not just performance or returns. What matters therefore are Risk Adjusted Returns. The only caveat whilst using any risk-adjusted performance is the fact that their clairvoyance is decided by the past. Each of these measures uses past performance data and to that extent are not accurate indicators of the future. As an investor you just have to hope that the fund continues to be managed by the same set of principles in the future too. Following are the 5 Points: 1. STANDARD DEVIATION 2. BETA 3. R-SQUARED 4. ALPHA 5. SHARPE RATIO 1. STANDARD DEVIATION The most basic of all measures- Standard Deviation allows you ...