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"...

THE term ‘ risk’ is slowly finding its way back into investor lexicon. This is evident from the rising demand for capital-protection products offered by brokerage houses in their portfolio management schemes ( PMS ). Of several such products, the one which uses bonds and the recently introduced long-dated options, is the most sought after for now. What differentiates this capital-protection product from others is the use of long-dated options, that Sebi introduced in January this year. The product has been structured in such a way that a major chunk of an investor’s capital is put into highly-rated bonds, while the rest is used to buy Nifty call options, which expire 1-3 years from now. So, for instance, if a client puts in Rs 100 into such a product, the fund manager of the PMS would invest, say, Rs 90 in bonds at a fixed interest rate to protect the capital. Rest of the money is used to buy (pay the premium for) a long-dated Nifty call or put that expire in 2009, 2010 or 2011. It i...

Enumerated below are twelve major principles and sixteen minor ones with brief comments on each of them: First Major Axiom: On Risk “Worry is not a sickness but sign of health. If you are not worried, you are not risking enough.” Adventure is what makes life worth living. Every occupation has its aches and pains. The rich have to worry about their wealth. But, if there is a choice between remaining poor and worry-free, the selection is obvious. It is better to be wealthy and worried than to be worry-free and poor. Minor Axiom I: “Always play for Meaningful Stakes.” If you invest Rs. 1000 and your investment doubles, you have only Rs. 2000 and are still poor! So if you want to be rich, you must increase your stakes. Minor Axiom II: “Resist the allure of diversification”. Firstly , diversification negates the earlier principle of playing for meaningful stakes. Secondly , it may keep you where you began so that your gains on few will cancel out the losses on the other few. Thirdly , it en...