Prajna Capital - An Investment Guide

What does the retail investor do in choppy markets being seen now? YES, the current markets are in a bearish phase on account of several global and domestic factors. High crude prices are, however, the single biggest factor for the meltdown. It is hard to predict when the markets will stabilise. Investors who invested in equity markets at the peak time are anxious to know how they can protect their investments. Also, there are several investors who are interested in entering the markets and are keen to understand what should be their strategy. Firstly, let us understand that the current behaviour of the stock markets is not unprecedented. If you go back in history, both domestically and globally, the stock markets have moved in various directions over a short period of time. So do not panic. Let us assume that there are two investors: investor A and investor B. Investor A invested in equity mutual funds at the peak of the markets in January 2008 and has now witnessed erosion of ...

Take SIP route for better long-term returns A systematic investment plan ( SIP ) is an investment option that involves investments on a systematic basis over a period of time. Under a SIP option, an investor commits making a regular investment in a particular mutual fund or deposit. Investing in mutual funds through this route is much easier, more efficient, and is one of the best ways to see your investments grow over time. In a SIP, the investor invests a specific amount of money for a continuous period, at regular intervals. By doing this, you can compulsorily save a fixed amount each month. Further, you can avail the advantage of rupee cost averaging. This is because you automatically participate in the market swings. The amount of investment remaining the same, you buy more units in a declining market and less in a rising market. By consistently investing the same amount at regular intervals, your average cost per unit will be lower than the average market price, irrespect...

In a volatile stock market, choosing a potential scheme is more challenging. Investors need to look beyond short-term returns There has been plenty of talk about the falling returns from mutual funds with most funds posting negative returns for one year duration. In the case of systematic investment plans ( SIP ), the picture is no different, though investor gets to invest over different market periods. However, the negative returns from SIPs can't be blamed as they generally tend to offer handsome returns over the long run. On the other hand, in a booming market environment, even SIPs tend to give excellent returns. Needless to say, many investors were used to such whopping profits from SIPs even over the short term, and hence, the current market environment has been a cause for worry. In the present market scenario, choosing the right mutual fund has become more challenging as no scheme has managed to hold on to its leadership status beyond a few weeks. So, the time has come for...

Many people today find that they are deluged with information about investing. News programs provide updates on the stock market several times a day. Through the Internet, individuals can check on the performance of their investments at the click of a mouse. But one of the key sources of investment information, and one that some investors may be tempted to overlook, is the Mutual Fund Offer Document . A mutual fund offer document is a legal document that must adhere to standards set forth by the Securities Exchange Board Of India ( SEBI ), the regulatory agency that oversees the Indian Mutual Fund industry. The information contained in the prospectus is intended to help you understand what types of securities a fund invests in and the investment philosophy that the Investment Manager uses in selecting individual securities for the fund. The offer document will also provide information on the fund’s income and expenses, a review of historical performance, and information about your abil...

Here are some tips to help you put together a portfolio for wealth creation With most asset products failing to offer the expected returns, investors have begun to wonder what the right investment approach to building a portfolio is. The choice of product depends on the risk appetite of the investor and tenure of investment. It takes a mix of various products in the current environment to build a good portfolio. The task is probably easier for a fresher. It is quite challenging for an investor with a short-term outlook. For instance, if an investor is bracing himself for a corpus creation by 2010, it could leave him with little choice as he has an uncertain one year ahead for his wealth creation and would be poorer by a good 25-30 percent (depending on his period of accumulation) in his wealth. With the current year likely to unfold some more pain before bottoming out, the current environment also offers some lessons for building wealth in the coming years. Investors who have b...

In the stock market, the bulls are constrained by concerns over the macro-economic scenario domestically, the grim global scenario, persistent Foreign Institutional Investor (FII) outflows and the possibility of another round of monetary tightening. That does not mean the bears have a free hand. The correction in commodities, especially crude, provides ample ammunition for the bulls to conduct a short-term rally. Investors who flocked to gold as the 'safe asset' were disappointed at the way the price dropped in August. Real estate rates too have dropped and by all indications will continue to fall. No asset seems to be a safe haven anymore. The only asset that beckons is debt with interest rates rising. But would it make sense for an investor to move into debt? While this is a good time to reassess one's portfolio, it would not be wise to simply rush to income funds, Fixed Maturity Plans ( FMPs ) or fixed deposits. Read on to figure out how to make the best in such a bleak ...

The domestic investors are increasingly realising that it takes a combination of timing, patience and probably little bit of luck to make money from the stock markets. Those who missed the opportunity of booking profits during the earlier boom run are regretting, and even those who made an entry less than a year ago are not a happy lot. That is sure to make many wonder what it takes to be an investor in the stock markets. Check out if you have these traits. Risk appetite Equity sure lets you earn more money but not all your investments can turn into a goldmine. This is particularly true when you bet on stocks. As a result, an equity investor needs to have the ability to take risks which could be in the form of negative returns. While the prospects of loss of capital are much lower when the investment horizon is long, there are chances that some stocks may not recover even in the long term due to a change in their business prospects. In such cases, 'stop loss' becomes a st...

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...

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...

The Budget has announced a huge bonanza for tax-payers and it’s time you sow the hard-earned money where it would bear fruit NOW THAT the finance minister has put more money in your hands by restructuring the income-tax slabs, it’s time you take charge of the finance ministry of your house. An yearly saving of Rs 45,320 (for an individual with an income of Rs 5 lakh) may look tempting and increase your urge to spend but some smart and calculated moves can help you grow that money. Here is a lowdown on how you can maximize your hard-earned money through efficiently using different financial instruments to your advantage. UNIT-LINKED INSURANCE POLICIES (ULIPs) ULIPs can be the best investment option for those looking for a single-window option of investment, insurance and tax efficiency, say analysts. “Considering the fact that universally the risk appetite of individuals is low, ULIPs are the ideal entry points into the stock market indirectly and for long tenures in a disciplined way....

WHEN we are a college fresher or in first job, saving and investment are the last things in our mind. Our priority is the latest gadget, movies or a dream car. This is natural among the youth. With so much media exposure, you get tempted to buy these items. I would advise youth to follow five personal finance steps: 1) BUDGETING It’s easy to find ourselves wondering where our money went. Putting a budget in writing can show how we are actually spending our money and what we can do to help control where it goes. We should remember to add entertainment and shopping expenses into monthly budget and not forget to include savings. We should treat it with the same importance we would treat utility bills. In fact, the earlier we start saving, the earlier that money can start working for us. 2) PLASTIC WOES Easy availability of credit cards has provided a major boost to spending. We should use credit cards in a proper way like for emergency payments or life insurance premium payments. If we ar...

There are some fund houses that offer a life insurance benefit if you opt for a systematic investment plan in their schemes. It was initiated by DSPML Mutual Fund in 2005 with the name of Super SIP. Some other players like Birla Sun Life Mutual Fund, Kotak Mutual Fund and Reliance Mutual Fund have come out with the same concept. You will have to look into the details to see which one suits you. For instance, here are some questions you can ask as a guideline. Is there a minimum amount that has to be invested in the SIP? Must the SIP be of a certain tenure? Are all equity schemes of AMC, eligible or is it offered only on certain schemes? Will the insured amount be given to the nominee or be used to continue with the SIP so that the investment plan continues? Will all the insurance expenses be borne by the AMC? Is there any age limit to avail of this scheme? Now coming to your second question; yes, if you switch your units from one scheme to Equity Linked Saving Scheme ( ELSS ) of the sa...

It is time to be defensive. The trick is to pick up every available opportunity to add returns bit by bit BDV-270534-BDV A RANGE-BOUND market is always on the move, but going nowhere! The ‘buy and hold’ will just eat away returns and may not even deliver return equal to say an fixed deposit ( FD ). Therefore, it is frustrating for a long-term investor since it eats into real returns. It is also frustrating for an arbitrageur since volumes generally drift lower and the bid offer of price makes it difficult to make money. Then, there are day traders, who still have work to do since their horizon is short. However, sideways movements generally are preceded and succeeded by large bouts of volatility, which invariably take a toll on some large leveraged players. This leads to some active players withdrawing from the market leading to further liquidity squeeze. However, all is not lost! Let me attempt to outline the investment strategies in a range-bound market for a normal average investor,...

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...

A wise investment plan may help you secure a bright future for your children. YOU may want to give the best to your children, but lining up the facilities — properly and prudently — is no kid’s stuff. And when it comes to financial planning for them, it’s even more difficult, particularly in the light of rising inflation rate and increasing cost of education and health services . However, if you can account these factors into your calculation before you invest on behalf of your child, you can make the exercise less burdensome and productive. Here’s a guide on the best possible avenues where you can put your hard-earned money and secure a bright future for your children. START EARLY FOR LONG TERM GAINS Financial Planners hold the view that with ever increasing cost of healthcare and education, the significance of planning for your child’s future has acquired new dimensions. Today, it’s not only about buying an insurance policy but also investing in financial products which give g...

With India being one of the most promising emerging markets, non-resident Indians ( NRIs ) have a keen interest in being part of the Indian growth story. Here are five questions that NRIs tend to grapple with. Can NRIs invest in mutual funds? Yes. NRIs can invest in mutual funds in India. But they must do so in Indian currency. The money should be channelised from an account specially designed for NRIs. But all investors, including NRIs, need to have a permanent account number ( PAN ). How must one invest so that the money can be taken out of the country? Payments can be made by inward remittance through funds held in the Non-Resident (External) Rupee Account (NRE) and the Foreign Currency Non-Resident Account (FCNR). Indian rupee drafts can also be purchased from these two accounts and submitted with an account debit certificate from the bank . NRE accounts must be maintained in Indian rupees but must be opened with funds remitted from abroad. The account can be in the form of a savi...

Equity Linked Saving Schemes ( ELSS ) or tax saving mutual fund schemes as they are otherwise known as, are a popular tax saving investment. The major reason for this popularity has been the introduction of Section 80C of the Income Tax Act, from April 1, 2005. This section allows the investor to invest up to Rs 1 lakh in various investment products and get a tax deduction for the same. The list of investment products also includes ELSS. Earlier, till March 31, 2005, investment in these tax saving schemes only allowed for a tax deduction of up to Rs 10,000 under Section 88. However, that being said, there are various things an investor needs to keep in mind before deciding to jump into an ELSS investment. Section 80 C spoils you for choice: As has been mentioned above, ELSS is not the only investment avenue that comes under Section 80C. Other investments such as Life Insurance, Public Provident Fund (PPF), National Savings Certificates (NSCs), Senior Citizen Savings Scheme (SCSS), Pos...

In a breather to all mutual funds investors, the Securities and Exchange Board of India ( SEBI ) has asked fund house 'not to charge' entry and exit load on bonus units and units allotted on reinvestment of dividend, with effect from April 1, 2008. The new rule follows the recommendations of the Association of Mutual Funds in India's Working Group on Standardization of Key Operational Areas. An entry load is charged when an investor enters a mutual fund scheme. For redemptions made thereafter, investors are charged an exit load by the fund house. In the case of the dividend reinvestment option, the investor is assigned units for dividend that is re-invested in the scheme. At times, the fund manager converts earnings from the scheme into units and distributes them as bonus units to the investors. These bonus units are then charged entry load and exit load. The logical argument made against charging such loads is that it is investor's money that has contributed to the ea...

Investing money for short-term, say up to 1-11/2 years has generally been an issue. As it is the interest rates / returns are quite low. On top of this, there could be taxation issues, which will further reduce the effective returns. Equity/equity funds may not be a prudent option for short-term. Therefore, we need to consider mainly the interest-based investment options. What do we usually do? Since it is quite convenient, very often the money keeps lying in the Savings A/c itself (also, maybe it is psychologically satisfying to see a big balance in one’s account). But don’t forget - this earns you just 3.5% p.a. interest and that too taxable. Hence, it is not good to keep too much money in the Savings A/c. The next common thing to do is to make a Fixed Deposit ( FD ). This may earn you 6-9% interest depending on the tenure. But this too is taxable (if you are in the highest tax bracket, even a 9% FD will fetch you just 6.3% post-tax returns). So, given the fact that there are better ...

Peter Lynch of Fidelity, used to mentally classify stocks as: Perennials Growth Cyclicals Utilities Perennials Perennials like FMCGs offered predictable growth. Utilities (in the 1980s US context) meant power and telecom companies that offered stable dividends . Growth Growth is self-explanatory and so is cyclical. His take was that growth stocks usually offered the highest potential returns but carried the highest risks. Perennials offered steady returns but ideally offered best value during bear markets. Utilities Utilities, he felt were dividend plays or quasi-debt instruments. Cyclicals Cyclicals offered great returns only if bought in downtrends. Lynch's classifications are interesting in the context of India over the past two years, and especially, the past two months. The Sensex climbed from around 10,000 in February 2006 to a high of over 20,000 in December 2007. It has since corrected to a recent low of 16,608 and it's now trading at about 18,000. So we've seen a...