Prajna Capital - An Investment Guide

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,...

INDIA, like many other economies, has embarked on a long, difficult road to check runaway prices. It’s now evident that policymakers will hike interest rates till it hurts and pulls down demand. The central bank as well as the government are willing to sacrifice a bit of growth to douse inflation — an issue that has captured the collective imagination. On Tuesday, the Reserve Bank of India hiked the benchmark short-term rate by 50 basis points, about 25 bps more than what the market had expected. Bonds and equities reacted sharply. Soon, home loan seekers and corporate borrowers will feel the pinch, since borrowing money will now be far more costly. RBI has not only raised the benchmark repo rate — the rate at which banks borrow from the RBI — from 8.5% to 9% with immediate effect, but has also hiked the cash reserve ratio ( CRR ) for banks by 25 bps — a measure that will drain Rs 9,000 crore from the banking system. Given the outright hawkish policy stance, it’s clear that RBI will no...

Some investment avenues for those who don’t want to take the risks associated with stock markets When the stock markets go the downside way, investments in fixed deposits ( FDs ) become attractive again. FDs remained a dormant investment avenue for the past few years, mainly because of the fact that the interest rates were low, and these investments are unsecured. So, the government's saving schemes, especially the post office saving scheme, had an edge over FDs. Fixed deposits attractive again However, some recent changes have again brought FDs into the limelight. The contributing factors include the decision to give tax breaks in terms of coverage under Section 80C of the Income Tax Act. The second major factor has been the gradual increase in the interest rates on FDs. These deposits have been brought on par with small savings schemes. Investments in term deposits for those planning to take a tax deduction will have a lock-in period of five years. The government notification sa...

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 ...

The market has fallen, leading investors to think of safer havens to invest. But here’s why you may still bet on the equity market. Here we bring some of the strategies. WONDERING whether to stay put in your stocks that may have been hit in the recent market crash or to liquidate and shift investments in other asset classes. Here are 10 reasons why it still makes sense to remain invested. Markets have come down from their recent highs in the past few weeks. While some of us might be thinking of cutting losses and putting money in safer havens, there are more than one reason still favoring the equity markets. Let’s check them out: a) Long-term plan, lest we forget: The basic principle that often gets buried in a bull market situation is that one should make investments with a long-term perspective. Any serious investor should remain invested in stocks, no matter what the current market situation is, for a couple of years but if the idea is to make quick bucks, probably he should sell an...

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...

What's special about March? Lots of things, actually. But from a tax point of view, it will be that time of the year when a lot of you will actually start figuring what your tax saving avenues should be. Little wonder that mutual funds report the highest inflows into equity linked savings schemes ( ELSS ) and life insurance companies record their highest sales in the first three months of the calendar year. Guilty as charged? Well, here's some help. Here's the first part of our special section dedicated to tax saving. We start right now with the absolute basics. You would have noticed that the tax department is more partial to women and specially, senior citizens. But those rates are the maximum you would have to pay if you did absolutely no tax planning. The very first step that you have to follow is to figure out what Section 80C (of the I ncome Tax Act ) is and how you can use it for your benefit. Any individual, irrespective of how much s/he earns, can reduce his taxab...