Prajna Capital - An Investment Guide

Planning investments is a challenge for everyone, and more so for senior citizens. Choosing the right investment product per se is a difficult task for many investors. The task is even more challenging for senior citizens as they will have a limited corpus, while their need for income from the corpus does not remain constant. While a pension plan takes care of a regular source of income, life is not easy if the investor does not have a regular source of income. As a result, senior citizens have to do the balancing act between risk and returns. Needless to say, the risk element has to be as low as possible for this class of investors. Safety over returns As pointed out earlier, safety of capital has to be the underlying principle of investments, and risk can be a component only when the investor has the comfort of liquidity. For instance, the monthly income needs have to be met through fixed return products. Some fixed return products Senior citizens’ savings schemes: T...

Though the stock market is on a slide, disciplined investors need not worry if they go for value picks The US bailout package was expected to cheer the market. Many investors were hoping that it may give a fillip to the market sentiments world-over. However, no such luck for investors on Dalal Street. Most market participants believe that foreign investors are likely to withdraw more money from the market. They also believe that the credit crisis in the US is far from over and it may soon lead to a global recession. The bailout package is not the end of our woes It is still not clear what will happen next. Investors have to be patient for some time So, are we really looking at the end of capitalism as some doomsday experts predict? Will the US financial crisis lead to a prolonged global recession? The economic slowdown in the US and Europe is a reality But to think that the stock market is never going to recover is illogical. The market will definitely rebound, but when that w...

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 ...

IS INVESTING an art or a science — this has long been a topic for debate? For an investor, the argument only adds to the ever prevailing dilemma that one is faced with in the world of savings, investments and returns. Here’s a sample of typical questions that an investor could ask: what is the right way to save money? How much do I need to save? Where do I need to invest? Who can I turn to for investment advice? How do I ensure that I can get my money back when I need it? And if these are not complex enough, things get more complicated when one sees a boom in the stock markets or the property markets — every investor starts to “evaluate” his or her strategy and new doubts begin to appear about what they have been doing. As in every complex problem, the solution lies in the simplicity of the investing process. There is no “one” right way to create an investment strategy and every investor needs to follow the same simple rules for success. An investor needs to focus not on the shor...

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...

Stop-loss orders are like health policies for stocks, which come at zero premium. Besides reducing your losses, they also help you to lock in your profits Talk to investors and we find thousands of instances where people just ignored one basic principle of investing: Setting stop losses and sticking to it. What is stop loss? It is a pre-defined order to automatically sell a stock when it falls to a certain level. When the stock reaches the point, the stop-loss order becomes a market order and the trade is executed. It’s a very important investment tool, especially if you are typically trading in a bullish market situation, which helps to save the larger part of the pain in case the sentiment turns How it helps? Stop loss is an important risk-management tool used to exit a stock before it falls any further. This not only helps in reducing your losses but also to lock in your profits. Consider you bought a stock sometime ago at Rs 100 and the stock is now trading at Rs 140. Now some n...

Following a balanced approach to investing in equities, investors can recoup the amount invested in stocks in few years DIVIDEND IS a tax-free income in the hand of shareholders. However, Indian companies are known for not having a regular dividend paying policy. Nonetheless, dividends are far more profitable today than it would have been in the last four years. This is because the stock prices have crashed in last one year, as result the dividend yield (dividend per share divided by price per share) has gone up. Therefore, the dividend per rupee of investment is much more today than it was earlier. However, investors should not aim at accumulating stocks with high dividend yield because such high yields may not be sustainable in case profit falls due to economic slowdown. Consistent in paying dividends and in some cases have also increased the payout ratio. A high payout ratio means a higher percentage of profits are distributed among shareholders as dividends. The table shows the ...

The yellow metal is a good avenue now for short-term investors Every time equity and other markets turn bearish, investors turn to the yellow metal to park funds. It has been no different this time as gold has turned the new safe haven for many. As would happen in every boom market, investors chase an instrument even if it is on the rise on a continuous basis. In fact, it has happened with various other instruments like equity, property, crude oil, and it seems to be the turn of gold which has been scaling a new peak at regular intervals. Expectedly, new highs are being projected for the yellow metal. Needless to say, investors need to be slightly cautious with their investment strategies as it is easy to get carried away by the current environment. While gold is definitely an option for the next 12-24 months, the instrument too carries its baggage of risks at the current levels. More importantly, rather than demand, other factors such as growing comfort of investors and increasi...

The stock markets had been in a bearish phase since the last few quarters. However, the previous quarter's stock market indices registered a positive closing (up 1.5 percent). This is due to the sharp rally seen last month in the markets. Some experts are of the opinion that the markets have bottomed out. According to them the current rally has some steam left to take the markets upwards from the current levels. On the other hand, there are analysts who argue the current rally is just based on some initial data of economic recovery in the global markets and investors should watch further data points and market trends cautiously before assuming a bottom out in the markets. There are some important factors investors should track closely in the next few weeks. 1) Relevant global issues: Economic growth in developed economies The overall economic growth numbers of developed countries will be an important issue. Many large economies confirmed negative economic growth over the last c...

The markets rallied over the last few days and there was a bounce back. The market sentiments improved due to a drop in the rate of inflation, rate cut by the Reserve Bank of India (RBI), fuel prices cut, financial stimulus package announced by the government and some positive news from global markets. Currently, a rally in many beaten down sectors like banks, real estate and some select mid-cap stocks is on. Most of the stocks in these sectors have bounced back 20 to 30 percent from their yearly lows. However, analysts believe this rally is just a technical pull-back rally in a bear market. There are no clear and decisive signals that economic and business conditions are improving. Current, the rally is based on cuts and packages announced by the government and the RBI, and expectations that more measures will be announced. Analysts believe the relief measures announced by the government are too small to handle the slowdown and investors should not expect something very dramatic...

During a bull run, it’s very easy to ignore stocks with high dividend yields. After all, what could be more enticing than a growth stock? But in times of crisis, these boring ones tend to be the most sought after. The reason being that not only do dividends provide a cushion when the market is in the doldrums but such stocks also tend to fall less. The lure of dividend yield stocks is not easy to ignore. These stocks offer capital appreciation as well as cash payments. But logically, any company that pays a substantial portion of its earnings in dividends is reinvesting less and, therefore, would grow at a slower pace. So the trade-off is between higher dividend yields for lower earnings growth. On the other hand, companies with high growth potential and volatile earnings tend to pay less by way of dividends, if at all. Such companies would rather reinvest their earnings to sustain their growth. The capital appreciation of growth stocks is obviously higher than in dividend yield ones. ...

How you can gauge volatility of a stock and evaluate stock value The stock market movements over the past few weeks can be best described as unpredictable. It goes a few impressive points up, only to slide back after a few days. The upward and downward fluctuations can create panic among investors. Returns on stocks become increasingly difficult to predict over the short term. It may be a reaction to global market conditions, high oil prices, world economy and soaring inflation. Volatile markets torment investors. How do you measure market stability? A measure of volatility gives ample information for an investor to base his decisions. The time to enter, buy or sell, are critical decisions that depend on market moods. Shrewd investors find volatile markets or crashes an ideal time for picking value stocks at bargain prices. Since these are purchased at discounted rates, it gives a sufficient cushion for the long-term investor. Though scouting for bargain stocks may appear a lu...