Prajna Capital - An Investment Guide

Most of us tend to visit the doctor only when we are sick, instead of going for regular health check-ups. If we apply the same principle to our financial planning, it can lead to some nasty surprises. Only when there is a sudden change in market conditions and the performance starts slowing down that we look at our portfolio. Creating an investment plan and asset allocation is like planting a garden. While planting the seeds is the first step, to keep the garden green, it requires maintenance. When investing, rebalancing — or re-allocation of investments amongst the different asset classes in the portfolio — is key to maintenance. Asset allocation changes as you stay invested for a long time, due to the different returns made on different assets. You need to restore the portfolio to its original allocation to keep your portfolio in line with your investment objectives. How often should you do it and when? We don’t take rebalancing seriously when the portfolio is performing well....

The second quarter has come to an end and there is an expectation in the air. The anxiety is more pronounced this time as the markets have not shown signs of recovery for the second quarter in a row. Needless to say, this has been one of the challenging periods for the stock markets across the globe and in the case of India, the challenge has been compounded due to the high rate of inflation, election year and concerns of fiscal deficit. As a result, the local stock market has failed to cheer up even on days when global markets have shown signs of recovery. If industry sources are to be believed, there is lack of patience for a long-term investment strategy despite the fact that many stocks in mid-cap and large-cap are available at two-year-old levels. Much of the problem is also due to the unexpected weakness, which entered the markets after January highs which has left many staring at a weak portfolio. As a result, broking houses are advising their high net worth clients to boo...

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...

Thematic funds should be considered only if you have built up a sizeable portfolio and allocated your assets appropriately WHO IS IT MEANT FOR? Strictly speaking, if you’re a first-time investor, then a thematic fund may not be the right kind of product for you. For a first time investor, diversified equity funds should be the first step. Thematic funds are generally seen as more of a product for informed investors. An investor should look at investing in thematic funds only after one has built up a sizeable portfolio and has allocated one’s assets appropriately. What this means is that you should explore thematic funds only after you have an adequate exposure to both small cap and mid-cap stocks and have the capacity to bear a sizeable amount of risk. Even then experts recommend minimal exposure. FALLOUTS At any given time, there is generally one segment in which more interest is shown than others, which then becomes the flavour of the season. Investors immediately begin clamouring fo...

THE real dilemma today is how to protect wealth from erosion and make it grow sufficiently to at least beat inflation. The volatility has been unnerving and is not restricted to equities; even bonds have seen swings never experienced before. So much so that there was a run on liquid funds in October as risk aversion touched an unprecedented high. Real estate, which witnessed a price spiral in the last three years, is also a major victim of the market slump. Also, compression of time for market moves means shorter window of opportunity to react. Risk aversion and risk premium is at its peak and investments flows have evaporated. So does the turmoil in the markets mean that investors remain passive and wait for the troubled times to pass? Inaction may not be the best solution for one’s portfolio. As adages go, “ Invest when there is blood on the street, sell when there is greed, buy when there is panic .” These words of wisdom which have stood the test of time suggest well thought–out...

This article outlines different degrees of risk tolerance investors have, and suitable investment options Investors often hear of the maxim, 'greater the risk, greater the reward' . Risk tolerance is the level of comfort with which a person takes risk. What exactly is this risk and how does it effect an investor's decision? Risk appetite can be defined as the willingness of an investor to bear risk. Investors despise uncertainty. Risk appetite, risk aversion and risk premium is often used in place of the other. However, there are some finer nuances that distinguish one from the other. A) Risk appetite - Some people take higher risks . In other words, they are willing to lose more until they get the expected returns. A person who can stand all his money getting eroded has a greater risk appetite. B) Risk-averse - Reluctance to accept. Risk-averse persons exhibit reluctance to accept a bargain with an uncertain payoff. He would instead be content with a deal that is...

You need to invest money and time to build and maintain a portfolio that yields high returns John Maynard Keynes said, 'Don't try to figure out what the market is doing. Figure out a business you understand, and concentrate' . Investing in stocks is more a science than an art. There are certain ground rules which investors must follow to be successful. Even before you decide to invest in stocks of individual companies, it is pertinent to have a proper asset allocation plan, that is, what portion of your portfolio should be dedicated to equity. If you belong to the category to investors who do not have the time to monitor investments closely, you would be better off investing in an equity mutual fund rather than picking up individual stocks. If you want to design you own portfolio, here are some points to help you get started: Identify your comfort zone Are you an investor who would likes to be defensive or are you an aggressive investor? The choice of stocks would ...

Some stocks, especially blue chips, pay dividends. This means that for every share you own, you are paid a portion of the company's earnings. For example, for every share of AT&T you own, you will get sent $0.15 every year. Most companies pay dividends quarterly (four times a year), meaning at the end of every business quarter, the company will send a check for 1/4 of $0.15 for each share you own. This may not seem like a lot, but when you have built your portfolio up to thousands of shares, and use those dividends to buy more stock in the company, you can make a lot of money over the years.

Bear market bottom or not, one thing is abundantly clear. Whether things get worse or not, there is a lot value available in the stock markets. Stock prices of strong companies have fallen along with those of overpriced ones. Hence, bargains abound. Benjamin Graham, father of value investing, believed in buying stocks that were quoting at their liquidation values. Liquidation value means the price you pay for a company that is not operating any more. Having invested at near liquidation values, value investors wait patiently for the value to emerge and make handsome returns. Investing at the time of the Great Depression, Graham got many such opportunities. Today, despite the sharp fall, the share prices are quoting much higher than their liquidation values, but definitely below their fair values. Taking a leaf from Graham's book, you can look for companies whose book values and market capitalisation are equal. In fact, there are instances of companies whose market capitalisati...

A hassled wealth reader enquired about Monthly Income Plans ( MIP ). His concern was that he hasn't been getting any monthly payments (income/dividends) from the fund he had invested in. He has already made huge loss in the fund and withdrawing from the plan would mean a greater loss. Wealth takes this opportunity to tell you all you wanted to know about MIPs A general misunderstanding about MIP among investors is that it is believed to offer regular monthly income. From the name you may infer that MIP gives you monthly returns, but that's not the way it functions. An MIP is generally mistaken for a regular income plan; but actually, it gives you returns based on market's performance. What is MIP? MIP is a hybrid investment that invests a small portion of its portfolio, around 15 to 30 per cent, in equities, and the remaining in debt and money market instruments. This plan is ideal for those who score low or medium on their risk profile . What are the features? Returns MIPs...

Examine Sector Weightings and the Fund's Concentration: The funds that have large stakes in just one or two sectors are expected be more volatile than the evenly diversified funds. A concentrated portfolio may also get more successful if its stocks are performing better. You may add a concentrated fund in your portfolio but mostly the concentration should be in a diversified fund which is more predictable. Invest in a few funds and develop a Plan: But it would not mean you should invest only in one fund. Even though the funds are diversified, many funds go though a few years of poor performance. When you invest in only one fund, you might lose heavily. On the other hand, investing in too many funds may lead to duplication of many securities and a portfolio with no focus. For the long-term financial goals, equities are the best option. Keep It Simple: To keep the selection of fund simple, you should stick with well diversified and well established equity funds, an index fund for equ...

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...

SILVER, which in European folklore, is believed to have saved the lives of many people who were attacked by vampires and monsters, now has the power to give investors good returns. And going forward, it is expected to outperform gold in terms of price appreciation. In fact, silver had been beating gold till recently. Up to 2008, silver outperformed gold in terms of one, two and three-year compound annual growth rate (CAGR). Last year on March 11, silver registered a three-year CAGR of 131% against 106% CAGR posted by gold. GOLD-MANIA HITS SILVER PRICE In the last one year, gold prices have moved up sharply and beaten silver. Since March 11 last year, gold has appreciated by around 18%, while silver prices have corrected by around 12%. This is mainly because of the global financial crisis and weak performance of most of the other investment classes. Investors have been flocking towards gold, as it provides a hedge against uncertainty, which in turn fuelled gold prices to touch new hi...

Looking for an investment avenue when the stock markets are choppy? A fixed maturity plan not only guards against the unforeseen but also gives good returns. STOCK market opportunities may look like a mirage in a desert. In fact, what may look like a lifetime opportunity can turn into a black hole, and swallow your hard-earned money. But it shouldn’t deter you to make a foray on Dalal Street. A smart investor is one who holds his fort secure while keeping an open eye for better avenues. Fixed maturity plan ( FMP ) is one such investment that guards your portfolio against unforeseen risks and gives the good returns on your investments. Here’s a low down on what you need to know before taking an exposure in FMPs. MATURE OUTLOOK Financial planners say that FMPs, which have been offering high yields during the last couple of years, have become an important investment avenue. Though all segments of investors can benefit from them, this investment option is especially advantageous to those w...

An ETF is like an index fund in terms of its portfolio. The basket of stocks is in the same proportion as the pre-decided index. The initial participants give the fund the basket of stocks and in turn take units of the fund in exchange. These units are then traded on the stock exchange through stock brokers. So investors who wish to take up units of an ETF require a demat account. The price of an ETF fluctuates with the fluctuation in the underlying index throughout the trading day. The NAV is usually a fraction of the value of the index, like one-tenth or one-hundredth. But the value at which it is traded is a function of its demand and supply. So ETF units can trade at premium or at discount. The benefit of an ETF to an AMC is more or less the same as it would be in case of any other mutual fund. But since it tracks an index, it doesn’t require active management of the underlying portfolio.

It is time to evaluate your asset allocation and balance your portfolio again The five-year bull run which we saw prior to 2008 had made concepts like debt, asset allocation, and financial planning quite unfashionable. The only investment destination one could think of was equity, thanks to the soaring stocks markets. Times have changed and so has the thinking. Investors are now giving more relevance to asset allocation and planning of investments keeping in mind the long-term financial goals. A strategy which always works well in the long term is asset allocation. Asset allocation essentially means diversifying your money among different asset classes such as equity, debt and cash. This would depend on an individual's risk tolerance level and return expectations. The strategy also works well because different asset classes have a tendency to behave differently. While stocks can offer potential for growth, fixed income instruments can offer stability and income. This augurs w...

Investors are slowly warming up to the idea of exchange traded gold schemes from mutual funds. This isn’t surprising since they have given an impressive 20%-plus returns in the last one year. The uncertainties in the economic environment is another reason why investors are parking money in gold, as it has always been considered a hedge against uncertainty in troubled times. Investor interest in gold ETFs is slowly picking up. I won’t say there are huge inflows, but we have certainly seen incremental flows into the fund. In between, there was lull when gold prices peaked. We are getting a lot of enquiries on gold ETFs. This is mainly because of excellent returns in the last one year, which is almost double than that of debt schemes. Also, people are not able to take a call on the stock market. They want to park their money in a safer place till they are confident about the future course of the market. However, investors should be realistic about expectations on gold ETF returns...

The domestic markets remained in a bear grip over the last one year due to the slowdown in the US and major European countries. The key market indices here lost over 50 percent during the last one year. Stocks in real estate, infrastructure and automobile sectors were among the worst hit during the last one year as they lost around 70 to 90 percent from their peaks 12 months ago. The market outlook for the short term still remains negative and investors are advised to exercise caution while investing in equities. According to the current market situation, it looks like the first half of 2009 will remain bad for the markets and things will start improving in the later part of this year. The markets have already factored in much of the bad news and stocks in many sectors are available at attractive valuations. The possibility of further market corrections (10 to 15 percent) from the current levels still exists as more bad news comes from global markets. But analysts rule out a sharp d...

Lists the 10 biggest financial mistakes investors make in their over-enthusiasm to make quick bucks HAVE you lately started falling short of your investment target or having difficulty in meeting your monthly expenses? Or have you been forced to take one credit card to clear the dues of another? If yes, you’ve got some serious financial trouble ahead, which may be because of some simple financial mistakes you must have made in the past. Surprisingly, not only common but even seasoned investors make financial mistakes, which they sometimes find difficult to rectify. For many aspects of financial planning, there is no going back, at least without some sort of penalty. The good news, however, is that it’s never too late to learn from your own mistakes or those of others. Here are the top 10 financial mistakes people generally make: 1) PUTTING OFF FINANCIAL PLANNING Undeniably, the biggest mistake that people make is to ignore the value of financial planning. Financial planning, in f...

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...