Answers to these 4 questions lead to right money advisor

Answers to these 4 questions lead to right money advisor


Right advisor can help you achieve your money dreams in life in a disciplined manner. To identify him you should be asking these questions.


You work hard. You are smart. You earn your money one rupee at a time. But who do you turn to when it comes to asking where to put all that hard-earned money?

Maybe you do it all yourself - Read the papers, visit websites and choose the best products and places to put your money. Maybe you rely on your family member – spouse, parent or that knowledgeable uncle. You may visit your Bank manager. Or an Agent or a broker. Perhaps, a wealth-manager helps you?

Whoever gives you advice better have what it takes, for you to do well - because money really impacts our lives in a big way. Good decisions and sound investments help us live securely. Bad decisions can cause stress and insecurity.

These are the 4 criteria to help you choose the right advisor for your money matters:

Q1. Does he/she have the time?

If you are managing your money all by yourself, then you should devote sufficient time in research, market movements, and in reviewing your portfolio at regular intervals. If someone else is giving advice, make sure that he/she has time for your investments.

There is no such thing as a good or a bad product. It depends on whether it suits your situation and meets your needs. A good advisor should know about you, your life situation and then select the right product for you. This means time commitment from the advisor.

Q2. Is he/she qualified to give you advice?

I am amazed that very senior professionals take advice from people who are much less qualified in terms of education, income and knowledge. Sometimes all that the advisor knows comes from attending a few ‘product-training sessions’.

When we entrust our health to a qualified Doctor only, why would we entrust our hard-earned money without checking the qualification, experience, knowledge and competence of the advisor. The higher the amount, the more important this criteria. Also, different areas require different qualifications. For example, Property is a matter of local expertise and high-ticket investment. One should give a lot of thought before taking any random person’s advice on where to invest.

Q3. Is he/she comprehensive and rigorous?

Making money is a life-long exercise. Money comes into our lives and money goes out of our lives. Like energy. The right advisor is like a holistic healer. He/she tries to find out your circumstance, goals, fears (risk appetite) and family background. Only then a money decision makes comprehensive sense. This is very important issue and (as in Q1) needs time. Do make that time. Have an advisor who makes time.

Rigorous means once you make an investment, it should not be locked away in the cupboard. It has to be reviewed regularly, portfolio must be re-balanced for proper asset allocation. This discipline and rigour is what makes people wealthy.

Q4. Does he/she have ‘conflict of interest’ with your needs?

People are shockingly naïve in handing over their money to Agents, Brokers or other “money managers” or “advisors”. None of these advisors are “bad”. But you must know they sometimes have ‘conflict of interest’ which goes against your real needs. Maybe their boss is telling them to sell you a new product. Maybe they are lagging behind their targets and they need to make that one product sale to you to complete their month’s sales.

All I would say is “Buyer Beware”! Be aware that these things happen. Educate yourself a little bit. Do not choose products blindly because your advisor is telling you so. Ask your advisor directly, if required. Ask him for options.

If you ask these 4 Questions that I have listed about “who is advising you of your money?” and the answers must be “Yes” except Q4 (Answer should be “No”). Consider alternative options of where you can get good advice. Or work towards overcoming that weakness.

May you be wealthy by making the right choices!

Happy Investing

Source : Moneycontrol.com

‘India is the most attractive emerging market in the world'

‘India is the most attractive emerging market in the world'
 
The FY16 Union Budget, a much awaited event, laid down a roadmap for economy,
having delivered against the backdrop of high expectations.

The government has done well to reiterate the fiscal consolidation roadmap, visibility on the capital expenditure (capex) cycle and thrust on infrastructure. One highlight is that the road map to implement the Goods and Service Tax (GST) has been laid down.

It has increased tax deductibles for individuals. The government has also come out with a system to monetise household gold holdings thus allowing for productive use of gold. It seeks to widen the social safety net, which all in all, will strengthen and aid India's economic rise. 

While the boost towards the capex cycle is not really substantial, it is clearly a good start given the current economic situation.


Currently, India is in the early stages of an economic recovery. The current account
deficit (CAD) is under control, wholesale inflation is negative, and interest rate cut cycle has only just begun. So there is a huge scope for the long-term investor as the economy expands and gross domestic product (GDP ) growth recovers. A lower oil price and lower CAD bodes well and saves considerable amounts for the government.

As for the global scenario, one of the most widely talked about expectations for the current year is the rate hike in US, and currency headwinds taking place globally. It may be difficult for the US to have a higher interest rate environment, while the rest of the developed world is conducting some form of quantitative easing (QE) or another. Europe is on a bond buying spree, and so is Japan.

This scenario itself is tantamount to tightening in the US. However, if the US does raise interest rates this year due to a strong economy, it will definitely impact global
markets. Equity markets are pricing a low or zero interest rate environment. A rate hike in the US will mean equity assets will get re-priced which will give opportunities across equity assets. With the current price of crude and good growth prospects, India is the most attractive emerging market in the world. Equities albeit not cheap, continue to remain a good long term investment destination. The outlook for equity markets is very positive for the next 3-5 years. In the short run, we have seen a decent uptick in the market, complemented by a positive rate cut from the Reserve Bank of India (RBI).


On the flipside, global headwinds coming from Europe and US combined with richer domestic valuations should keep optimism in check. In fact, it will be suitable to have
a subdued market rally this year because after two good years in the market, investors
tend to get exuberant and invest with hopes that the  markets give 30 percent returns every year.

No one can really predict the market. Investors shouldn't get swayed by the past returns of the market. Therefore, a sideways movement is good for the market. For the rest of
2015 we expect continued volatility with decent upticks and a few downdrafts based on domestic and global news flow. From a valuation perspective, any consolidation is healthy for the markets and beneficial to prevent high investor expectations.

Broader market valuations will look quite high with earnings multiple ranging about 20 times. But the fact is we are talking about specific stocks. There are pockets where valuations are expensive, and others that are not-so-expensive, among them are the rate-sensitive sectors.

Second, there's a risk of crude prices spiking back to $90 or $100 per barrel because we benefit immensely out of crude falling as an economy. Besides, that there would be external risks if something happens in Venezuela or Greece, markets would react. It will make equity prices gyrate significantly. But, in my view, it's more of an opportunity, than a risk.

India's macro fundamentals like CAD, inflation, lower crude prices and growth impulses are improving. Further, in this Budget, there is a clear thrust on infrastructure which is a step towards recovery. It's the only way the wheels of the economy can start running comfortably again. This could benefit certain sectors in the infrastructure space . Cascading benefits could boost demand aiding the domestic cyclical sectors. As the investment cycle picks up, these sectors will further gain strength. All this should result in earnings expansion over 3-5 years.

In the first part, we look at the stocks  which have performed badly. We also figure out why institutional investors are underinvested and why external analysts have degraded that particular stock - this is the starting point for us. Similarly, we also look at stocks which have done well and why institutional investors are overweight, and why analysts have put 'BUY' for that particular stock.

In both the scenarios, we try to make a case to move out of a set of stocks, which have done well, to stocks which have done badly. In the next part, we try to find out why people are negative on that stock, meet the management of the company and do our own internal research. But that is not enough; when we are using value investing, we  figure out whether that stock can improve from the current situation. We meet the
companies and sector analysts among all the brokerages. 

After going through all the annual reports, participating in conference calls, we look at
where the stock is placed in a cycle and then decide whether the stock should be bought or not.

So it's a combination of cycles, sector, industry and company valuations - all these factors are considered before including the stock in the portfolio. A combinat ion of under investment and valuations gives us the best value investment.

We believe in a concept of relative value. In 2007, we found significant value in consumer, pharmaceutical and technology. Therefore, at any point of time, we will be able to find value in something at least relative to the rest. In our opinion, given the way markets have got integrated, there is lot of scope to find value at all points of time. What is required is the intrinsic approach to buy value while others don't like it; in first place, it becomes value because others don't like it.

Where do you think interest rates will be one year from now?

A: Towards the end of the year, we believe interest rates may be substantially lower in order to aid the economic expansion.


Post-budget, which sectors would you now look to add to your portfolio and which ones could see a miss?

In such an environment, one segment that is likely to do well is clearly the highly leveraged segment. A fifty-basis point cut, once passed through to the broader economy, will reduce the interest burden of leveraged companies. Many highly leveraged companies did badly relative to the rest of the market, and some of them
are well-poised to make the most of the lower interest rate cycle.

Debt ridden companies may not necessarily have the best financials or the best balance sheets hence, it requires intensive research to narrow down to specific companies. Financials is another area that looks quite promising. Public sector banks require capital and over time with lower interest rates should benefit banks as it will improve growth and reduced non-performing assets (NPAs). A combination of lower interest rates, lower NPAs, and capital infusion are extremely positive for the financial sector.

Also, with visibility on capex revival through increased government spending and
addressing issues of financing infrastructure projects could benefit certain sectors in  the infrastructure space. 

Not adhering to asset allocation model is one of the biggest mistakes that keeps investors from reaching their financial goals. Building a portfolio based on the suitable asset al location, instills discipline in investing, helps avoid the tendency to invest at market tops and redeem at market bottoms.


If investors are underinvested in equities, they may look to invest lump sum in equity strategies which are defensive (or have cash) as equity markets have run up and if the markets offer opportunities over the course of next few months or one year, these strategies will have enough cash to buy equities. It may be a prudent strategy, thus, to add flavour of funds in the balanced advantage and dynamic asset allocation category. These funds seek to increase allocation to equity when the markets are cheap, and book profits in equities when markets are rising thereby reducing volatility and boosting returns.

However, if an investor is well invested in equities, we would recommend investing this amount in a staggered manner through equity mutual funds over the course of next 6-9 months. With the current price of crude and good growth prospects, India is the most attractive emerging market in the world and therefore, it is an opportunity for people to invest for the long-term in Indian equities.


The outlook for equity markets is very positive for the next 3-5 years. 




Happy Investing

10 stocks that could double in 2 years

10 stocks that could double in 2 years

Picking the right stock to ensure maximum return at minimum risk is a challenge for every investor. Here we look at 10 stocks that could double in value in the next two years, as per a report by Sharekhan, a stock advisory website. These stocks stand to benefit from either a change in government policy or an upturn in the economy.

1. Network 18 India: The full-play media company with interests in television, internet, print and film content could give a potential return of 195% over the next two years. This is because it is expected to jump from its current price of Rs 59 (Rs 51 when the report was published in March 2015) to its target price of Rs 150 by December 2017. The stock already jumped 65% in the last one year.

2. IRB Infra: Sharekhan expects the stock to deliver a return of 173.4% over two years with a target price of Rs 680. The stock currently trades at Rs 240 levels. This rise in share price could be because the company stands to gain from the current attention being laid on the infrastructure development in India. IRB Infra has already seen an increase in the toll revenue in its Build, Operate and Transfer (BOT) projects, for the quarter ended December 2014. This accounts for one third of IRB Infra’s total profits. This is a big boost to the company’s profits. The National Highway Authority has also awarded more profits in fiscal to March 2015 that the year earlier. This pickup in activity is good for IRB Infra.

3. PTC India Financial: Stock of the financial services company, working in the solar and wind energy segments, could give investors a potential return of 151.7% over two-year period. Currently trading at Rs 56 levels, the stock could rise to the December 2017 target price of Rs 144. This is because the company stands to benefit from the government’s thrust on the solar and wind energy sectors. Favourable interest rates may also help reduce funding cost for the company, helping improve profitability.

4. Tata Motors DVR: The auto manufacturer is expected to deliver returns of 151.5% over the two years ending December 2017, with the stock touching a target price of Rs 850. It currently trades at Rs 340 levels. The stock moved in the range of Rs 221 to Rs 391 in the last year. The company could benefit from the expected launch of 100 new commercial vehicles over the next three years.

5. Finolex Cables: The cable manufacturer is expected to see a 25% growth in sales in the quarter to March 2015. It is also likely to post double digit growth rates in FY2016. This is likely to fuel the stock to give a potential return of 126% over the next two years. It currently trades at Rs 260 levels, and is expected to touch a target price of Rs 650 by December 2017. The introduction of the Goods and Services Tax (GST) in India could also help the company as well as the new manufacturing plant in Roorkee.

6. L&T: Stocks of the infrastructure giant could give a potential return of 119% over two years on this stock. Sharekhan expects the stock to touch a target price of Rs 3800 by December 2017. It currently trades at Rs 1700 levels. The price for the stock has moved in the range of Rs 1242 to Rs 1893 over the last one year. The government’s thrust on power, roads and defence segments may help the company post higher revenue growth over the next year.

7. Axis Bank: The private bank’s stock is expected to more-than-double to Rs 1210 by December 2017, giving a return of 112.3%. Since its stock split in July 2014, the stock has already jumped 32%. Axis Bank has a large exposure in the infrastructure segment, which is the focus for the government. It could thus benefit from the increase in infrastructure projects and developmental activity.

8. SBI: The largest public-sector bank in India has the potential to give returns of 111.8% over two years. From its current levels of Rs 290, the stock’s price could rise to Rs 580 by December 2017. SBI has been one of the first banks to lower loan rates in response to the fall in rates by RBI. This aggressive pricing can help capture more market share.

9. Maruti Suzuki: Share prices of the automobile major could jump nearly 105% over the next two years to Rs 7450, according to Sharekhan. Its stock currently trades at Rs 3,600 levels. The market leader in the domestic passenger vehicle industry posted a 13% growth in volume in December 2014 as against the industry average of 3.7%. Their new automatic cars and utility vehicles have been received well in the market. Recent depreciation in the Japanese Yen could help reduce costs as imports of parts will become cheaper. This is good news for Maruti’s profitability.

10. TCS: Stocks of the IT major could more than double to Rs 5,100 levels by December 2017. It currently trades at Rs 2,430 levels. This is because the company has consistently outperformed the industry’s average growth. It grew 15% in 2015, over the industry’s 12-14% expectation. This is despite the negative effects of exchange rate fluctuations, which affected its revenue by 4.8%. The company also plans to expand to newer markets and geographical locations. This could benefit the IT major in the coming two years.




Happy Investing

Meticulous planning converts your money dreams into reality

Meticulous planning converts your money dreams into reality


Know your money situation better and build a detailed plan around it. Use the right rules to oversee your financial plan which can in turn help you achieve your financial goals


Financial planning is a procedure that provides you a clear roadmap of your personal financial life. It helps you meet all your life’s expenses – both the expected ones which could be buying a home, car, travelling abroad for leisure, children's education needs, their marriage and own retirement needs. It also prepres you to deal with unexpected events such as medical emergency due to illness/injury, creating a safety fund to compensate for loss of a job.

How to go about financial planning

Assess your present financial situation:

When you are going about financial planning process, the first thing you need to do is to evaluate your current financial status. You should assess that where do you stand today in terms of income, expenses, cash flows, investments and assets and liabilities, life and health insurance coverage. All this data will form the inputs in preparing your financial plan.

List all your financial goals: 

It is important for you to write down all your goals so that you become clear which goals are more important and needs priority over others and which ones are insignificant. Financial goals can be of three types: short, medium and long - term. For example a short-term goal could be your upcoming marriage, a medium - term goal could be your children's education and a long - term could be your retirement. Ensure that you assign a target date to all your goals while putting them down on paper. This is required so that you could calculate the goal’s estimated cost in the future.

Find out the alternative line of actions: 

While making a financial plan you should make sure that the plan is flexible enough to alter in case of changes in life situations. As the future is uncertain and you never know what is in store for you, you should also plan about what alternative course of action you are going to take if any contingency arrives or things do not work out as you expected them to.

Make a financial plan and execute it: 

In this stage you actually come to make a comprehensive financial plan taking into account all your goals (short, medium and long - term). The Plan will specify your asset allocation strategy, suitable investment options (e.g. mutual funds, equity investing, debt products, traditional saving schemes etc.), life and health insurance needs. Its execution will involve the actual process of purchasing the investment and insurance products.

Monitor and review financial plan: 

It is important to monitor the progress made on your financial plan. Also understand that financial planning is not a static process, but a dynamic one. Therefore, you also need to periodically review your plan to evaluate the effect of changes in your goals, life style, income levels, financial situation, tax situation, new tax rules, new products and changes in market conditions so that you remain on track with your long-term goals.


Some rules of thumb that can help you during financial planning

Save at least 20% of your income - The thumb rule says you should save at least 20% of your take-home pay. If you’re earning Rs. 600,000 per year that means you should be saving at least Rs. 10000 per month.

Have at least six months of living expenses in an emergency fund - An emergency fund is necessary to cover expenses when there is a sudden loss of income or any other financial emergency. So, if your monthly expenses are Rs. 30000, you should try and keep around Rs. 150000 in your emergency fund.

Get a life insurance policy worth at least 8 to 10 times your annual income - As per a rule of thumb you should have a life insurance policy that is worth at least eight to ten times your annual family income. Therefore, with a combined family income of Rs. 6 lakh you should have a policy coverage of around Rs. 50 lakh to 60 lakh. The coverage amount can differ depending on the number of dependents, size of the loans, future goals, and current savings.

100 minus your age is the percentage of your portfolio that should be in equities - The thumb rule says that you need to subtract your age from 100 to find out how much of your portfolio should be in equities. So a 35-year-old should have 65% of their portfolio in equities with the remainder in bonds, gold and cash. While bonds offer investors stability and income, stocks tend to carry more risk but can offer better returns in the long-run. This is why the younger you are, the greater percentage of your portfolio should be invested in equities.

Start investing for your retirement at an early age - Retirement planning is a crucial aspect of financial planning but it is the one that is often overlooked. Retirement is such long away that most of us tend to procrastinate to plan for it. But the fact is that the sooner you start planning for your retirement, the better off you will be in the end. It is not necessary that you assign a large amount to your retirement portfolio, you can start with a small amount, but starting early is important. While planning a retirement corpus do not forget inflation as Inflation is the silent killer of wealth.

Start tax planning from the beginning of the year itself - The best time to start tax planning is at the beginning of the financial year. This adds the necessary discipline to your financial life and ensures that the tax saving instruments you choose are integrated into your broader investment portfolio and are in line with your risk profile and financial goals.

Pay off highest interest rate debt first - To many people it may seem against intuition to use money to pay to the credit card company rather than invest it but you should know that paying down the plastic cards can save you a lot of money as they have very high interest rates. If you’re paying a 35-40% interest rate on your credit card, it is unlikely you are going to match or beat that in any investment.

The importance of a secure financial future cannot be underestimated and a safe and comfortable financial future calls for a detailed planning about one’s goals and finances. Therefore in order to ensure a secure financial life a meticulous financial planning is imperative for everyone. One should remember the saying “If you fail to plan, you plan to fail”.

A meticulous and detailed financial planning can go a long way in helping you to manage your expenses, achieve your financial goals and converting your dreams into reality. Although financial planning is not a rocket science but not all people have the time and the ability to manage their financial future on their own. For those people who do not have the time and the ability it is better that they take the help of a professional financial planner.

Happy Investing

Source : Moneycontrol.com

Understand credit card fees & charges to save money

Understand credit card fees & charges to save money

Know how credit card issuing banks charge you under various heads. Be it annual fees, finance charges, late fees; if you know how they calculate it, you can use your credit card in such a manner that the costs are minimum.

How many times have you found your credit card bill confusing? You must have wondered those little fees and extra charges that normally inflate your bill. Credit card billing is perhaps one of the most vexing things after calculus or trigonometry. Yet, we cannot imagine living without credit cards today; hence, avoidance is no longer an option. What you can actually do is get to grips with the various fees and charges credit card issuers levy and learn how to work around them.

Annual fees

Most credit cards charge you an annual fee. The annual fee can be anywhere between Rs 200 and Rs 1000. The annual fee is charged irrespective of whether the card is used in the whole year or not. This is unavoidable.

Sometimes, card users may complain that they got a “No annual fees” card but they still see the annual fee in their bill. This is par for the course. Card companies offer no-annual fee scheme for a particular year or for a number of years. While opting for such a card, you may retain the impression that the annual fee is waived for life. This may be far away from reality. The smart thing to do is to check if the no-annual fee is applicable until the expiry of the credit card or only for a limited period.

Some card companies waive the annual fee on certain conditions. For example, the condition could stipulate that if more than 10,000 is spent in the first three months, the annual fee will be waived.

Late Fees

Late fee is the amount credit card companies charge you if you fail to pay the minimum payment required. It is charged in every bill cycle that you fail to make the minimum payment. These fees can be pretty high so it is advisable to make a habit of paying at least the minimum payment required to avoid late fee. A better alternative is to clear the month’s entire dues if possible.

The late fee can be as high as 2-5% of the balance. Typically, it is fixed for certain slabs of dues. For example, if the balance amount is Rs 20,000 or more, the late fee can be about Rs 500 to Rs 1000.

Cash withdrawal Fee

Credit cards are typically used for purchasing merchandise and other transactions. There’s also a facility given to credit card users to withdraw cash from ATM. The withdrawal limit can be anywhere between 30% and 40% of the credit limit. This, however, is a not a good feature to use. This is known as cash advance and there is fee for it, which can be a fixed amount or be based on the amount you withdraw. This fee is charged every time you withdraw cash from the ATM using your credit card.

This fee is apart from other charges you incur if you fail to repay this within the stipulated time. Moreover, you are charged an interest on the amount you withdraw from the date of withdrawal to the date you repay it.

Finance charges

This is the core of credit card charges. Finance charge is the interest you pay for not paying the full balance amount every cycle. Before you understand the finance charges, understanding billing cycle and grace period is important. Billing cycle is the time period for which the amount due is calculated. Grace period is the time given to you after billing cycle so that you can pay the bill. For example, your billing period can be one month from 5th of the month to 5th of the next month, with a 25-day-grace period.

As an illustration, assume your bill contains charges for whatever you purchased between 5th March to 5th April and your due date is April 30th. This period from 5th April to 30th April is the interest-free period because you do not pay interest in the grace period for your purchases. If you do not pay in full, your interest will start on the remaining amount. The interest can be as high as 2-3% per month which works out to an annualized percentage rate (APR) of 24-36%.

For example, if your balance is Rs 10,000 and you pay only Rs 5000, you incur interest on remaining Rs 5000 in the next month. It would be about Rs 100 at the rate of 2%. Moreover, if you haven’t paid your balances fully, you will not be given grace period for any future purchases. The interest will kick in as soon as you spend money. This is a double whammy for card users.

Hence, pay the balance fully within the grace period. Do not give in to the temptation of paying the minimum due, which is a convenient debt trap. Remember, you own the credit card and not the other way around.

 Happy Investing

Source : Moneycontrol.com

Five financial planning lessons from Sachin Tendulkar

Five financial planning lessons from Sachin Tendulkar

Sachin Tendulkar`s long career has lessons for all those who want to achieve their financial goals.

If there is one thing that unites India, irrespective of state, language, religion, caste, color and creed, it has to be Sachin Ramesh Tendulkar. The name Sachin has reverberated in our ears and souls for more than 24 years and it still has mysticism when we hear it even today, 2 long years after the great man hung up his playing boots. We feel he would come out to bat every time an Indian wicket falls and resurrect the innings like only he can, how he has always done.


If we closely look at his career and personality how he went about becoming himself, we would be amazed to note some stand-out points that teach us invaluable lessons in personal finance. Let us take a look at 5 fundamental financial planning lessons that we can learn from Sachin:

1. Starting early helps

Sachin started playing when he could barely hold a bat. He played for the country when his classmates were yet to write their 10th standard exams. If we look at the length of his tenure at the top level of cricket, it can be attributed to the early beginning he received. It would be difficult to imagine any other contemporary cricketer to last 24 years.
Similarly, when it comes to financial planning, we keep hearing this all the time, to start saving early. Let us take an example of a 25 year old professional who starts to invest INR 4000 per month and he would continue investing the same amount till he is 60 years old, till his retirement. If we consider the rate of return as 10%, can you imagine what kind of corpus he would be left with when he retires? It is a whopping INR 1.53 crore. Behaviorally, we postpone investing thinking that we would start to invest when we start earning more. Consider the same professional starts investing INR 8000 per month when he is 35 years old and keeps investing till he retires at the age of 60 years. Now can you imagine what corpus he would have earned? Even though, he was saving double the amount, his corpus is only INR 1.07 crores. This clearly illustrates the power of compounding.

2. Unflinching focus on the goal

One thing that separated Sachin from other cricketers is his focus. He never had time to stare back at a fast bowler who beat him, or the unlucky few who tried in vain to sledge him, only to realize that he is just not cut out for that treatment. He would just look down, walk down a few paces, tap the pitch and take guard again, this time with double the concentration. Right from his childhood, he wanted to play for India and win matches for it. For him, that goal never faded, never became routine, nor stale even though he had done it a thousand times in all forms of cricket. It shows the measure of the character of Sachin who never flinched even when there were questions raised about his intentions. He stuck to his trade, his skills and let them do the talking.

Similarly, in financial planning it is important to stay focused on our financial goals all the time. There would come times when there would be multiple options in front of us. But it would be always prudent to stay focused and not lose sight of our financial goals. This would ensure that we would definitely reach our financial goals.

3. Discipline definitely pays

If we have to choose one quality among the many he possesses, it would be his discipline. Even at the peak of his career, when he got out to a particular ball or a bowler more than once, you can see him working on his technique, ironing out the flaw that only he saw, because for others, he was flawless. That discipline, that commitment to his career and the cause, is the single most important virtue that made him what he is today.

Similarly, in financial planning, it is always recommended to have discipline. There are no short cuts to become wealthy. It is only through discipline that we can accumulate wealth. Instead of expecting miracles when investing, it would be prudent to stick to the basics and be disciplined. For example, if you are doing a monthly investment for one of your goals, never stop it till the goal is achieved.

4. Choose your own time to quit

Sachin chose the day he would hang up his playing boots. Only he knew the wear and tear his body was being subjected to in each match and how much more it could take. Also, more importantly, only he knew when he should pack his bags because Indian cricket was going through a transition. His presence was needed by the youngsters in the dressing room and on the ground. His wisdom was cherished by them like many of them have acknowledged openly. Keeping this in mind, he chose his retirement at the most appropriate time, right after India won the World Cup, 2011.

Similarly, when it comes to financial planning for retirement, we should take into account our responsibilities and our contribution before taking a call on retiring before the age of 60. All aspects of personal finance should be taken into consideration and only then the decision should be taken. We have to remember, that it is our decision.

5. Have a post-retirement plan in place

Even during his playing days, Sachin followed his dream and being a foodie, opened a chain of fine-dine restaurants. Apart from this, Sachin has also invested in 7 different companies where he holds various percentage of stake. This supplements his other income that he receives from endorsements. He had started to diversify and plan for his retirement even during his playing days. A rare quality that we need to learn a lot from.

Similarly, it is very important to plan for one’s retirement well in advance and not when we are just a few years away from it. It would be a wise to start planning for retirement at the peak of our career as this is when we can plan the best for our retirement.

Conclusion

Chase your dreams, because dreams do come true.” Sachin retired from international cricket with these inspiring lines on November 16, 2013, leaving millions of fans in tears. Arguably the best batsman spanning two generations, this man has gone down in the annals of cricketing history not just as the player with the most records to his name, but also as the ambassador of the game, transcending boundaries that define countries, both that play cricket and the ones that don’t. He has inspired a whole generation of cricketers and taught us valuable lessons in financial planning which, if implemented with the same dedication and commitment that Sachin showed throughout his career, would be very beneficial to the common man as well to accumulate wealth.

Happy Investing

Source : Moneycontrol.com

Top stocks that need to be on your radar

Top stocks that need to be on your radar

Below are the stocks that should be on investors' radar

Natco Pharma When Teva Pharmaceuticals Industries made an unsolicitated offer to buyout Mylan for USD 40 billion in cash and stock, it ruffled shareholders of Natco Pharma . Natco has teamed up with Mylan to challenge the validity of Teva’s key patent related to 20 mg dosage version of Copaxone in US courts. Copaxone, with sales of USD 4 billion a year accounts for 50 percent of Teva’s profit, is due to expire in September.

WIPRO Wipro's fourth quarter (January-March) consolidated profit jumped 3.6 percent to Rs 2,272 crore and revenue increased by 0.7 percent to Rs 12,171.4 crore compared to December quarter. The country's third largest software services exporter missed street expectations on IT services revenues front that declined 1.2 percent sequentially to USD 1.77 billion in the quarter ended March 2015. Rupee revenues fell 0.9 percent quarter-on-quarter to Rs 11,242 crore for the quarter.

VST Industries The company reported mixed earnings for the quarter ended March 2015. The topline growth was healthy, largely led by prices; the margins were weak clubbed with fall in PAT.

Persistent Systems The company beat street expectations on bottomline front but the topline slightly missed estimates. Net profit grew 2.1 percent sequentially to Rs 76.05 crore and revenue increased by 0.6 percent to Rs 497.4 crore during January-March quarter.

CIMMCO The company an subsidiary of Titagarh Wagons received industrial license to manufacture various items for defence. The equipment will be manufactured from unit at Bharatpur in Rajasthan.

Tyre Stocks With the international rubber prices seeing a sharp rise in last two days, tyre companies are likely to be in focus. Moreover, crude oil too was up 8 percent in last five trading session and rise in crude oil would lead to higher synthetic rubber prices. However, prices of domestic natural rubber continue to be subdued.

Sun Pharma Aranda Investment Maurtius bought 2 crore shares at Rs 930.16 per share. Goldman Sachs (Singapore) bought 5.12 cr shares at Rs 930.16/share. The Government of Singapore too bought 1.26 cr shares at Rs 930.16/share. However, Daiichi Sankyo sold 21.4 cr shares at Rs931.58/sh. The company clarified that Dilip Shanghvi has not purchased shares of the company with respect to Daiichi stake sale. JP Morgan is overweight on the stock with a target price of Rs 1030.

SBI The stock has consistently seen some delivery based buying. PSU banks this month have been the gainers and private banks have been loosed because of the valuation trade.

Happy Investing

Source : Moneycontrol.com

Can market bounce back?

Can market bounce back?

If any pullback has to happen, it has to happen now because we are within 100 points of breaking the March low of 8,270.

The market right now is in complete grip of bears and it is so much in grip of bears that even if on the screen it is looking like it is easy to make money; it actually is because you could short the market at any point and still make money. 

Normally that kind of phase does not last for long but this is almost like bear saying we have told you this market is going down and we are taking this market down. This is a zone for the market. If any pullback has to happen, it has to happen now because we are within 100 points of breaking the March low of 8,270. Why is that important? That’s important for two reasons – one, it coincides with rising 200 day moving average but second and probably more important, if broker – that would establish the first lower top-lower bottom formation for the market in this bull market. Normally that is a bit of a worry because that could mean that the market in the near term could be – and I measure my words – could be in a bit of a bear market, a cyclical bear market within a structural bull market. So that’s something that you have to worry about. The market can correct 20 percent and still be in a bull market – make no mistake about that but you have seen the pain with 9 percent correction. Imagine the kind of pain that would come with 20 percent correction. 

So the big worry for the market has been earnings and the earnings are just not matching up. If the frontbenchers are coming out with this kind of earnings, imagine what would happen with the backbenchers and that is a big worry for the market. Foreign institutional investors (FIIs) yesterday – there are two ways to look at things – (1) if you were to exclude Sun deal, there were still net sellers but why should we exclude the Sun deal. It is telling you a lot about the Indian market from a long-term investment point of view. USD 3.5 billion gets absorbed in a single day, is not a joke. It is telling you about the depth of the market. So that point is taken but everything is good at a price and that’s why the deal took place at 10 percent discount and that is the key for this market, the valuation and that still needs some flushing out and that’s what is happening and this market is giving incredible long only buying opportunities from portfolio point of view but from trading point of view this is a market in which you are not going to make too much money if you go by bravado. 

You have to respect the screen and see where it goes but if a bounce back has to happen, it has to happen now.

Happy Investing

Source : Moneycontrol.com

Sensex yr-end target 33K

Sensex yr-end target 33K; Fed lift off not a worry


Deutsche Equities sees the ongoing tactical correction as a healthy consolidation & investors, who had been on the sidelines may use this opportunity to realign portfolios. Deutsche maintained its year-end Sensex target of 33,000.

A positive macro-and-policy-fuelled India was the most preferred emerging market across all financial centres in Europe at the end of 2014, says Deutsche Bank in a research report. But now global as well as emerging markets investors are looking at a tactical reallocation of aggressively overweight positions towards other EM's like China, Russia and Brazil, the report says. 

Deutsche Bank met as many as 34 investors last week across key financial centers in Europe. The brokerage house further says: "Many global investors we met – who were first time investors into India, through the rally last year, are currently focused on European equity markets, following improving economic data and QE in Europe." Focusing on India, the report says, the ongoing tactical correction is a healthy consolidation and investors waiting on the sidelines should use this as an opportunity to realign their portfolios. 

Deutsche Bank maintains its year-end Sensex target of 33,000. However, on a cautious note, the report adds: "While investors remain positive over India's long term prospects and an energetic government focused on reforms, the translation of the positive macro to an on-the-ground improvement in the economy or earnings, has been far slower than anticipated." 

The brokerage house believes any tangible news flow suggesting a sustained economic/ earnings recovery will act as a significant catalyst for outperformance. MAT notice to FIIs The recent MAT notice to FIIs has created confusion among investors. Some buy side funds stated that their new investors have been enquiring about the status of this tax demand which has been raised for previous years, when they were not investors in the India investment funds, the report says. According to Deutsche Bank, a quick clarification from the government is a must as most investors are now concerned that this issue could get entangled in a protracted legal process. 

Potential Fed hike not a worry for India, but recent crude price rise maybe Foreign investors believe India is well positioned to face any Federal Reserve liftoff without materially impacting its economic equilibrium. However, few investors have now begun to worry over potential and sustained hike in global crude prices, although Deutsche Bank believes that Iran-US deal may open up Iran supplies which will yet again exert downward pressure on crude.

Happy Investing

Source : Moneycontrol.com

How to settle a death claim in mutual fund investments?

How to settle a death claim in mutual fund investments?


Mutual funds have well-defined processes in place in case of an unfortunate death of a unit holder. Depending on the structure of investment holding, one should do the paperwork.


Mutual funds are perceived to be a simple, yet effective, investment vehicle for investors with varied risk profile and investment objectives. While the hallmark of the industry’s growth has been its ability to launch innovative products to suit varied needs of investors, it has done its bit even on the client servicing front. Today, there are well defined procedures for handling various service requests as well as redressing investor grievances and the processing time has significantly reduced over the years.

Although the procedure and rules for activities such as making investment, redemption of units and switching the holdings from one scheme into another are well established, there are areas like settling a death claim that still have some ambiguity and lack of awareness. Considering that an unfortunate event of the death of a loved one can be emotionally draining for the family and can also put a strain on its finances, knowing what needs to be done while applying for settling a death claim can mitigate the hardship of the nominee or the surviving unit holders. This article is an attempt to create awareness about what needs to do while applying for transmission/redemption of units on account of the death of the sole or the first holder. Transmission is a process whereby units held in the name of deceased unit holder are transferred either to the surviving unit holders or nominee/ legal heirs.

Pattern of holding

The units of mutual funds can be held either singly or jointly (a maximum of three applicants) on either or survivor or joint basis . The units can also be held as Karta of HUF. If the sole holder or the first holder dies, the documents required are based on the pattern of holding and the current value of investments. While the pattern of holding could be with or without a nomination, the documentation required depends on the threshold limit set by mutual funds. In other words, this threshold limit varies from fund house to fund house.

If the units are held singly with nomination
In case the units are held singly with nomination and the sole holder dies, the nominee has the option of either redeeming the units or opting for transmission of units in his/her name. The request can be made by way of a letter in a format prescribed by the fund houses. The request has to be submitted along with the following documents:

• Death Certificate of deceased unitholder in original or photocopy notarized or attested by gazetted officer or a bank manager.

• Bank account details of the nominee (in a standard format) attested by the Bank Manager along with cancelled cheque bearing the name of the nominee.

• KYC of the nominee bearing PAN no. and the name of the nominee.

If the transmission amount is below the threshold limit, any appropriate document evidencing relationship of the nominee with the unit holder needs to be submitted. If the transmission amount is above the threshold limit, a Notarized copy of probated will or legal heir certificate or Succession certificate or Claimant’s certificate issued by a competent court or Letter of Administration in case of Intestate Succession needs to be submitted.

If the claimant is a minor, the following additional documents are required:
• Proof of date of birth of minor nominee

• Letter from guardian declaring that he/she is the guardian of the minor and stating his/her relationship to the minor along with court order/decree, if applicable.

If the units are held singly without a nomination

If the units are held singly without a nomination, the process can be tedious as apart from the documents mentioned above, some more documents will have to be submitted. These are:

• Indemnity Bond from legal heir/s on stamp paper /franked for value as applicable in the respective State of execution of the Indemnity bond (standard format)

• Individual affidavits from legal heir/s on stamp paper / franked for value as applicable in the respective State of execution of the Affidavit.

If the nominee decides to get the units transmitted, the tax liability, if any, will arise only at the time of redemption of units.

If the units are held jointly

Mutual fund units can be held jointly. If the first holder dies, the units can be transmitted to the second holder. This can be done by submitting a letter in a standard format along with the Death Certificate in original or photocopy notarized or attested by the gazette officer or a bank manager. If the surviving unitholder becomes the sole holder after transmission of units, it will be mandatory for him/her to make a nomination.

In case the units are transmitted to the surviving unitholder/s, there are no tax implications. If they decide to redeem units, the tax rules with respect to short term/ long-term capital gains will apply.

Transmission in case of HUF, due to the death of Karta

Although the affairs of HUF are managed by the Karta, it does not come to an end in the event of his death. Hence, the members of the HUF can appoint a new Karta who needs to submit the following documents for transmission of units:

• Letter requesting for change of Karta in a standard format duly signed by the new Karta.

• Death certificate in original or photocopy duly notarized or attested by the gazette officer or a bank manager.

• Duly certified bank certificate stating that the signature and details of new karta have been appended in the bank account of the HUF.

• KYC of the new karta and KYC of HUF, if not already available.

• Proof of identification of the new karta.

• Indemnity bond signed by all the surviving coparceners and new Karta. Indemnity bond on stamp paper / franked of value as applicable in the respective State of execution of the indemnity bond.

In case there is no surviving coparceners or if the transmission amount is more the threshold limit or where there is an objection from any surviving members of the HUF, the transmission can be effected only on the basis of a Notarized copy of Settlement Deed or Notarized copy of Deed of Partition or Notarized copy of Decree of the relevant competent Court.

Happy Investing

Source : Moneycontrol.com

Basics of Financial Markets Part 2

Basics of Financial Markets Part 2

 

What is meant by a Stock Exchange?

 

The Securities Contract (Regulation) Act, 1956 [SCRA] defines ‘Stock Exchange’ as any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. Stock exchange could be a regional stock exchange whose area of operation/jurisdiction is specified at the time of its recognition or national exchanges, which are permitted to have nationwide trading since inception. NSE was incorporated as a national stock exchange.

 

What is an ‘Equity’/Share?

 

Total equity capital of a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then is 11 said to have 20,00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights.

 

What is a ‘Debt Instrument’?

 

Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In the Indian securities markets, the term ‘bond’ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector.

 

What is a Derivative?

 

Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex), commodity or any other asset. Derivative products initially emerged as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years. The financial derivatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two-thirds of total transactions in derivative products.

 

What is a Mutual Fund?

 

A Mutual Fund is a body corporate registered with SEBI (Securities Exchange Board of India) that pools money from individuals/corporate investors and invests the same in a variety of different financial instruments or securities such as equity shares, Government securities, Bonds, debentures etc. Mutual funds can thus be considered as financial intermediaries in the investment business that collect funds from the public and invest on behalf of the investors. Mutual funds issue units to the investors. The appreciation of the portfolio or securities in which the mutual fund has invested the money leads to an appreciation in the value of the units held by investors. The investment objectives outlined by a Mutual Fund in its prospectus are binding on the Mutual Fund scheme. The investment objectives specify the class of securities a Mutual Fund can invest in. Mutual Funds invest in various asset classes like equity, bonds, debentures, commercial paper and government securities. The schemes offered by mutual funds vary from fund to fund. Some are pure equity schemes; others are a mix of equity and bonds. Investors are also given the option of getting dividends, which are declared periodically by the mutual fund, or to participate only in the capital appreciation of the scheme.

 

What is an Index ?

 

An Index shows how a specified portfolio of share prices are moving in order to give an indication of market trends. It is a basket of securities and the average price movement of the basket of securities indicates the index movement, whether upwards or downwards.

 

What is a Depository?

 

A depository is like a bank wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form.

 

What is Dematerialization ?

 

Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investor’s account with his Depository Participant (DP).

 

What is the function of Securities Market?

 

Securities Markets is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, debentures etc. Further, it performs an important role of enabling corporates, entrepreneurs to raise resources for their companies and business ventures through public issues. Transfer of resources from those having idle resources (investors) to others who have a need for them (corporates) is most efficiently achieved through the securities market. Stated formally, securities markets provide channels for reallocation of savings to investments and entrepreneurship. Savings are linked to investments by a variety of intermediaries, through a range of financial products, called ‘Securities’.

 

Which are the securities one can invest in?

• Shares
• Government Securities
• Derivative products
• Units of Mutual Funds etc., are some of the securities investors in the securities market can invest in.

What is the role of the ‘Primary Market’?

 

The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market.

 

Why do companies need to issue shares to the public?

 

Most companies are usually started privately by their promoter(s). However, the promoters’ capital and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors. The way to invite share capital from the public is through a ‘Public Issue’.

Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by SEBI.

 

What is meant by Market Capitalisation?

 

The market value of a quoted company, which is calculated by multiplying its current share price (market price) by the number of shares in issue is called as market capitalization. E.g. Company A has 120 million shares in issue. The current market price is Rs. 100. The market capitalisation of company A is Rs. 12000 million.

 

What is an Initial Public Offer (IPO)?

 

An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer’s securities. The sale of securities can be either through book building or through normal public issue.

 

What is a Prospectus ?

 

A large number of new companies fl oat public issues. While a large number of these companies are genuine, quite a few may want to exploit the investors. Therefore, it is very important that an investor before applying for any issue identifies future potential of a company. A part of the guidelines issued by SEBI (Securities and Exchange Board of India) is the disclosure of 23 information to the public. This disclosure includes information like the reason for raising the money, the way money is proposed to be spent, the return expected on the money etc. This information is in the form of ‘Prospectus’ which also includes information regarding the size of the issue, the current status of the company, its equity capital, its current and past performance, the promoters, the project, cost of the project, means of financing, product and capacity etc. It also contains lot of mandatory information regarding underwriting and statutory compliances. This helps investors to evaluate short term and long term prospects of the company.

 

What is meant by Secondary market?

 

Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.

 

What is a Contract Note?

 

Contract Note is a confirmation of trades done on a particular day on behalf of the client by a trading member. It imposes a legally enforceable relationship between the client and the trading member with respect to purchase/sale and settlement of trades. It also helps to settle disputes/claims between the investor and the trading member. It is a prerequisite for fi ling a complaint or arbitration proceeding against the trading member in case of a dispute. A valid contract note should be in the prescribed form, contain the details of trades, stamped with requisite value and duly signed by the authorized signatory. Contract notes are kept in duplicate, the trading member and the client should keep one copy each. After verifying the details contained therein, the client keeps one copy and returns the second copy to the trading member duly acknowledged by him.

 

What precautions must one take before investing in the stock markets?

 

Here are some useful pointers to bear in mind before you invest in the markets:

• Make sure your broker is registered with SEBI and the exchanges and do not deal with unregistered intermediaries.
• Ensure that you receive contract notes for all your transactions from your broker within one working day of execution of the trades.
• All investments carry risk of some kind. Investors should always know the risk that they are taking and invest in a manner that matches their risk tolerance.
• Do not be misled by market rumours, luring advertisement or ‘hot tips’ of the day.
• Take informed decisions by studying the fundamentals of the company. Find out the business the company is into, its future prospects, quality of management, past track record etc Sources of knowing about a company are through annual reports, economic magazines, databases available with vendors or your financial advisor.
• If your financial advisor or broker advises you to invest in a company you have never heard of, be cautious. Spend some time checking out about the company before investing.
• Do not be attracted by announcements of fantastic results/news reports, about a company. Do your own research before investing in any stock.
• Do not be attracted to stocks based on what an internet website promotes, unless you have done adequate study of the company.
• Investing in very low priced stocks or what are known as penny stocks does not guarantee high returns.
• Be cautious about stocks which show a sudden spurt in price or trading activity.
• Any advise or tip that claims that there are huge returns expected, especially for acting quickly, may be risky and may to lead to losing some, most, or all of your money.

 

What Do’s and Don’ts should an investor bear in mind when investing in the stock markets?

• Ensure that the intermediary (broker/sub-broker) has a valid SEBI registration certificate.
• Enter into an agreement with your broker/sub-broker setting out terms and conditions clearly.
• Ensure that you give all your details in the ‘Know Your Client’ form.
• Ensure that you read carefully and understand the contents of the ‘Risk Disclosure Document’ and then acknowledge it.
• Insist on a contract note issued by your broker only, for trades done each day.
• Ensure that you receive the contract note from your broker within 24 hours of the transaction.
• Ensure that the contract note contains details such as the broker’s name, trade time and number, transaction price, brokerage, service tax, securities transaction tax etc. and is signed by the Authorised Signatory of the broker.
• To cross check genuineness of the transactions, log in to the NSE website (www.nseindia.com) and go to the trade verifi cation facility extended by NSE at ww.nseindia.com/content/equities/eq_trdverify.htm.
• Issue account payee cheques/demand drafts in the name of your broker only, as it appears on the contract note/SEBI registration certifi cate of the broker.
• While delivering shares to your broker to meet your obligations, ensure that the delivery instructions are made only to the designated account of your broker only.
• Insist on periodical statement of accounts of funds and securities from your broker. Cross check and reconcile your accounts promptly and in case of any discrepancies bring it to the attention of your broker immediately.
• Please ensure that you receive payments/deliveries from your broker, for the transactions entered by you, within one working day of the payout date.
• Ensure that you do not undertake deals on behalf of others or trade on your own name and then issue cheques from a family members ’/ friends’ bank accounts.
• Similarly, the Demat delivery instruction slip should be from your own Demat account, not from any other family members’/friends’ accounts.
• Do not sign blank delivery instruction slip(s) while meeting security pay-in obligation.
• No intermediary in the market can accept deposit assuring fixed returns. Hence do not give your money as deposit against assurances of returns.
• ‘Portfolio Management Services’ could be offered only by intermediaries having specific approval of SEBI for PMS. Hence, do not part your funds to unauthorized persons for Portfolio Management.
• Delivery Instruction Slip is a very valuable document. Do not leave signed blank delivery instruction slip with anyone. While meeting pay in obligation make sure that correct ID of authorized intermediary is filled in the Delivery Instruction Form.
• Be cautious while taking funding form authorised intermediaries as these transactions are not covered under Settlement Guarantee mechanisms of the exchange.
• Insist on execution of all orders under unique client code allotted to you. Do not accept trades executed under some other client code to your account.
• When you are authorising someone through ‘Power of Attorney’ for operation of your DP account, make sure that: your authorization is in favour of registered intermediary only.
• And authorisation is only for limited purpose of debits and credits arising out of valid transactions executed through that intermediary only.
• You verify DP statement periodically say every month/fortnight to ensure that no unauthorised transactions have taken place in your account.
• Authorization given by you has been properly used for the purpose for which authorization has been given. In case you find wrong entries please report in writing to the authorized intermediary.
• Don’t accept unsigned/duplicate contract note.
• Don’t accept contract note signed by any unauthorized person.
• Don’t delay payment/deliveries of securities to broker.
• In the event of any discrepancies/disputes, please bring them to the notice of the broker immediately in writing (acknowledged by the broker) and ensure their prompt rectification.
• In case of sub-broker disputes, inform the main broker in writing about the dispute at the earliest and in any case not later than 6 months.
• If your broker/sub-broker does not resolve your complaints within a reasonable period (say within 15 days), please bring it to the attention of the ‘Investor Grievances Cell’ of the NSE.
• While lodging a complaint with the ‘Investor Grievances Cell’ of the NSE, it is very important that you submit copies of all relevant documents like contract notes, proof of payments delivery of shares etc. alongwith the complaint. Remember, in the absence of sufficient documents, resolution of complaints becomes difficult.
• Familiarise yourself with the rules, regulations and circulars issued by stock exchanges/SEBI before carrying out any transaction.

It was my aim to lay down the basic guidelines of functioning of the market for you. Don't get psyched up by the details it was just to make you understand how to play safe and how does this market functions.


Go ahead, make up your mind and explore the market ..... let it become your dream maker ... in times to come .... plan longterm and exploit the potential of the market to give you manifold gains.


Happy Investing

Basics of Financial Markets Part 1

Basics of Financial Markets Part 1

What is Investment?

The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment.

 

Why should one invest?

One needs to invest to:

• earn return on your idle resources
• generate a specified sum of money for a specific goal in life
• make a provision for an uncertain future

One of the important reasons why one needs to invest wisely is to meet the cost of Inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or a service in the future as it does now or did in the past. For example, if there was a 6% inflation rate for the next 20 years, a Rs. 100 purchase today would cost Rs. 321 in 20 years. This is why it is important to consider inflation as a factor in any long-term investment strategy.

 

Remember to look at an investment’s ‘real’ rate of return, which is the return after inflation. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value. For example, if the annual inflation rate is 6%, then the investment will need to earn more than 6% to ensure it increases in value. If the after-tax return on your investment is less than the inflation rate, then your assets have actually decreased in value; that is, they won’t buy as much today as they did last year.

 

 

When to start Investing?

 

The sooner one starts investing the better. By investing early you allow your investments more time to grow, whereby the concept of compounding (as we shall see later) increases your income, by a cumulating the principal and the interest or dividend earned on it, year after year.

 

The three golden rules for all investors are:

• Invest early
• Invest regularly
• Invest for long term and not short term

 

What care should one take while investing?

 

Before making any investment, one must ensure to:

 

• obtain written documents explaining the investment
• read and understand such documents
• verify the legitimacy of the investment
• find out the costs and benefits associated with the investment
• assess the risk-return profile of the investment
• know the liquidity and safety aspects of the investment
• ascertain if it is appropriate for your specific goals
• compare these details with other investment opportunities available
• examine if it fits in with other investments you are considering or you have already made
• deal only through an authorised intermediary
• seek all clarifications about the intermediary and the investment
• explore the options available to you if something were to go wrong, and then, if satisfied, make the investment.

These are called the Twelve Important Steps to Investing.

 

 

What is meant by Interest?

 

When we borrow money, we are expected to pay for using it – this is known as Interest. Interest is an amount charged to the borrower for the privilege of using the lender’s money. Interest is usually calculated as a percentage of the principal balance (the amount of money borrowed). The percentage rate may be fixed for the life of the loan, or it may be variable, depending on the terms of the loan.

 

What factors determine interest rates?

 

When we talk of interest rates, there are different types of interest rates - rates that banks offer to their depositors, rates that they lend to their borrowers, the rate at which the Government borrows in the Bond/Government Securities market, rates offered to investors in small savings schemes like NSC, PPF, rates at which companies issue fixed deposits etc.

 

The factors which govern these interest rates are mostly economy related and are commonly referred to as macroeconomic factors.

 

Some of these factors are:

• Demand for money
• Level of Government borrowings
• Supply of money
• Inflation rate
• The Reserve Bank of India and the Government policies which determine some of the variables mentioned above

What are various options available for investment?

 

One may invest in:

• Physical assets like real estate, gold/jewellery, commodities etc. and/or
• Financial assets such as fixed deposits with banks, small saving instruments with post offices, insurance/provident/pension fund etc. or securities market related instruments like shares, bonds, debentures etc.

What are various Short-term financial options available for investment?

Broadly speaking, savings bank account, money market/liquid funds and fi xed deposits with banks may be considered as short-term financial investment options:

Savings Bank Account is often the first banking product people use, which offers low interest (4%-5% p.a.), making them only marginally better than fixed deposits.

Money Market or Liquid Funds are a specialized form of mutual funds that invest in extremely short-term fixed income instruments and thereby provide easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then, aim to maximise returns. Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits.

Fixed Deposits with Banks are also referred to as term deposits and minimum investment period for bank FDs is 30 days. Fixed Deposits with banks are for investors with low risk appetite, and may be considered for 6-12 months investment period as normally interest on less than 6 months bank FDs is likely to be lower than money market fund returns.

What are various Long-term financial options available for investment?

Post Office Savings Schemes, Public Provident Fund, Company Fixed Deposits, Bonds and Debentures, Mutual Funds etc.

Post Office Savings: Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any post office. It provides an interest rate of 8% per annum, which is paid monthly. Minimum amount, which can be invested, is Rs. 1,000/- and additional investment in multiples of 1,000/-. Maximum amount is Rs. 3,00,000/- (if Single) or Rs. 6,00,000/- (if held Jointly) during a year. It has a maturity period of 6 years. A bonus of 10% is paid at the time of maturity. Premature withdrawal is permitted if deposit is more than one year old. A deduction of 5% is levied from the principal amount if withdrawn prematurely; the 10% bonus is also denied.

Public Provident Fund: A long term savings instrument with a maturity of 15 years and interest payable at 8% per annum compounded annually. A PPF account can be opened through a nationalized bank at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax-free. A withdrawal is permissible every year from the seventh financial year of the date of opening of the account and the amount of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower the amount of loan if any.

Company Fixed Deposits: These are short-term (six months) to medium-term (three to five years) borrowings by companies at a fixed rate of interest which is payable monthly, quarterly, semi- annually or annually. They can also be cumulative fixed deposits where the entire principal alongwith the interest is paid at the end of the loan period. The rate of interest varies between 6-9% per annum for company FDs. The interest received is after deduction of taxes.

Bonds: It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date.

Mutual Funds: These are funds operated by an investment company which raises money from the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. Benefits include professional money management, buying in small amounts and diversification. Mutual fund units are issued and redeemed by the Fund Management Company based on the fund’s net asset value (NAV), which is determined at the end of each trading session. NAV is calculated as the value of all the shares held by the fund, minus expenses, divided by the number of units issued. Mutual Funds are usually long term investment vehicle though there some categories of mutual funds, such as money market mutual funds which are short term instruments.

This was to give you a basic idea about the various options available in the market and what exactly they mean and how they function.

Will continue ....

Happy Investing

INVESTING FOR THE LONG TERM HAS ITS ADVANTAGES

INVESTING FOR THE LONG TERM HAS ITS ADVANTAGES

An Example of Long term Close Ended Fund .... To explain the basics

Tax Benefits and Wealth Creation with SBI Long Term Advantage Fund or Any other such Fund

 

A lot can change in 10 years. And we want you to make the most of it. All companies need time to grow and realize their potential in the market. The goal is to invest in companies with solid fundamentals and remain invested. So, as they grow, the money you have invested in them grows. And if you save tax on your investments, the benefit is just greater.

 

Wealth Creation & Tax Saving

The SBI Long Term Advantage Fund is a 10-year close-ended Equity Linked Savings Scheme (ELSS), which

allows you to not only save tax upto ` 1.5 lakhs, under Section 80C of the Income Tax Act 1961#, but also to invest towards building wealth for the future. The mandate of this fund allows the fund manager to invest in companies for a long-term horizon and remain invested.

 

Key Features:

Type of scheme: A 10-year close-ended Equity Linked Savings Scheme.

Investment Objective: The investment objective of the scheme is to generate capital appreciation over a period of ten years by investing predominantly in equity and equity-related instruments of companies along with income tax benefit. However, there can be no assurance that the investment objective of the Scheme will be realized.

Triple Benefits of investing in SBI Long Term Advantage Fund – Series I: Tax Savings, Potential Capital Appreciation and Tax Free Returns.

 To identify stocks across market cap utilising asset allocation, top-down and bottom-up approach.

No Investment bias: The scheme will seek opportunities across market capitalisation, i.e. large caps, mid caps and small caps.

Targeted towards investors wishing to save tax, tax-free returns and having a long-term investment horizon.

Plans/Options offered: The scheme would have two plans, viz. Direct Plan & Regular Plan. Both plans will have two options - Growth and Dividend. Dividend option has the facility of payout and transfer.

Benchmark: S&P BSE 500.

Minimum Application: `500/- and in multiples of `500/- thereafter.

 

Tax Saving through ELSS:

ELSS (Equity Linked Savings Scheme) are diversified equity funds with a lock-in period of 3 years.

Tax benefits under Section 80C of the Income Tax Act, 1961 according to which investment upto `1.5 lakhs in ELSS is deductible from taxable income.

ELSS helps in saving considerable amount of taxes if planned efficiently as shown in the table below

 

Annual Taxable Income (Rs)	Tax before investment in ELSS (Rs)	Maximum Amount to invest in ELSS (Rs)	Taxable income post ELSS investment (Rs)	Tax After Investment (Rs)	Savings (Rs)
400000	15000	150000	250000	0	15000
600000	45000	150000	450000	20000	25000
800000	85000	150000	650000	55000	30000
1000000	125000	150000	850000	95000	30000
1200000	185000	150000	1050000	140000	45000

 

ELSS vs. Other Tax Savings Products:

Particulars	PPF	NSC	ELSS	Bank Deposits	ULIPs
Tenure (years)	15	5 and 10	3	5	5
Minimum Investment (Rs)	500	100	500	1000	10000
Max Investments under Section 80C (Rs)	150000	150000	150000	150000	150000
Safety/Risk Profile Risk	Highest	Highest	High	Low Risk	Moderate to High
Return (CAGR) %	8.70	8.50/8.80	Market Linked	8.50	Market Linked
Interest frequency	Compounded annually	Compounded Annually	No Assured Dividend/Return	Compounded Quarterly	NA
Taxation Of Interest	Tax Free	Taxable	Dividend and Capital gains are Tax Free	Taxable	NA

 

You may choose any fund available in the market after consulting your financial advisor.

I have gone about this example just to tell you how these funds operate and what are their basic methodology.

Investing for the long term with goal oriented investment not only help you take advantage of ultimately achieving the goal, it also provides the fund manager flexibility to take long calls in the market to tap the potential of growing economy, volatility, interest rates and value picks available in the market.

The idea is to invest and develop a combination of instruments available in the market to suit your risk appetite and at the same time build in enough possibilities to capture the future gains of the market in your investments.

Once you have understood the methodology, underline risks and more importantly the possible rewards which are aligned to your risk ability and future goals, You will be able to swim through it without jeopardizing your goals.

Happy Investing