As per the prevailing tax laws in India, one can save tax on the investments in noted mutual funds, insurance, ULIPs upto Rs. 1 Lakh.
We can compare ULIPs as equal to the mutual funds in their operation except the extra feature the ULIPs provide, the insurance cover. However linking the insurance with the investment is debatable. Everyone's life should be covered by certain amount of Insurance, except their family can financially sustainable in absense of the family head. But at the same time Insurance should not combined with investment. Investments are something different from the insurance.
Another point to be noted here is all the ULIPs charge 20% to 80% of the capital in the initial stages of investment as administration and other charges . So we cannot expect the high returns until and unless we continue investing for longer term. For instance the ULIP companies charges 20% for the first year, around 12% in the next year, 4% afterward (Applicable for some schemes only, may vary for each scheme).
Coming to the mutual funds, the total charges must not cross 6% of the capital as per the prevailing rules . Generally, money invested with Tax Saver mutual funds and ULIP schemes will have the lock in period of 3 years during which your money cannot be taken back. Since the maintenence charges involved in the mutual funds are very less compared to ULIP schemes, they may give more returns.
Since both Tax Saver mutual funds as well as ULIP schemes invest in Stock Markets, the risk will be higher compare to the other savings schemes like Bank Deposites, PPF etc.
Monday, August 10, 2009
Site Restoration fund
Conditiond :- The assessee must satisfy the following conditions
1. The taxpayer is engaged in the business of the prospecting for or extraction or production of petroleum or natural gas or both in India .
2. The central government has entered in to an agreement with the taxpayer for such business.
3. It must-
a Deposit with SBI any amount in an account (here in after referred to as special account) maintained by the assessee with that bank in accordance with and for the purpose specified in a scheme approved by the Government of indiain the Minisry of petroleum and naturak gas
b Deposit any amount in an account (herein after referred to as site restoration account) opened by the assessee in accordance with and for the purpose specified in a scheme framed by the ministry of petroleum and natural gas (herein after referred to deposit scheme).
4. The aforesaid amount shall be deposited before the end of the previous year.
5. The aforesaid amount shall be audited by a charactered accountant and the report of the auditor is filed along with the return of the relevant assessment year . In cases where the accoubts of the taxpayer are required to be audited under that law and the audit report as per that law is furnished with the return along with a further report in the form prescribed for the purpose of this provision .
1. The taxpayer is engaged in the business of the prospecting for or extraction or production of petroleum or natural gas or both in India .
2. The central government has entered in to an agreement with the taxpayer for such business.
3. It must-
a Deposit with SBI any amount in an account (here in after referred to as special account) maintained by the assessee with that bank in accordance with and for the purpose specified in a scheme approved by the Government of indiain the Minisry of petroleum and naturak gas
b Deposit any amount in an account (herein after referred to as site restoration account) opened by the assessee in accordance with and for the purpose specified in a scheme framed by the ministry of petroleum and natural gas (herein after referred to deposit scheme).
4. The aforesaid amount shall be deposited before the end of the previous year.
5. The aforesaid amount shall be audited by a charactered accountant and the report of the auditor is filed along with the return of the relevant assessment year . In cases where the accoubts of the taxpayer are required to be audited under that law and the audit report as per that law is furnished with the return along with a further report in the form prescribed for the purpose of this provision .
Systematic Investment Planning (SIP)
The two methods of investing in mutual funds are invest once and the second one is SIP, an acronym for Systematic Investment Plan.
Most of the people who invest in mutual funds don't know the actual benefits of the Systematic Investment Planning and are tend to invest the available money at one go. However, Instead of investing at a time, if we will invest the same amount in a Systematic way we will have the following benefits.
It is proven that in most of the cases, your money will grow more in SIP method than in investing at one time.
Also, the risk of investing in the stock markets reduced by using this method.
How investing in SIP method will affect the growth of the investment? Answer is simple. We will invest when the market is in down trend so that we will get more number of units at lower NAVs and we also invest in the up trend where we may get the low number of units. It is expected that the markets in a country like India, where the GDP is over 8%, can give the average returns of 15%-20% over the time.
Now how you will override the risk of investing in equities? Again simple. The profits from investment made at lower prices will balance the losses incur from the investment made at higher prices. Take for example of current market environment where the world markets are in recession. Most of the stocks, the small and mid caps or even large caps, have lost their stock prices ranging from 50% to 95%. If you are not lucky enough and invested in a stock which lost 95%, you would have left with 5% of your investment. But if you followed the SIP method and invest, you may not lost more than 40%-50%. This is true not only with the stocks but also with the mutual funds. After all, mutual funds invest in stocks only, though the percentage of the total amount varies between stock to stock.
However, if you are lucky enough and invested in a stock which is strong enough to sustain such a recession environment, you would have beaten the SIP method. But how much confidently you can say that whatever the stock you choose will be one of such stock?
Investing in SIP method doesn't mean that you have to invest only in mutual funds. You can follow SIP method even with the stocks as well, however you have to take care of choosing the stocks and placing the orders on time regularly. Some of the brokers like Sharekhan are providing the SIP for stocks. All you have to select the stock which you want to invest, the amount and date of placing the order. And you have to keep required amount in your account on the date of placing the order.
The last but not the least, the exit point which we chose to stop investment is critical in SIP. If you start investing in SIP when the market is at peak and stopped when it is at rock bottom, you will have to wait for many years to recover your capital. Where as if you continue investing, you can recover your capital in very few days/years.
At the exit point if the markets are doing excellent and the fund is at its peaks then our investment returns are more otherwise we may get moderate profits or may be small amounts of losses also possible, but they are having minimal chance.At the same time, we can minimize the effect of volatility of the equity market using SIP. Since we invest in ups as well as downs the profits and losses are balanced and we can have the chance of getting good returns. This method is more preferable for all those who wanted the good returns and at the same time low risk.
Most of the people who invest in mutual funds don't know the actual benefits of the Systematic Investment Planning and are tend to invest the available money at one go. However, Instead of investing at a time, if we will invest the same amount in a Systematic way we will have the following benefits.
It is proven that in most of the cases, your money will grow more in SIP method than in investing at one time.
Also, the risk of investing in the stock markets reduced by using this method.
How investing in SIP method will affect the growth of the investment? Answer is simple. We will invest when the market is in down trend so that we will get more number of units at lower NAVs and we also invest in the up trend where we may get the low number of units. It is expected that the markets in a country like India, where the GDP is over 8%, can give the average returns of 15%-20% over the time.
Now how you will override the risk of investing in equities? Again simple. The profits from investment made at lower prices will balance the losses incur from the investment made at higher prices. Take for example of current market environment where the world markets are in recession. Most of the stocks, the small and mid caps or even large caps, have lost their stock prices ranging from 50% to 95%. If you are not lucky enough and invested in a stock which lost 95%, you would have left with 5% of your investment. But if you followed the SIP method and invest, you may not lost more than 40%-50%. This is true not only with the stocks but also with the mutual funds. After all, mutual funds invest in stocks only, though the percentage of the total amount varies between stock to stock.
However, if you are lucky enough and invested in a stock which is strong enough to sustain such a recession environment, you would have beaten the SIP method. But how much confidently you can say that whatever the stock you choose will be one of such stock?
Investing in SIP method doesn't mean that you have to invest only in mutual funds. You can follow SIP method even with the stocks as well, however you have to take care of choosing the stocks and placing the orders on time regularly. Some of the brokers like Sharekhan are providing the SIP for stocks. All you have to select the stock which you want to invest, the amount and date of placing the order. And you have to keep required amount in your account on the date of placing the order.
The last but not the least, the exit point which we chose to stop investment is critical in SIP. If you start investing in SIP when the market is at peak and stopped when it is at rock bottom, you will have to wait for many years to recover your capital. Where as if you continue investing, you can recover your capital in very few days/years.
At the exit point if the markets are doing excellent and the fund is at its peaks then our investment returns are more otherwise we may get moderate profits or may be small amounts of losses also possible, but they are having minimal chance.At the same time, we can minimize the effect of volatility of the equity market using SIP. Since we invest in ups as well as downs the profits and losses are balanced and we can have the chance of getting good returns. This method is more preferable for all those who wanted the good returns and at the same time low risk.
Net Asset Value (NAV)
NAV is one of the key term in the mutual funds terminology. Most people confuse it with the share price, but there is lot of difference in the share price and the net asset value. Net asset value is nothing but the value of each unit of a particular mutual fund.
When a mutual fund starts all the investment put in by the investors will be divided into number of units with the initial price say Rs 10. i.e if the total invested money in an NFO is Rs 10 crore, then one crore units of Rs 10 each will be allocated to the investors, if the fund doesn't charge any entry load. Few funds are not charging any entry load for the investment greater than 5 crore and some of the funds are not charging entry load for any amount of investment in NFO.
When the fund manager starts investing the money in the equity, debt or money market, then the value of the total assets will be increased whenever the profit realizes and decreases if loss occurs. This is the reason why the price of each unit is called as Net Asset Value which is representing the value of the assets for that fund. Other than this there is no specific significance for NAV. We cannot judge the future performance with the NAV.
Some people believe that, though the NAV of a mutual fund is not have that much preference, a fund with small NAV performs better than their counterparts. Example, the DSP Merrill Lynch (Now it is DSP Black Rock) mutual fund has started World Gold Fund when the markets are in bull run. It has reached rs 13 which is 30% gain in less than a month. Of course the fund manager is the main entity in generating the best returns, we should also see the NAV to be less than certain range. And obviously it depends on the markets whether the fund gives profits or losses.
When a mutual fund starts all the investment put in by the investors will be divided into number of units with the initial price say Rs 10. i.e if the total invested money in an NFO is Rs 10 crore, then one crore units of Rs 10 each will be allocated to the investors, if the fund doesn't charge any entry load. Few funds are not charging any entry load for the investment greater than 5 crore and some of the funds are not charging entry load for any amount of investment in NFO.
When the fund manager starts investing the money in the equity, debt or money market, then the value of the total assets will be increased whenever the profit realizes and decreases if loss occurs. This is the reason why the price of each unit is called as Net Asset Value which is representing the value of the assets for that fund. Other than this there is no specific significance for NAV. We cannot judge the future performance with the NAV.
Some people believe that, though the NAV of a mutual fund is not have that much preference, a fund with small NAV performs better than their counterparts. Example, the DSP Merrill Lynch (Now it is DSP Black Rock) mutual fund has started World Gold Fund when the markets are in bull run. It has reached rs 13 which is 30% gain in less than a month. Of course the fund manager is the main entity in generating the best returns, we should also see the NAV to be less than certain range. And obviously it depends on the markets whether the fund gives profits or losses.
Know When Do You Have To Sell Your Mutual Funds
Most people loose the earnings by selling their hard earned investment without any reason or taking wrong advises. The best time to sell your fund depends on many parameters.
The performance of the fund comes down: This is the typical case where everyone tempts to sell their investment. But how do you decide that your fund is under-performing?
When you compare the performance of the fund with the past performance, if it is not doing well over the continuous time, it is basically the fund is not performing. But if you compare the fund with any other fund you should see whether you are comparing with the similar type of fund like sector, type etc.
Changing of Fund Manager: Most people doesn't care about the fund manager and his qualifications. But he is the one who manages your investments. A worthy fund manager will be an asset for you in the form of your investment in his fund.
When the fund manager changes, the investment style will obviously changes and it would definitely have impact on your returns. If you feel the fund manager is not capable and you have enough reasons to say that, switch to new fund.
Fund Expenses: According to the SEBI rules, the maximum expenses of the fund should not cross 6%. But it is also a big overhead for the fund. If your fund seems to charging more expense charges than it had before and they are not controlling, time comes to switch.
Fund Style: The fund style has the major impact on the returns of the fund. For example, a fund whose portfolio is formed with diversified style, and gaining good returns suddenly concentrates on some sector which you think that it will not perform in the future then you should shift to another fund.
The performance of the fund comes down: This is the typical case where everyone tempts to sell their investment. But how do you decide that your fund is under-performing?
When you compare the performance of the fund with the past performance, if it is not doing well over the continuous time, it is basically the fund is not performing. But if you compare the fund with any other fund you should see whether you are comparing with the similar type of fund like sector, type etc.
Changing of Fund Manager: Most people doesn't care about the fund manager and his qualifications. But he is the one who manages your investments. A worthy fund manager will be an asset for you in the form of your investment in his fund.
When the fund manager changes, the investment style will obviously changes and it would definitely have impact on your returns. If you feel the fund manager is not capable and you have enough reasons to say that, switch to new fund.
Fund Expenses: According to the SEBI rules, the maximum expenses of the fund should not cross 6%. But it is also a big overhead for the fund. If your fund seems to charging more expense charges than it had before and they are not controlling, time comes to switch.
Fund Style: The fund style has the major impact on the returns of the fund. For example, a fund whose portfolio is formed with diversified style, and gaining good returns suddenly concentrates on some sector which you think that it will not perform in the future then you should shift to another fund.
Growth vs Dividend vs Dividend Reinvestment Option
Many investors has the common confusion in selecting the growth/dividend/dividend reinvest option. Here is short summary of them.
Dividend Option: Dividend offered by the Mutual Funds is similar to the the dividends given in stocks. The funds will give the dividend when the fund manager thinks that there is enough excess funds available for the dividend, like in stocks. The dividend we got can be invested in any where. Only remaining funds after giving the dividend are invested in the stocks.
Growth Option: In this the fund will not offer any dividend, rather the fund will invest all available funds effectively in the companies so that they can produce high returns in the equity market. Yes there is a scope of loss also. But who will give 30-40% returns for your investment? Bank deposits, gold? None.
Dividend Reinvestment Option: This is somewhat tricky. In this method the fund company will reinvest the dividend offered in the same fund rather than giving it to the customer. This will some times gives better results than the growth option though it looks similar to it.
Investors who wants good returns in a long term view can go for growth or dividend option of their choice. However the investors who wants to be on safer side can go for dividend option as it will give at least some returns if the fund may give losses during tough times. Since nobody can guess the future of Capital markets, we cannot rely on this method at all times.
In dividend reinvestment option the dividend declared will be immediately invested in the same fund instead of giving it to the customer. Where as in dividend option the dividend is directly given to the customer. So the extra money invested in dividend reinvestment option will yield some more units. So the number of units allocated will be more in case of dividend reinvestment option at the time of dividend declaration, but the NAV will remain same as with the Dividend option.
Some times Dividend option is useful in some cases for example, the fund is performing extremely well and share the dividends and after some time it incurs losses. In this case we would avoid the losses on the dividends shared and also we got some of our money in the form of our dividends. However, we cannot say that this would become true at all times.
As such there is no thumb rule to decide which one is better- Dividend or Growth. It's a personal preference. These options do have some pros and cons. Best strategy is one has to divide the MF investment portfolio in to weighted average basis. Make sure you have some percentage allocated to growth options and some percentage allocated to dividend options. Dividend options are always easy to track as we can be expecting dividend at regular intervals. Growth options give better results but waiting time is longer and are more prone to the market volatility. Dividend Reinvestment obviously a better option but you need to be choosy about picking up the right fund.
Dividend Option: Dividend offered by the Mutual Funds is similar to the the dividends given in stocks. The funds will give the dividend when the fund manager thinks that there is enough excess funds available for the dividend, like in stocks. The dividend we got can be invested in any where. Only remaining funds after giving the dividend are invested in the stocks.
Growth Option: In this the fund will not offer any dividend, rather the fund will invest all available funds effectively in the companies so that they can produce high returns in the equity market. Yes there is a scope of loss also. But who will give 30-40% returns for your investment? Bank deposits, gold? None.
Dividend Reinvestment Option: This is somewhat tricky. In this method the fund company will reinvest the dividend offered in the same fund rather than giving it to the customer. This will some times gives better results than the growth option though it looks similar to it.
Investors who wants good returns in a long term view can go for growth or dividend option of their choice. However the investors who wants to be on safer side can go for dividend option as it will give at least some returns if the fund may give losses during tough times. Since nobody can guess the future of Capital markets, we cannot rely on this method at all times.
In dividend reinvestment option the dividend declared will be immediately invested in the same fund instead of giving it to the customer. Where as in dividend option the dividend is directly given to the customer. So the extra money invested in dividend reinvestment option will yield some more units. So the number of units allocated will be more in case of dividend reinvestment option at the time of dividend declaration, but the NAV will remain same as with the Dividend option.
Some times Dividend option is useful in some cases for example, the fund is performing extremely well and share the dividends and after some time it incurs losses. In this case we would avoid the losses on the dividends shared and also we got some of our money in the form of our dividends. However, we cannot say that this would become true at all times.
As such there is no thumb rule to decide which one is better- Dividend or Growth. It's a personal preference. These options do have some pros and cons. Best strategy is one has to divide the MF investment portfolio in to weighted average basis. Make sure you have some percentage allocated to growth options and some percentage allocated to dividend options. Dividend options are always easy to track as we can be expecting dividend at regular intervals. Growth options give better results but waiting time is longer and are more prone to the market volatility. Dividend Reinvestment obviously a better option but you need to be choosy about picking up the right fund.
Mutual Funds vs ULIP
ULIP - Unit Linked Insurance Plans:
High Loads (Ranging from 4% to 60%, ULIP companies will charge you around 20%-60%, depending on the company, in the first year and less in the subsequent years).
We can claim tax reduction on the amount invested subject to the laws (currently upto 1 Lakh under 80C).
Capital is protected as it is the insurance policy.
Risk is medium as the amount invested is safe, we may get the additional return based on the performance of the fund.
Amount is locked for atleast 3 years to 5 years and we will be charged upto 100% of the amount if we exit.
Flexibility in changing the funds, balanced, debt etc (they allow you to change the amount between funds upto some number of times) .
Mutual Funds:
Low entry loads of 1% to 2.25% and/or the low fund maintenance costs of no more than 6% (according to the SEBI rules).
High risk in the equity oriented funds and at the same time high returns are possible depending on the market conditions.
Amount is locked for 3 years.
We cannot move our money to other funds even with the same AMC as the amount is locked .
We can check the portfolio of the funds regularly and keep updated with the growth of the fund.
We can save tax with some tax saver funds but the returns are not as high as the other mutual funds.
High Loads (Ranging from 4% to 60%, ULIP companies will charge you around 20%-60%, depending on the company, in the first year and less in the subsequent years).
We can claim tax reduction on the amount invested subject to the laws (currently upto 1 Lakh under 80C).
Capital is protected as it is the insurance policy.
Risk is medium as the amount invested is safe, we may get the additional return based on the performance of the fund.
Amount is locked for atleast 3 years to 5 years and we will be charged upto 100% of the amount if we exit.
Flexibility in changing the funds, balanced, debt etc (they allow you to change the amount between funds upto some number of times) .
Mutual Funds:
Low entry loads of 1% to 2.25% and/or the low fund maintenance costs of no more than 6% (according to the SEBI rules).
High risk in the equity oriented funds and at the same time high returns are possible depending on the market conditions.
Amount is locked for 3 years.
We cannot move our money to other funds even with the same AMC as the amount is locked .
We can check the portfolio of the funds regularly and keep updated with the growth of the fund.
We can save tax with some tax saver funds but the returns are not as high as the other mutual funds.
Mutual Funds
Types of mutual funds are based on investment objectives are
1. Growth or equity fund: These are funds that predominantly invested in equity and equity related schemes. Although these schemes have risk associated with the equity market, they also have a high growth potential while also having a high risk Investors must understand that these types of scheme must be entered keeping the long time period say for more than two years.
2. Sector specific funds: The investment objective of these funds is to invest in securities of a specific sector. The choice of the sector could vary depending on the investor preference and the return risk attributes of the sector. Sectoral funds are not well diversified as simple equity funds.
3. Equity linked saving scheme: This is a diversified equity scheme, which gives an investors benefit from tax point of view. On investing in this scheme, the investor gets return from taxable income to the extent of amount invested. This deduction is subjected to a maximum of Rs 1,00,000 .The investment is subjected to a lock in period 3 years.
4. Index fund: This is an approach based on passive style of fund mamangement. The fund manager does not take a call on individual stocks; the focus is on creating a portfolio that replicates an existing market index. An index fund provides an ideal exposure to equity market, without the investor having to bear the risk and cost arising from the market view that fund manager may take.
5. Income fund: This type of scheme invests in debt securities and government bonds. The risk is low and so the return,
6. Monthly income fund: As the name goes, these schemes have options for investors to choose monthly dividends. These schemes generally invest a small portion in equity and major portion in debt fund.
7. Fixed maturity plan: Fixed maturity plan (FMP) have a fixed maturity date. It could be a month, a quarter, or a year. Some have 3-4 year tenure. It is similar to a debt fund, but since the fund manager knows the tenure of scheme, it is easier to invest.
Advantages of Mutual Funds:
1. Diversification: since, a mutual fund scheme invest in a number of stocks, it helps the investors reduce his risk, as all his money is not in a single basket. Even if the stock price of one of the companies goes down, it does not result in a substantial loss to the investor as the other holdings can compensate for the loss.
2. Professional management: Fund managers in mutual fund are professionals who track the market on the regular and continue basis. With their mix of professional qualification and market knowledge, they are better equipped to understand the market and the normal investor.
3. Liquidity: Investment in mutual funds is completely liquid and can be redeemed at NAV related price at any working day.
4. Flexibility: Mutual funds offer a lot of flexibility to the investors in terms of the ability to switch smoothly between scheme of the same fund family, switching between dividend and growth options, systematic investment and withdrawal plans.
5. Choice of funds: A wide choice of fund schemes is available to the investors across the asset classes (equity/debt) industries, indices, and open ended/close ended schemes.
6. Transparency: An investor gets up-to –date information on the scheme, value of his investment, the various cost and charges and the number of units he has all detail.
7. Relatively inexpensive: With compared to other direct investment in capital markets, mutual costs less as they save the brokerage charge, demat, and depository costs.
8. Convenient administration: The process of investing, redeeming or switching is simple in mutual funds. Moreover the fund manager as actively managing the portfolio, the investor is not required to take the buy/sell decision to track daily movements.
9.Tax benefits: Investors in the mutual fund also enjoy the tax benefit, such as tax free dividends (subject to distribution tax) and concessional rates on short term and long tem capital gains.
10. Well regulated: Mutual fund industry is one of the highly regulated industry in terms of adherence to prescribed norms for valuation, disclosure to the investors and transaction processing.
Some common transaction in MFs are-
1. Investment Investing in a scheme.
2. Redemption Withdrawal of money from the scheme
3. Switch moving from one scheme of the fund house to another scheme of the same fund house. You need to redeem the money and reinvest again.
4. Systematic investment plan (SIP) Investment of the specified amount is done on a particular day of every month, irrespective of the market condition. Instructions for the number of months for the SIP have to be given in advance.
5. Systematic transfer plan (STP) Systematic transfer plan is a combination of switch and SIP. We can instruct a particular amount to be switched from one scheme to other on a particular day of every month.
6. Systematic withdrawal plan (SWP) Systematic withdrawal plan is helpful when one has lump sum to be invested and requires periodic payment. You could specify the date when you require the money at a particular amount is automatically redeemed every month from the scheme mentioned by you for the specified period.
1. Growth or equity fund: These are funds that predominantly invested in equity and equity related schemes. Although these schemes have risk associated with the equity market, they also have a high growth potential while also having a high risk Investors must understand that these types of scheme must be entered keeping the long time period say for more than two years.
2. Sector specific funds: The investment objective of these funds is to invest in securities of a specific sector. The choice of the sector could vary depending on the investor preference and the return risk attributes of the sector. Sectoral funds are not well diversified as simple equity funds.
3. Equity linked saving scheme: This is a diversified equity scheme, which gives an investors benefit from tax point of view. On investing in this scheme, the investor gets return from taxable income to the extent of amount invested. This deduction is subjected to a maximum of Rs 1,00,000 .The investment is subjected to a lock in period 3 years.
4. Index fund: This is an approach based on passive style of fund mamangement. The fund manager does not take a call on individual stocks; the focus is on creating a portfolio that replicates an existing market index. An index fund provides an ideal exposure to equity market, without the investor having to bear the risk and cost arising from the market view that fund manager may take.
5. Income fund: This type of scheme invests in debt securities and government bonds. The risk is low and so the return,
6. Monthly income fund: As the name goes, these schemes have options for investors to choose monthly dividends. These schemes generally invest a small portion in equity and major portion in debt fund.
7. Fixed maturity plan: Fixed maturity plan (FMP) have a fixed maturity date. It could be a month, a quarter, or a year. Some have 3-4 year tenure. It is similar to a debt fund, but since the fund manager knows the tenure of scheme, it is easier to invest.
Advantages of Mutual Funds:
1. Diversification: since, a mutual fund scheme invest in a number of stocks, it helps the investors reduce his risk, as all his money is not in a single basket. Even if the stock price of one of the companies goes down, it does not result in a substantial loss to the investor as the other holdings can compensate for the loss.
2. Professional management: Fund managers in mutual fund are professionals who track the market on the regular and continue basis. With their mix of professional qualification and market knowledge, they are better equipped to understand the market and the normal investor.
3. Liquidity: Investment in mutual funds is completely liquid and can be redeemed at NAV related price at any working day.
4. Flexibility: Mutual funds offer a lot of flexibility to the investors in terms of the ability to switch smoothly between scheme of the same fund family, switching between dividend and growth options, systematic investment and withdrawal plans.
5. Choice of funds: A wide choice of fund schemes is available to the investors across the asset classes (equity/debt) industries, indices, and open ended/close ended schemes.
6. Transparency: An investor gets up-to –date information on the scheme, value of his investment, the various cost and charges and the number of units he has all detail.
7. Relatively inexpensive: With compared to other direct investment in capital markets, mutual costs less as they save the brokerage charge, demat, and depository costs.
8. Convenient administration: The process of investing, redeeming or switching is simple in mutual funds. Moreover the fund manager as actively managing the portfolio, the investor is not required to take the buy/sell decision to track daily movements.
9.Tax benefits: Investors in the mutual fund also enjoy the tax benefit, such as tax free dividends (subject to distribution tax) and concessional rates on short term and long tem capital gains.
10. Well regulated: Mutual fund industry is one of the highly regulated industry in terms of adherence to prescribed norms for valuation, disclosure to the investors and transaction processing.
Some common transaction in MFs are-
1. Investment Investing in a scheme.
2. Redemption Withdrawal of money from the scheme
3. Switch moving from one scheme of the fund house to another scheme of the same fund house. You need to redeem the money and reinvest again.
4. Systematic investment plan (SIP) Investment of the specified amount is done on a particular day of every month, irrespective of the market condition. Instructions for the number of months for the SIP have to be given in advance.
5. Systematic transfer plan (STP) Systematic transfer plan is a combination of switch and SIP. We can instruct a particular amount to be switched from one scheme to other on a particular day of every month.
6. Systematic withdrawal plan (SWP) Systematic withdrawal plan is helpful when one has lump sum to be invested and requires periodic payment. You could specify the date when you require the money at a particular amount is automatically redeemed every month from the scheme mentioned by you for the specified period.
Investing Styles
The two different styles of investing in the stock markets.
"Be Safe" mechanism: in which we put our money in the blue chip and other big companies, like ITC, SBI, Reliance, ONGC etc which will produces the constant annual returns in the long term (Please ignore the exceptions like the current economic turmoil, which may last of some more time but is not permanent. Long term means over 3-5 years and can be as many as 10 or more years depending on your needs). The income from these companies vary anywhere from 15% to nearly 30% in long term. And mainly, the risk will be lower (25%-50%). Most of the Indian investors choose this method by satisfying with them minimum returns.
"Be Aggressive" mechanism: in which we put our money in the small cap and mid cap companies which are having the high risk profile of 50%-90%. These companies will produce the returns of 50%-1000%. The multi-bagger companies are the outcome of only small cap and mid cap companies only. Few of the Indian investors who can bear such a high risk profile will invest in this kind of companies.
Investors who can sustain such risk of up to 75% can choose the possible future Multibagger companies and invest part of their investment. When you invest (I am talking about the investment and not the trading, i.e. the long term investment only) in a company, you should prepare and can sustain the loss of 50% also. But this depends on the time of investment. The right multibagger company can be found only when the markets are in their starting stages and if you invest when the markets are at their peaks, you may loose more money if something goes wrong. So always keep enough money for the future opportunities.
The investment in such companies should be be anywhere in between 40%-75% of the total investment in stocks based on the risk taking nature & ability (Income sources, fixed income, assets etc.) to get the better results and not more than that.
And again, it is better the total investment in the stocks & mutual funds not to cross 75% of the total investment. Rest can be put in safe methods such as Bonds, Fixed deposits etc. This kind of planning investment would help anyone in their future and have the blend of both Be Safe and Be Aggressive returns.
"Be Safe" mechanism: in which we put our money in the blue chip and other big companies, like ITC, SBI, Reliance, ONGC etc which will produces the constant annual returns in the long term (Please ignore the exceptions like the current economic turmoil, which may last of some more time but is not permanent. Long term means over 3-5 years and can be as many as 10 or more years depending on your needs). The income from these companies vary anywhere from 15% to nearly 30% in long term. And mainly, the risk will be lower (25%-50%). Most of the Indian investors choose this method by satisfying with them minimum returns.
"Be Aggressive" mechanism: in which we put our money in the small cap and mid cap companies which are having the high risk profile of 50%-90%. These companies will produce the returns of 50%-1000%. The multi-bagger companies are the outcome of only small cap and mid cap companies only. Few of the Indian investors who can bear such a high risk profile will invest in this kind of companies.
Investors who can sustain such risk of up to 75% can choose the possible future Multibagger companies and invest part of their investment. When you invest (I am talking about the investment and not the trading, i.e. the long term investment only) in a company, you should prepare and can sustain the loss of 50% also. But this depends on the time of investment. The right multibagger company can be found only when the markets are in their starting stages and if you invest when the markets are at their peaks, you may loose more money if something goes wrong. So always keep enough money for the future opportunities.
The investment in such companies should be be anywhere in between 40%-75% of the total investment in stocks based on the risk taking nature & ability (Income sources, fixed income, assets etc.) to get the better results and not more than that.
And again, it is better the total investment in the stocks & mutual funds not to cross 75% of the total investment. Rest can be put in safe methods such as Bonds, Fixed deposits etc. This kind of planning investment would help anyone in their future and have the blend of both Be Safe and Be Aggressive returns.
Check List For Novice - Investing in Equity Markets
Before start invest in the equity market, either through secondary market i.e mutual funds or primary market i.e stock market, you should have some information in hand.
Know About Yourself: The first and foremost thing before start investing is knowing yourself. Knowing yourself mean what kind of a person you are in terms of risk taking. It depends on some other factors as below.
Your total annual income: Your investments in equity should be reasonable compare with your income.
Sources For Your Income: Is your income is fixed like employment or not regular like business?
Risk Taking Nature: Can you sustain to huge risk, medium risk or marginally low risk?
Your Responsibilities: Who are dependent on you and how much of your investment is towards fixed assets?
Know the area of investment: Once you have enough information gathered, you have to decide the place in which you have to invest in. This depends on the above information.
If your income is sufficient and you can sustain the risk for the investment you are investing, then you can go for the equity market. i.e, mutual funds or share market.
If you are not willing to take high risk but can take some risk, go for the balanced funds which are the mix of equity and debt schemes. If you are not willing to take risk, you can go for the debt schemes or the fixed deposits etc.
Gather the information: Now you are ready to start investing. You have to gather the information as much as possible on the area in which you are investing. You can find vast amounts of information on the Indian Stock Market on this forum, boddunan.com, and also on many sites which will provide you enough information on other areas.
Set Your Goals:Once you gather as much information as possible, the next thing is set your goal of your investment. What is the rate of growth you are expecting, what percentage of profit you are expecting in what time etc.
Monitor Your Investment: Many people think that investing for long term means investing and leave it aside which is not the correct thing. You should always check your investment and the growth rate of your investment at regular intervals.
Know About Yourself: The first and foremost thing before start investing is knowing yourself. Knowing yourself mean what kind of a person you are in terms of risk taking. It depends on some other factors as below.
Your total annual income: Your investments in equity should be reasonable compare with your income.
Sources For Your Income: Is your income is fixed like employment or not regular like business?
Risk Taking Nature: Can you sustain to huge risk, medium risk or marginally low risk?
Your Responsibilities: Who are dependent on you and how much of your investment is towards fixed assets?
Know the area of investment: Once you have enough information gathered, you have to decide the place in which you have to invest in. This depends on the above information.
If your income is sufficient and you can sustain the risk for the investment you are investing, then you can go for the equity market. i.e, mutual funds or share market.
If you are not willing to take high risk but can take some risk, go for the balanced funds which are the mix of equity and debt schemes. If you are not willing to take risk, you can go for the debt schemes or the fixed deposits etc.
Gather the information: Now you are ready to start investing. You have to gather the information as much as possible on the area in which you are investing. You can find vast amounts of information on the Indian Stock Market on this forum, boddunan.com, and also on many sites which will provide you enough information on other areas.
Set Your Goals:Once you gather as much information as possible, the next thing is set your goal of your investment. What is the rate of growth you are expecting, what percentage of profit you are expecting in what time etc.
Monitor Your Investment: Many people think that investing for long term means investing and leave it aside which is not the correct thing. You should always check your investment and the growth rate of your investment at regular intervals.
Dish TV (India) - A Future Multibagger
Dish TV is the leading DTH company in India having a market share of over 45%. The current subscriber base stood at over 4.5 million. Indian DTH industry is one of the fastest growing DTH market in the world with and expected growth rate of 40%.
The total number of cable viewers in India are approx. 120 million, out of which only 8 million cable viewers are converted to DTH. So there is still a huge growth opportunity in this space.
Currently the industry is having 5 players - Reliance BIG TV, Tata Sky, Bharti Airtel Digital TV and Sun Direct are the other players in this arena. Dish TV has the first mover advantage and is also enjoying the market leader position. After entering the cash rich companies like Bharti and Reliance, still the company succeeded in getting good number of subscribers, exceeding the expectations.
At the current market price of 22.8, the market cap of the company stood at just 976 crore. The total debts of the company stood at around 700 Crore. The company is able to complete the rights issue which made the company to get the 1120 Crore investment - makes it to grow uninterruptedly. The promoters have subscribed the entire issue of about 98% which shows the confidence of the promoters in the business and the company. The current share holding of the promoters after the rights issue at about 80%.
I strongly believe the company would become a multibagger in the future once the company break-even. It is expected that the company will show positive returns in the 2nd Quarter of FY10. So this is the best time to get the stock at much cheaper price.
Dish TV company is the safest investment option at the current recessionary time as it has lost over 75% market cap and the DTH business is less affected by the current recession.
The total number of cable viewers in India are approx. 120 million, out of which only 8 million cable viewers are converted to DTH. So there is still a huge growth opportunity in this space.
Currently the industry is having 5 players - Reliance BIG TV, Tata Sky, Bharti Airtel Digital TV and Sun Direct are the other players in this arena. Dish TV has the first mover advantage and is also enjoying the market leader position. After entering the cash rich companies like Bharti and Reliance, still the company succeeded in getting good number of subscribers, exceeding the expectations.
At the current market price of 22.8, the market cap of the company stood at just 976 crore. The total debts of the company stood at around 700 Crore. The company is able to complete the rights issue which made the company to get the 1120 Crore investment - makes it to grow uninterruptedly. The promoters have subscribed the entire issue of about 98% which shows the confidence of the promoters in the business and the company. The current share holding of the promoters after the rights issue at about 80%.
I strongly believe the company would become a multibagger in the future once the company break-even. It is expected that the company will show positive returns in the 2nd Quarter of FY10. So this is the best time to get the stock at much cheaper price.
Dish TV company is the safest investment option at the current recessionary time as it has lost over 75% market cap and the DTH business is less affected by the current recession.
Hot Indian stocks of the year 2009
Lot of buzz happening at the current recessionary times with all the companies. I would like to remember one quote regarding the stock markets "When everything is fine nobody complains". This is getting experienced by most of the investors of the Indian Stock Markets especially Satyam and Maytas investors.
When the markets are at its best, the investors of these companies are the more than happy kind of persons even though something bad happens behind the scenes. The worst part is the investors ignored those bad signals even though they leaked a long time back.
The realities will come true only when the scene changes. In the situation like current recession time, everything looks bad even though there is nothing much to think about it.
For example companies like Educomp are facing severe pressures of the rumors that the management has forged the balance sheets much like Satyam. However, the actual thing will come to know only when the insights of the situation is revealed.
Ok lets come to the Hot stocks. The below are the hot stocks which may give good returns in the future.
When the markets are at its best, the investors of these companies are the more than happy kind of persons even though something bad happens behind the scenes. The worst part is the investors ignored those bad signals even though they leaked a long time back.
The realities will come true only when the scene changes. In the situation like current recession time, everything looks bad even though there is nothing much to think about it.
For example companies like Educomp are facing severe pressures of the rumors that the management has forged the balance sheets much like Satyam. However, the actual thing will come to know only when the insights of the situation is revealed.
Ok lets come to the Hot stocks. The below are the hot stocks which may give good returns in the future.
DEMAT ACCOUNT
DEMAT accounts means Dematerialised account need for trading and holding of stocks
Just as you need to have a Demat account for buying or selling or holding of stocks/shares.
It is same as a bank account where actual money is replaced by shares.
You have to approach the DPs (these are like bank branches), to open your Demat account.
Let's say your portfolio of shares looks like this: 400 of Reliance, 250 of LnT, 450 of India Bull and 100 of Idea.
These will be shown in your Demat account.
So you don't have to possess any physical certificates showing that you own these shares.
They are electronically in your account(this is the new and safe way of trading).
As and when buy and sell the shares, they are calculated in your Demat account.
Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions.
Is a demat account a must?
Nowadays, practically all trades have to be settled in Dematerialised form.
Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, everybody avoids physical shares due to lack of security and time invested.
So a demat account is a must for trading and investing.
Where do I begin?
Look for a DP to have an account with
Most banks are also DP participants, as are many brokers.
You can choose your very own DP.
To get a list, visit the NSDL and CDSL websites and see who the registered DPs are.
A broker is separate from a DP. A broker is a person, who buys and sells shares on your behalf as you are his clients.
A DP will just give you an account to hold those shares.
You do not have to take the same DP that your broker takes. You can choose your own.
Once you approach your DP, you will be guided through the formalities of opening an account.
You must fill up an account opening form and sign an agreement with your DP on a 100 Rupees bond paper.
The DP will need proof of your identity and address.
You will also require -PAN card, Voter ID, Ration card, Driving licence, Bank account, Landline Phone bill.Also your passport size photo.
You need to have both original and xerox
You can have a zero balance in your account.- No minimum Balance.
If you want to do trading, inform your broker about your Depository Account Number, so that the shares bought are credited into your account.
Just as you need to have a Demat account for buying or selling or holding of stocks/shares.
It is same as a bank account where actual money is replaced by shares.
You have to approach the DPs (these are like bank branches), to open your Demat account.
Let's say your portfolio of shares looks like this: 400 of Reliance, 250 of LnT, 450 of India Bull and 100 of Idea.
These will be shown in your Demat account.
So you don't have to possess any physical certificates showing that you own these shares.
They are electronically in your account(this is the new and safe way of trading).
As and when buy and sell the shares, they are calculated in your Demat account.
Just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions.
Is a demat account a must?
Nowadays, practically all trades have to be settled in Dematerialised form.
Although the market regulator, the Securities and Exchange Board of India (SEBI), has allowed trades of upto 500 shares to be settled in physical form, everybody avoids physical shares due to lack of security and time invested.
So a demat account is a must for trading and investing.
Where do I begin?
Look for a DP to have an account with
Most banks are also DP participants, as are many brokers.
You can choose your very own DP.
To get a list, visit the NSDL and CDSL websites and see who the registered DPs are.
A broker is separate from a DP. A broker is a person, who buys and sells shares on your behalf as you are his clients.
A DP will just give you an account to hold those shares.
You do not have to take the same DP that your broker takes. You can choose your own.
Once you approach your DP, you will be guided through the formalities of opening an account.
You must fill up an account opening form and sign an agreement with your DP on a 100 Rupees bond paper.
The DP will need proof of your identity and address.
You will also require -PAN card, Voter ID, Ration card, Driving licence, Bank account, Landline Phone bill.Also your passport size photo.
You need to have both original and xerox
You can have a zero balance in your account.- No minimum Balance.
If you want to do trading, inform your broker about your Depository Account Number, so that the shares bought are credited into your account.
How to open a Demat Account
The abbreviation for Demat acocunt is dematerialised account, is a type of banking account which dematerializes paper-based physical stock shares. The demat account is used to avoid holding physical shares: the shares are bought and sold through a stock broker. To open a Demat Account Permanent Account Number (PAN) is must. Lot of Indian banks also providing the demat services. When you buy shares from a agent or broker, the shares are credited in your demat account. The amount required will be debited from your bank account. If you are selling the shares then the amount will credited to your Demat account.
Procedure
i).Fill demat request form (DRF)
ii).After dematerialisation, your depository account with your DP, would be credited with the dematerialised securities
Procedure
i).Fill demat request form (DRF)
ii).After dematerialisation, your depository account with your DP, would be credited with the dematerialised securities
ITC - Tons of steady growth
ITC is one of India's foremost private sector companies with a market capitalisation of nearly US $ 19 billion and a turnover of over US $ 5.1 Billion. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products.
While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet.
This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach.
ITC's wholly owned Information Technology subsidiary, ITC Infotech India Limited, is aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including e-enabled services and business process outsourcing.
ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating.
At the current market price of 189.1, the market cap of the company stood at Rs. 71264 Crore.The company has generated sales of 3,858.65 Core and a gross profit of 1,475.15 Crore during Q3FY09. The net profits of the company stood at 903.21 Crore. At the current market cap, the company is trading at a PE multiple of 22%.
ITC is a very well diversified into multiple businesses ranging from Cigarettes, Retail, Hospitality etc. as said above, and the business model it follows is having lower risk compare to its peers. The steady market price during the past one year shows this.
The real value of each of its business/subsidiary will be unlocked in future. At this point of time, the company is undervalued company to its businesses and its real value may be unlocked when the markets starts moving up
While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery.
ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet.
This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach.
ITC's wholly owned Information Technology subsidiary, ITC Infotech India Limited, is aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including e-enabled services and business process outsourcing.
ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to voluntarily seek a corporate governance rating.
At the current market price of 189.1, the market cap of the company stood at Rs. 71264 Crore.The company has generated sales of 3,858.65 Core and a gross profit of 1,475.15 Crore during Q3FY09. The net profits of the company stood at 903.21 Crore. At the current market cap, the company is trading at a PE multiple of 22%.
ITC is a very well diversified into multiple businesses ranging from Cigarettes, Retail, Hospitality etc. as said above, and the business model it follows is having lower risk compare to its peers. The steady market price during the past one year shows this.
The real value of each of its business/subsidiary will be unlocked in future. At this point of time, the company is undervalued company to its businesses and its real value may be unlocked when the markets starts moving up
Can I Invest In Stocks At This Moment?
Whether it is a young investor or an experienced investor, this question is an evergreen one in every one's mind!
If the market is up, mindset suggests it is not a good time to enter the market. And if the market is down, it suggests that the market has to find its bottom yet! But what is the best way to invest and make money in the stocks? It is clear that no investor wants to loose his money. And it also a fact that no investor does always get positive return in the stock market.
So it is always a bewildering state when to invest in the market. Whether you are a new investor or an experienced investor, be patient with the market. New investors, always wait for the big falls like one happened recently. Make your proposed investment money into ten parts. Where you think it is a good point of entry, you invest your 10 per cent of investment. If the market falls again, do not panic and wait for some more fall. There you invest another part of the amount. Go on investing in the same way. You could find your investment growing like a hybrid plant when the recovery process starts in the market and it is a very good investment strategy which never fails. The great investors like Warren Buffet have made money and became billianaires in this way only.
For experienced or existing investors, the suggestion is to wait for long term, if you are stranded in the stocks at a very high price. You need to watch out the peformance of the company always. If the company is fundamentally sound, your patience will be rewarded with handsome returns in the long term ie., one to two years.
When any one wants to invest in the stocks, they must do their homework in scrutinizing the fundamentals of the company. One must understand the sector of the stock, earnings of the company, promoter's goodwill, qualifications and experience, future of the relative sector as well as company, financials of the company, dividend history of the company, so that one will not loose money even during the sudden shocking shakes of the market.
Stocks are a good asset class, with which one need to play a safe game and the returns are always decent. And you should not be greedy in making money with stocks. And also never be revengeful on the stocks, which makes you obsessed with turns you a gambler!
If the market is up, mindset suggests it is not a good time to enter the market. And if the market is down, it suggests that the market has to find its bottom yet! But what is the best way to invest and make money in the stocks? It is clear that no investor wants to loose his money. And it also a fact that no investor does always get positive return in the stock market.
So it is always a bewildering state when to invest in the market. Whether you are a new investor or an experienced investor, be patient with the market. New investors, always wait for the big falls like one happened recently. Make your proposed investment money into ten parts. Where you think it is a good point of entry, you invest your 10 per cent of investment. If the market falls again, do not panic and wait for some more fall. There you invest another part of the amount. Go on investing in the same way. You could find your investment growing like a hybrid plant when the recovery process starts in the market and it is a very good investment strategy which never fails. The great investors like Warren Buffet have made money and became billianaires in this way only.
For experienced or existing investors, the suggestion is to wait for long term, if you are stranded in the stocks at a very high price. You need to watch out the peformance of the company always. If the company is fundamentally sound, your patience will be rewarded with handsome returns in the long term ie., one to two years.
When any one wants to invest in the stocks, they must do their homework in scrutinizing the fundamentals of the company. One must understand the sector of the stock, earnings of the company, promoter's goodwill, qualifications and experience, future of the relative sector as well as company, financials of the company, dividend history of the company, so that one will not loose money even during the sudden shocking shakes of the market.
Stocks are a good asset class, with which one need to play a safe game and the returns are always decent. And you should not be greedy in making money with stocks. And also never be revengeful on the stocks, which makes you obsessed with turns you a gambler!
Large Cap, Mid Cap and Small Cap: Which Stocks Should I Buy
While you go through the business columns of any newspaper, you will find all these terms, Large cap, Mid cap and Small cap stocks! What are they? Which stocks should I invest in? All these questions arise but the answers, most of us do not know. Let us try to find out what is this classification and what should be our strategy for investment in these.
These classification is made as per the market capitalization of the stocks. So we must know what is market capitalization first. To define simply, market capitalization is nothing but the value of a company in terms of its shares, ie, if you buy all the shares of the company, the amount which is costed for you is the market capitalization of the company.
If any company's market capitalization is worth of below Rs.100 crores it is a small cap company. If the market capitalization of a company is worth of above Rs.100 crores but below Rs.2000 crores, it is mid cap company and the company which has market capitalization above .Rs.2000 crores is a large cap company.
But where we have to invest? If you are cool person who does not take much risk but want to enjoy the benefits of investing in a stock market, you can opt for the large cap stocks. The stocks, Reliance Industries, Infosys, HDFC Bank, Tata Steel etc, come under this category. These stocks are generally blue chip stocks and their value is always at higher premium and you need to invest at higher price. But the returns are also good. Whenever there is a big fall of the markets, you can invest in these stocks in a staggered manner, so that your investment in these stocks will be cost-effective.
Mid cap stocks generally are defined as future blue chip or large companies. There are a lot of Mid cap companies like Educomp, Crompton Greaves, Bank of Baroda, Welspun Gujarat etc, which fetches you money in a continuous bullish trend of the market. If you have patience you can create good amount of wealth through these stocks but at the same time, the risk in these stocks is higher. Whenever there is a big crash, these stocks are mostly the victims and the capital is eroded very sharply.
Example for the small cap stocks are South Indian Bank, Godavari Power, Dishman Pharma, Kesoram Cements etc., where the capitalization of these stocks is very limited but in these stocks also you can make money. These stocks tend to dip steeply during the fall of the markets but recovers very lately. So you must have patience to invest in these small cap stocks.
If you study the fundamentals of the company well, the market capitalization is not so important. But in these days of volatility, where every single paise is important for us, you need to go through all kinds of terms of the market and act according to the movement of the same, so as to play a safe game and earn decent returns on the money invested.
These classification is made as per the market capitalization of the stocks. So we must know what is market capitalization first. To define simply, market capitalization is nothing but the value of a company in terms of its shares, ie, if you buy all the shares of the company, the amount which is costed for you is the market capitalization of the company.
If any company's market capitalization is worth of below Rs.100 crores it is a small cap company. If the market capitalization of a company is worth of above Rs.100 crores but below Rs.2000 crores, it is mid cap company and the company which has market capitalization above .Rs.2000 crores is a large cap company.
But where we have to invest? If you are cool person who does not take much risk but want to enjoy the benefits of investing in a stock market, you can opt for the large cap stocks. The stocks, Reliance Industries, Infosys, HDFC Bank, Tata Steel etc, come under this category. These stocks are generally blue chip stocks and their value is always at higher premium and you need to invest at higher price. But the returns are also good. Whenever there is a big fall of the markets, you can invest in these stocks in a staggered manner, so that your investment in these stocks will be cost-effective.
Mid cap stocks generally are defined as future blue chip or large companies. There are a lot of Mid cap companies like Educomp, Crompton Greaves, Bank of Baroda, Welspun Gujarat etc, which fetches you money in a continuous bullish trend of the market. If you have patience you can create good amount of wealth through these stocks but at the same time, the risk in these stocks is higher. Whenever there is a big crash, these stocks are mostly the victims and the capital is eroded very sharply.
Example for the small cap stocks are South Indian Bank, Godavari Power, Dishman Pharma, Kesoram Cements etc., where the capitalization of these stocks is very limited but in these stocks also you can make money. These stocks tend to dip steeply during the fall of the markets but recovers very lately. So you must have patience to invest in these small cap stocks.
If you study the fundamentals of the company well, the market capitalization is not so important. But in these days of volatility, where every single paise is important for us, you need to go through all kinds of terms of the market and act according to the movement of the same, so as to play a safe game and earn decent returns on the money invested.
DISCIPLINED TRADING IN THE STOCKS
HomeBrowse ContentBusiness & FinanceStock MarketsDISCIPLINED TRADING IN THE STOCKS
DISCIPLINED TRADING IN THE STOCKS
WRITTEN BY RAJESHYALLA | 16 JULY 2009 CASH CREDITS: 35.00 POINTS:60
The most important thing you must keep in mind while dealing in stocks is discipline! Normally every one gets a doubt, why this writer telling a known fact, even I am always in discipline. But again you think for some time. Have all your decisions turned profitable in the context of your investment in stock market? Have you not ever commit any mistake in the investment decision in stocks? If your answer to these two questions is yes, then you need not read this one.
Generally every trader thinks to keep himself in control while he is in the dealing room, but everytime he repents while he looses his money. So discipline is the thing that every person has to remember and these are few tips to trade with discipline for your success of earning money through stocks:
1. Never believe any rumour regarding a stock. Do not buy on oral information by your friend, colleague or any one. Today, there is plenty of information is available through net, tv or newpapers. The coverage on the stock markets is also increased a lot. So you need not depend on others for information about a stock. There are lot websites which provide you good amount of data on stocks and stock markets. You can log on to them and access readymade information on these sites. Moneycontrol.com and myiris.com are a few among them. If you go to a good stock broker also, you can get reliable advice but do some work before you invest in any stocks.
2. Do not play with borrowed money. Never go for trading with the borrowed money. As the stock market, always fetches you profits, and the erosion of capital is not ruled out, one should not invest with the borrowed money. Invest the money which you do not require or extra money but keep always your savings should be in tact, so that you and your family should not suffer due to your investment decisions.
3. Trade with a few stocks. Never trade with a lot of stocks. Trading with a few stocks has many advantages like keeping the track regularly and liquidating the stocks quickly. Also if you trade with a lot of stocks, your money would be locked in for a long time, which is not suggestible in trading.
4. Never invest at one time. Do not keep all your money at once. Wait for the dips of individual stocks and markets, where you can get an entry point. Every dip, generally a good entry point and you need to keep some money for this. So investing entire money at once is not at all advised in the stock trading.
5. Mind your exposure. In the rule 2, itself I mentioned not to trade with borrowed money. At some brokerages, you wil have facility of providing with exposure limits. Generally it is in multiples of your investment. Though it looks quite attractive, it is also very dangerous. So if at all, you decided to use the exposure limit facility use it for one day or two days. Do not use it for more than that, as when the market falls, you shall have to pay off the limits and generally at that panic moment you need to book losses in your traded stocks.
6. Keep strict stop-loss. Stop-loss is the best tecnique to avoid losses or limiting losses. Always place a stop-loss to your trade, so that you would not lose your money so easily. In fact, so many traders get bankrupted because of not keeping stoploss while they trade and may be this is the reason, in stock markets majority of traders are losers!
Let us know some more about stock markets, next time! Have a nice trading day!
DISCIPLINED TRADING IN THE STOCKS
WRITTEN BY RAJESHYALLA | 16 JULY 2009 CASH CREDITS: 35.00 POINTS:60
The most important thing you must keep in mind while dealing in stocks is discipline! Normally every one gets a doubt, why this writer telling a known fact, even I am always in discipline. But again you think for some time. Have all your decisions turned profitable in the context of your investment in stock market? Have you not ever commit any mistake in the investment decision in stocks? If your answer to these two questions is yes, then you need not read this one.
Generally every trader thinks to keep himself in control while he is in the dealing room, but everytime he repents while he looses his money. So discipline is the thing that every person has to remember and these are few tips to trade with discipline for your success of earning money through stocks:
1. Never believe any rumour regarding a stock. Do not buy on oral information by your friend, colleague or any one. Today, there is plenty of information is available through net, tv or newpapers. The coverage on the stock markets is also increased a lot. So you need not depend on others for information about a stock. There are lot websites which provide you good amount of data on stocks and stock markets. You can log on to them and access readymade information on these sites. Moneycontrol.com and myiris.com are a few among them. If you go to a good stock broker also, you can get reliable advice but do some work before you invest in any stocks.
2. Do not play with borrowed money. Never go for trading with the borrowed money. As the stock market, always fetches you profits, and the erosion of capital is not ruled out, one should not invest with the borrowed money. Invest the money which you do not require or extra money but keep always your savings should be in tact, so that you and your family should not suffer due to your investment decisions.
3. Trade with a few stocks. Never trade with a lot of stocks. Trading with a few stocks has many advantages like keeping the track regularly and liquidating the stocks quickly. Also if you trade with a lot of stocks, your money would be locked in for a long time, which is not suggestible in trading.
4. Never invest at one time. Do not keep all your money at once. Wait for the dips of individual stocks and markets, where you can get an entry point. Every dip, generally a good entry point and you need to keep some money for this. So investing entire money at once is not at all advised in the stock trading.
5. Mind your exposure. In the rule 2, itself I mentioned not to trade with borrowed money. At some brokerages, you wil have facility of providing with exposure limits. Generally it is in multiples of your investment. Though it looks quite attractive, it is also very dangerous. So if at all, you decided to use the exposure limit facility use it for one day or two days. Do not use it for more than that, as when the market falls, you shall have to pay off the limits and generally at that panic moment you need to book losses in your traded stocks.
6. Keep strict stop-loss. Stop-loss is the best tecnique to avoid losses or limiting losses. Always place a stop-loss to your trade, so that you would not lose your money so easily. In fact, so many traders get bankrupted because of not keeping stoploss while they trade and may be this is the reason, in stock markets majority of traders are losers!
Let us know some more about stock markets, next time! Have a nice trading day!
How To Invest In Stock Markets
Even today, there are many people who do not have idea on the stock markets and investments through these, hence I chose this subject today to explain you.
Stock Markets or Stock Exchanges deal with the stocks or shares of a listed company. Listed company means the company which got its shares listed in the exchanges for public transactions. Stock exchanges facilitate the buying and selling transactions of the shares.
Initial Public Offer: Any company which wants its shares to be listed in the exchanges should apply for the Initial Public Offer(IPO) to SEBI (Securities Exchanges Board of India). After the green signal received from SEBI, the company offers shares through IPO to the public. The IPO, generally is open for three to four days and during this period the applications from the investors are received through various brokerages and collecting points. On processing the applications, after a few days the investors will receive the intimation of allotment of shares or refund of money. On a particular day these shares are listed in the exchanges, from that day the company gets itself will be a listed company. IPO is also called as Primary Market.
Secondary Market: Secondary market is nothing but the selling and buying transactions of the shares of the companies which are already listed in the exchanges. Secondary market is an index to the companies, where the investors buy the shares in this market, based on the performance of the company from time to time. So every listed company is responsible for its shareholders and also SEBI, the authority for the stock markets, closely watch every company's transactions and see that investors are not bankrupted or cheated by the bad managements of these corporates.
Demat Account: We, so far, learnt about primary market and secondary market. Both in these markets shares are bought and sold. Some years back almost all the shares of the companies were in physical format and nowadays through the latest technology, these shares can be converted to electronic form, which is called Demat account. The introduction of Demat account made the share market transactions very easy and also transparant.
Delivery: If you buy share and keep them for some time till they good return to you, it is called delivery of the shares. This is mostly done by the investors or positional traders. It is the safest method of investing in the markets.
Intraday: It is also called day trading, in which the shares are not taken for delivery but on the same day, buying and selling transactions happen. This is a risky process and you may or may not get profit through this.
Futures and Options: This segment is called F&O shortly, and is a very attractive for the traders where the returns are very high but risk is also so. While trading in the F&O, one must be very careful and also should not trade without experience, as there is every chance of losing entire capital with only one transaction.
Let us learn some more areas of the Stock Markets in the coming days. Hope this article is informative and useful for the new entrants of the stock markets. Goodluck!
Stock Markets or Stock Exchanges deal with the stocks or shares of a listed company. Listed company means the company which got its shares listed in the exchanges for public transactions. Stock exchanges facilitate the buying and selling transactions of the shares.
Initial Public Offer: Any company which wants its shares to be listed in the exchanges should apply for the Initial Public Offer(IPO) to SEBI (Securities Exchanges Board of India). After the green signal received from SEBI, the company offers shares through IPO to the public. The IPO, generally is open for three to four days and during this period the applications from the investors are received through various brokerages and collecting points. On processing the applications, after a few days the investors will receive the intimation of allotment of shares or refund of money. On a particular day these shares are listed in the exchanges, from that day the company gets itself will be a listed company. IPO is also called as Primary Market.
Secondary Market: Secondary market is nothing but the selling and buying transactions of the shares of the companies which are already listed in the exchanges. Secondary market is an index to the companies, where the investors buy the shares in this market, based on the performance of the company from time to time. So every listed company is responsible for its shareholders and also SEBI, the authority for the stock markets, closely watch every company's transactions and see that investors are not bankrupted or cheated by the bad managements of these corporates.
Demat Account: We, so far, learnt about primary market and secondary market. Both in these markets shares are bought and sold. Some years back almost all the shares of the companies were in physical format and nowadays through the latest technology, these shares can be converted to electronic form, which is called Demat account. The introduction of Demat account made the share market transactions very easy and also transparant.
Delivery: If you buy share and keep them for some time till they good return to you, it is called delivery of the shares. This is mostly done by the investors or positional traders. It is the safest method of investing in the markets.
Intraday: It is also called day trading, in which the shares are not taken for delivery but on the same day, buying and selling transactions happen. This is a risky process and you may or may not get profit through this.
Futures and Options: This segment is called F&O shortly, and is a very attractive for the traders where the returns are very high but risk is also so. While trading in the F&O, one must be very careful and also should not trade without experience, as there is every chance of losing entire capital with only one transaction.
Let us learn some more areas of the Stock Markets in the coming days. Hope this article is informative and useful for the new entrants of the stock markets. Goodluck!
VALUE BUYING OF STOCKS
If you are looking for buying any stock in the stock markets, you might have seen in the business columns or personal finance pages of the newspapers, that buying the stocks which have intrinsic value is always good and safe for the investors. This is also called value buying. To know about the intrinsic value of a stock, we also should learn about some fundamental parameters of the stocks. Let us see what are they and try to understand what is intrinsic value.
P E RATIO: P E Ratio or Price to Earnings Ratio is the measure of the price paid for a share relative to the annual net income or profit earned by the company, per share. A higher PE Ratio indicates the investors are ready to pay more for the stock, even the price is higher, compared to the price of a low PE Ratio stock. The PE Ratio, is expressed in terms of years, which is the period to give the investor back the value of its market price. PE Ratio denotes us the current demand for the stock.
A stock with a low PE, normally is cheap but all the cheap stocks may not have potential for good retuns. Investors must watch other aspects also, before they a stock with low PE Ratio.
PE Ratio can be calculated by the following formula:
PE Ratio = Market value per share Earnings per share(EPS)
where EPS = Net Income-Dividend Average ourstanding shares
PRICE TO BOOK VALUE: Price to Book Value or P/B Ratio is used to compare the current market price of the stock to the book value of the stock. Book Value is the value of all the tangible assets of the company after deducting the total liabilities. This ratio gives the investor some idea whether he is paying too much value for what would be left, if the company went bankrupt at the moment.
PB Ratio = Stock Price Tangible assets-Total liabilities
MARKET CAPITALISATION: Market Capitalisation is nothing but the value of all the shares of a company traded in the market. That means if the company is sold as of now, how much it gets value in terms of money. This is compared to other peer companies to assess the value of the shares.
DIVIDEND-YIELD: In a volatile market, investors who want to have steady income prefer the high dividend-yield stocks. It is for safer investment for the investors who do not like to make quick money or abnormal returns in the market. The dividend yield is a ratio of dividend paid to price of the share.
Along with all the above parameters, investors should make note of the history of the company, its business, promoter's integrity and qualifications, industry of the company and other economic conditions as a whole to make their investment secured and safe.
P E RATIO: P E Ratio or Price to Earnings Ratio is the measure of the price paid for a share relative to the annual net income or profit earned by the company, per share. A higher PE Ratio indicates the investors are ready to pay more for the stock, even the price is higher, compared to the price of a low PE Ratio stock. The PE Ratio, is expressed in terms of years, which is the period to give the investor back the value of its market price. PE Ratio denotes us the current demand for the stock.
A stock with a low PE, normally is cheap but all the cheap stocks may not have potential for good retuns. Investors must watch other aspects also, before they a stock with low PE Ratio.
PE Ratio can be calculated by the following formula:
PE Ratio = Market value per share Earnings per share(EPS)
where EPS = Net Income-Dividend Average ourstanding shares
PRICE TO BOOK VALUE: Price to Book Value or P/B Ratio is used to compare the current market price of the stock to the book value of the stock. Book Value is the value of all the tangible assets of the company after deducting the total liabilities. This ratio gives the investor some idea whether he is paying too much value for what would be left, if the company went bankrupt at the moment.
PB Ratio = Stock Price Tangible assets-Total liabilities
MARKET CAPITALISATION: Market Capitalisation is nothing but the value of all the shares of a company traded in the market. That means if the company is sold as of now, how much it gets value in terms of money. This is compared to other peer companies to assess the value of the shares.
DIVIDEND-YIELD: In a volatile market, investors who want to have steady income prefer the high dividend-yield stocks. It is for safer investment for the investors who do not like to make quick money or abnormal returns in the market. The dividend yield is a ratio of dividend paid to price of the share.
Along with all the above parameters, investors should make note of the history of the company, its business, promoter's integrity and qualifications, industry of the company and other economic conditions as a whole to make their investment secured and safe.
SOME BASICS FOR TRADERS IN STOCKS
Trading in stocks is not an easy thing. It needs patience, courage, fast decision-making and of course, risk-bearing capacity! To trade in stocks, there are some basics which every trader must keep in mind. Let us know about some of them.
1. PREPARATION: For trading in stocks, you must have preparation well before. What happened in the global markets, Indian market, political scenario etc., you must well aware of these things, along with technical indicators. If you have done some home-work, at least half-an-hour before the start of the markets, it will be very much helpful for you and you can have idea on which stocks to be traded in on the particular day.
2. LIMIT YOUR TRADES: Like many other obsessions like race course, cards, casino etc., the trading is also a gambling as well as more dangerous obsession, where losing your entire money is always possible. So be cautious and always do not go for much number of trades. Fix the number of trades before you start the day and limit to that, so that you would not lose money so easily.
3. ALERT: Be alert with your entry and exit levels and also maintain strict stop loss. At any time you should not neglect these three things in day trading and if at all, on any day these are not working out well for you stop to trade for that day.
4. NO REVENGE: Do not try take revenge on market. After all, market is many traders and investors like you, your loss may be encashed as profit by another trader and also vice versa. If you are not doing well on a day, do not go for trading desperately to take revenge and earn back your entire money. It is not at all possible. So you have to give some gap. Relax and trade again or else try on the next day.
5. CHECK YOUR MOOD: At times, you may not concentrate on trade well, so that you may be at loss on that day. Do not get frustrated for this which will lead you take more wrong decisions. Stop for some time and get back to the market with fresh mood. Always be alert and try to avoid losses..
6. DON'T BE GREEDY: Particularly in stock market, there must be limit to satisfaction and you should not be greedy to earn more and more on a single day. If your number of trades already fixed and completed with good gains that's it for the day! Do not try to earn more by overtrading which will spoil your day again with the erosion of earlier profits. Never be greedy.
1. PREPARATION: For trading in stocks, you must have preparation well before. What happened in the global markets, Indian market, political scenario etc., you must well aware of these things, along with technical indicators. If you have done some home-work, at least half-an-hour before the start of the markets, it will be very much helpful for you and you can have idea on which stocks to be traded in on the particular day.
2. LIMIT YOUR TRADES: Like many other obsessions like race course, cards, casino etc., the trading is also a gambling as well as more dangerous obsession, where losing your entire money is always possible. So be cautious and always do not go for much number of trades. Fix the number of trades before you start the day and limit to that, so that you would not lose money so easily.
3. ALERT: Be alert with your entry and exit levels and also maintain strict stop loss. At any time you should not neglect these three things in day trading and if at all, on any day these are not working out well for you stop to trade for that day.
4. NO REVENGE: Do not try take revenge on market. After all, market is many traders and investors like you, your loss may be encashed as profit by another trader and also vice versa. If you are not doing well on a day, do not go for trading desperately to take revenge and earn back your entire money. It is not at all possible. So you have to give some gap. Relax and trade again or else try on the next day.
5. CHECK YOUR MOOD: At times, you may not concentrate on trade well, so that you may be at loss on that day. Do not get frustrated for this which will lead you take more wrong decisions. Stop for some time and get back to the market with fresh mood. Always be alert and try to avoid losses..
6. DON'T BE GREEDY: Particularly in stock market, there must be limit to satisfaction and you should not be greedy to earn more and more on a single day. If your number of trades already fixed and completed with good gains that's it for the day! Do not try to earn more by overtrading which will spoil your day again with the erosion of earlier profits. Never be greedy.
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