Value investing......

I am back after a long gap. I feel now is the right time to relook portfolio and add value to the portfolio….

Current state of the market

We are currently faced with unprecedented global financial crisis. The fall of large institutions and housing crisis in US has resulted in collateral damages globally. The slowdown has been witnessed in India which is reflected in decline in export growth, real estate demand, commodity prices and slowdown in several industries.

To deal with the current crisis and to provide impetus to economic growth Government has taken several initiatives like reduction in interest rates, providing banks easier access to liquidity and fiscal stimulus package.

An opportune time …

Believe that with correction in the market, global meltdown and slowdown in the economy, we are currently positioned at a point similar to April – Sept. 2003 on following parameters:

Economic cycle:* The industrial production growth was around 6% during April – Sept. 2003 and the IIP numbers are in similar range during April – Sept. 2008

Valuation:* The trailing P/E multiple during April 2003 was hovering around 10x and same is the case currently.

Sentiments: Investors were averse to investing in the market and easy credit was made available to kick start the economy. Government has taken initiatives to improve credit offtakes.

*Source: Bloomberg 

Wealth creation through “Value Investing”

Take advantage of current market condition by adopting the approach of “Value Investing”.

“Value Investing” is defined as buying stocks of company with strong management capabilities where

• traded prices are at a discount to their value of assets OR

• there is a potential of high dividend yield or earning yield

Criteria

Primary criteria for choosing the stocks for “Value Investing”

• Price to book value less than that of BSE Sensex OR

• Earnings yield (inverse of P/E) higher than that of BSE Sensex OR

• Dividend Yield higher than that of BSE Sensex

Though this requires a lot of analysis and patience, one has to start somewhere and there is no better time than this to start investing. Instead of making a huge purchase on a single day accumulate stocks, that you think will add value to your portfolio, on a daily basis.

 

ELSS (Equity linked savings scheme) funds: Tax saver – Money maker

March 31^st is nearing by and most of them wondering as to where to stack the money which gives good returns ad saves tax…

ELSS is a favourite among financial advisors. The advantages are many – gives you highest return amongst tax saving instruments available in India over a long period of time. What more can one ask for?

ELSS over ULIP (Unit linked insurance plan) 

Though one must not discount importance of insurance, ELSS still has edge over ULIP.  ELSS has much lesser administration cost just 2% either in the form of entry load or exit load. The entire amount of investment goes in to mutual fund unlike ULIP where a certain amount is deducted for mortality charges, administration charges etc.  The lock in period of ELSS is three years and can be withdrawn later. Dividends received from ELSS are tax free.

Growth option is the best choice for ELSS as there is substantial capital appreciation. Avoid dividend reinvestment option as the small amounts will get locked in for three years again. You can choose the SIP way again for ELSS

How to choose the scheme, 

Short term performances of the fund can be ignored as its negligible and concentrate on the brand and track record for over a period. Consistency in performance of fund is the key. Many times certain funds become hit over a period but the quality deteriorates over a period of time. Don’t go just by the brand also as there have been times when investors have been doomed by just going by brand name and have lost their capital.

Below is the list of top 10 performing ELSS funds based on performance since launch

Open Ended - Equity: Tax Planning - (Since Launch Return)
Funds	NAV (Date)	Returns(%)	Return as on
HDFC Taxsaver	94.41 (15-Jan)	30.76	1/15/2009
Birla Sun Life Tax Relief 96	42.79 (15-Jan)	28.22	1/15/2009
Franklin India Taxshield	94.43 (15-Jan)	25.82	1/15/2009
Sahara Tax Gain	16.43 (15-Jan)	24.92	1/15/2009
HDFC LT Advantage	58.69 (15-Jan)	24.56	1/15/2009
Principal Personal Tax Saver	45.09 (15-Jan)	22.44	1/15/2009
Birla Sun Life Tax Plan	32.96 (15-Jan)	20.35	1/15/2009
ICICI Prudential Tax Plan	54.11 (15-Jan)	19.58	1/15/2009
Tata Tax Saving	26.63 (15-Jan)	18.52	1/15/2009
Sundaram BNP Paribas Taxsaver	23.13 (15-Jan)	18.14	1/15/2009

From a tax management perspective, ELSS investment stands out as a preferred investment. Investors, who want to lock-in their funds and not succumb to the temptation of re-working and shuffling their holdings, will find ELSS a good avenue for investment as there is three year lock-in period.

For others who want liquidity as well as growth and the freedom to shift through funds, then there are other avenues available. But from a tax saving perspective, this is a ‘must-have’....

PS : Many feel that investing a small amount (Rs 500) wont make much of a difference. Actually it does over a period it is not the amount of investment that matters it’s the attitude that matters.

Making your Million!!!

Wish you a happy new year !!!!!!!!!  Hope this New Year all of you make more money investing…

Points to consider before investing in SIP

Time horizon - To enjoy the benefits of SIP stay invested for a long term. Three years and above…

Period of investment - can vary from 6 months to year or more. Sign up for a new SIP as soon as you finish – try to increase amount of investment when you restart SIP.

Amount - Minimum is Rs 1000/- or more, which ever is comfortable and will not feel a pinch in your budget. Increase amount of investment gradually or annually when you get your increments.

Choosing the scheme - Ideally equity funds for those who are planning to stay invested for  long term (2 years and above)

Advantage of SIP is you can withdraw sums as and when you require but route to success is to be disciplined, invest regularly and stay invested…

I have always spread my risk over 2-3 funds. One can choose to do the same if they are investing Rs3000/- or more on a monthly basis.

The top choice for SIP by financial advisors are: HDFC top 200, Franklin Templeton Prima, Franklin Templeton Bluechip,  HDFC Long term advantage, DSP Midcap

Here are a few links which can help you decide how much to invest over a long period to accumulate a million!!!!!!!!!!

http://www.kotaksecurities.com/calc/bancrorpati.html

http://www.ecst.csuchico.edu/~chetan/cgi-bin/sip.html

http://www.arihantcapital.com/knowledge-centre/Calc.aspx

Following link will help you calculate return on any of your MF investment

http://www.bluechipindia.co.in/Bluechipnew/Products/MutualFunds/frmSIPCalc_display.aspx

Start early to benefit……

PS: I have added share this link so that you can share this post with your friends. (Found on right hand side top corner)

SIP Advantage...

SIP… the power of compounding!!!!!!!

The key to build wealth is to start investing early and to keep investing regularly. These regular amounts of savings no matter however small they may be shall go a long way in creating a substantial amount of wealth over a long-term and help in achieving your ultimate goal of accumulating wealth.

SIP…Rupee cost averaging!!!!!!

SIP is a fine way to invest in mutual fund. The easiest way to make money in stock market is buying when market is low and sell high, but since it is not possible to time market always, SIP is an easy way to do it. Though it does not promise best return, it has been considered as one of the best way to wealth accumulation. The probability of making a loss in long run is negligible.

As already discussed investment in SIP is over a period of time and in small amounts as compared to huge one time investment. Here you accumulate units on a regular frequency at NAV, when markets are down you would accrue more units, when it is up you would accrue less units, but would average out over a period of time. This technique helps one to accumulate more units; average unit cost is less when compared to average unit price.

Here is an example of rupee cost averaging and comparison with a one time investment

Date of investment	Amount	NAV	Units allocated	Average price
1-Jan	1000	10	100	10
1-Feb	1000	9	111.111	9.473
1-Mar	1000	8	125	8.925
1-Apr	1000	9	111.111	8.944
1-May	1000	11	90.90	9.291
1-Jun	1000	13	76.92	9.755
Units Accumulated			615.054

One time investment of Rs 6000/- at the NAV Rs 10 will buy you 600 units, where as in an SIP one will accumulate 615 units over a period of time. See the advantage…….

SIP… Convenience!!!!

This is similar to your recurring deposit with a bank; the only difference is that the amount is invested in mutual fund. And all this is done by just filling up an application form and giving posted cheques or signing ECS.

Choosing a fund…

Hey I have added RSS feeds (found on the right hand side top)... This would help you get immediate feed as and when I have submitted a post. Go ahead and subscribe...

Choosing a fund is the next step. There are many fund houses like ICICI prudential, Kotak, DSP Merill Lynch, Reliance, SBI etc and one has innumerable options in type of funds to confuse you. They are mainly equity funds, debt funds, balanced funds. Equity Linked Savings Scheme (ELSS) is a good option for those who want to save tax. There are many factors to consider before investing. This is just beginners basic. For long term investors equity funds would be ideal. There are many research sites that give study, comparison and annualized return for funds with ratings. The one I refer regularly is www.valueresearchonline.com ; this site gives complete details of mutual funds with rating and performance of the fund.

As of now most funds would show negative growth due to market freefall. I usually spread my risk over 2 to 3 funds in the form of SIP. I have stay put in following funds Reliance Growth Fund, HDFC Taxsaver, HDFC top 200, Templeton Prima fund, Templeton Bluechip fund etc. It is not necessary to follow same funds, please have a detailed discussion with a financial advisor before investing in mutual funds. Find below performance of some funds since launch. 

Open Ended - Equity (Since Launch Return)
Funds	NAV (Date)	Returns(%)	Return as on
Reliance Diversified Power Sector Retail	40.89  (22-Dec)	35.02	12/22/2008
HSBC Equity	60.14  (22-Dec)	34.47	12/22/2008
Tata Equity Opportunities	40.48  (22-Dec)	34.06	12/22/2008
Sundaram BNP Paribas Select Midcap Reg	62.95  (22-Dec)	33.11	12/22/2008
DSPBR Top 100 Equity Reg	51.85  (22-Dec)	32.56	12/22/2008
HDFC Taxsaver	100.38  (22-Dec)	31.58	12/22/2008
ICICI Prudential Dynamic	51.13  (22-Dec)	30.20	12/22/2008
Sundaram BNP Paribas Select Focus Reg	51.98  (22-Dec)	29.20	12/22/2008
Birla Sun Life Tax Relief 96	45.78  (22-Dec)	29.07	12/22/2008
Reliance Banking Retail	41.22  (22-Dec)	28.82	12/22/2008

Again there are options to choose from either growth or dividend. Growth option – here net asset value (NAV) grows and no dividends are declared, dividend option - here dividends are declared frequently – the NAV comes down when dividends are declared. Dividend can be either reinvested or withdrawn. Incase of one time investments one can choose growth or dividend reinvestment option, if you are old and are looking some amount for expenses choose dividend option. Same holds good for SIP investors.

ELSS investors caution while you choose option – a strict no to reinvestment option –as small amounts would be locked for 3 years again….so it has to be growth or dividend payout option....

 

Way to mutual fund

Merry Christmas! I was busy relocating and hence haven’t had time to post. I received a couple of inquiries as to how to go about investing in mutual funds (MF) and systematic investment plan (SIP). Actually it’s very simple and you don’t need to really have a trading account to invest in MF. The main questions are - How much to invest? Whom do I approach? What is the process? Which fund to invest in?

 The requirements are you need to have a bank account and a permanent account number (PAN) if you are planning to invest above Rs 50,000/-. These days many banks, fund houses, brokerage houses have financial advisors to guide you through the investments.

 How much to invest?

 Initially you can invest as low as Rs 5000/- for a fund, in case of SIP the minimum amount of investment varies from Rs 500/- to Rs 1000/- and the period from 6 months to one year.

SIP is ideal for small investors who want to save regularly every month. This is one of the best options as you can start investing with a small amount and accumulate.

 Whom do I approach? What is the process?

 One can approach private banks, brokers, and fund houses who offer this service. Ideally if you are having an account in any of the private banks like ICICI, HDFC, Kotak etc you can just walk in to the branch and ask for a mutual fund application, fill it and hand over the application along with a cheque for the amount of investment. In case of SIP you make have to give post dated cheques or Direct debit instructions for debiting your account. (Direct debit instructions do stop at the end of the period, so need not worry about that. There are no fines/charges/penalties if the account doesn’t have sufficient funds..You would just skip it and pay the next SIP). Or alternatively you can go into any brokerage houses like Bajaj capital, Geojit etc and do the same. You can even call them and one of the financial advisors will be able to help you at the place of your convenience. You would receive monthly statements for investing you can choose either physical or email statements.

 The redemption procedure is simple too; just give a letter for withdrawing the sum and the amount shall be credited to your account in three to five working days.

 Which fund to invest in?

 That’s a tricky one and would need more detailed discussion will come back later.

PS: dont feel shy about talking to financial advisor , they will be glad to help you to choose your investments.....

 

Guard your money...

Though time for working class to ensure that jobs are secure and not at the receiving end of pink slips, Investment is still vital to ensure that we safeguard our money. Don't press the panic button and stop all investments. Analyse and then proceed. 

Most of us would be using many investment products like Systematic Investment Plan (SIP), Insurance, Mutual Funds, Equity, and Deposits etc. Where Deposits and Bank savings are secure, one has to rethink about exposure to equity. 

Here is one way to go about it. Don't stop all your investments in SIP, Equity and stocks. Check your portfolio returns, go ahead and continue SIP in the mutual fund which has depreciated the least. Stop the other SIP till the time market stabilizes. As for Insurance (Unit Linked Insurance Plan),  still a safe bet,  try and change the allocations of further investment to debt fund so that the capital is safe to an extent. 

If Liquid cash not required for long time go ahead and move it to fixed deposits for a year and above as the interest rates are expected to fall to induce growth as of now the rates are higher (anywhere between 9%-11%). Analyse all other variables and factors which may affect in future before making any decision..

Markets are expected to be volatile for coming months...

Guard your money......

Investment tips for Indians

I have been fiddling with the idea of blogging for a long time, but haven't really come to terms with the idea. Finally I am here blogging.

I shall start with a technical write up. FMPs (Fixed Maturity Plan) are the most talked about financial product today. Its a new outlook for the old closed end mutual fund, which was not so fashionable then. Some of the reason for so much interest in FMPs is that markets is volatile, equity funds are not giving required results for short term investors, as their capital is lost. The most promising investment at this point of time is FMP. 

The product comes as a offering where there is a cutoff date for entry. One cannot ideally buy such fund in between and cannot exit before maturity date. The period of lock in varies from 3 months to a year. 

Indian mutual fund houses are offering the same. Be on the look out for such funds. FMPs are give better returns as compared to the traditional fixed deposits. The return on investment is promising in FMPs as the rate of interest for the fixed deposits is low when compared to the FMP. 

Happy investing.... 

Yesterday I had an interesting conversation with my ex colleague. She complained her portfolio was in red (loss) and she was getting apprehensive about the market volatility. Alternatively started to invest in fixed deposits as it was more reliable. But folks. I told her this is the time to invest, imagine picking up blue chip stocks when their market price have touched their all time low. That’s the best time to invest in market. Especially for those who are starting a fresh portfolio. Imagine all those blue chip stocks you can own and with a super high discount too....

 Be on the look out for those stocks which have good upside potential and have hit the low deck. Keep track on such stocks and invest. This will sure give you good results in the long run.

 Oops! Do not use the savings which are required in short term for such investments as it is not a good option. Use only such funds that you would not need in the short term as it may take some time for the results to show.