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.

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.

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.....