Nifty BeEs an Index based ETF, which tracks Nifty index . Nifty BeEs can be a important part of your portfolio.
One unit equals around 10% value of index , Means if Nifty is around 3000 , one unit of Nifty BeEs will be around 300 (can be less or more a bit also , depending on demand and supply)
Some Advantages of Nifty BeEs
Simplicity : It is very simple to invest in Nifty BeEs, You can buy and sell it easily on stock exchange from your demat account, treat it just like a share.
Economical : It has no load scheme. The annual expense ratio including management fees is a maximum of 0.80% of the Daily Average Net Assets, which is one of the lowest for any mutual fund scheme in India. The costs reduce further to 0.65%.
Liquidity : Any time you want money, you can sell your units in the markets.
No Human Error or Bias : The performance of Nifty Baes is simply the result of performance of shares in the S&P CNX Nifty Index and demand & supply in the market. There is no Fund manager bias. Hence there is no chances of Human error.
If you see the returns, it has consistently outperformed Nifty.
Annual Returns
2008
2007
2006
2005
2004
Fund Return
-51.28
55.97
41.49
37.75
12.30
Rank In Category
7/22
4/22
10/22
8/20
8/18
Category Average
-51.78
49.97
39.13
37.22
10.16
S&P CNX Nifty
-51.79
54.77
39.83
36.34
10.68
Sensex
-52.45
47.15
46.70
42.33
13.08
What are the disadvantages of ETF?
As such, there are no disadvantages , but obviously there may be many mutual funds which may perform better than Nifty BeEs, It may be because of good decision or pure luck.
Any one who wants to participate in long term growth and with less risk can divert some part of his cash in Nifty BeEs. It scores really high when it comes to convenience and returns over long term. Its easy to purchase. Just invest some small amount every month with discipline over long term.
Other ETF’s
There are many other ETF’s you can go for, they are
Let me take one by one each line and do some analysis and raise some questions.
A)Death Benefit:
On death during the first policy year: Basic Sum Assured with Guaranteed Addition.
On death during the policy term after the first policy year, excluding last policy year: 1/3rd of Basic Sum Assured with Guaranteed Addition.
On death during last policy year: 1/3rd of Basic Sum Assured with Guaranteed Addition along with loyalty addition, if any
Some points here to consider:- Your risk cover will be 6 times your investment and just 2 times for the rest of the duration + some loyalty addition if any. So, in a nutshell, it as good as saying your Cover is just 2 times your premium …
– What does it mean? you will get double our initial investments if you die after the first year.
This is the case when you die …
B)Maturity Benefit:
On maturity, the Maturity Sum Assured along with Guaranteed Addition and Loyalty Addition, if any, shall be payable.
Maturity Sum Assured shall be 1/6th of Basic Sum Assured.
– Means, if your premium is Rs 1,00,000, then Basic Sum assured is Rs 6,00,000 and hence, Maturity Sum Assured is Rs 1,00,000
C)Guaranteed Addition:
The policy provides for Guaranteed Addition at the following rates:
Rs. 100 per thousand Maturity Sum Assured per year for a policy of 10 years term.
Rs. 90 per thousand Maturity Sum Assured per year for a policy of 5 years term.
– Means, if your premium is 1,00,000, then your Guaranteed Addition is Rs 10000 (10 yrs) … Means, You will get Rs 1,00,000 as Guaranteed Addition in 10 yrs .. and along with your original capital, you will get back Rs 2,00,000 back after 10 yrs.
D)Loyalty Addition: Depending upon the Corporation’s experience the policy will be eligible for Loyalty Addition on death during the last policy year or on the Life Assured surviving the stipulated date of maturity at such rate and on such terms as may be declared by the Corporation
This may or may not be there.
Now, let’s take a real like example.
Ajay takes a 6 lacs policy over a 10-year term.
Jeevan Aastha Premium = 96,960
The amount he would get if he dies in the first year: 6,00,000
Amount on Maturity : 97000 + (10*10000) = 197000 (loyalty bonus is not assured , so not adding it)
from what angle do you think this policy makes sense. You are maximum doubling your money in 10 yrs and nothing else. And the best time to die after taking the policy is the first year itself .. then you can get a little benefit (but still at a big cost).
I don’t understand why people complicate things .. LIC plans to collect Rs 25,000 Crores from this policy, and I am sure they will succeed. Because there are many people in our country, who don’t understand the effects of Inflation, compounding and get confused with all those confusing statements.
Now if you are a regular reader of this blog .. then you should be able to utilize Rs 97,000 to generate better returns than Jeevan Astha.
Let us do this …
1. Insurance for the cover of 6 lacs, not just for the first year but for all 10 years .. Simple: Take a term Insurance of Rs 6 lacs for 10 yrs, it’s around Rs 9840 (single premium, SBI life insurance for a 26 yr old ) …
2. After this, you are left with around 88,000, which you should invest in Equity Diversified mutual funds either one time or through SIP for 10 yrs … Even if we take a 10% return. It would be 2,28,000.
When it comes to Investing, just Keep it Simple, Stupid (K.I.S.S) … 🙂 UPDATE (28 AN 2009 ): Shyam Pattabi (writes for HINDU) also shares his similar thoughts on this product at http://www.shyamscolumn.com/2009/01/guaranteed-return-schemeanyone.html ( i am glad I made correct analysis) Update (Jan 19, 2008): On NDTV Profit, Monika Halan has given comments that “Jeevan Astha” should be the last product you should look for and only if you have cash to put nowhere, They have given “Don’t Buy” rating to this product and they also said that this product has lots of hype got created. Monika Halan is Editor of “Outlook Money” and One of the most mature and best personal Finance advisor I can think of.
Disclaimer: The above analysis is based on my study and should not be taken as investment advice or discouragement from advice, use your own analysis to take your decisions. I will not be responsible for your investment decisions.
If there is anything in world which can make you instant rich, it’s Options Trading !!! What is instant Rich here !! Instant can indicate anytime from 10 days to 5-10 yrs. It depends on you how much risk you want to take. Options can deliver returns which you can never imagine.
You can get returns in a day equivalent to what you get in 8 years in Fixed Deposit !! 10% return in a week is what I call a realistic average return in long term after risk management.
Just to give an example, if you start with 15,000 and take 10% profit each week, you can generate 1 Crore in 1 year (compounded basis).
How to Trade options?
To just like people trade in Stocks, shares, they can trade in Options .. Buy them at a cost and selling it later at some profit or Loss. The main difference in options trading and Stock trading is that Options trading also has time limit attached to it. That’s makes them more dangerous.
There are some selected shares which have options for them. Almost all the well known stocks have their options. Nifty index also has an option for it.
Almost 85-90% options trading happen in NIFTY options … Each stock option have lot size, like NIFTY lot size are 50. So if the price for NIFTY 2600 CA is 90, 1 lot will cost you 4500. And suppose the price reaches to 200, you can sell it and get 10000, 5500 of profit – brokerage charges.
Some other very good stocks for options trading are RELIANCE, ICICIBANK, CHAMBAL FERTILIZER, JAIPRAKASH ASSOCIATES and many more.
Watch this video to learn more about Options trading:
Some Experiences I can remember
I have often seen an option rise anywhere from 2 times – 50 times.
Just 2 days before NIFTY made the lowest of 2250 in OCT, NIFTY was at 3000, and I bought NIFTY 3000 PA at 60 (NIFTY was at 3000 and 3 days left to expiry). Within 5 min, it went up to 90 and started coming back down .. I sold it at 88 and took good profit of 40% …
Just after I sold it market starting going down and it went up to 200.
Next day market tanked heavily and the price was now 500.
Next to Next day market again tanked heavily and option price was now 750.
Something I bought at 60 was at 750 after 2 days and I sold it at 88. Anyways .. I made good profit and I was happy (It’s a white lie, you know that)
This is a little extreme case, but in general options can give close to 50% – 200% return in short duration. Scenario is very different at the starting of month and at the end of month because of Options expiry. At the time of options expiry, the change in price is significant because of the time value and uncertainty.
How Risky Options Are?
If you don’t fear anything in World, better you fear Options .. It can wipe you out within days … It’s a Money eating machine. You can lose all your money if you are not focused or don’t have knowledge or good money management.
If you are trying hard to lose money and you are not successful, try options ..Warren Buffet calls Derivatives as “Weapons of mass destruction”, I agree with him, but I also differ on the fact that options have the power to make you super rich if you can use it effectively and with intelligence and without GREED.
Advice
If you want to try options trading, first learn about it heavily .. Read books, read stuff .. Watch it for 1-2 months .. See the behavior and once you are confident that you can make some money .. enter with small money (because you are going to lose) …
Don’t feel back after losing money, think of it like “Guru-Dakshina” … everyone has to give it in the start, you are no exception. Now go back .. Again read some more books, Do some virtual trading, and once you are confident again start with small money (which you can afford to lose) .. And start doing the trading slowly step by step … Don’t put all your money in one go .. Else you will cry later.
Disclosure
I have been trading options from last 6 months and still I am in loss and way far than break even .. Please don’t take it as my advice to trade option; it’s just for informational and sharing purpose .. You are yourself responsible for your losses.
“I thought Women are complicated and tough to handle, then I met Options” 🙂
what kind of markets have these been .. a slight news of hope is causing stocks to rally to so much amount which they used to rally in a year .
As i write this Citigroup Corp shares have risen 68% in just 1.5 hrs of trading . 68% in a day !!
That’s a kind of return which mutual funds are really jealous of . Last month when there was some bad news about UNITECH , it plunged by 50% in a day only to recover back 40% the next day ..
Last quarter DLF lost 33% in 2 days on the news of US FDA banning its drugs in US . and then it again came back to its normal levels .
When DLF lost for 2 days , I had seen DLF PUT options went up 50 times in 36 hrs …and on the third day when it was up again by 20% , then its CALL options went up by another 5 times . means if you got everything correct and bought call and put options at right time , you could have made 5 Crores ($1 million) with 4 lacs of money ($8000) . that’s 25000% return in 60 hrs . there is an assumption that you bought things at right time which is almost impossible … but with little luck and study at least 1000% was possible for sure …
I thought of buying DLF puts after it fell for 1st day , but because of fear , i didn’t buy it .. and it went up by 800% next day ( i remember it correct , it went up from Rs 4-5 to Rs 40) , that’s 800-900% return in 2 hrs .
I am sure Citigroup option traders would either have made a killing or killed themselves . 🙂
Anyways , options are extremely dangerous products , its not advisable to get into them unless you are sure what you are doing ..
Read the basics of what are options
Today Let me ask some questions on personal finance to you which you can answer to see how much you understand things in investing. This small quiz will help you and me know where you belong to.
How much have you learned?  I request you to give answers of the questions as a comment back to this article. I will announce the winners after some days. Also please mention your reasoning about the answer.
Information : I have started a chat box on this blog, please see the right hand side to see it, you can post your questions or queries to it and I would try to answer them as soon as I see them.
Q1. Ajay and Priya are married and both of them earn 40,000 each. They earn total of 80,000 and there monthly expenses are around 20000-30000 per month. In case they have to opt for a Insurance plan. which one they should go for?
Choose one option among these and give the reason.
Q2. Ajay lends 1,00,000 to Manish on following conditions.
He will get 7,000 per year for next 30 years.
He will receive whole 1,00,000 back after 30 years.
What is the best way for Manish to utilize this money and make some profits for him too if possible.
No options here, you should give a detailed description of step he should take.
Q3. Your friend wants to enter magic world of Stock markets. He/She is determined and very confident that he/she can make huge profits. What will be 3 things you would say to him/her.
For an example : The first thing I would say to him/her is “Don’t concentrate much on making profits, rather concentrate on avoiding losses”.
What are the 3 things you would say to him/ her.
Q4. There are two strategies of investing in Stocks of blue chip companies in Stock markets. Time Frame : 2-3 months.
Strategy 1 : Can give profits upto 50%, or loss upto 50% with equal profits. (Assume the stock is very volatile)
Strategy 2 : Can give profits upto 10%, or loss upto 10% with equal profits. (Assume the stock is very less volatile)
Which Strategy will you choose? You are free to make your assumption
Note : Please answer these question to help yourself and see if you actually deal with these situation. What kind of thinking you have? What kind of advice can you give to someone? And more than that, to learn.
I will review all the answers and reply them. Also I would choose the best answer in some days.
Today we will see what is CRR and Repo rate and how they help in combating Inflation and other monitory issues of Economy. CRR and Repo rate are nothing but the tools available in the hands of RBI to maintain the liquidity and growth.
You might know what is CRR and Repo Rate, but may not know what is there significance and how they help. Read whole article to understand.
What is CRR Rate ?
Each Commercial Bank has to keep certain percentage from their deposit amount in the current account with the Central Bank of India i.e. RBI. This amount is called as CRR i.e. Cash Reserve Ratio. It is the ratio of deposits which banks have to keep with RBI.
Banks do not have access over this amount for any economic or commercial activity. It means Bank can’t invest the whole deposit and they can’t use the CRR money for any lending or investing purpose.
Let’s see an example – When you deposit Rs.100 to your bank, bank gets Rs.100 and now can use this money to lend others, but they have to put some part of it with RBI, if CRR is 8%, they will have to deposit 8 with RBI and they are left with Rs.92.
So when CRR is decreased, Banks are left with more money to lend and when its increased they are left with less, even though 1% decrease in CRR leaves bank with 93 instead of 92, this Rs.1 is big enough thing.
What is Repo Rate?
When we need money, what do we do? We take loan from particular bank. And when we pay back that loan bank charges some interest on principle amount. This is called cost of credit.
Similarly, when banks need money they borrow it from RBI and the rate of interest which RBI charges on that loan on Banks is called Repo Rate or Repurchase Rate.
So if repo rate is 9%, and some bank takes loan of Rs.100 from RBI, they will pay interest of Rs.9 to RBI. This is a short term loan i.e. upto 1 to 2 weeks.
Higher the Repo Rate higher the cost of short-term money, Lower the Repo rate lower the cost of short-term money. This means at higher Repo Rate the economic growth will slow down and at lower Repo Rate economic growth will enhance.
How is Repo Rate linked to the interest we pay for loans from Bank ?
Simple, Banks need to charge more interest than they are paying, so if repo rate is 8%, they will charge more than 8% for loans which they give, If Repo rate comes down, banks’ may also consider the interest rate they charge us.
That’s the reason why with this latest Repo rate cut, people are talking about home loans rates coming down, so what will happen is that Bank need to pay less interest for the loan they take from RBI, now because they are paying less, they may think of charging us less on the interest for the loans which we have taken from them.
What is Money Creation ?
How does money get created? When A gives 100 to B, Rs.100 is created for B , then when he gives this to C, 100 is again created for C, this way money creation happens for different people from that same 100.
How does CRR help ?
Suppose CRR is 8% you had 100, which you deposit to bank, now bank will Deposit 8 to RBI and lend this 92 to some one, This 92 will be another money which is created for someone, now this 92 will exchange hands and then come back to bank somehow, out of this 92 again bank will deposit 7.36 to RBI and then lend the rest of it to someone … and it goes on like this.
It means that this 100 actually generates 1250 in the economy indirectly. What will happen if CRR is increased by 1%, from 8% to 9%. though it may looks like that this is a small change and it would affect a lot.
Lets see what happens now . . .
How much money will 100 create now?
Ans = 100/.09 = 1111 (approx)
So the same money is now generating 1111 instead of 1250, that’s 139 less or 11.12% less money in the market.
How does Repo Rate and CRR help to ease Inflation?
Repo Rate:
When Repo Rate increases, the banks have to pay higher interest to the RBI and thus Banks also charge higher rate of interest to the common public who borrows loan from bank. Due to this people gets discouraged to take more credit from banks, because of which there is less supply of money in system and there is less Liquidity.
So on one hand Inflation is under control as there is less money to spend and on other hand growth will slow down as companies or people avoids taking loans at such a higher interest rate.
CRR:
It’s easy, if CRR is increased, banks have to deposit more money with RBI and banks will have less money to invest. So now bank will increase the interest rate on the loans which they will lend to other people.
People will avoid taking loan because of higher interest rate and it results in less money creation in economy, and hence people have less money to buy things and they will think twice before paying higher price for something. Due to this prizes will fall because of low demand.
What makes an Healthy financial Portfolio? There are some good traits of portfolio which makes it better than others. A good and strong portfolio has some strong elements or parameters which it must meet. These are the Pillars for a strong Portfolio or Investments.
This is one of the biggest reason to invest. Isn’t it very obvious? Yes, it is. But the main point is not just its growth in numbers but its real worth. We are talking about Post-tax and post inflation returns.
The real return of Plain Fixed Deposits in these high inflation days are negligible when you factor out Inflation and tax. The best investment must be robust and good enough to provide appreciation in real worth over long period of time. Real Estate and Equity (Long term) can generate good returns.
Liquidity
Another important aspect of a good financial portfolio is that its provide enough liquidity, so that in case of need, you can get the money.
What is Liquidity? Liquidity is how fast and easily asset can be sold and you can get cash. For example Mutual funds and Shares are highly Liquid, If you have them and want to sell, you can get the money soon. Where as Real estate is not a Liquid asset. So if you need urgent cash, you might not find right price and or buyer.
Every portfolio must have some element of Liquidity, as per the requirement of the investor.
What do we mean by this? A good investor is one who sees beyond what an average investor cant see. Average investors concentrate very well on Profits, How good an investment can be, High returns etc.
An exceptional investor goes beyond that and takes care of Worst case Scenarios and situations which may cause damage. He is the real investor.
Some of the steps to be taken are :
Adequate Insurance to be taken .
Proper monitoring of performance of investment.
Getting out early in a bad investment and accepting that you made a wrong decisions.
Keep your self updated with news, laws, things which can affect you investments.
Risk management is not buying some product for managing risk but being aware of things and taking right and logical decisions.
Goal Oriented
“A good investment is one which has a purpose”
Each and every investment should be done because of a strong reason. I see people who take Insurance policies to save tax at the last rush hour of the year !!! Better loose the tax benefit and don’t take that policy.
That kind of investment is nothing more than a waste or burden. On the top of it these people don’t even need insurance !!!
When someone asks you the reason for making a investment, you should know why you did it?
Some of the bad or idiotic reasons for doing investments are :
I can save tax by that
My friend did it and recommended me
Everyone is doing it .. why shouldn’t I?
Every time you take a decision ask yourself some questions like :
Do i really need it at this point of time?
Can i afford it?
Do i understand it well? Can i protect myself if people make me fool?
What is the purpose or goal of this investment?
If you get satisfactory answers go for it else take an expert advice.
watch this video to learn more about investment analysis and portfolio management :
Sample Portfolio Analysis.
Sample Portfolio 1
Robert is a married person earning 40,000 per month. He is the sole Earner of the family and and has 2 kids. He is not a risk taker and his portfolio looks like.
50,000 invested in NSC (opened before 3 years)
An endowment policy with 10 lacs cover and 40,000 premium for 30 yrs, with maturity benefits.
1,40,000 in a Tax saving mutual funds (investment 70k for 2 years for tax saving)
Home (Rs.30,00,000)
Cash : 20,000
Car : worth 5,00,000
Jewelry worth 80,000
Lets rate his financial portfolio on all the parameters on the scale of 5 stars
Capital Appreciation : A small portion in Equity, and that too for a wrong reason of just tax saving, Saving through Endowment policy is another wrong decision, the returns are too less.
Liquidity : None of the assets are Liquid and Cash available is not enough to meet emergency requirement.
Risk Management : No Risk management, What if he dies after 10 days, What if he meets an accident, What if suddenly he requires 1,00,000, what if he looses his Job.
Goal Oriented : * (The reasons for investment in most of the things looks like they are for Tax saving, or some one suggested )
Sample Portfolio 2
Ajay is married and has 2 kids and parents who are all dependent on him, He earns 40,000 per month.
Long term investments in Tax saving Mutual Funds (Rs.4,000 per month)
Term Insurance of Rs.80,00,000 (80 Lacs)
Health Insurance of each member up to 3,00,000 – 4,00,000 (Family Floater Policy)
Yearly Contribution to PPF (Rs.50,000)
Invested 1,00,000 in Liquid Funds
Home loan taken by him and his Wife Jointly (Along with Home Loan Insurance)
30,000 invested in Gold ETF and some good shares.
Rs.25,000 Cash
Lets rate his financial portfolio on all the parameters on the scale of 5 stars
Capital Appreciation :Â Appropriate investment in Equity with long term view, and some money in Debt.
Liquidity :Â Has good amount of money in Liquid funds, Cash and Gold ETF, which have good liquidity and can provide him Money quickly in case of requirement.
Risk Management :Â In case of any type of Eventuality, He is properly covered. He is protected well against Death, Health Issues, Home related issue, Emergency issues.
Goal Oriented :Â Most of the investments have strong and valid reasons.
Like Term Insurance is required for Financial Cover, Mutual funds investment was for Long term Wealth Creation, PPF investment for Wealth Creation with Debt Route and safe investment, Joint Home Loan with wife for Tax benefits, Health Cover for Tax benefits and cover against Health Issues, Gold Investment in ETF because of Diversification and Liquidity, Cash for instant requirement, Liquid funds investment for Liquidity along with some returns.
Note : Both the financial portfolio’s are created just for the illustration.
Summary
Each and every person portfolio should be strong on all the areas, it should pass all the criteria to some extent. A portfolio should pass all the parameters for different requirements. If you have a financial portfolio ask yourself all these questions :
Is it good enough to provide stable and good returns over long term. Is capital appreciation happening in Value or just numbers are growing, but post-tax and post-inflation returns are negligible.
If i require instant money within 2 hrs, 2 days or 5 days, Is my portfolio smart enough to provide me.
Is my portfolio good enough to provide protection to me and my family against calamities or any unexpected events . Do i review my Portfolio in regular basis to cut out the losers.
Is my portfolio a result of my Needs and requirements or Greed, Ignorance and Hearsay and emotional Buying? If that’s the case, take action !!!
A Rose can be of more value than a Dress to your Wife or Girlfriend on Valentines Day. Even though that Rose was very less in Price compared to a Dress.
Today we will discuss things about investment products from a different perspective – Value and Price.
What is Price and Value?
Price : Price is the amount of money needed to purchase something.
Value : Value is the worth or Importance of something.
An Example
We pay Rs.8/Kg (20 cents/Kg) for Salt as part of our Groceries, Will we stop using it if its price rises to Rs.100/Kg or even Rs.400/Kg. May be not !!! Why ? Because the Value of Salt even then will be Very high, compared to the price we pay for it. Considering that, its a very cheap product.
As a personal Example, I recently bought a second hand mobile (Nokia 6610) to keep at my home as a land line just for Rs.800 (worth 8,500 at time of buying, excellent condition). The price i paid for it was much much less than the value it would provide to me. So i consider it as one of the best investments made till date.
By cheap I mean its Price vs Value is very high.
Cheapness (P) = Value provided by P / Price we pay for P.
The same way there can be things for which we pay high amount, they don’t have high value for us.
Please understand that it depends on individual where something is of great value or not. For example for me, an expensive Mobile set with 134 different things costing Rs.10,000 is low in value and high in price. I don’t buy things like that, but a digital Camera worth 12K a value buy for me (because of my interest in Photography)
So, in short we can say “Price is What we pay actually, and Value is what are ready to Pay”
We understand this in our daily Life, but we forget this simple rule when it comes to money and investing. Most of the time we invest in things which we should not because of this basic rule, but we are carried away by emotions or simple stupidity.
Watch this video to learn more about the difference between Price and Value:
Let us now see Some of the products which are really High Value, Low price
“How much are you ready to pay as yearly premium for Rs.50,00,000 Cover for 25 yrs tenure?”.
This is a question I ask a lot of my friends in there 20-30’s. And I am amazed to see that even with a miser mind they tell me at least twice the amount what it really costs. Everyone said 2k/month or min Rs.20,000/year. The actual cost is not more than 13-14k, in fact the best price is 10,112 for 30 yrs tenure from AEGON RELIGARE Life Insurance (Click Here to read more on this).
This clearly shows that it cost way less than the expectations of people and what people are ready to pay for it. The value offered by Term Insurance is more than what it costs.
Endowment Policies :
I am not sure if its my hatred for Endowment Policies or they really deserve my criticism every time, Or may be there are both the reasons. We pay so heavy price for Endowment polices and the value provided by them is almost nothing. Its a product designed for Wealth Creation, but wait … not for investor but for the Insurance company. (Click here to read more on Badness of Endowment Policies)
The other products I would rate in category of Cheap and Expensive are :
Good Stocks in low markets (Like current markets, Buy Reliance, Infosys and Jaiprakash Associates for Rs. 1,00,000 each today and your retirement planning is probably Done !! If you are around 25 and retiring at 60)
An interest free loan given to a close or a very good friend. (even if you don’t get any interest, you get some emotional satisfaction or valuable relationship which is more important).
Expensive financial products:
Endowment Policies
Bank FD (at the time of High inflation)
NSC
Most of the stocks in High Markets ( not true for all stocks but most of them) – A high interest loan given to someone whom you don’t trust much. (Even if you get good interest, there is risk of loosing money)
Every time you invest your money its important to understand the price of it and value of it. If you find that its cost is less than what you are ready to pay, consider it cheap and go for it and not in the other case. Price and Value depends on Situation, time, age and other factor, don’t forget it.
Most of the successful investors become one because they invest in stocks which are trading at price lower than they deserve, which market eventually finds out later. Currently In this markets Reliance is trading at 1400 (Oct 11, 2008), the it was trading at 2300 before a month, and has lost almost 40-50% in a month.
Considering it is going to start its OIL exploration and other things, its a good stock to own and at an excellent price. Its price is less and its value. Which makes it a good investment regardless of what is going to happen next month or next quarter. Sooner or Later it will turn out to be a good investment and reward its investors.
Same is with Jaiprakash Associates, ICICI Bank, DLF, Ranbaxy and other similar blue chip stocks.
Summary
When you analyse some product, stock, mutual fund, Home (Real estate) or anything for investment matter or even for general shopping, always consider value and price for it.
Disclaimer : Any stock discussed on this article is not a recommendation. Please analyse it yourself and then invest. It can also result in losses.
What do you think about this article? Do you like it?
As I write this article on Oct 9, 2008, Sensex is below 11000 (10850) … Most of the Mutual fund investments returns (since peak of Dec 2007 – Jan 2008) must be down by 40-50% (lump sum investment) and 25-35% (if SIP). Looks like Sensex is heading towards it original value of 6000 or 7000 which will bring losses to 60+%.
Though most of the investors know in theory what to do in these situation, most of them will still not buy, Now the physiological investing problem happens, For long term investors its the best time to invest, but no one will take the plunge after burning there hands so badly.
Do Indian Markets have many reasons to Decline further?
Remember, the global markets are looking bad, not Indian. Indian markets are just following US and European markets because they are the “Big Boss”.
The US markets and European markets are the culprit for the global slowdown. The sub-prime crisis related issues will have deep impact on US and global investment banking firms. India or other Asian countries are just bearing the pain along with global stock markets.
Yes we are in Bear markets, in fact every country stock markets are, but the bearishness of markets are exaggerated because oh high oil and US sub-prime crisis and subsequent Bank Failures.
India is not short of its local good news like
Nuclear deal
Stable growth of more than 8% p.a
Inflation now coming down from its high (and as Oil comes down, the inflation will come down further)
Strong Corporate Earning and Many companies on the verge of setting global standards (Reliance starting its oil production soon, etc etc)
Once things are in control (should be soon, but no one can be sure), another bull market should be more exciting than the last one. Prices will move like rockets and people who will benefit most will be one who will do investments in these down markets.
Is it the right time for investments?
This questions was answered by many pundits when Sensex was around 15,000-16,000. Some said YES, some said NO. People who did investments must be thinking why they did it and people who did not must be happy for not investing that time. The scenario could have been exactly opposite if markets would have gone up.
So what do you do now?
The best idea is to invest a part of the money now, If the markets go down from here, You still have another part of your money in hand which you can invest later and again invest more if it goes down further. It will ensure that your average cost is not very high, and a decent run in markets will result in profits.
If markets go up after you buy some mutual funds or shares, you at least are in profit and not LOSS. which is a privilege now a days in Market. Once there is a good confidence that markets are stable and wont fall further, you can then do rest of your investments.
Remember, Don’t try to make profits in stock markets, just try to avoid losses and make sure that you preserve your capital. If you can do that much, profits will be at your feet.
As Warren Buffet said “We need to take very less correct decisions in Life, as far as we make sure that we don’t take many wrong ones”
This formula is often used to calculate the returns some investment has given. The main concept in compound interest is that interest gets accumulated with the total principal amount and that interest again earns interest over the years. Which makes it very powerful.
Formula : A = P * (1+r/t)^(nt)
Where,
P = principal amount (initial investment)
r = annual interest rate (as a decimal)
n = number of times the interest is compounded per year
t = number of years
A = amount after time t
Example 1 :
Investment = Rs.10,000
return = 9%
investment period = 8 years
Total amount = 10000(1+.09)^8 = 19925.63
Example 2 :
Sensex returned 17.3% return over 29 years since its inception in 1979. What would be worth of Rs 10,000 invested that time.
A = 10,000 * (1+.173)^29 = 1022450.64 (10 lacs)
You can see that a small amount has actually grown to 100 times.
This tool is very important because it helps in comparing two differnt returns from two investments, you can calculate how much an investment has returned per year on compounded basis, Its just the opposite of Compound interest
Formula : CAGR = (A/P)1/n – 1
where:
A = Final amount
P = amount invested
n = Number of years
CAGR can be a great tool to compare two different investments and there returns.
Example :
A. 10,000 invested in a XYZ mutual fund for 2 yrs became 20,000
B. 50,000 invested in GOLD for 7 years became 4,00,000
Which investment has given more returns?
Here the main doubt is that how to calculate which one is better .. the amount, tenure is different. So in this case we calculate and see CAGR, one with more CAGR will be good.
This formula is very very important one, in our daily life we come across many situation where we do a fixed payment at the fixed interval, and we want to calculate the returns, but we don’t know how to do it .. Example can be
Monthly payments in Mutual funds through SIP
Yearly payment in a PPF.
Or any investment at a fixed inteval over some years. In that case we calculate the Final value using formula called Annuity.
Formula : A = P * [{(1+i)^n – 1 }/i] * (1+i) (if payment are being made at the start) (it will be P * [{(1+i)^n – 1 }/i] if payments are made at the end of the year)
Where :
A = final amount
P = installment each time
n = total number of installments
i = interest rate for that tenure (example if yearly return is 24%, but payments are made monthly then i = 24/12 = 2%)
Example 1 :
Robert invests 10,000 each month in a mutual fund for 10 years and the annual return was 18%, what will be his final corpus?
Here as payments are monthly, total payment will be 10 * 12 = 120
Vikas is planning his retirement, and planning to invest 5,000 per month in a Mutual fund for 20 yrs where he expects a return of 15%, then take out all the amount after 20 yrs and then put it in a FD for 15 yrs which gives him 9.5% return.
Here, we there are two parts
A. He makes monthly payment for 20 yrs (here we have to apply annuity)
B. then he takes the money out after 20 yrs and then put it in FD for 15 yrs (as this is one time payment, here we will apply compound interest)
A ) n = 240 and i = 1.25% (as the payment are monthly)
His money after 20 years = [5,000 * (1 + .0125)^240 – 1) / .0125] * ( 1.0125) = 75,80,000 (75 lacs)
Now he invests this money into a FD for 15 yrs at 9.5%.
B) Final amount = 75,80,000 * (1.095)^15 = 2,95,00,000 (2.95 crores OR 29.5 millions)
