Investment Planning » Investment

What Kind of Investment Strategy to Implement Now?

Mayank — Thu, 02 Feb 2012 05:54:20 +0000

Surprisingly, the entire correction of that day was countered by an equivalent size of rally and then the markets continued to move upwards in excess of 5200. So what should an investor do at this stage? Some investors who missed buying into the last fall are worried that they might miss a bull market and are in a hurry to buy into the markets. Some investors are profit booking into this rally with hopes to buy again lower. I’d say that both of these strategies today are ruled out from my side. There is no bull market coming anytime soon and the same way, no bear market coming anytime soon unless Europe dies.

I don’t advice to buy into the current market nor sell into the current market. Markets are being very unpredictable today and you don’t know where the markets can go, so sellers beware and buyers beware too, any strategy can go wrong. You don’t want to buy into the markets only to see a correction and you don’t want to sell only to see markets continue to move upwards. Plus if you sell and markets correct, you might feel lucky but you really don’t know till where the correction can take markets and how sharp a rebound from lower levels be. Thus there is a possibility that you might not be able to buy into the markets completely post correction. The markets are very volatile and it will be difficult to catch and time the market at this point of time.

For buyers, I’d tell you that wait for a correction into the markets before you try to enter. The correction will and has to come one day. You will need to wait for some more time before there is a buying in the market. You can safely put money into the market after the next correction and go long with the next bull market targets. We’ve entered the stage where soon positives will weigh more than negatives and thus the next buying opportunity should probably be where you buy and forget with a long term view. I understand that there are a lot of people who are getting impatient today to buy into the markets, I suggest being more patient, the market will surely give you another opportunity : P

Use Dips to Buy into the Market

Mayank — Mon, 30 Jan 2012 12:59:17 +0000

I have been maintaining my view that the market has gone up too quickly too fast and thus I would not rule out a nice correction. Today, one of such correction was seen across the markets where largecaps as well as midcaps fell sharply. I don’t think that this is the end of the correction and we could probably see further correction in the markets. But don’t mistake this correction as a beginning of the bear market but it is merely a correction. Treat this as a correction into a crazy rallied market and nothing else. We will enter back into the bear market phase ONLY if you find some big issue popping up in Europe or USA and their markets collapse otherwise most of the macro problems are done with. The market already knows that the fiscal deficit is ballooning or industry is slowing down and so if markets had to test new lows, it would have done by now.

The people who had gone by my suggestions and bought in the last rally can continue to hold their investments with a long term view and those who were hoping that markets will hit 4200 on nifty or even below and did not buy into last decline, they can re enter the markets in a staggered way as market begins to fall more. There is no hurry to enter the markets immediately, you can wait for some more correction into the markets and then enter, whenever it happens. This correction could be a very interesting opportunity for those who had missed the rally. This could be it, your opportunity to buy and forget with a target of next bull run, whichever month or year that happens.

Make sure that you don’t buy high valuation stocks but focus on good quality cheap valuation stocks as those are the ones that will lead the next bull market and not the ones that never corrected. Most private banks fall in that category and they could be your single best buying opportunities in the markets. So my strategy now from wait and watch is soon going to go back to buy on dips. Let’s wait and see where the market goes and depending on the reason of market fall, we can reassess the situation in the next couple of days or weeks. I would keep you guys updated.

Systematic Investment Plan

Mayank — Wed, 18 Jan 2012 03:13:12 +0000

Systematic Investment Plans are very popular in India and I have never talked about it in particular. So let us take a look towards that in detail.

What is Systematic Investment Plan

A systematic investment plan or SIP is one of the ways of investment where you invest your money in a regular or say monthly basis. Whether you invest regularly into mutual funds or directly into equities, I’d coin them both in a similar fashion. Since SIP is mostly regarded to investing into mutual funds, I’m going to focus it that way.

The whole idea of systematic investment plan or SIP is that you are going to set aside a certain sum of money each and every month to invest them in buying units of a mutual fund. You invest your money regardless of what the price of the fund is at that given point of time. Indians like this form of investment because it helps them save money on a regular basis and also helps them in building a form of investment that would give sustained returns over a period of time. All you need to do is to have an account with a broker that offers mutual funds, like HDFC or ICICI or Axis etc.

Benefits of Systematic Investment Plan

- The most important benefit of setting up a systematic investment plan is to develop a regular saving habit and discipline. Most people cannot develop the savings discipline unless forced upon and this SIP method will act like an automation force taking away part of your money each and every month. You will treat it like a burden or a loan where you have to give money regardless of how you like it. This helps you save money as well as have a good investment portfolio.

- If you do not have the knowledge of the markets and cannot time it well, investing in systematic investment plan way helps you buy into the market in all phases of time, a falling or a rising market, thus you get a good average price without taking the pain of trying to time the market.

Gold ETF Funds In India

Mayank — Mon, 16 Jan 2012 04:29:56 +0000

Gold ETF Funds in India has been gaining popularity ever since it was first launched in 2007. Since 2007, there has been several mutual funds launching it’s own gold ETF funds in India and all of them are seeing good buying interests as well. Historically, gold is something Indians have always been so very interested at. I personally believe that every middle class to rich class has gold in the form of investment in their homes. Even my family had invested into gold ages ago and if I remember correctly, some of the gold were bought when it was priced at 4000 rupees which is crazy as gold trades at 27000 today. Anyway my point is Indians have so always been interested in gold and that is pretty much the reason why gold ETF funds in India saw a huge buying interest among retailers and big fund houses too.

Gold ETFs have given a way for us Indians to buy gold or rather invest in gold directly online which assures you of safety as well as of purity. So I would prefer buying this paper gold rather physical gold if it is only meant for investing. Let me now tell you about different gold ETFs offered by mutual fund houses in India.

There are currently 11 gold ETF funds in India right now : -

Gold BeEs – March 2007
UTI Gold ETF – April 2007
HDFC Gold ETF – July 2010
ICICI Gold ETF – August 2010
Axis Gold ETF – November 2010
SBI Gold ETF – May 2009
Reliance Gold ETF - November 2007
Religare Gold ETF – March 2010
Kotak Gold ETF – July 2007
Quantum Gold ETF – February 2008
Birla SL Gold ETF – May 2011

The above list contains all the current gold ETF funds in India that exist and also their listing dates. If you’re looking to compare all these gold ETFs, then refer to my article – Best Gold ETF in India.

What Is Demat Account?

Mayank — Sat, 14 Jan 2012 06:58:31 +0000

Before you start investing into Equities, you are required to get a demat account of your own that will hold the stocks for you. Without a demat account, you cannot trade into equities yourself.

What is demat account?

A demat account is a dematerialised account that holds securities like shares, mutual funds, gold etfs just like a bank account would hold money for you. A demat account helps you keep your securities safe in the form of paper. You can buy paper gold or paper shares. A demat account is something where you are going to keep your securities safe under your name.

If you don’t have a demat account yet, read here : – How To Open Demat Account?

Best Gold ETF In India

Mayank — Thu, 12 Jan 2012 06:31:25 +0000

There are a lot of gold ETFs in India currently and more are going to open up soon, so the most important question that arise in our mind is that which is the best gold ETF in India? So let me help you answer that question in this post.

Best Gold ETF In India

Before I invest into any Gold ETF, I’d be looking at the following two comparisons among various gold ETFs : -

Expense Ratio

The expense ratio is the charges that the gold ETF fund is going to levy on you for managing the gold on your behalf. It is quite low when compared to mutual funds but charges any way hurt as they are on top of what you pay as a brokerage. I have made a nice looking chart comparing expense ratios of 9 actively traded gold ETFs.

If you look at the expense ratios, almost all of them are in the ratio of 1% which means there is hardly any difference as to which gold ETF would you pick. The heavy competition in the gold ETF field has led to everyone lowering their expense ratios in order to lure customers to manage their gold funds. Thus this criteria hardly helps us in identifying the best gold ETF in India.

Performance Ratio

Performance Ratio is the amount of returns it has given to the customers recently. I have done a comparison through a chart of how the gold ETF funds have performed in the last one year. This comparison is going to tell us which gold ETF funds are performing the best out there. I’ve made another nice looking chart for the comparison.

The chart is telling us that SBI Gold ETF and Reliance Gold ETF has clearly topped the performance chart with UTI Gold ETF, Quantum Gold ETF and Kotak Gold ETF following suit. However the difference in their performance is not a lot, infact it is hardly anything.

But as I say, each penny counts and thus it is always good to go with the best performing fund. So SBI and Reliance are the best gold ETF in India as of today. We will re-evaluate their performance in future and see if anything has happened that might lead to change of our claims.

What Is Gold ETF?

Mayank — Wed, 11 Jan 2012 04:00:42 +0000

Gold has been giving good steady returns since a long time now and if we talk about the recent performance of gold, then they have given fabulous returns. This is the reason why investing into gold has become really popular these days. Almost everyone wants to have a piece of gold these days. While physical gold is popular among people, there also exists another way of buying gold which is in the form of gold ETF. Gold ETF has been successful all around the globe and it has been gaining popularity in India lately where people instead of buying physical gold are buying paper gold in the form of gold ETF. Before I tell you what is gold ETF, let me first tell you what is ETF. An ETF is exchange traded fund, so gold ETF means gold exchange traded fund. Gold ETF was first launched in India in 2007 and it has been very popular since then.

What is Gold ETF?

Gold ETF is like mutual funds or company of which you buy units or shares which means you’re buying securities rather physical gold and thus there is a guarantee of gold being pure. You can also term it as paper gold. Gold ETFs are listed on stock exchanges and you can buy into any gold ETF fund directly through your stock broker just like you buy any other company shares. How it works is, Gold ETF funds are going to buy physical gold and maintain them while you own shares or units of that fund. If the price of gold goes up then so will the price of the gold ETF fund. Gold ETF funds are simply going to follow the price of gold and thus it becomes a similar form of investment as it would be had you bought physical gold yourself. Just eliminate the risks involved in keeping the gold safe and sound and the pain to go out and buy it.

Gold ETF has become very attractive to people because you can buy and sell them very easily by just sitting on a computer. They are extremely safe and absolutely pure. Investors can buy in the form of money rather in the form of gold weight.

I hope I have done justice to this question but if anyone still has any doubts or questions on what is gold ETF, please comment.

How To Open Demat Account

Mayank — Tue, 10 Jan 2012 06:35:10 +0000

If you are new to investing then let me first tell you the most basic requirement before you can start investing. You need to have a Demat Account of your own if you are going to invest your money. So let me share the basics before I tell you how to open demat account.

What is a Demat Account?

Demat Account is a short form used for “Dematerialised Account” which is required to purchase securities like shares, mutual funds, gold etfs etc. This account of yours receives the securities in a dematerialised form which is safe. Demat Account is like a bank account with the only difference that a bank account is where you keep your money and a demat account is where you keep your securities.

How to open Demat Account?

Look for a Depository Participant

First you need to look for a DP where you can open your demat account. Most of the banks offer this just like they offer share trading services. Don’t confuse share broker to a DP. A share broker will buy and sell shares on your behalf but a DP will give you an account to hold those shares on your name. Most share brokers can also provide DP service but it is not mandatory to do so.

Get all the documents ready

Once you goto the DP, you will have to start with the Demat Account opening formalities. You have to fill the account opening form and submit it to the DP. You will need to submit an ID proof and Address Proof along with the document, so make sure to get a xerox copy of the proof. Also carry the originals with you just in case it might be required for verification process. Any of the following can be used as a proof : -

PAN Card
Ration Card
Voters ID
Driver’s License
Passport
Phone/Electricity Bill

You might as well keep two photographs with you which might be required along with the submitted documents. Most of the DPs take no charge for opening a demat account and you also require zero balance in your Demat Account so everything is free. When your demat account is opened, DP will allot you a unique ID which you need to use for any security purchase in future. For buying or selling of shares, your demat account will come in handy.

Yes Bank vs IndusInd Bank

Mayank — Tue, 29 Nov 2011 15:58:28 +0000

Two most talked mid sized private banks are Yes bank and IndusInd bank. As promised I’m doing a comparison between the two which might help you decide which bank shares to buy at current levels.

TimeLine – IndusInd bank was established in 1994 which makes it a 17 year old bank whereas Yes bank was established in 2004 which makes it just a 7 year old bank. Yet Yes bank is a bigger bank today than IndusInd bank. Yes bank stands out in this comparison.

Asset Quality – Yes bank has the best asset quality in the entire banking space with net NPA at 0.04% and gross NPA at 0.2% whereas IndusInd bank’s net NPA at 0.3% and gross NPA at 1.1%. Having a good asset quality means lower provisions and thus higher growth in net profits. Yes bank again stands out but with a small difference.

Growth – In terms of Average growth since time of establishment, Yes bank is a clear winner as we talked about in first timeline comparison. However in last 5 years, IndusInd bank has grown on an average of 74% whereas Yes bank at 68%. In FY12 IndusInd bank is expected to grow around 35% whereas Yes bank should do a 30% growth. So here IndusInd stands out marginally ahead of Yes bank but one could argue that IndusInd bank has a lower base and thus higher growth is possible whereas Yes bank has a larger base to grow on.

Valuations – Coming to a very important factor which is valuations, IndusInd bank trades at 15 times it’s FY12 expected earnings whereas Yes bank trades at 10 times FY12 expected earnings. Yes bank is trading at a huge discount to IndusInd bank. FY13 growth is expected to be quite similar for both banks and thus the valuation gap makes Yes bank a clear winner in valuations comparison.

Both the banks are greatly run and are good investment picks but when it comes to picking one of the two, I believe Yes bank stands out due to the valuation gap among the two. It is this gap that could make a difference in the long run by making an investor earn more.

A Common Mistake Investors Make

Mayank — Mon, 28 Nov 2011 15:54:54 +0000

A lot of investors actively look at trading calls on television or Internet given by analysts or experts or any other person. Some long term investors confuse those trading calls with good investment picks and enter them without taking a look at it’s fundamentals and valuations. Then they get stuck in bad stocks and lose money.

An investor needs to understand the fact that traders can buy any stock at any valuations but an investor cannot. A trader will keep strict stop losses and will exit on a stock correction whereas an investor would keep holding the stock till he gets frustrated with the loss. A trader can buy a stock like Kingfisher also and make money but it’s a disaster if a long term investor enters such useless shares. A lot of times investors keep holding some wrong shares and make very high losses, up to 50-70% also sometimes.

I’m not saying a trading pick cannot be used as investment as traders sometimes even trade at fundamentally strong shares. All an investor needs is a careful approach, look at fundamentals before you invest. If the company does not show good growth and reasonable valuation combination then don’t invest just yet. All you need is some careful research and you’re good.