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Finance & Stock Groups Forum Index » Mutual Funds » Investor Education
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| subbu |
 Posted: Fri Aug 29, 2008 9:12 am |
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I would like to share some good investment articles in this thread
with the members. These are strictly not recommendation articles of
any sort.Only contains information on investment basics.
Does not contain any spamming information. This is an effort to create
awareness about investment to members.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Fri Aug 29, 2008 9:14 am |
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On Aug 29, 2:12 pm, subbu <ping2sri...@gmail.com> wrote:
Quote: I would like to share some good investment articles in this thread
with the members. These are strictly not recommendation articles of
any sort.Only contains information on investment basics.
Does not contain any spamming information. This is an effort to create
awareness about investment to members.
Subbu.http://investorskool.blogspot.com/
Rules Of Investing
Investment is a simple concept which is often complicate too much by
investors. Always "keep it simple" and be "disciplined" in
investments. There are certain rules that needs to be followed while
investing for a longer term.
1.Identify your short,medium and long term goals.
2. For Short and medium term goals(2-5), park your money in fixed
income instruments and avoid going the equity route.
3. For long term goals (>5 years), go for equity investing.
4. Keep it simple in equity investing. Go for good diversified mutual
funds with good track record.
5.Ignore hot sectors or stocks which are being most talked about in
televisions and newspapers.
6.Invest Regularly. Start a SIP in mutual funds to bring in discipline
in your investments.
7.Execute "Buy and Hold" policy. Do not churn your investments often.
8. Last but not least, "Start Early".
Happy Investing!
Subbu
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Fri Aug 29, 2008 9:16 am |
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What is expense ratio?
The expense ratio is the total amount of annual expenses
incurred by the fund. It includes the management fee and operating
expenses like the registrar and transfer agent fee, audit fee,
custodian fee, marketing and distribution fee.
The expense ratios of equity and debt funds differ.
Since the expenses of equity funds are more than those of debt-
oriented funds, the expense ratio on equity funds is greater.As per
the regulations of the Securities and Exchange Board of India (SEBI),
a mutual fund can charge a maximum expense of 2.5 per cent (equity
funds), 2.25 per cent (debt funds), 1.5 per cent (index funds) and
0.75 per cent (Fund of Funds).
A fund with lower expense ratio and good returns
is a very good since the cost of the fund will not eat up the returns
generated.
Subbu
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Fri Aug 29, 2008 9:17 am |
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What is Index Fund?
There are two kinds of investing.
Active Investing
This involves active analysis of the company while investing. It
involves answering the following questions
1. How is the company performing?
2. At what price should i buy?
3. What %age of my portfolio, should the stock occupy
and more questions.
Passive Investing
This involves creating a portfolio by simply replicating an already
existing system witout any change at all.
Index Fund
Index funds are an example of Passive Investing where in the fund's
portfolio is created completely by replicating an index.For eg, nifty
index fund will constitute stocks present in nifty in the same ratio
as it is in nifty
Advantages
1. The index fund has a lower cost attached to it. Since it has
minimal transactions in terms of selling and buying stocks, it has a
lower expense ratio. Lower expense ratio reflects in the NAV of the
fund.
2. The investment objective is simple to understand and easy to track
since its a mirror image of an index.
3. There will not be any change in fund's objective since it is based
on index.Today lot of funds are churning their portfolio often.
Disadvantages
1. In the downward market, there will not be any cushion against the
fall, since it does not have cash in its portfolio and is always fully
invested.
2. When the tracking error(diff between fund's return n index return)
is more than 2-3%
3. It can not outperform the benchmark index since it exactly
replicates the index portfolio.
Target Investors
It is suitable for investors who are contempt with the broader market
returns given by various indices.
Subbu
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Fri Aug 29, 2008 9:18 am |
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Mutual Fund Pension Plans?
In India pension plans are most synchronous with Pension plans that
employers provide for their employess. As a component of EPF, EPS
(Employer pension scheme) is offered to all organized sector employees
by their respective employer. This is roughly around 5% of their
monthly basic salary and it earns 8.5% interest on it.
During the retirement period, employees opt for pension and get their
monthly pension cheques.Returns of 8.5% in an environment where
inflation is 10%+ is not generating any REAL returns. Investors should
always look for returns which beat inflation atleast by a 7-8%.
Mutual funds also provide pension plans.These funds come as a debt
oriented hybrid funds.The characteristics of these funds are
1. Lock in period of 3 years.
2. Exit load of 3% if withdrawn before the age of 58. This brings in
discipline among investors to not to keep meddling with amount
dedicated for pension.
3. These qualify for section 80(c) tax benefits. Investment made into
pension funds upto 1 lac is tax exempted.For people who don have home
loans and are figuring out what to do to fill up 1 lac in 80(c), this
can be a very good option where both tax benefits and investment need
is also satisfied.
4. UTI and Franklintempleton are the two funds which currently offers
pension plans in mutual funds.
5. Past track record of the two funds.Annualized returns since
inception as on 13/08/08 for
1. Templeton India Pension Plan(1997 - 2008) - 14.62
2. UTI Retirement Benefit Pension Plan(1994-2008) - 11.18
TIPP is a better choice than UTI's scheme.
So start exploring the pension options in mutual funds and get
inflation beating returns from them.
Happy Investing!
Subbu
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Fri Aug 29, 2008 9:42 am |
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What is Fixed Maturity Plan?
FMP or Fixed Maturity Plan is closed ended mutual fund with the
following features.
1.It is a fixed tenure fund.
2. It is a debt fund.
3. Generates income while protecting the capital by investing in money
market instruements and debt instruments.
4.Tenure ranges from one month to 5 years.
5.It invest in debt instruments which has maturity linked to the
fund's tenure.
6.Not sensitive to interest rate volatility when held till maturity.
7. Lower Tax rate than banke fixed deposits.For bank FD, the income
tax slab rate is applied.
Who can invest in FMP?
If you are not a risk-free investor and look for an assured income,
this is the right option for you.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Fri Aug 29, 2008 10:34 am |
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What is Liquid fund?
Liquid funds belong to the category of ultra short term debt funds.
These can be used as alternative for short term bank deposits
(deposits for less than a year).
1. They invest in debt instruments which have maturity of 1-2 months.
2. They have a lock in period of only few days unlike banks wherein
you have to pay penalty if you preclose your FD.
3. They have a lower tax rate than a bank FD for a person in 30% tax
bracket.The tax on dividend paid out is less than the income tax slab
rate of a person in 30% tax bracket.
4.The interest rate varies with the market and it is a good option in
a increasing interest rate scenario unlike bank FDs where interest
rate is fixed.
5. They accept a minimum investment of 10,000.
6. These are suitable for investors who don want to lock in their
money at banks for a shorter while but at the same time want to get
interest on their amount.
Subbu
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Sat Aug 30, 2008 3:14 am |
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What is monthly income fund?
MIPs or Monthly Income Plan would be suiting for retired people who
would need a monthly income plan but they have not opted for assured
pension during their working life period for various reasons.
Let us go through more in detail about the Monthly Income Plan
Objective
To generate regular monthly income to investors in the dividend plan.
Asset Allocation
Fixed Income Instruments = 80-85%
Equity = 15-20%
Assured Return?
As with mutual funds , the monthly dividend payout is not assured but
there are certain good funds which has a good track record of giving
monthly dividens without fail.
Taxation
For a person in the 30% income tax slab, MIP scores over other debt
products by having a Dividend Distribution tax of 19% instead of 30%
in bank FDs.
Suitable Investors
Those who are nearing retirement or attained retirement
To find the list of funds in this category, check out @
http://www.valueresearchonline.com/funds/h2_typecomp.asp?type=1&objective=19
[link=http://investorskool.blogspot.com/]Read More...[/link] |
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| subbu |
| Posted: Sat Aug 30, 2008 12:46 pm |
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What is earnings per share?
We often come across the term EPS(Earnings per share) in the
television channels when the companies report their quarterly/annual
reports. Lets see whats exactly is EPS
Earnings per share = (Net Income - Dividend paid) / Outstanding shares
Where Outstanding shares = Total number of shares held by the
investors. This is referred to as Capital stock in the company balance
sheet.
EPS can be used as a comparison tool for evaluating companies. However
we should compare EPS of companies in the same domain and not across
various sectors.The decision to buy a company's share should not be
totally dependent on one technical parameter. It should be based on
collection of all technical parameters.
Instead of comparison of two companies by comparing their net income ,
comparing their EPS would give a more better comparison in terms of
efficiency of the company to generate profit for each share that the
investor holds.Two companies may have same net income,but one might
have a higher EPS, because it has used less number of shares to
generate that income.Given that net profit of two companies are same,
the one with a higher EPS is better for investment.
There are three types of EPS reported.
Trailing EPS = Net profit for the last financial year/outstanding
shares.
Current EPS = Estimated profit for the current financial year/
outstanding shares.
Future EPS = Estimated profit for the upcoming financial year/
outstanding shares.
When the company splits the stock bases, say from a face value of Rs
10 to face value to Rs 1,the EPS of the company would also get
adjusted.
EPS is used in measuring PE ratio,which is again much discussed
technical parameter.We shall see this in detail in the next blog
entry.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Sun Aug 31, 2008 3:15 am |
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What is balanced fund?
Balanced fund are a type of funds which does not take full exposure
either in equity or in debt. It invests in both equity and debt in a
well defined ratio as per the fund's mandate.These funds are also
called as hybrid funds.
Equity Oriented Hybrid Funds
These funds usually invest in the ratio 60:40(equity : debt) or 75:25
(equity : debt). This is suitable for investors who wants to get
benefited from the equity market but at the same time would not like
to risk his entire money with equites. These funds perform better than
equity funds during the downturn in markets and have a better shield
in terms of debt component.
In case of downturn, these funds increase their debt component to
reduce the impact of falling market in the fund's NAV.Similarly during
a bull run, these fund will increase their equity exposure to get
benefited from the bull run. So a moderate risk investor can choose
this fund to have a balanced return.
Debt Oriented balanced Mutual Funds
The pension funds are typical example of debt oriented balanced mutual
funds. These have a big chunk(>70%) of their portfolio in debt
instruments. These funds are designed to get returns from debt
instruments but have a small portion invested in equities to get that
additional kicker return to outpace typical fixed income instruments
like bank FDs.In order to get an edge over typical debt instruments
and also provide investor an extra bit of return, they have a limited
exposure to equities.
So an investor in the age range of >30 who has dependents and who
can't take high level of risk, can opt for balanced fund to bring in
stability to his portfolio.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Mon Sep 01, 2008 3:49 am |
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Many of us have investment in stock market in our financial planning
and all of us wanted to reap the benefits of booming stock markets
across the world.
But WAIT, before start analysing the balance sheets of companies to
invest in them, one should first analyse his/her own balance sheet and
analyse if she has a NET WORTH that can be invested in stock markets.
To arrive at your net worth, carry out the following steps.
1. Keep an emergency fund to meet financial disruption or job loss or
any other critical emergency.As a thumb rule one should always have
3-6 months expenses in the emergency fund.Do not take this emergency
fund into account while calculating your net worth.
2. List all your assets. These can be stocks,savings deposit,fixed
deposit,post office deposits,life insurance sum assured,mutual
funds,gold,real estate. Classify the assets as liquid and illiquid
assets.
What is Liquidity?
Liquidity is the ability to convert an asset into cash quickly.
Stocks,savings deposit are highly liquid assets whereas real estate is
a illiquid asset since it will take more time to convert the asset to
cash.
3. List all your liabilities. These include credit education loan,card
payments,personal loan,home loan and all other types of consumer
loans.This can also include personal financial commitments like paying
your parents monthly.
4. Net worth = Assets - Liablities.
If Net worth is positive, you have surplus and you can invest a
portion of surplus or entire surplus in stocks from a longer term
perspective.
If Net worth is negative, you have some homework to do in terms of
bringing the net worth to the positive and then plan for your stock
market investments.
--
Thanks,
Subbu
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Mon Sep 01, 2008 8:06 am |
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How to invest across various stages of life?
Age does play an important role in building a portfolio for an
indiviual. As you grow you should start realising or start reap in the
benefits of your well planned investments.Let us classify the
investors broadly into three categories.
Aggressive Youth(21-30)
This is the time when one should have vigour and aggression in
investments. The Portfolio should be tilted towards more equity
allocation than the debt instruments. Still , onc should plan for his/
her retirement right from the first month when he/she receives the pay
cheque. Earlier you start better is ur future retired life.
Allocation %age
Equity - 75 %
Debt - 25 %
The Debt instruments can be chosen from PPF,NSC,Pension funds. For
Pension funds its better to avoid schemes offered by the insurance
companies. There are better schemes available in the MF arena like
Templeton India Pension Plan. As your age apporoaches 30, you should
gradually shifts ur investments towards a better balanced protfolio of
funds.
Responsible Familymen(31-50)
As the number of dependents on you grows up, it make more sense to add
more stability to your protfolio by adding more debt/balanced funds.
This move also reduces the volatality of the portfolio as a whole.
Allocation %age
Equity - 50-60%
Debt - 40-50 %
The Debt part can comprise of MIP(Monthly Income Plans),Pension
Funds,Liquid Funds,FMP(Fixed Maturity plans). The Equity part shud
contain less exposure to thematic funds and more allocation to
conservative funds like Balanced Funds.
Retired Life (> 50 years)
The best way to enjoy the retired life is to spend the money
accumulated over time. Spending not in a lavishin way but in a more
satisfying manner. Its easier said than done. ACCUMULATION of wealth
is not that easy but once your are tru that harship stage, then you
are surely there to enjoy your retired life.
Learn More..[http://investorskool.blogspot.com/] |
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| subbu |
| Posted: Tue Sep 02, 2008 3:53 am |
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What are different types of stocks?
Many of us wanted to choose the right stock at the right time and make
a good profitable investment,but this is easier said than done. Before
picking up the right stock, you need to figure out what kind of stocks
that you would like to invest.There are a wide variety of stocks.Let
us go through them.
1. Growth Stocks - These are the companies whose earnings growth is
much higher than the other peer companies in the stock market. The tag
of "growth stocks" rotates among various sectoral stocks as time
evolves and it is not a fixed one. In the last 3 years, capital
goods,infrastructure,realty stocks were considered as growth stocks.
2. Income Stocks - These are stocks which have a good rate of dividend
paid out to the shareholders consistently over time. Mostly these will
be companies from a sector wherein after establishment of the
business, there will be constant flow of income. For eg, power
generation sector. While it takes more capital and time to build the
power plant, but once its commissioned, there is a constant stream of
revenue and hence these companies keep giving constant dividend to the
share holders.
3. Value Stocks - These are stocks whose market value is much lower
than the real value of the stock.These have a very low PE value and
the marketmen have not yet identified the true potential of the
stocks.
4. Defensive Stocks - These are stocks which are not affected by
economical cycles of growth and slowdown. For eg, Pharma sector.
People will not stop buying medicines if the economy is slowing down
or growing fast. These companies will have moderate growth of income
over a longer time of time and have stability in revenues.
5. Cyclical Stocks - These stocks are influenced by the current state
of the economy. If the economy is growing , these stocks get benefited
with the higher growth rate and if it slowsdown,these stocks also have
the effect in them. Eg. Banking,Real Estate.
6.Momentum Stocks - These stocks are those which drive the market and
influence the trend or mood of the market to a greater extent. Eg.
Infosys,RIL.
So before you put your penny into stock market,figure out on which
category of stocks are u gonna invest.
Subbu
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Wed Sep 03, 2008 5:18 am |
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How to calculate your cash flow statement?
In the previous article , we have seen how to calculate your net
worth. Lets us now get to know how to improve your net worth. One of
the tool that can be used to improve your net worth is your cash flow
statement.
Cashflow statement is nothing but a measure of how much money is
coming in and how much money is being spent by you.Lets start creating
your cashflow statement by doing the following steps.
1. List down all your incomes. Identify all your source of incomes
like monthly income,dividends,rental income and other sources.List
down the monthly income and also list down the annual estimate of your
income from each source.
2.List down all your expenses which may include credit card
payments,rent/emi,grocery expenses,children's fees.
3. Calculate your cash flow by
Cashflow = Income - Expenses
After arriving at your cash flow, check if the cashflow is positive or
negative. Lets see how to read/analyse cashflow statement.
4. Cashflow analysis
a) Look out ways to increase your income. Check if your hobby or your
skill set can generate a significant income.
b) Check if you could reduce your expenses. Classify the expenses as
necessary and unessential ones. Try to reduce the unessential expenses
if possible.
c) Try to reduce your debt component and try to reduce taxes by
investing in tax instruments.
Cashflow is directly proportional to the net worth and hence start
creating your monthly cash flow statement and track them regularly to
increase your net worth which would in term let you give you leeway
for investments.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Thu Sep 04, 2008 3:45 am |
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what are different types of debt instruments?
While searching for investment products which is aimed at capital
protection and fixed returns, we turn our attention to various debt
products available for investment. Let us go through some of them
which is not very familiar with the normal investor community.You can
see the following categories in the portfolio of almost all debt
mutual funds.
1. Central Govt Securities - These are the most safest debt investment
that one can make. They don have any default in payments.Even in case
of bad situations, the government can print currency and payback the
investment to the investors.
2. State Govt Securities - These are provided by respective state
government and are less liquid compared to central govt securities. It
has a higher yield than central govt securities and it may default on
payment but in history it has never happened.
3. Public sector bonds - These are issued by public sector
undertakings who borrow funds from the markets in terms of bonds.
4. Domestic Financial Institutaion bonds - These are provided by
financial institutions like IDBI,ICICI and these are unsecured bonds.
5. Corporate Debentures - Private sector companies raise fund from
investors through corporate debentures.
6. Commercial Paper - Private companies meet short term(1-6 months)
fund requirements through commercial paper.
7. Certificates of Deposit - These are issued by banks and financial
institutions.
Apart from these , there are other common products such as kisan vikas
patra(money doubles in 8 years 7 months),NSC,Post office
Deposits,Senior citizen scheme in post office,GOI bonds,PPF and Bank
FDs.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Fri Sep 05, 2008 3:49 am |
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What are the risks involved in stock market investing?
Everyone wanted to make quick money out of stock markets and very
badly wanted good stock picks that would generate triple digit returns
but WAIT,
1. Are you aware of risks involved in stock market investing?
2. Have you calculated the amount of risk that you can take?
3. Are u choosing the stocks that matches your scale of risk?
One should find answers to the above questions, before placing a buy
order with his/her broker.Let us go through the various risks
associated with stock market investing.
Financial Risk
The investor can lose his/her money when the financials of the company
in which he has invested is not performing well. If an investor
invests in a company and if the company's profit keep declining yoy,
then investor is holding the risk of losing her money because the
company's share price will keep moving downwards.
So before choosing a company to invest, do a thorough analysis of the
financials of the company.
Interest Rate Risk
Lets assume an investors goes for fixed depost at the rate of 8%. When
the interest rate scenario changes, the interest rate in the market
can move to say 10%, then you stand to lose the extra 2% gained in new
fresh deposits.
Interest rate also affects equity investment,how? . Companies borrow
funds from banks, financial institutions for capital expansion. When
the lending rate increases, companies bottom line(profit) is hit and
hence it affects the share price of the company.
Market Risk
The investment can be influenced by market volatitlity in the short to
medium term.The markets sentiment is driven by lots of factors - like
global cues,economic data etc. When the entire market is moving down,
your stock will also most likely move down and affect your return on
investment.
Inflation Risk
In terms of investment, one should always look for inflation adjusted
return for true evaluation. If your investment fetches you 10% per
annum and the inflation is 12% per annum, then you are losing your
money and your investment is giving negative returns.So inflation has
a bigger impact in investments.
Poitical Risk
The market mood is influenced by the political climate in the country.
When a govt changes,the market will be in a jittery mood to know if
the new govt will be industry friendly or not.The major economic
policy of a country is framed by the ruling government and hence it
has a bigger say in market and hence your investments.
Emotional Risk
Investors usually get into the trap of three emotions while investing.
Greed,Fear,Love.They have a greed to make most of the money in a short
period of time. They fear to enter markets when market is in a deep
bear run. They keep investing in a stock though it is moving down just
because they have a mad love for that stock.
In investment, emotions should not rule over intelligence.
So, take into account all these risks before investing in stock
markets.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Mon Sep 08, 2008 3:38 am |
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How to minimize risk in investment?
In the previous article, we had seen the various risks involved in
stock investing, let us now drill down on the steps needed to minize
the risks involved.
Knowledge - Lack of knowledge is the greatest risk involved in
investing.One should get familiar with the concepts and parameters in
investing before investing. Knowledge will not only help reduce risk
but also helps create wealth in a significant manner. Before investing
in any stock, analyze the company thoroughly.
Don't Invest - This may sound strange but it makes sense to stay away
from a stock or sector if you don't understand how the industry/
company operates. It is always advisable to invest in stock/sector
which you understand better than those which you don't understand. Try
to read more about a stock/industry to gain more knowledge. Even after
investing, you should always track the stock's behavior/reaction to
various events in the market.
Get your financials right - Have your buffered cash(3-6 times *
monthly expense) always ready before investing. Go for investing only
if you have a positive net worth. Have adequate term insurance for
your life.
Diversify your investments - Don invest all your money in a single
stock/sector. Invest in different types of instruments like
debt,equity(mutual funds,stocks). Don put more than 10% of your
investment in any one stock. Invest across various sectors and don go
for sectoral funds or stocks.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Tue Sep 09, 2008 4:48 am |
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How to analyze a company's annual report?
Many of us are proud owners of shares of bluechip companies and we
receive company's annual reports every year. Most of us do not give
due importance to the annual reports. Many useful information can be
obtained from the annual reports and those can help you decide on your
future investment in the particular company.
Let us glance through some important information that needs to be
looked at a company's annual report mailed to you.
1. Look out for the current state of the company and what are the
changes which have evolved in the company over the past one year.Track
the progress over the past few years.
2.Get information on new acquisitions or any major developments in the
company.
3. Get to know about various offerings/products from the company.Learn
what is unique about them and how are they different from the
competitors.
4. Know what is the company's plan for the upcoming financial year.
5. Learn more about short term and long term goals from the annual
report.
6. Go through the profit and loss account statement.
7. Analyse the sales growth and earnings growth over past 3-5 years
which will be given in the annual report.
8. Go through the various assets,liabilities of the company from the
balance sheet of the company.
In addition to these, many other useful information can be inferred
from a company's annual report.Remember , every share holder has the
right to know all details about his/her own company.
So , go and get the annual reports of your companies from your dusty
shelves at home and go through them and get knowledgeable about your
company.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Wed Sep 10, 2008 3:57 am |
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what is return on equity?
Let us dig through yet another important technical criteria associate
with a stock - Return on Equity(ROE). It is simple to calculate and
helps in measuring the profitability and asset management of the
company.
Return on Income = Net Income/Shareholder's equity
Net Income can be obtained from Profit and Loss statement and
Shareholder's equity can be obtained from the balance sheet.
ROE indicates if a company is creating assets or eating up lot of cash
in due course of doing its business.
If ROE is 15%, it means 15 rs of asset is created for every 100 rs
invested in the stock.ROE also indicates if the additional cash
investment made by the company is produced by the return on existing
investment or out of fresh cash investment.
ROE can also be interpreted as
ROE = (one year's earnings / one year's sales) x (one year's sales /
assets) x (assets / shareholder equity)
Lets see how ROE can give information on profit margin,asset
management in the next articles.
Subbu.
http://investorskool.blogspot.com/ |
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| subbu |
| Posted: Thu Sep 11, 2008 4:14 am |
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Guest
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What is the right time to invest?
Most investors in their initial days asks the famous question - "What
is the right time to invest (or) When can i start investing in
markets?". A simple answer to this question is "Anytime is good time
for investing provided you have a defined time frame of your
investment".
The question should be rephrased as "How long should i be invested to
attain my financial goals and How much should invest periodically(SIP)
over a longer period of time". Investment over a longer period of time
is always fruitful and facts supplement it. Sensex has come along all
the way from 100 to 15,000. If you had invested 10,000 rs in infosys
ipo in early nineties, you are crorepathi by now.
Follow the simple steps while making/tracking your investment.
1. Don't Waste time
The earlier you make investments, the better are your returns. The
compounding rate of return increases with the number of years you are
invested. Eg. 10,000 invested for 3 years at 15% return is worth 15000
whereas the same sum invested for 10 years at 15% return is worth
40,000. So do not time the markets to buy at lower levels. It is very
difficult to find the bottom of the market.
2. When do you need money?
Decide on when you need the money down the line. For anything less
than 5 years, do not go for stocks or equity mutual funds. Equity
should be considered only for a longer period of greater than 5 years.
For short to medium term investment , go for debt instruments
3. When to sell?
After you had made your investment, you should decide on when to cash
out to meet your financial goals. There are two scenarios where in you
can redeem your investments.
1. When your financial goals are met.
2. When the investment in stocks/mutual funds become overvalued.
4. Don listen to rumours
Do not redeem your investment going by the rumours in television and
stock market of a correction or a crash. Take your decision on your
own.
5. Consistent Review
The job is not done just by investing. One should always keep
monitoring his/her investments in a regular basis and should take a
decision based on the review.Do not churn the portfolio too often.
Subbu.
http://investorskool.blogspot.com/ |
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