What Investors can learn from Soccer Penalty Kicks

 

How to Hedge your Portfolio?

 

Ingredients for Investment success :

Every aspiring investor assume that investing in the right stock is key to investment success. No doubt. Unless the underlying stock you invest is right, your investments cannot sustain its growth.

But Investing in the right stock at the right time and staying invested (patience) is crucial to Investment success. And when we call it as the right time - many investors look back and easily identify the lowest price point as the right time to invest. But in reality, no one knows when is the right time to invest - today, tomorrow or the day after. 

Adding fuel to the fire is the research reports of various investment bankers and stock brokers. They come out with an investment call on the stock. And all business channels keep flashing the BUY tag of these investment research desks and analysts. Above all is the so called technical analysis who keep giving the levels to invest.

And all those who watch these reports / business TV channels scramble to buy these stocks. As a result there is a buying pressure and the stock price rises. But the next day these research analysts and TV channels identify a new investment idea - only to forget those stocks debated the day before. As a result the glamour diminishes and buying pressure eases - resulting in fall in stock price. 

And the worst part is many investors who bought these stocks fail to notice these phenomenon and end up holding these stocks blindly. They are not sure if they should book loss or hold on to these stocks. Technical analysts come up with the beautiful concept called STOP LOSS, which means if the stock price breaches a level, you need to cut your loss and invest in a new investment idea.

Here is a LIVE case study of this phenomena:

• On 30th April 2018, a reputed investment research house releases a report on a company called JK Paper. The tag line says "In a sweet spot...". And the reports is summed up with a TACTICAL BUY on JK Paper at Rs.142 for a price target of 195. 
  
• No doubt the buying craze lifted the stock price to 149 in the next one week.After that the stock price was not noted and it fell down all the way to Rs.99 on 19th July 2018.
• Those who bought it 142 would have felt cheated. The would have lost the trust in the investment research house which published this report. 
• Many even get confused if the fundamentals of a company matter with respect to its stock price movement. But the fact is, many investors read only the current price and price target. They are least bothered about the content of the report.
• Had they read the report and understood the investment rationale, they might have invested at lower levels. And investing in a falling market is not that easy. Many investor panic and get paralyzed.
• Today at Rs.171, those who bought at Rs.142, stands at a profit of 20%. But the real bumper profit would have been reaped by those investors perfectly timed and invested at Rs.99 would have made a killing return of 70% in these four months. For that, one needs to really be lucky.
  

• Practical Investors are those who kept investing gradually as the price keeps falling. Though they would not get THE BEST Return, they would have got a better return when compared to one time investing. 

Hence the recipe to investment success is : 

• Identifying Good company / business + 
• Incremental investing when stock prices falls + 
• Holding on to your investment till the tide turns (patience). 

Many investors aspire to invest at rock bottom price and hit a bumper. As a result they keep waiting and miss out investing in such moments. Hence it is better to believe in hard work and discipline rather than on blind luck!

Things to do when Market falls:

• Time to stay calm. Relax and keep stress levels low.
• Dont shy away from investing in MF an Shares. I know its painful. Whether we like it or not, markets will be volatile. We need to overcome these volatality to generate returns. Volatalities are Opportunities to Invest. Grab them. Fortune favours the Brave.
• Remain focused on your portfolio.
• Check your bank balance and transfer funds.
• Top up in those shares / Mfs which are convingcly good. Keep investing in small quantum. No one knows the bottom. Dont invest all your money at one shot. Discipline works good in every aspects of life, including investing.
• Ongoing Market fall is due to Global Contagion from USA. Every countries stock market is falling. Little to do with Indian economy or Budget.
• When price falls, PE Ratio becomes cheap - making these stocks attractive again.

Market falls when everyone is selling / trying to sell. As a result of this stamped, market crashes. After sustained selling,  say the stock price falls by 50%, and the company is a good company, it makes little sense to continue selling at such low price. Hence selling pressure recedes and the stock price starts bottoming out. Due to its attractive valuation, buying interest starts emerging and the price starts inching forward. Hence holding on to good companies / MFs and adding funds at lower levels can be rewarding, provided you are willing to invest time along with money.

Since 2014, we got little opportunity to invest. Now is the time. Stay calm. Stay focused. Keep investing. Consistency matters.

Basic Facts about Bonus Shares:

Investing in stock market has two main objectives : Growing your capital and regular income in form of dividend. Growing capital may happen by simple appreciation of share price or by a combination of share price growth and addition of free shares in the form of bonus.

Though many investors get lured by 'FREE' shares, post bonus the share price falls. For instance if the share price is Rs.100 and the company issued 1:1 bonus, then post bonus the number of sharesee increases to 200 and the share price falls to Rs.50. Thus making the total value of investment the same.

Once investors realize this, they feel there is no meaning in investing for the sake of bonus. They feel it makes no economic sense. This could be due to misconception of facts behind Bonus.

Bonus is:

• Non cash transaction. 
• It is issued for free to existing share holders in a ratio like 1:1 or 1:2 etc
• Post bonus, the number of shares increases - thus increasing the liquidity.
• Increase in liquidity coupled with lower share price - makes it affordable for more number of investors to buy these shares. Thus increasing the share holder base.
• More number of share holders results in more public scrutiny and improved price discovery.
• Inspite of any number of bonus shares, the face value of the shares remain constant. Unless the shares are split (when face value of the shares are split), the face value remains constant.
• And if the company maintains constant dividend or improved dividend in percentage terms, then the share holder stands to gain immensely. And the dividend yield ratio increases since the same percentage dividend on reduced share price (post bonus) makes it even more attractive.

But all these factors work only in the long term - atleast in 3 to 5 year term and beyond. Short term investors need to be satisfied with the short term surge in stock price due to bonus announcements.

Rs.1 Lakh to Rs.650 Crores in 20 Years : VIJAY KEDIA

Vijay Kedia who turned Rs 1 lakh to 650 crore in 20 years of investments at componding rate of 55% pa.He explained the same in this video (CLICK HERE)
In his talk he said 10 points that have helped him to avoid defeat in the market.

1. Create a fixed income outside the market for your livelihood: Never be dependent on the income from the market.

2. Be informed and read a lot: The market rewards you as per your perception. If you think investing is a gamble, then it is a gamble. If you think it is a business, then it is a business. Read a lot and be a maniac when it comes to reading; it will help you connect the dots.  Warren Buffett once held up stacks of paper and said he read "500 pages like this every day. That's how knowledge builds up, like compound interest."

3.  Invest a part of your savings, not the earnings, into stocks. Also you should only invest a certain amount based on your risk-taking capacity.

4.  Don't leverage: Don't invest from borrowed money.

5. Invest only for five to 10 years; minimum time frame is five years: Rome was not built in a day. It takes time for a story to mature. I always invest in small caps that go on to become mid to large caps.Whenever I bought a small cap, people discouraged me. No one liked the stock. For two years the company went nowhere; after that it gave multibagger returns.

6. Invest only with the best management and let it worry about the company: If you invest with the best management, you don't have to worry. Let management worry because management has its prestige and its name at stake.
Good management in bad business is better than bad management in good business.

7. Your investment belongs to the market and the profits belong to you: As long as you are invested, the profits belong to the market. Don't spend just because the stock has risen because tomorrow stock prices can collapse.

8. Book profits periodically: Invest profits in buying.

9. Don't be happy in an up market, and don't be sad in a down market. He explains how one should avoid regret. He says a stock can go up after you sell it. Don't regret. The stock market is a place of regret. You make money, you regret. You lose money, you regret. You make less money, you regret. That is why it is very important to keep a balanced mind.

10. The stock market is a mind game.

We are back to where we were: MYTH BUSTER

NSE Index Nifty was @ 7963 on 1st Jan 2016. From there it crashed all the way to 6971 on 25th Feb 2016. That's just before budget. A combination of domestic worries and global lullness spoilt the markets. After seeing a positive budget and fueled by global recovery stock markets recovered all the way to 7912 on 21st April 2016. That's why this article is titled "We are back to where we were".

A market which stated from 7963 on 1st Jan 2016 to 7912 on 21st April 2016 - looks really boaring. There seems to be absolutely no gain in the market. But the real opportunity was inbetween these 2 dates:

• Those who invested only on 1st Jan 2016 - are more or less at break even, even today.
• But those who made additional investment on 25th Feb 2016 would have made a better return. 
• And those who invested only on 25th Feb 2016, would have made a killing returns. (See table below)
• Many of us assume that the index (NSE Nifty or BSE Sensex) reflects the returns generated by the investments. But the reality is bit different. As you would see from the table below, there were many stocks which had delivered far better returns when compared to the index.
• Mutual funds ofcourse tail the index returns in the short period. But over longer period they generate significant outperformance.

So the secret to investing is not investing at one point and waiting for the investments to appreciate. But to invest at every opportunity (market fall) so that the returns are optimized.

Now, here is a Do-it-yourself homework.

• Assume that you invested Rs.10000 on 1st Jan 2016 on all the stocks mentioned above and compute its current market value.
• In the 2nd case, Assume that you made investment of Rs.10000 on both these dates : 1st Jan and 25th Feb on all the stocks mentioned above. Now compute its current market value.
• The 3rd case. assume that you invested Rs.10000 on all these stocks only on 25th Feb 2016 and calculate its current market value.

You will be surprised by the results : The returns generated by carefully picked stocks (like the one mentioned above) would be far far be better than the returns generated by NIFTY and SENSEX. And only when you 'feel' these results, you can appreciate these results.

SIP or GULP : Investors Dilema

... by iFAST Financial, India

ABC's of Profitable Stock Market Investing:

Thanks to market rally. Every magazine and newspaper is writing articles about it. And Readers Digest is no exception.

Below mentioned is the article published in RD April 2014 issue. One of my client - a retired bank manager, but a seasoned stock market investor forwarded it to me. I found this article really simple to understand. Hard facts have been optimally diluted to make it edible. I wish everyone - be it young or old, new or experienced, men or women - everyone reads it, takes note of the important points and venture into stock investing.

You can right click these pages and save it in your computer, if you want.

Left Behind by not Investing in Equities : That's a mistake

Below mentioned is a beautiful article on the Realities on Equity Investing in India, published in MINT on 13th March 2014. Click here to read the original article:

.....................................................................................................................................

Warning: these mistakes will cost you dear:

Critics of equity markets might ignore investing in the asset class, but they can’t ignore the returns. For all those who had written off equity as an asset that promises but doesn’t deliver, the recent rally comes as a surprise.

If the high volatility in equity seen around the time of the global financial crisis scared you and you decided to move your money elsewhere, you might be rethinking the move now that benchmark indices are at a lifetime high.

Assuming you were out of the market and taking a look at returns in March 2013, you would be happy outside as markets had hardly moved giving a 5-year annualized (compounded annual growth rate, CAGR) return of around 4%. But a year later the story is different. The S&P BSE Sensex 5-year CAGR returns for March 2014 is 21%—a missed chance if you are still an outsider.

Investing in equity isn’t about knowing whether the market will move up or down in a month, three months or a year. It’s about being patient and knowing your underlying stock or fund. This fundamental has never changed, and yet investors ignore it when times are good and panic when things turn sour.

So if you are sitting on the fence about equity investment or feeling bad because you missed some part of a rally, here are some mistakes you shouldn’t repeat.

An empty equity basket:

Equity markets are uncertain and, often, the sharp moves come in short periods. For the rest of the time, markets will usually move sideways. As a result returns, too, are not linear year after year. When you look at Sensex returns for periods of five and 10 years over the past 30 years, you will see that returns have sometimes been very high and sometimes negligible. For instance, in the 10-year period between March 1994 and March 2004, the Sensex returned only 4.3% CAGR. But instead of rushing to redeem in 2004, had you remained invested for another three years, your equity portfolio would have looked better with the Sensex returning 10% CAGR.

It’s impossible to time the market; you have to be patient for market cycles to play out.

At a micro level, thanks to the sentiment driven nature of stock markets, what you see as the immediate stock price reaction to news or events is not always a justified response. Over a period of time, more often than not, stock prices gravitate towards fundamentals and reflect their intrinsic values. Not investing in equity simply means missing out on the high returns that this asset class can give.

Your second loss (the first being missing out on higher returns) if you don’t have equity in your portfolio is that you miss out on tax-free, above-inflation returns in the long run, which other asset classes like fixed income and gold can’t deliver. If you sell shares after holding them for even 12 months (and having paid the securities transaction tax), there is no capital gains tax. And long-term equity investments are very likely to beat the average 7-8% annual inflation in the long run in an economy like India.

Kiran Kumar Kavikondala, director, WealthRays Group, said: “We recommend all our investors to have at least 20% in equity either directly or through mutual funds. Even last year, while markets corrected, we advised that equity allocation be increased to take advantage of lower levels.”

He added that even at current levels, the company is advising its investors to add to equity but the focus has shifted to mid-cap stocks and funds from large cap.

Following the herd:

When you are looking for stocks or funds to invest in don’t just go by what others are investing in. It’s important to focus on quality. For example, some stocks in the NSE CNX 500 index have returned 100% CAGR over the past five years while some others have declined 30-40%. So, it’s not fair to say that markets haven’t done much in the past 5-6 years; investing in quality companies would have delivered returns or at least protected the downside.

So, how does one identify quality companies? Vikas Gupta, executive vice-president, investments and traded markets, ArthVeda Fund Management Pvt. Ltd, said, “Liquidity favours companies where earnings are stable and not affected by economic downturns; that’s a sign of quality. Investors must look for companies with low debt and quality management.” But quality can’t be bought at any price; be aware of valuations and buy stocks where the price-to-earnings ratios are not much beyond 25-30 times forward earnings, he added.

All stocks will go up:

While in the market rally between 2003 and 2008 all BSE sector indices gained more than 20% CAGR, this time around (2009-14) the story is different. In the past five years, while a handful of BSE sector indices delivered 30-35% CAGR, there are others that remained flat during the period, and a few that didn’t even deliver 10% returns.

Nevertheless, when you look at benchmark indices, the Sensex returned 21% CAGR in the past five years and 43% for the 2003-08 period. A market rally isn’t always going to include all the stocks and sectors. So, take care in choosing the stocks that you buy. “It’s difficult to forecast market levels and investors need to focus on bottom-up stock selection. Look for companies that create value by increasing book values by 15-20% annually, and then just remain invested,” said Gupta.

If you are a savvy equity investor, you could move from one outperforming sector to another; if not, then it’s best to take the mutual fund route and stay invested.

What should you do?

For starters, invest in equity. “In dull markets, the number of investors is low and many don’t come in till the market trend is already reversing. There has to be a conscious approach to regular equity investment,” said Kavikondala. 

But before you take the plunge, here’s a recap of what you must not do. 

• Don’t commit for lesser than 3-5 years. 
• Don’t panic and withdraw if things go wrong in the interim. 
• Don’t go with the herd; look for fundamentally strong companies or high quality mutual funds. 
• And, don’t time the market.

Secret to Midcap Investing : Buy Right - Sit Tight

Journey from 21000 to 21000 : Leasons Learnt

After a gap of 5 years and 9 months, Stock Markets have regained the top. The Sensex has breached its previous all-time high of 21,206.77 made on January 08, 2008.

With index – Sensex / Nifty being the indicators of stock market, it is easy for anyone to assume that Investments made in stock market have just reached where it was, and it has not grown in this period. But the fact is the components of index which rallied in 2008 and in 2013 have been vastly different.

This time around consumers goods, pharma, FMCG & technology stocks have been key sectors which gained. As a result investors who had stocks in these sectors would have gained inspite of Index being at the same levels. Stocks in reset of sectors are either down or flat.

SENSEX STOCKS:

• There are 10 Sensex stocks which have gained by over 100 per cent in that period. 
• Out of them, three stocks have gained between 200-300 per cent, one stock has surged between 300-400 per cent and another one has surged over 400 per cent.
• There are eight Sensex stocks which are down by over 25 per cent.

SENSEX A GROUP:

• In Sensex A group, there are 50 stocks which gained by over 100 per cent. Among them, 21 stocks have gained between 200 and 300 per cent, eight stocks surged between 300 and 400 per cent while six stocks have rallied over 400 per cent.
• There are 44 stocks which lost by over 50 per cent in that period.

Hence, if investors had atleast a few of these stocks in their portfolio, they would have made hefty returns. And many of these stocks represent simple businesses.

The take away points out of these stocks performance are:

• It is Assumed that 'index return' is equal to 'stock return'. It is not true. Stock / Sector specific reasons if favourable could trigger a rally – and result in handsome gains to investors.
• If investors had atleast a few of these stocks in their portfolio, they would have made hefty returns. And many of these stocks represent simple businesses.
• Never concentrate your investment in one or two sectors or one single stock. It is always better to hold a diversified portfolio of stocks.
• Many investors could have been holding these stocks, but might not be aware of these returns. Along with the crowd they might feel pessimistic about market. Only when they do a periodic portfolio checkup (like Master Health Check up) would they realize the ‘good things’ they have done while investing. And you need to Pat yourself for having done it right!
• Few investors keep invest in stock market without investing !!! They buy stocks hoping that they would rally immediately. When this does not materialize they are forced to square up their position on T+3 or T+5 days. And they could have bought one among the below mentioned stock, but sold off since they did not take delivery (by investing money and taking delivery) of the stock. Such investors need to realize – there is no free lunch. Had they paid and taken delivery, of course with conviction, they would be smiling a lot now.
• Two months back everyone was fearful and pessimistic. Naturally many investors stayed away from market. But today they might 'feel' they made a mistake by not investing. To avoid such situations in future, it is necessary to adopt to some form of investment methods, like the Emotionless Investing Strategy (click here) developed by us @ EASY Investments. It is better better late than never.

Best Investment Strategy : An analysis

I was interested in a mail in my inbox this morning. The subject line read "IDFC Premier Equity Fund has doubled the investment amount over the last 7 years for an SIP Investor". That kindled my curiosity to study this fund further.

In 'olden days' there was an investment with Post office schemes called Kisan Vikas Patra (KVP), where the money you invest would double in 8 years. This was possible at a compound interest rate of 9%. And it was an one shot investment. But now KVP has been stopped. Many investors would thing that it is the end of the tunnel and gone are the days of money doubling schemes.

But here it is an Systematic Investment Plan ( just like an RD) which has doubled the investment. For this fund to double in value over 7 years means .... I made a small calculation. Along with that I tried to test VIP and STEP strategy. The results are summarized below:

This table shows some interesting facts:

• First and foremost : The fund has performed far better than the actual index. Hats off to the Fund Manager and Team.
• An SIP on the fund delivered 18%+ return Vs 6.5% by the index. That is a clear outperformance.
• And our VIP Investment Strategy scores far better than theSIP :
• By investing Rs.8,30,000, the SIP grew to 16,85,261, resulting in a profit of Rs.8,55,262.
• But in VIP, an investment of just Rs.4,43,083 grew to Rs.13,17,280 : resulting in a net profit of Rs.8,74,000 ( higher than SIP's profit).
• VIP grew at 27.84% compounded annually
• SIP's grew at 18.84% CAGR.
• Our Latest Investment strategy : STEP : grew by 23.16%.
• One facinating fact is :
• Investing lesser amount
• for same duration,
• in same fund
• - yields more returns
• - IF we adopt to superior investment strategies.
• STEP is primarily an investment strategy to accumulate and block higher capital on profitable investments.
• VIP is aimed at maximizing the investment returns and not deploying higher capital.
• SIP is simply a disciplined approach to investments. It works  just like an RD. It is the easiest among the three to operate.
• One major contracting feature is : the returns out of investing in Index is meager for SIP/VIP/STEP. This is the actual return the market would deliver. The excess return you get out of the fund is because of quality fund managers and their ability to pick right stock.
• Going by global standards, till such time India is a developing economy you may get such outperformance in actively managed funds. But once economy gets matured, you need to expect only the returns of an index - In this case - anywhere between 6% to 8%.
• We expect the fast pace of growth in Indian economy to remain till Year 2018-2020 or so. After 2020, Investors needs to understand and and be prepared to brace for single digit returns.
• Hence time is short. We are in December 2012. Make use of the remaining time to invest in Indian markets and maximize your returns by adopting suitable investment strategy like SIP/VIP/STEP.

For clarifications or assistance in understanding the above mentioned concepts, feel free to email us at : easyinvest@gmail.com or call us. We would be glad to explain the same in greater details.

Investors need to note that the returns out of equity market are subject to market conditions and past performance may or may not be repeated in the future. Investors need to read the scheme information document of respective mutual funds before investing. All we are advocating is that with suitable investment strategy, you can minimize risk and maximize the returns - just like the way it is illustrated above.

Emotionless Investing:

Investor’s biggest enemies are not the volatile markets / unstable government / lack of reforms, but their own emotions. In many occasions, they are tempted to make investments when they SHOULD NOT HAVE made it and in other occasions they prefer not to invest when they SHOULD HAVE made it.

Theoretically speaking, an investor needs to:

• Invest when Purchase Price is ‘Cheap’ / Valuations are ‘Cheap’.
• Keep Investing (adding) as the price gets cheaper.
• With each price fall, you should be investing more for better Return on Investments.
• Invest with specific target price (profit) in mind and ‘Blindly’ sell when your profit reaches.
• Have clear distinction between Long Term Investments and Short Term investments.
• Invest only in Top Class companies with proven track record and good management.
• Not invest in penny stocks / fancy stocks (not to chase stocks) which may fly high due to media publicity.
• Above all – Research - before you invest – Not after investing.

All these facts are known to everyone. But when it comes to practical implementation, it is definitely difficult – all due to emotions. Investors turn pessimistic when no one is investing and Investors are hyper-optmistic (euphoric) when everyone is investing. By and large, Investing happens to be a ‘mass mentality’ process.

To overcome this 'EMOTION' problem, we need NEUTRAL, Unbiazed Strategies. At EASY Investments, we have deviced Investment strategies for specific requirement. Some of them may fit your requirements. Hence read our specific articles on following to know more:

• MOST - STP : For Short Term Profit Booking in Stock Market.
• STEP Strategy : For Accumulating Specific Stock / Mutual Fund over a period of time.
• VIP Strategy  : Investment strategy for investing in a volatile market condition.
• Triggers : For Encashing Investments at pre-specified profit percentage.

"Trigger" Strategy:

• Logic
• It is usual for investors to make adhoc investment and book profit at later stage. But the problem is keeping watch of the portfolio and booking profits.
• Though at the time of investment investors expect a basic minimum return, many of us turn greedy and stay invested hoping for huge returns. And ultimately when the market collapses, all the accumulated profit gets washed away and sometimes even we incur capital loss.
• Hence we have a simple solution of fixing a trigger price / profit trigger percentage. Once the investment grows and hits this trigger, investments are redeemed either in part or in full as per the investors instruction and the profit gets credited to bank account.

• Advantages of Trigger based investments:
• Trigger can be set for both investing (switching into equity) and booking profit.
• At the time of investment itself we set this trigger. Hence human emotions donot disturb while booking profit. It is the best way to realize profits – without watching it everyday.

• Suited for :
• Vast Majority of investors - who make adhoc, one time investments.
• Investors who want to book partial profit can also consider these triggers.
• At EASY Investments, we assist you in setting these triggers and encash your profits.

VIP Strategy - For investing in Volatile Market:

• Logic:
• Markets are unpredictable and volatile. For those investors who are often caught in a dilemma of weather to invest now or wait, VIP is the best investment strategy.
• Typically VIP invests MORE when price is low and invest LESS when price is high and not invest at all when price is too high.
• By adopting a calculated approach, you would be able to make the desired investments.
• VIP theory was originally formulated at Havard University as “Safe and Easy Strategy for Higher Investment Returns”.

• Advantage of VIP:
• So far investors knew that they need to invest when price falls. But they did not have a tool to calculate how much to invest at various price. Hence they were investing ‘FLAT’ amount so far through concepts like SIP.
• For the first time, we have this tool called VIP which precisely calculates the EXACT amount to invest as the specific price.
• The out performance of VIP over other investment strategy is amazing. For an investment made since Jan 2011 an one time investment in a bluechip fund would have delivered a doubt digit negative return. Where as VIP Investments delivered double digit positive returns in the same period.
• Being engineered at EASY Investments, we have systems in place to track the market and maximize the investment returns through VIP. We have been practising VIP since 2009.

• Suited for :
• Anyone who has an investment horizon of three years+.
• Though profit can be booked when the desired growth has happened, ideally VIP should be used to create a good long term portfolio. It does not make sense to cut a tree which you have grown another plant in the same place.
• A Basic model of VIP would require Rs.3.5 Lakhs and an inflation adjusted VIP would require 5 Lakhs.

• We had been practicing VIP Investments for past three years and their results have been AWESOME. Practically, it fits every investors needs, since there is dilema of whether to invest or not to invest. VIP guides us to invest through the up's and down's of market.
• To read our earlier publications on VIP Strategy, Click the following links:
• VIP Strategy - published on 30-Nov-2010
• What is Good is not always Popular - published on 21-Oct-2010
• VIP Vs SIP - published on 2-Nov-2009

STEP Strategy:

• Logic:
• Many investors would like HOLDING certain companies for LONG period– be it for various reasons like high dividend yield, promotes background or rich corporate benefits like bonuses. No doubt, LONG TERM WEALTH CREATION is purely due to holding the right share for long period.
• For instance an investment of Rs.10000 in pharma company CIPLA in 1979 got allotted 100 shares of FV 100. But after series of bonuses and stock splits this 100 shares has multiplied to 36,00,000 shares ( Yes, Thirty Six Lakh Shares !) of Rs.10 Face Value (FV) over a period of 31 years. And its current market price is Rs.142 Crores !!! Beyond the market value, the dividend received on these shares per annum itself is a whooping Rs.72 Lakhs!
• For better understanding, Rs.10,000 invested over 31 years at 15% compounded returns would have resulted in just Rs.7,61,435 – without any interest payments.
• We typically keep watch on the stock which you wish to accumulate and keep advising for investing as the price goes down. Since it is for long term investment, we donot recommend or advise you on selling.

• Advantages of STEP:
• It is logical to invest more in your favorite stock when the price is low and hold them for long term.
• If this STEP strategy is applied on good corporate benefit giving stock like CIPLA etc, then the investment has Triple benefit of Capital appreciation, stock multiplication and dividend yield.
• Someone needs to keep track of the stock which you wish to accumulate. At EASY Investments, we keep track of it and keep you informed only when the price comes down. Though this may sound simple, keeping track - that too on a daily basis and communicating to you only when the price goes down is a manpower consuming job.

Suited for:

• Investors who have intention to invest as and when the stock price comes down.
• Investors who have understood the stock fully and are willing to reap the benefits of long term investing.
• Long Term investing means - not selling or booking profit in short term. One must be willing to hold the investment for life time or atlest more than 10 Years. Hence any one with investment horizon of more than 10 years only need to consider this option.
• Moreover Investor needs to be aware that his investment would get blocked, since it is not a churning portfolio.
• Investment commitment would depend upon the degree to which the stock price falls. If the fall is more, then more investments need to be made.
• AIP strategy can be used for both shares and Mutual Funds.
• STEP Strategy could be part of anyones core portfolio building process.

MOST - STP : Short Term Profit Booking Strategy

• Logic:
• Under STP, bluechip shares are bought at lower price and sold at higher price. As simple as it is. This theoretical, easy to understand strategy has been put into practical use by MOST-STP.
• We advise investments in a gradual phase, as the price comes down by fixed percentage and we advise booking profits (selling) as the price goes up. Hence notional profits are realized as REAL profits.
• This investment strategy is more like a business, where in you invest a capital. The profit realized are being pulled out / paid out on monthly basis

• Advantages of this MOST-STP Strategy are:
• By adopting a staggered investment and profit booking strategy, the investment capital does not get blocked.
• By investing in bluechip shares, even if the stock price goes down, they turn out to be good investments which are bound to recover first when market revives.
• There is a constant cash flow as the profit gets booked.
• We avoid holding the stocks emotionally. We encash the higher price. What is bought, needs to be sold to ‘really’ gain.
• We donot rush in to invest all the funds. We invest gradually – thus avoiding getting trapped at higher prices.
• It is more like a business, wherein you expect some return on your investment (cash flow).
• At EASY Investments, we have tracking software to assist you in making MOST-STP Investments.

• Suited for :
• Investing in stock market to realize short term profits.
• Investors can hold same stock in short term strategy ( for short term profit booking) and have another part as part of long term investment strategy. We isolate STP stocks and advise on profit booking.
• Anyone who wishes to invest fixed capital : say Rs.5 lakhs and above and make use of short term opportunity to make profits.

Atlast, SIP Returns Beat Index returns :

Investing in a falling market is the biggest challenge for any investor. We get emotionally disturbed and watch our investment value falling. Even the most conservative form of investment - Systematic Investment Plan (SIP) - faced huge resistance and distrust among investors. Some investors even went to the extent of stopping their existing SIP's fearing further erosion. At the end, they thought, it doesnot make sense to invest in a loss making proportion. But Investors need to understand and believe that "There is sunrise after sunset". Following article that appeared in today's Economic Times precisely indicates that.

Original Article: SIPs beat Sensex in 5-year race, yield better returns than lump-sum unit purchases

Investing in mutual fund equity schemes through systematic investment plans (SIPs) has yielded better returns for investors than lump-sum unit purchases in these products. Buying equity scheme units through SIPs, which involves pre-determined periodic purchases of units over a period of time, every month in the past five years has fetched 10 per cent to 18 per cent annualised returns. In comparison, a lumpsum investment of the same amount five years ago in these products has fetched 4 per cent to 6 per cent annually.

Over 122 of the 160 multi-cap diversified equity funds with over five years of track record have delivered a better internal rate of return (IRR) - a method of calculating daily SIP returns - than benchmark indices, as per data sourced from Value Research. The 30-share Sensex has generated a three- and five-year IRR of 4.4 per cent and 7.5 per cent, respectively. The index has fetched 11 per cent and 13.2 per cent compounded returns for three and five-years, respectively.

"SIPs eliminate the human bias. It encourages investments at all times, irrespective of the market levels. Investors will pocket good gains if they invest in SIP of funds with a good track record," said Sundeep Sikka, chief executive of Reliance Mutual Fund.

For instance, if an investor puts Rs 1,000 every month in SBI Magnum Emerging Business Fund - the best performer among all equity funds in the past five years - for five years (Rs 1,000 x 60 months = 60,000), he would have been sitting on approximately Rs 1 lakh today, which amounts to 21 per cent returns.

"SIP investments average out market volatility by a good measure. Also, it prevents investors from trying to time the market. We're promoting SIPs in a big way as it enables small investments at regular intervals," said Srinivas Jain, chief marketing officer of SBI Mutual Fund.

Similarly, an investment of Rs 1,000 every month (between September 24, 2007 and September 21, 2012) in ICICI Prudential Discovery Fund, Reliance Equity Opportunities Fund and HDFC Mid-cap Opportunities would have earned 20 per cent, 19.2 per cent and 18 per cent, respectively. The Rs 60,000 invested in the three funds over a five-year period would now be Rs 96,744, Rs 96,135 and Rs 93,530 respectively.

SIPs tend to do well even in times of market underperformance as the (fund) pool is deployed at most market levels, thereby averaging out unit purchases at all price points.

"SIP portfolios must have gone through the dips - buying more stocks as prices declined. Volatility also helps SIP portfolios in a big way. Funds that have managed to withstand the market fall have delivered better SIP returns," said Dhruva Raj Chatterji, senior research analyst, Morningstar India.

Investors get more units for the same amount of money in falling markets. The units bought at lower price levels will appreciate when the market turns around, adding to the overall portfolio value. The variance in the performance of SIP and lump-sum (or one-time) investments is mainly due to the fact that SIP investors would have picked up additional units during the downturn.

Fixed Deposit vs Non Convertible Debentures (NCD's)

Companies borrow money for various purposes - be it expansion plan or repay existing loan or acquire new companies etc. When this borrowing results in increased business and increase in profits, the companies flourish.

Both Fixed deposits and NCD's are used to raise funds. But many investors are familiar with FD's than NCD's. But the actual fact is NCD is much more sensible than a Fixed deposit. Below mentioned would explain them why:

Fixed Deposits:

• Fixed deposits are classified as unsecured liabilities.
• Fixed deposits invested for fixed period will get fixed interest.
• If you wish to pre-close, then it is usually done with a reduction (penalty) in interest rate.
• Fixed deposits can only be preclosed and cannot be transfered to another persons name.
• Partial withdrawal of fixed deposits are not allowed. Either you need to retain it fully or close it fully.
• Fixed deposits are usually open for investments through out the year.
• Usually fixed deposits are fully alloted against your investment.
• Upon maturity you would get back your principal apart from the interest.

Typically fixed deposits are rigid in nature.

Debentures: 

• Debentures are again fixed interest yielding investments, but may be secured or unsecured in nature.
• Secured debentures are usually in good demand - given the mortgage backed security.
• They are again for fixed period yielding fixed interest rate.
• They are usually open for investment during specific period when the debenture issue is opened.
• These debentures on allotment are listed on stock market. You have the option to sell it before the maturity date at market price. There is no penalty for selling it in the secondary market.
• Since they can be sold in the stock market, debentures are usually transferable. There is no penalty transfering these NCD's.
• If the face value of a Debenture (NCD) is Rs.1000 and you hold 100 such NCD's, you may sell in multiple of one unit and retain the balance. In other words, partial selling is possible.
• There is a possibility of getting higher price in the stock market depending on the demand for this secured debentures.
• Hence there is a chance of Principal + Interest + capital appreciation + partial withdrawal option any time during the year.
• If you donot sell these debentures in the stock market, upon maturity, you get back your Principal apart from the interest.
• Usually companies raise debentures for certain corpus - say Rs.500 crores for specific window period. Hence if there has been huge demand, then there is a possibility of over subscription. Hence, at times, full allotment may not be possible.

Tax Treatment on NCD's:

• Debenture interest are taxable.
• NCD's alloted in demat mode donot have TDS.
• NCD's alloted in Physical mode have TDS on interest above Rs.5000.