Difference Between Stock and Mutual Fund Investing

11 Key Difference Between Stock and Mutual Fund Investing

11 Key Difference Between Stock and Mutual Fund Investing:

Hi. Welcome to the day 22 of my ‘30 days, 30 posts’ challenge, where I’m writing one interesting investing blog post daily for the 30 consecutive days.

In this post, we are going to discuss the fundamental difference between stock and mutual fund investing. However, before we start talking about the differences, let’s first define what stock and mutual fund investing is.

What is stock and mutual fund investing?

Stock market investing means investing directly in the stocks of the company. Here, you are purchasing the companies listed on the stock exchange with an expectation to earn profits when the price of that stock goes up.

On the other hand, a mutual fund is a collective investment that pools together the money of a large number of investors to purchase a number of securities like stocks, FDs, bonds, etc. A professional fund manager manages this fund. When you purchase a share in the mutual fund, you have a small stake in all investments included in that fund. Hence, by owning a mutual fund, the investor participates in gains or losses of the fund’s portfolio.

11 key difference between stock and mutual fund investing

Here are the critical differences between stock and mutual fund investing based on eleven crucial factors–

1. Cost of investing  

While investing in mutual funds, you have to pay different charges like expense ratio, load fee (entry load, exit load), etc. For the top mutual funds, the expense ratio can be as high as 2.5-3%.

On the other hand, if you invest in the stock market, you have to open your brokerage account (which includes opening account charges), and you have to pay some annual maintenance charges too. Further, there also different costs while transacting in stocks like brokerage, STT, stamp duty, etc.

Nevertheless, if you compare the charges involved in stock and mutual fund investing, you can find that the costs while investing in stocks are still lower. This is because managing a mutual fund consists of a lot of expenses like management fee, the salary of the managers/employees, administration charges, operational charges, etc. However, for investing in stocks- the most significant burden is only the brokerage.

Also read: 23 Must-Know Mutual fund Terms for Investors.

2. Volatility in investment.

Direct investing in stocks has more volatility when compared to mutual fund investing. This is because when you invest in shares- you generally purchase 10-15 stocks.

On the other hand, the mutual fund consists of a diversified portfolio with investment in different securities like stocks, bonds, fixed deposits, etc. Even the equity-based mutual funds invest in at least 50-100 stocks. Due to the broad diversification, the volatility in the mutual funds is a lot less compared to that of shares.

3. Return potential

Stock market investing has a very high return potential. Most of the successful investors in the world and India like Warren Buffett, RK Damani, Rakesh Jhunjhunwala, etc. have built their wealth by investing directly in the stock market.

However, this is only one side of the story.

The complete fact is that the majority of people lose money in the stock market. Although the return potential is high while investing in stocks, however, the risk is also higher.

On the other hand, most of the good ranked mutual funds have given decent consistent returns to their shareholders. Although the returns are not as high as what many successful investors can make from stocks, however, this return is enough to build a massive wealth for an average person for a secured future.

4. Tax saving

If you invest in ELSS (equity linked saving scheme) under mutual funds, you can enjoy a tax deduction up to Rs 1.5 lakhs in a year under the section 80c of the income tax act.

Another benefit of investing in the mutual fund is that you do not have to pay tax if the fund sells any stock from its portfolio as long as you are holding the fund.

On the other hand, when you sell stock while investing directly in the stock market, you have to pay a tax, no matter what’s the scenario. There are no tax benefits while investing in the stock market. You have to pay a tax of 15% on short-term capital gains and a tax of 10% (above a profit of Rs 1 lakh) on the long-term capital gains.

Also read: Mutual Fund Taxation – How Mutual Fund Returns Are Taxed in India?

5. Monitoring

Investing in the stock market requires frequent monitoring. This is because stock market investing is a personal thing. Here, no one is going to do this for you and hence you have to monitor your stocks yourself. Moreover, due to the high volatility of the share market, the frequency of the monitoring should be higher. At least every quarter or half yearly.

On the other hand, for the mutual fund -there are fund managers who take care of the investments and make the buy/sell decision on your behalf. That’s why, when you invest in mutual fund, you do not need to monitor your fund much frequently. Anyways, you should watch your funds at least every year so that you can confirm that your fund’s performance is in line with your goals.

Also read: How to Monitor Your Stock Portfolio?

6. SIP Investment   

Mutual funds investment provides you with an option of a systematic investment plan.

A Systematic Investment Plan refers to periodic investment. For example, the investor can invest a fixed amount, say Rs 1,000 or 5,000, every month (or every quarter or six months) to purchase some units of the fund. SIP helps in investing automation and it brings discipline to the investment strategy.

On the other hand, there’s no option of SIP available in stock market investing.

7. Asset class restriction

While investing in the stock market, the only asset where you can spend is stocks of the company.

On the other hand, the mutual fund gives you an opportunity to invest in a diversified portfolio. Here, you can invest in a variety of asset classes. For example- debt mutual funds, equity-based mutual funds, gold funds, hybrid funds, etc.

8. The time required for investing

The total time needed for directly investing in stock is a lot more compared to that of a mutual fund. This is because a fund manager manages a mutual fund.

However, for direct investment in the stock market, you have to do your research. Here, you have to find the best possible stock for investing yourself, and that requires a lot of study, time and efforts.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

9  Ease of investment

For investing in the stock market, you have to open your brokerage account with the help of a stockbroker. Here, you need to start your Demat and trading account which can take as long as a week to open.

On the other hand, you can start by investing in a mutual fund within 10 minutes. You do not require any brokerage account to start investing in mutual funds. There are a number of free platforms (like Groww or FundsIndia) available on the Internet where you can register within a few minutes and start investing in mutual funds.

10. Time Horizon of investment

Generally, the investment time horizon in mutual funds for long-term like 5 to 7 years. Here, you are not trading funds, but investing for the long-run to make money by capital appreciation or regular income through dividend funds.

On the contrary, if you invest in stocks- it can be a long-term or short term. You can even keep the stock for a week and get good returns.

11. Control on investment

If you are investing directly in the stock market, you will have a lot of power and control. Here, you can make critical decisions like- when to buy, when to sell, what to buy, what to sell, etc.

On the other hand, while investing in the mutual fund, you do not have much control over your investments. It’s your fund manager who makes the decisions like which securities to buy, when to buy, when to sell etc. The highest control that you have is to find and invest in a good mutual fund. However, once you have spent your money, everything will be taken care of by the fund manager.

Further, mutual fund performance depends on the efficiency of the fund manager. If the fund manager is efficient, you can get high returns. Otherwise, if the fund manager is not that good, you might get fewer returns. In addition, there is always a possibility that the fund manager may quit or join some other fund house.

Overall, here you have to be dependent on the fund manager. However, while investing in the stock market, there is no dependency on anyone, and you can make your own decision to buy/sell whichever stock you want.

Check out the upcoming course on mutual fund investing here.

Conclusion

No investment is risk-free. There will always be some risk when you invest in the market or even if you invest in the safest fund. Nevertheless, investing in the mutual fund is comparatively less risky than the stock market. However, the returns are also slightly low in mutual funds compared to the stock market.

If you are a novice and new to the stock market, it would be salutary if you start investing with mutual funds.

For investing directly in the stock market, you will require a good knowledge or at least a strong passion for learning. However, if you have limited time, limited money and not enough passion to invest your money on your own- then you should invest in the mutual funds.

That’s all for this post. I hope it was helpful. #HappyInvesting.

Should You Invest in The Stock Market if You Do Not Have Big Money?

Should You Invest in The Stock Market if You Do Not Have Big Money?

Should You Invest in the stock market if You do not have big money?

This is a general question which stops many people from investing in the stock market. Most people believe that investing in the stocks is the thing for the rich people- probably businessman, techies or finance/commerce guy- who has a lot of money to spend.

However, in actual, it is not so. Many successful investors in India started with a minimal amount. Personally, I started investing in stocks with just Rs 1,500 as a college kid. And even that felt a significant amount then.

Case Study:

Let’s assume that you started investing with just Rs 2,000 per month. This is a very small amount for a majority of the salaried/working people and it’s not going to hurt you financially.

In most cases, people tend to increase the investment amount gradually with time when then receive a salary hike or promotion. However, for simplicity, we are assuming that you didn’t raise the investment amount (nor did you decreased it). You invested the same Rs 2,000 per month with discipline.

Besides, we are also assuming that you’ll get a decent annual average return of 14% per year from your investments. (This return can be lower like 2-3% during bear phase/ lousy market and as high as 25-30% during bull market/ right economic conditions. For example- the benchmark index Nifty gave a return of above 26% last year.)

Now, let’s calculate how much wealth you would create in the next 30 years if you regularly invest Rs 2,000 per month with discipline.

Source: SIP Calculator- Paisabazaar (Feel free to try out the calculator yourself).

Your monthly investment of Rs 2,000 is expected to grow over Rs 1.09 crores in the next 30 years. This is a considerably big amount when compared to the small monthly investments that you started.

Quick Note: You might be thinking that 30 years is a too long time frame and what will you do with the money at that age. However, you must remember that these days the life expectancy in India has increased a lot. Most people are easily able to live up to an age of 80-85. So, even if you start to invest at an age of 30 and get this money when you are 60, you still have 20-25 years more to live. And at that age, this money can help you a lot in financial independence. The bigger the amount, the better it is for you.

A small investment in the stock market:

You may call me a conservative (or old-fashioned) investor, but I believe that even a tiny stake in amazing companies can bring a high return to its shareholders.

Apart from your initial investment amount, there are two critical factors which decides how much return you’ll get from your investment- 1) Return on investment (ROI) 2) Time Frame.

If you can maximize the other two factors, you’ll be able to build enormous wealth. 

Even if your initial investment amount is small, however, if the CAGR is decent and you remained invested for a long-term, you can generate a significant return on your investment.

There are many examples of small investments in the Indian stock market done in the 1990’s which later turned out to be worth over Crores in the next 25–27 years. For instance- Infosys, WIPRO, MRF, Eicher Motors etc.

Also read:

mrf share price

Source: TradingView

Conclusion:

Investing even a small amount of money in the stock market is worth it if you are ready to stay invested for a long time. Here, the power of compounding helps you to generate wealth. Even with an above average return, you can build a large corpus if the number of investing years is long.

Moreover, it’s not necessary that you’ll always invest the same amount.

The important thing here is to get started. Maybe, with time you can save more to invest. But if you do not start investing now, even then you’ll feel that this amount is too little to invest in the market.

In the end, here’s a fantastic quote by the legendary investor Warren Buffett which might teach you the power of a small investment over the long term:

 

tata motors vs maruti suzuki case study

Case Study: Tata Motors Vs Maruti Suzuki

Case Study: Tata Motors Vs Maruti Suzuki

Hi there. Welcome to the day 20 of my ’30 days 30 post’ challenge, where I am writing one blog post daily for the 30 consecutive days.

Several of my blog readers have requested me to write an analysis on the real companies using the using different financial tools. That’s why in this post I’ve decided to write a case study on Tata Motors vs Maruti Suzuki.

I have chosen these big and well-known companies to show how the performance of the companies are reflected in their respective share prices. Overall, it’s going to be a very interesting post and there are many key takeaways that you can learn from this case study.

1. Tata Motors

tata motors

Tata Motors is a big multinational automobile company in India. We all have grown up seeing Tata Motors automobiles in our lives. It was originally founded in 1945 and currently, it’s headquartered in Mumbai.

Tata Motors has a diversified portfolio in both commercial and passenger vehicles. Its products include passenger cars, trucks, vans, coaches, buses, sports cars, construction equipment and military vehicles. It has auto manufacturing and assembly plants in Jamshedpur, Pantnagar, Lucknow, Sanand, Dharwad, and Pune in India, as well as in Argentina, South Africa, Great Britain and Thailand.

Few of the popular cars offered by Tata Motors are Indica, Indigo, Zest, Bolt, Hexa, Tiago and Nano. (Recently, Tata Motors announced that it will discontinue the production of 10-years old Tata nano, the world’s cheapest car. Read more here.) Besides, the world famous luxury cars- Jaguar Land Rover (the maker of Jaguar and Land Rover cars) is also a subsidiary of Tata Motor

Overall, Tata motors is a big brand in India with a widely diversified product. So, does this makes tata motors a good investment option? Before deciding anything, let’s first look at a few of the key financials of Tata Motors.

Here’s a quick snapshot of the critical financial ratios of Tata Motors for the last 5 years.

Return on Equity Earnings per share (unadj) Debt/Equity Net Margin Book Value /Share
2017 13.0 26.2 1.0 2.8 201.1
2016 14.8 40.4 0.6 4.3 273.5
2015 25.3 51.1 1.0 5.3 202.0
2014 21.3 51.1 0.7 6.0 239.7
2013 26.3 36.5 0.9 5.2 139

(Source:  EquityMaster)

Damn, the financials of Tata Motors doesn’t looks good!!

Quick note: If you are not familiar with the terms mentioned in the above table, here’s a detailed explanation regarding the important financial ratios.

From the above table, you can notice that the Return on equity (ROE) of Tata Motors has been continuously declining for the last 5 years. Further, the earnings per share are also degrading for the same period. It went down from an EPS of 35.6 in 2013 to 26.2 in 2017.

On the other hand, if you look at the debt/equity ratio, you can find that it’s also fluctuating a lot. As a thumb rule, you should always invest in companies with a debt/equity ratio lower than 0.5 (the best scenario is when the company is debt free). However, for the case of Tata Motors, its debts are equity to quite high.

Moving on, if you look at the net profit margin, here again, you can notice a declining trend. The profit margin of Tata Motors has reduced from 5.2% in 2013 to 2.8 percent in 2017. This clearly is in sync with the declining market share of Tata Motors in the automobile industries. Once, Tata used to be a market leader in the commercial vehicle segment with over 60% customer share. However, these days there are a lot of competitors of Tatas and hence it has lost its monopoly and the profit margin along with it.

The competitive position of Tata Motors is a little complex to access because it works in both commercial and passenger vehicle segment. In the commercial vehicle segment, the key competitors of Tata motors are Ashok Leyland, Bharat Benz, Mahindra and Mahindra, Eicher Motors etc. In the passenger vehicle segments, the key competitors are Maruti Suzuki, Hyundai, Honda, Renault etc.  

If we look from the broader aspect, the Tata Group is doing really good with their prime companies like TCS, Tata Steel, Tata Chemicals, Titan, Tata tea, etc. However, the things are not similar in the case of Tata Motors. Tata Sons Chairman, N Chandrasekaran has been trying to improve the profitability of the company with the help of its MD Guenter Butschek, however, the changes are not reflecting in the financials.  

Although Tata Group has been a pioneer in the growing development of India and they have contributed a lot to India’s economy. However, just having a brand name is not enough to survive (and remain profitable) in this competitive business world.

2. Maruti Suzuki

maruti suzuki

The next company in this case study is Maruti Suzuki.

Maruti Suzuki is a leading automobile company in India. The company is headquartered at New Delhi. It is a 56.21% owned subsidiary of the Japanese car and motorcycle manufacturer Suzuki Motor. As of January 2017, it had a market share of 51% of the Indian passenger car market. Few of the popular products of Maruti Suzuki in India are Ciaz, Ertiga, Wagon R, Alto, Swift, Celerio, Swift Dzire, Baleno and Baleno RS, Omni, Alto 800, Eeco, Ignis etc.

Alto and Swift have been consistently ranked as the top-best selling cars in their respective segment (hatchback). In the last few decades, Maruti has built an amazing brand value in the automobile industry by providing best-affordable products and amazing customer service.

Now, let’s have a look at the financials of Maruti Suzuki for the last 5 years.

Return on Equity Earnings per share (unadj) Debt/Equity Net Margin Book Value /Share
2017 20.3 248.6 0 11.0 1227.3
2016 18.0 182.0 0 9.5 1013.5
2015 14.6 126.0 0 7.5 861.4
2014 13.3 94.4 0 6.4 711.6
2013 13.0 81.7 0 5.6 629.9

(Source: EquityMaster)

What!!! The difference in the financials of Tata Motors and Maruti Suzuki is like night and day.

From the above table, you can notice that how Maruti Suzuki has consistently given excellent performance. For the last 5 years, the return on equity (ROE) of Maruti has been continuously increasing. And in the same period, it’s earning per share (EPS) has increased over 3 times. That’s a real healthy sign of a fundamentally strong company.

Another, magnificent point regarding Maruti Suzuki company is that it’s totally debt free. The debt to equity ratio of Maruti is zero for the last five years.

Next, if you look at the profit margin, its also consistently increasing. From 5.6% in 2003, it has increased to 11% in 2017. This is a pre-eminent profit margin for the companies in the automobile industries.

Lastly, if you look at the book value per share, it’s also showing a healthy growth sign. Maruti’s book value per share has doubled in the last 5 years (from 629.9 in 2013 to over 1227.3 in 2017).

Overall, Maruti Suzuki has performed exceptionally well in this last five years.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Conclusion: Tata Motors Vs Maruti Suzuki

In this post, we looked at two big companies with amazing products and a big brand name. However, from our analysis, it is clear that Maruti Suzuki fulfills the criteria of a wonderful company to invest while Tata Motors clearly not.

According to the principles of value investing, the stock price should eventually reflect the performance of the underlying company. As 5 years is a sufficiently long time for this effect to apply, let us look at the price performance of both these companies over the last five years.

tata motors vs maruti suzuki

(Source- TradingView)

The above graph exactly shows what is expected. Maruti Suzuki has performed well better compared to the Tata Motors over the past 5 years. Maruti has increased the share price over 7-fold in this time frame. Whereas, the stock of Tata Motors is trading at a loss of around 10% compared to what it was trading 5 years ago.

Quick Note: If you are new to stock market and want to learn stock market investing from scratch, feel free to check out my online course here.

Bottomline:

From the above case study, you can learn that it’s not a rocket science to analyze stocks.

Selecting a winning stock is not a gambling. The returns from the stocks are in line with the performance of the underlying company. If you treat stock as a company and perform a smart analysis before investing, then I assure that the results will largely be amazing. Value investors simply win over the long time frame.

That’s all for this post. I hope it was useful to you. Happy Investing.

mutual fund taxation

Mutual Fund Taxation – How Mutual Fund Returns Are Taxed in India?

Mutual Fund Taxation – How mutual fund returns are taxed?

Hi. Welcome to the day 19 of my ’30 days, 30 posts’ challenge, where I’ll be writing one interesting investing article daily for the 30 consecutive days. In this post, we are going to discuss mutual fund taxation.

If you invest in the stock market, you might already know that the taxation on the capital gains through stocks depends on two factors- the type of investment and the holding period. This means that the rate of taxation in ‘delivery’ is different than that of ‘Intraday’. Moreover, the holding period also plays an important role while deciding taxation. Long-term capital gain taxes are lower than short-term capital gains.

Also read: What are the capital gain taxes on share in India?

Similar to stock market investing, mutual fund taxation also depends on the type of fund and the holding period of your investments.

In order to clearly understand the mutual fund taxation in India, first, you’ll need to learn the common types of mutual funds. And then, you will need to understand how short-term and long-term investments are defined based on the holding period of mutual funds.

Here are the topics that we are going to discuss in today’s post regarding mutual fund taxation.

  1. Types of Mutual funds
  2. Short-term vs long-term investments
  3. Taxation on
    1. Equity-based Mutual funds
    2. Debt based mutual funds
    3. Tax Saving Equity Funds (ELSS)
    4. Balanced Funds
    5. Systematic Investment Plans (SIPs)
  4. Conclusion

Overall, it’s going to be a long post. However, taxation is a very important topic which no one should ignore. Besides, I guarantee it that this post will be worth reading. So, without wasting any further time, let’s get started.

1. Types of mutual funds

Although there are dozens of types of mutual funds in India, however, here is a broad classification based on the asset type and fund characteristics-

A. Equity Funds: These are the funds that invest in equities (shares of a company) which can be actively or passively managed. These funds allow the investors to buy stock in bulk with more ease than they could purchase individual securities. Equity funds have different key goals like capital appreciation, regular income, tax-saving etc.

B. Debt Funds: These are funds that invest in debt instruments (fixed return investments like bonds, government securities etc). Debt funds have low risks compared to the equity funds. However, the expected returns while investing in debt funds are also lower.

C. Balanced Fund: A fund that invests in both equity (shares) and debt instruments (bonds, government securities etc) is known as a balanced fund.

D. SIP: A Systematic Investment Plan refers to periodic investment in a mutual fund. For example, the investor can invest a fixed amount (say Rs 1,000 or 5,000) every month, or every quarter or six months to purchase some units of the fund. SIP helps in investing automation and it brings discipline to the investment strategy.

E. ELSS: It stands for Equity Linked Saving Schemes. ELSS is a diversified equity mutual funds with a tax benefit under Section 80C of the Income Tax Act (the maximum tax exemption limit is Rs 1.5 Lakhs per annum). However, to avail of the tax benefit, your money must be locked up for at least three years.

Read more here: 23 Must-Know Mutual fund Terms for Investors

2. The short-term and long-term investments in mutual funds

Now, let us understand what is a short-term investment and long-term investment based on the holding period of the funds.

In the case of equity-based mutual funds and balanced funds, if the holding period is less than 12 months, then it is considered a short-term investment. Further, if the holding period is more than 12 months, then it is called a long-term investment. (Holding period is the difference between your purchase date and selling date).

For the debt-based mutual funds, an investment with holding period fewer than 36 months (3 Years) is regarded as a short-term investment. On the other hand, a holding period greater than 36 months for debt-funds are considered as a long-term investment.

Here’s a quick summary of the short-term and long-term investment classification on mutual funds based on their holding period.

Funds

Short-term

Long-term

Equity funds

< 12 months

>= 12 months

Balanced funds

< 12 months

>= 12 months

Debt funds

<36 months 

>= 36 months

3.  Mutual fund Taxation based on fund-type

As mentioned earlier, the mutual fund taxation depends on the type of fund and the holding period. Here is the rate of taxation on different mutual funds in India-

1. Equity-based Mutual funds

Long-term capital gain(LTCG) tax on equity-based schemes is tax-free up to a profit of Rs 1 lakh. However, for the profits above Rs 1 lakh, you have to pay a tax at a rate of 10% on the additional capital gains.

For short-term equity-based mutual funds (where the holding period is less than 12 months), you have to pay a flat tax of 15% on the profits.

Clearly, long-term (holding period greater than 12 months) is a better choice as there is no tax up to a capital gain of Rs 1 lakh. For an average Indian investor, Rs 1 lakh profit is a big amount.

For example, if you invest Rs 5 lakh in mutual funds and get a decent return of 20% in a year, then you’ll make a profit of Rs 1 lakh. This profit will be tax-free. You do not have to pay any tax on the long-term capital gains up to Rs 1 lakh.

In the second case, let’s assume that your profit is Rs 1,10,000 in long-term. Here, you have to pay a tax of 10% on the profit greater than Rs 1 lakh (i.e. Rs 1,10,000- 1,00,000 = Rs 10,000). In short, you have to pay a 10% LTCG Tax on Rs ten thousand.

2. Debt-based mutual funds

For the debt mutual funds, the long-term capital gain tax is equal to 20% after indexation.

Note: Indexation is a method of reducing the capital gains by factoring the rise in inflation between the years the fund was bought and the year when they are sold. The longer the holding period, the higher are the benefits of indexation. Overall, indexation helps you to save tax on gains from debt mutual funds and enhance your earnings. Read more about indexation here.

For the short term capital gains (STCG) on debt funds (where the holding period is less than 36 months), the profit will be added to your income and is subject to taxation as per your income slab. Therefore, if you’re in the highest income-tax slab, you have to pay a tax up to 30%.

3. Tax Saving Equity Funds

Equity Linked Saving Schemes (ELSS) is used for tax saving along with capital appreciation. It is an efficient tax-saving instrument under section 80C of the Income-tax act of 1961. You can claim a tax deduction of up to Rs 1.5 lakh and save taxes up to Rs 45k by investing in ELSS. However, there is a lock-in period of 3 years for these funds.

After 3 years, LTCG tax will be applicable similar to equity funds. Therefore, the capital gain up to Rs 1 lakh is tax-free. But, profits above Rs 1 lakh is taxable at a rate of 10%.

4. Balanced (Hybrid) Funds

Balanced funds are treated similar to the equity-based mutual funds and hence they have the same mutual fund taxation structure. This is because the balance funds are equity-based hybrid funds that invest at least 65% of its assets in equities. This allocation percentage can differ depending on the goal of the fund.

The long-term capital gain tax on the balanced mutual fund is tax-free up to a gain of Rs 1 lakh. The profits above Rs 1 lakh is taxed at a rate of 10%. The short-term capital gain tax on the balanced funds is equal to 15% of the profits.

5. Systematic Investment Plans (SIPs)

You can start a SIP with either of an equity fund, debt fund or balanced fund. The gains made from SIPs are taxed as per the type of the mutual fund and holding period.

Here, each SIP is treated as a fresh investment and they are taxed separately. For example, if you are investing monthly Rs 5,000 in equity funds, then all the monthly investments will be considered as a separate investment. This simplifies the holding period.

Assume that you bought your first equity-based SIP in January 2017 and consequently SIPs in the upcoming months. Then by the end of Jan 2018, only the first investment will be considered as long-investment. The other investment is for a period of fewer than 12 months and hence, you have to pay an STCG Tax of rest SIPs if you redeemed all of them in Jan 2018.

In short, each SIP is considered a separate investment and their holding period are calculated accordingly to define the taxation.

3. Conclusion

Here is the summary of the mutual fund taxation in India.

taxes

(Source: Clearfunds)

The secret to save taxes and build wealth is still the same- Invest for the long term.

In most of the equity-based funds, you can enjoy a tax-exemption for a profit up to Rs 1 lakhs when you invest for the long term. Further, while investing in the debt-funds for the long-term, you can enjoy the benefits of indexation to save taxes. Overall, if you want to save more taxes – Invest longer.

I hope this post is useful to you. #HappyInvesting

Is Mr. Market Ripping you off

Is Mr. Market Ripping you off?

Hi there. Welcome to the day 18 of my ’30 Days, 30 Posts’ challenge- where I’m writing one post daily for the 30 consecutive days.

Today, I’ve got an amazing opportunity to introduce you to one of my old friend- Mr. Market. Many of you might already know him. However today, you are getting an amazing chance to personally meet him.

Mr. Market: My old Emotional Manic Friend

First of all, I would like to mention that Mr. Market is a fictional character created by the father of value investing- Benjamin Graham in his best selling book- “The Intelligent Investor’. Knowing this character can radically change the way you look at investing.

Quick Note: If you haven’t read ‘The Intelligent Investor’ book yet, I’ll highly recommend you to read this wonderful book. This is one of my favorite books on investing.

In the book ‘The Intelligent Investor’, Benjamin Graham tells a story of a man whom he calls Mr. Market.

mr. marketHere, Mr. Market is the business partner of yours (Investors). Every day Mr. Market comes to your door and offers to either buy your equity in the partnership or sell his stake.

But here’s the catch: Mr. Market is an emotional maniac person who lets his enthusiasm and despair affect the price he is willing to buy/sell shares on any given day. Because of his nature, some days he’ll come to the door feeling jubilant and will offer a high price to buy your share of the business and demand a similarly high price if you want to buy his stake.

mr market emotionalOn other days, Mr. Market will be inconsolably depressed and will be willing sell his stake at a very low price, but will also offer to buy your share at the same low ball offer if you want to sell your equity.

Overall, when he is in a good mood, he gets greedy and quotes ridiculously high prices. But when he is feeling depressed and emotional, he is willing to sell you the same stocks for rock bottom prices.

On any given day, you can either buy or sell to Mr. Market. But you also have the third option to completely ignore him i.e. you don’t need to trade at all with Mr. Market. If you ignore him, he never holds it against you and always comes back the following day.

What should you do with Mr. Market?

An intelligent investor will attempt to take advantage of Mr. Market’s emotional behaviors by buying when he is depressed and selling to him when he is maniacally optimistic.

There is no need to feel guilty as otherwise, Mr. Market will ‘willingly’ rip you off during his peak times. Moreover, you do not feel pity because Mr. Market is the one who is setting the price. As an intelligent investor, you should do business with him only when it’s to your advantage. That’s all.

The key point to note here is that though Mr. Market offers some great deals from time to time. The investors just have to be alert and ready when those offers come up.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

How to apply this to your own investment strategy?

Like Mr. Market, the stock market also behaves in the same manner.

The market swings give an intelligent investor the opportunities to buy low and sell high. Every day you can pull up quotes for various stocks or for the entire market as a whole. If you think the prices are low in relation to value, you can buy. If you think prices are high in relation to value, you can sell. And if prices fall somewhere in the grey area in between- you’re never forced to do either.

This is a value-oriented disciplined investing. Don’t fall victim to irrational exuberance. Don’t panic, don’t sell. Remain calm during the hyperboles of the market’s daily fluctuations.

decrease in the Promoter’s share a bad sign for the investors-min

Is a decrease in the Promoter’s share a bad sign for the investors?

Is a decrease in the Promoter’s share a bad sign for the investors?

One of the biggest corporate scams in the Indian stock market where thousands of investors lose their money was the Satyam Scandal.

In this scandal, the Satyam computer services chairman Ramalinga Raju confessed that the company’s accounts were falsified and they manipulated the reports of Rs 14,162 crore in several forms.

The confession was shocking for the both corporate and the investing community. However, if the investors had carefully looked at the shareholding pattern of the company, they might have realized that something terrible was cooking inside.

During the scandal period, the promoters were gradually decreasing their stakes from their own company year-after-year.

satyam scandal

A look at the shareholding pattern of the company over the years reveals that the promoters held 25.60 percent equity as of March 2001 but reduced their stake every subsequent year (Ramalinga Raju sold 4.4 crore shares in the 2001-08 period). By March 2002, the promoter’s stake got reduced to 22.26 percent and further down to 20.74 percent as of March 2003. As of September 2008, the promoters held only 8.61 percent stake -which was the latest figure available.

Read more here: Satyam promoters gradually reduce stake -Economic Times

The continuous decrease in the promoter’s share in Satyam Computers was a warning sign which most shareholders ignored and later resulted in losing their money.

When a decrease in the promoter’s share a bad sign?

As a thumb rule, a continuous decrease in the promoter’s share from their own company is not a healthy sign.

This is because the decreasing stake means a low confidence of the promoters (who are actually the owners) towards the future of their own company.

The promoters are the insiders, and they have the best knowledge of their company. They understand the product/services offered by their company, its demand in the market and the future growth potential. Further, they are also regularly updated on the finance of the company. They know how much revenue and profit their company is generating and how much financially strong/weak they are.

Therefore, if the promoters are optimistic towards their company’s future and have a clear vision/goal for its growth, they will not want to sell their shares or reduce the stake in the company which they themselves started.

In short, if the promoters are continuously decreasing their stake, then you might need to investigate further and take cautionary actions.

Also read: Shareholding Pattern- Things that you need to know

When the decrease in the promoter’s share actually  ‘NOT’ a bad sign?

If the promoters are openly mentioning the reason why they are reducing the stake or if the decrease in the promoter’s share is just one-time activity, then it might not actually be a bad sign.

Here, maybe the promoters are planning for a new venture, new acquisition, a new company or just to buy a new house. Everyone has the right to use their asset when they need it. If the promoters have some different plans, then they might sell their stakes to raise capital, and it’s not a warning sign.

For example- During May-June 2018, RK Damani- the promoter of Avenue Supermarket (Dmart Stores)- offload 62.40 lakh shares, or 1 percent equity.

rk damani avenue supermart

Was this a sign of trouble for the shareholders?

No!! RK Damani was selling his shares to meet the Minimum Public Shareholding (MPS) norms.

Everyone knew this reason, and hence the decrease in the promoter’s share couldn’t be taken a lousy sign here. (Nevertheless, the script still fell 5.23 percent after this announcement).

Similarly, if you follow the international market, you might have heard that in April’17, Jeff Bezos, the owner of Amazon company sold $1 Billion worth shares of Amazon. Should the shareholders panic and sell off their shares too in such a situation?

No! At that time, Jeff Bezos was selling the shares to fund his Blue Origin rocket company, which aims to launch paying passengers on 11-minute space rides starting next year. Overall, the company fundamentals remained the same. Just because the promoter holdings decreased, doesn’t mean any danger sign.

Conclusion

A decrease in the promoter’s share might not always a bad sign. Here, you need to investigate why the promoters are selling their shares. If the reason is genuine, then you might not need to worry.

However, if the stakes are continuously decreasing and you can’t find any reason- then you might need to look into the matter seriously.

mutual fund terms

23 Must-Know Mutual fund Terms for Investors.

23 Must-know mutual fund terms for investors:

Investing in mutual funds can be a good alternative for the people who are interested to invest in equities but do not have much time and knowledge to invest individually. As mutual funds as professionally managed, can sit back and relax. However, there are many frequently used mutual fund terms that investor should know so that they can at least understand ‘how’, ‘what’ and ‘where’ of mutual fund investing.

For example- here is the fund description for IDFC Focused Equity Fund-Regular Plan (G) —

mutual fund terms

Source: Moneycontrol

If you are a beginner, there may be a number of terms mentioned in the above table with which you might not be familiar. For example- Open end, Entry load, exit load etc.

In this post, we are going to discuss such key mutual fund terms that every investor should know to make an informed investment decision.

Also read: What is Mutual Fund? Definition, Types, Benefits & More.

23 Must-Know Mutual fund terms for investors-

Here are the 23 most frequently used mutual fund terms that every investor should know.

1. AMC: It stands for Asset Management company. They are financial institutions that manage multiple funds like HDFC mutual fund, SBI Mutual fund etc.

2. NAV: It stands for Net Asset Value. This is the unit price of a fund. When a fund comes out with an NFO (New fund offer), it announces a price (generally Rs 10). Later, depending on the return of the investments, this price could rise or fall.

It’s similar to the share price. For example- Shares represents the extent of ownership in a company. Similarly, NAV represents the extent of ownership in the mutual fund. 

3. AUM: Asset under management is the total value of money that investors have put into a particular mutual fund. Top mutual fund companies in India manage thousands of crores of rupees.

top AUM India

(Source: Moneycontrol)

4. Funds: These are individual schemes with specific goals and investment philosophies. For example- HDFC Index equity fund, Sundaram selects mid-cap fund etc.

5. Portfolio: The portfolio shows all the investments made by a fund (including the amount in cash). For example, if a fund has invested 80% of its total value in 40 companies and has kept remaining 20% of the amount as Cash (for a better opportunity in future), then this 40 companies and cash consist of the portfolio of that fund.

6. Corpus: This is the total amount of money that you’ve invested in a fund. For example- Let’s assume that you bought 10 quantities of a mutual fund where each unit is worth Rs 100. Then, your total invested amount with the fund is Rs 1,000. This is referred to as the corpus.

7. Expense Ratio: It is the annual fee charged by the mutual fund scheme to manage money on your behalf. It covers the fund manager’s fee along with other expenses required to run the fund administration. A lower ratio means more profitability and a higher ratio means less profitability for an individual investor. Generally, an expense ratio for an active fund can be between 1.5-2.5%.

expense ratio

(Source: Cleartax)

8. LOAD: It is the fee that is charged when you buy or sell a unit of a fund. The load is a percentage of the NAV. Generally, a fund can charge an entry or exit load.

9. Entry load – This is the initial fee that you pay while entering a mutual fund. Here, you pay a percentage of the NAV. For example, if the entry load of the fund is 2% and you are investing Rs 10,000. Then it means that you pay Rs 200 as the entry load and Rs 9,800 will be invested in the fund.

10. Exit load – This is the charge for redeeming your unit i.e. this is that amount that you have to pay (as fees) when you sell your fund. Generally, the exit load is applied if you decide to sell your shares before a specific time period. Usually, it’s 0.5% when you withdraw before 365 days. For example, let’s say that the exit fee of a fund is 0.5% and the current NAV of your fund is Rs 10,000. Then, you’ll have to pay Rs 50 as the fee and you’ll get back Rs 9,950.

11. Redemption: Selling your fund back to the fund house (not to the general market) is called redemption. While redeeming, the value that you’ll receive is equal to NAV – exit fee. 

12. SIP: A Systematic Investment Plan refers to periodic investment in a mutual fund. For example, the investor can invest a fixed amount (say Rs 1,000 or 5,000) every month, every quarter or six months to purchase some units of the fund. SIP helps in investing automation and it brings discipline to the investment strategy.

13. Lock-in Period: This is applicable for the Tax-saving funds. There is three years lock-in period for tax-saving mutual funds in India.

14. ELSS: It stands for Equity Linked Saving Schemes. ELSS is a diversified equity mutual funds with a tax benefit under Section 80C of the Income Tax Act (the maximum tax exemption limit is Rs 1.5 Lakhs per annum, under section 80C). However, to avail of the tax benefit, your money must be locked up for at least three years.

15. Open End Funds: The majority of mutual funds in India are open-end funds. These funds are not listed on the stock exchanges are available for subscription through the fund. Hence, the investors have the flexibility to buy and sell these funds at any time at the current asset value price indicated by the mutual fund.

16. Closed-End Funds:- These funds are listed on the stock exchange. You cannot buy/sell units form the fund house- but only from investors. They have a fixed number of outstanding shares and operate for a fixed duration. The fund is open for subscription only during a specified period. These funds also terminate on a specified date. Hence, investors can redeem their units only on a specified date. This is complex compared to the open end funds.

17. Equity Funds: These are the funds that invest in equities (shares of a company) which can be actively or passively managed. These funds allow investors to buy stock in bulk with more ease than they could purchase individual securities. Equity funds have different key goals like capital appreciation, regular income or tax-saving.

18. Diversified Equity mutual Fund: This is a kind of mutual fund that invests in equities (stocks) of various companies in various sectors. As the investments are diversified across different sectors, it is called a diversified equity mutual fund.

Also read: The Essential Guide to Index Fund Investing in India.

19. Debt Funds: These are funds that invest in debt instruments (fixed return investments like bonds, government securities etc).

20. Balanced Fund: A fund that invests in both equity (shares) and debt instruments (bonds, government securities etc) is known as a balanced fund.

21. NFO: A New Fund Offering (NFO) is the term given to a new mutual fund scheme.

22. CAGR: It stands for compounded annual growth rate. This is the percentage of return per year which is compounded (not simple).

23. CRISIL Rating: It stands for credit rating information services of India. CRISIL ranks the mutual funds in India based on its research. Obviously, a higher ranking is better. (Read more about CRISIL Mutual fund ranking methodology here)

That’s all folks. If I missed any key mutual fund terms that are frequently used, feel free to comment below. #HappyInvesting.

What to do when the market goes up

What to do when the market goes up?

What to do when the market goes up?

Yesterday, Sensex ended at a record closing high. It went up 222.23 points or 0.61% at 36,718.60, while the Nifty was up 74.60 points or 0.68% at 11084.80. Most of the sectoral indices ended the day in the green. Although the market was all-time high yesterday, however- as a matter of fact, Indian stock market has been under a bull run for past couple of years.

sensex

But what to do when the market goes up? Should we enjoy or should we become conscious that the market may fall in the upcoming post? In this post, We are going to answer the same question. What should an average investor actually do when the stock market goes up?

First of all, celebrate.

Isn’t this something which everyone wishes for when the invest- Market going higher and higher.

If you have invested intelligently, then your portfolio would also have gone up along with the rise in the market. And hence it a reason to celebrate. All the hard work that you did in researching, picking stocks and investing is finally giving sugary fruits. In short, this moment something that you might be waiting for a long time to occur and it finally happened. Therefore, ENJOY.

Nevertheless, when the market goes up, there may be few behavioral issues associated with it that you can notice in your day-to-day lifestyle. It’s important to understand them as these behavior change might hurt your investment strategy. Here are a few of the observable behavioral issues when the market goes up.

Behavioral Issues when the market goes up:

1. You’ll feel richer which may lead to increased personal expenses.

I remember the days when I used to go out to dine with friends whenever my portfolio rises over Rs 500 in a single day. I know it was stupid. Nevertheless, I and my friends were insanely interested in the market movements. The whole discussion during the dinner was regarding the same topic- which stocks went up and why I bought that stock. At that time, I was a recent college graduate who was making money from stocks alongside his regular job. Moreover, I enjoyed the fact that I’m making a passive income.

Now when I look back, I understand why this strategy was really stupid? The rise in my portfolio doesn’t mean an extra profit until and unless I sold those stocks. That was just the unrealized gains (I didn’t sell any stock). And in most cases, the profits kept fluctuating from the next day.

Overall, whenever the market goes up- you might notice increased personal expenses in your day-to-day activity. However, you should remember that this profit as a non-realised gain and hence, you must re-think before increasing your personal expenses.

2. You might become over-confident

When your portfolio is high and everything is working great, over-confidence is an obvious behavioral issue.

During such times, you will get the feeling that you’re awesome. Your strategies are working and hence you have mastered the art of investing. However, this might not always be true. Sometimes, your stock might go high along with the market and not because of its fundamentals. 

I remember the time when my friend, Gaurav -picked Sanwaria agro at Rs 7.35 (September 2017). The stock moved from Rs 7.35 to Rs 28 within two months. Although he was not even three-months-old in the world of investing at that time, he started feeling that he was a seasoned stock market investor. And he became so overconfident that he bought 2x quantity of stocks than what he originally purchased at a price of Rs 25 per stock.  The stock moved down after touching Rs 28 mark and currently it is trading at Rs 13.35. Overall, although Gaurav purchased the stock at a very discount price, he didn’t make any significant profit or loss. Nevertheless, he learned an important lesson- ‘don’t become overconfident when your stock goes up in the bull phase.’

3. Your risk taking ability might increase:

Increased risk-taking ability is the byproduct of over-confidence.

People generally research a lot before investing in any stock when the market is not doing well. Although the stocks might be trading at a discount during that time, but they are afraid that the market might go even lower.

However, when the market goes up and everyone you know is making money- you might be inclined to take more risks. During bullish phase, people tend to invest more as they do not want to miss the opportunity.

4. You might lose focus on your investment discipline:

It’s really common for the investors to lose sight of the investment decisions when the market is high. Maybe you started investing with a strategy to build a diversified portfolio with equal investment in different sectors. However, as one of your stock is doing exceptionally well, you might be willing to sell all the other stocks and invest in your winning stock.

Or maybe, you might be planning to change your strategy from a diversified portfolio to investing intensely in the mid-caps as they are performing the best during that market. Overall, it’s difficult to follow a disciplined investing strategy market is high. Most people easily lose focus on their investment discipline when the market goes up.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: HOW TO PICK WINNING STOCKS? Enroll now and start your stock market journey today!

The Golden Rule to Follow When the Market Goes Up

Stick to your Strategy:

This is the golden rule to follow when the stock market goes up. As discussed above, when the market is high, you will notice many behavioral issues in your daily lifestyle. You will start feeling richer and might plan to buy your favorite automobile. Or, you might plan to invest more and more in the market to ripe extra profits.

But sticking to your original plan with which you started investing in the best approach here. If you are investing for your retirement fund, then let your investment continue to run. Moreover, invest regularly in the market with the amount that you initially planned. Don’t sell off your stocks just to keep that money in your bank account – if your targets has not been achieved. You might have made some good profits when the market goes up. But it has the potential to give even better returns. Overall, Ignore the short term market profits and focus on your long-term goal.

Also read: Should You Invest in Stocks When The Market is High?

BONUS: Rebalance your portfolio

Rebalancing your portfolio is also a good strategy to follow when the market goes up.

For example- let’s assume that you initially planned to invest 70% in equity and 30% in debt funds. However, when the market is high (and your stock portfolio is in profit), this allocation might change to 75% in equity and 25% in debt funds. Here, you should rebalance your portfolio to the original ratio of 70:30.

Quick Note: Rebalancing works similar to averaging your portfolio. For example, here when the market is high and you purchase debt funds to rebalance your portfolio- you might also be averaging your debt funds. You are purchasing debt funds when they might be down (contrary to the market which is high).

Bottomline:

When the market goes up, it’s definite reason to celebrate. However, during these times, you can also expect some general behavioural changes. You might feel a little richer when your portfolio is high. However, remember that these are non-realized profits and hence, you might not be as much rich as you think. You only have the money on paper and not credited to your account. Lastly, ignore the highs and stick to your investment strategy & your long-term goals.

stock market meme 20

33+ Best Stock Market Memes That Will Make Your Day.

33+ Best Stock Market Memes That Will Make Your Day:

Most people do not enjoy the stock market. The imagery that Dalal Street conveys to the general public, is purely monetary and a tad too serious. However, sometimes all you need is a break. In this post, we have complied with 33+ best stock market memes that will make your day. Check out these funny stock market memes and enjoy.

General Disclaimer: The below-given stock market memes are not the property of Trade Brains. They are collected from the internet. Please refer to the links mentioned in the images to find their real source. 

Best Stock Market Memes

1. Watching the stock markets…

2. Snow is falling…

3. Sounds Risky…

4. True Love…

5. They shorted my stocks…

6. Understanding the stock market…

7. What do bulls and bear eat…

8. Stock market crash vs divorce…

stock market meme 33

9. What is a bull market?…

10. How long should I hold?…

11. The most precise stock market indicator…

12. Damn, I miss those days…

13. Forex trading food chain…

14. The Candlelight dinner…

15. How to read charts?…

16. How most people view the stock market…

17. The stock market in Modi Government…

18. Investing vs trading…

19. How politicians view the stock market…

20. You mean to tell me…

21. Bull, bear, and snakes…

22. This is just a correction…

23. Am I trading better?…

24. Damn you, expectations…

25. Just follow the herd, you stupid Trevor…

26. Drawing the trends by experts…

27. Sun raha hai na tu

28. Following the herd lately…

29. Dear Trading Diary…

stock market meme 32

30. Is my old room still available, Mom?…

31. Finally, the scroll of truth…

32. Best stock trading software…

33. I’m afraid to ask too…

stock market memes 35

34. I was losing money…

stock market memes 34

That’s all, folks!!

Hope you enjoyed these stock market memes. Don’t forget to share these with your trader friends… #Happy Investing :p

 

latest financial news

How to stay updated with the latest financial news, effortlessly?

How to stay updated with the latest financial news, effortlessly?

Stock market investing is a dynamic activity. Here, the things change fast and that why you need to keep yourself updated with the latest financial news.

There are hundreds of phenomenon happening daily in the stock market. From the stock related news like corporate announcements, quarterly results, board meetings etc -to the big scale news like fluctuation in crude oil price, Indian currency rate, local and global economy etc -you need to remain informed with all of these.

In this post, I’ll walk you through the best mediums to keep yourself updated with the latest financial news and happenings in India and the world.

General approaches:

When a newbie enters the stock market, he/she will energetically subscribe to a popular financial newspaper and start reading it daily. However, this process will hardly continue for a week or two. After that, although the newspaper subscription will continue- but they will just pile up in the corner of a room.

This happened to me too. At that time, I was in college and I subscribed to the Hindustan business newspaper. I thought that this will help me to remain updated with the latest financial news. Nevertheless, it turned out that I hardly read any newspaper in the morning as I’m not a morning person (usually I wake up after 9 AM). Further, after the classes, I just didn’t get any time to read the newspaper as I was much involved in extra-curricular activities (including sports). Many a time, I also tried to read the newspaper in the classroom.. and it didn’t end well.

Overall, there was a huge pile of unread newspaper in my hostel room by the end of the sixth month. Later, I decided that I won’t waste any money on the newspapers again as I knew I wouldn’t be able to give enough time to sit on a couch and read that newspaper.

Nevertheless, reading a newspaper is not the only option to remain updated with the latest financial news. I prefer reading stories/news on mobile apps and websites. They are cheap and easily fits into my schedule. I could read the news anytime (whenever I’m free or have some extra time). Further, apps are also a good source for instant alert/notification. Overall, reading news on mobile apps turned out to be my style.

Anyways, which medium you choose to keep yourself updated with the latest financial news totally depends on your preference.

newspapers

For example, my father likes to read the newspaper daily in the morning. And if any day, the newspaper doesn’t come (because of whatsoever reason), he feels like his day is incomplete. I tried convincing my father to use financial apps to read the news by installing a few good mobile apps on his mobile. But at the end of the day, he prefers reading a hardcopy newspaper. And I totally understand it.

In short, everyone makes their own choices. What matters more is that you remain updated with the latest news using whatever medium you prefer. 

Different mediums to read the latest financial news.

Here, I’m going to suggest a few best newspaper, websites, apps and other mediums to keep yourself updated with the latest financial news. I’ve tried most of them and found useful. Besides, you do not need to try everything listed below. Just find out which one you prefer (or which suits your lifestyle) and stick to it.

Newspapers:

Here are some good newspapers that you can subscriber for reading daily financial, business and economy news.

Quick Note: Although the hard copies of the below-mentioned newspapers are easily available everywhere, however, I’ve also included the links to the online ePaper for these news agencies. 

Also read: 7 Must Know Websites for Indian Stock Market Investors.

Websites:

Few good websites that you should bookmark on your laptop/desktop browser to read the latest financial news–

Quick Note: You can also subscribe to the Bloomberg quint Whatapp broadcast to receive the latest news on your mobile. They usually send 5-8 important daily news on WhatsApp and its fun to read. Just send a ‘START’ message on +4915792397922 to activate the broadcast. Read more here: News On The Move BloombergQuint Is Now On WhatsApp

Mobile Apps

Some good apps that I’ll recommend you to download to receive the latest financial news related to business and stocks are Moneycontrol, Economic Times, Edelweiss and Equity Pandit.

Also read 7 Best Stock Market Apps that Makes Stock Research 10x Easier.

Google Alerts

Google Alerts is a content change detection and notification service, offered by the search engine company Google. In simple words, if you set an alert for any company on google alerts, then Google will send you all the important news published on the web related to the company directly in your email.

You can set google alerts for the different companies and industries to receive daily news regarding them. (Quick Tip: I use google alerts to get notifications for the stocks that are in my portfolio or the ones that I’m tracking).

Read more here: How to Use Google Alerts to Monitor Your Portfolio?

Bottomline:

Keeping yourself updated with the latest happenings in the financial world is an essence to become a successful stock market investor. You might not be surprised to know that the biggest investor of all time, Warren Buffett, reads 4-5 newspaper daily in the morning.

Nonetheless, with the advancement of the internet and technology, there are a number of mediums available today to keep yourself updated with the latest financial news. Choose a medium that suits you the best and stick to it. #HappyInvesting.

index fund investing in india

The Essential Guide to Index Fund Investing in India.

The Essential Guide to Index fund investing in India:

Hi. Welcome to the day 11 of my ’30 days, 30 posts’ challenge- where I’ll be writing one interesting post daily for the 30 consecutive days. In the last couple of days, I received multiple emails to cover the topic- Index fund investing in India. So, today’s post is based on the public demand.

Here are the sub-topics that we are going to discuss in this post.

  1. Introduction
  2. What is an index?
  3. What are index funds?
  4. Pros of Index funds
  5. Cons of Index funds
  6. Why are Index funds more popular in developed countries?
  7. Conclusion

It’s going to be a long post as I’ll cover everything from the perspective of a beginner. However, I guarantee that it will be worth reading. So, without wasting any more time, let’s get started–

Introduction

More than 5,000 companies are publically listed in the Indian stock market. Therefore, selecting a few good stocks to invest can be a cumbersome work for any fund manager. There are two popular approaches to managing a fund- Actively managing and passively managing.

In an active fund, the fund managers choose the stock to invest based on the goal of that fund. Here, the manager tries to beat the market by choosing better stocks. Nevertheless, the problem with active funds is that the return on these funds depends on the goal and efficiency of the manager. Moreover, even if you are able to find a good fund with a coherent manager, still there is some danger of what might happen in the case the manager quits and moves to some other fund house. 

On the other hand, passive funds are process driven. Here, the fund invests in an index and the manager doesn’t have to choose the stocks to invest.  For a passive fund, even if the manager leaves, it won’t create much trouble. 

Anyways, before we start discussing index funds in details, let’s quickly brush up the basics.

What is an index?

Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks.

For example- Sensex, also called BSE 30, is the market index consisting of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). And Nifty, also called NIFTY 50, is the market index which consists of 50 well-established and financially sound companies listed on National Stock Exchange of India (NSE).

Read more here— What is Sensex and Nifty?

A few other popular indexes in India are Nifty next 50, BSE Smallcap, BSE midcap, BSE S&P 500 etc.

What are index funds?

Index funds are a passive investment strategy that attempts to generate similar returns as a market index. These funds try to replicate the performance of a specific index by entirely copying the stocks in the same composition as of the index.

For example, if an index fund is benchmarked to Nifty 50, it will buy all the 50 stocks in the Nifty index in the same proportion as nifty 50.  Here is another example- Reliance Index -Sensex -Direct (G) fund is benchmarked to Sensex. Hence, it copies all the 30 stocks of Sensex in the same proportion. Therefore, its return will be similar to Sensex.

A few of other popular Index funds in India—

(Source: The Best Index Funds for 2018 -GROWW)

Pros and Cons of Index fund investing in India

No investment strategy is perfect. Here are a few advantages and disadvantages of index fund investing in India —

Pros of the Index funds-

  • Low expense ratio– As these funds are passively maintained, the expense ratio of index funds are relatively lower compared to the active funds. This ratio can lie somewhere between 0.2-1.2%.
  • No dependency on the fund manager – In the index funds, the stocks are not picked by the fund managers. These funds are merely copying the index. That’s why even if the fund manager of an index fund quits, it won’t create any havoc (unlike actively managed funds).
  • Easy to understand and select the funds — For the active funds, you need to read and understand the reason why the fund manager believes any stock can perform well in future. And this can be a very tedious job.  On the other hand, the stock selection in the index fund is quite straightforward.

Cons of the Index fund-

  • No flexibility to the fund manager— In an index fund, the managers cannot pick stocks of their choices. So, even if he/she knew some amazing stocks- the fund cannot invest in it.
  • Index funds can’t beat the returns from the market: The best an index fund can do is to match the returns of the specified index. Nevertheless, if you subtract the expense ratio and other charges- the returns are even lower.
  • Have to stick with the poor stocks: An index fund can’t sell a stock which is a part of the index. For example, if a fund invests in the Nifty 50 stocks- even if some of the stocks (out of 50) are not performing well/doesn’t have good potential, still, the manager can’t sell that stock. An index fund has to keep as the stocks similar to the index in the same proportion.
  • An index fund holds all the risks associated with the asset class: If a particular index has some definite set of risks, then the associated index fund will also have the same risks.
  • Tracking Error in Index funds: Many times, the index fund does not perfectly track the composition of the fund. This can be because of a number of reasons like the difference in the time between accepting investment and buying stocks, rounding off the stock units, dividend adjusting etc.

In short, index fund investing in India has both pros and cons- as discussed above. Nonetheless, there’s one additional sub-topic regarding index fund investing in India, that you should also know.

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Why are Index funds more popular in developed countries?

There are various studies that suggest that investing in index funds outperforms actively managed funds over the long-term. But most of these studies have been made in developed countries like US, UK, etc. And hence, the conclusion might not be the same for the developing countries like India.

For the developed countries, the stock market is somewhat efficient and they have a broader index. In addition, the expense ratio for the Index funds in the US is also quite low (less than 0.2% for most of the funds). That’s why people prefer investing in the passive index funds in the developed countries.

However, India is a developing country. It has a lot of opportunities outside the index fund that an active fund manager can explore. Moreover, there are a number of active funds in India which has consistently beaten the market. And that’s why active funds are more popular than index fund investing in India.

Also read: Is the stock market efficient?

Conclusion:

Index fund investing in India is a good alternative for people who like a straightforward way of investing in funds. These funds have no dependency on the fund manager, a pre-set defined stocks and a low expense ratio compared to the active funds. The best part- unlike active funds- Index funds are easy to select. 

stock research reports

How to Find Stock Research Reports of Indian Companies? [For FREE]

Are you looking for the best sites for the stock research reports of Indian companies to analyze? Then you’ve landed the right place.

In this post, we are going to discuss how and where to find the stock research reports of Indian publically listed companies for FREE. But before we learn where to find the stock research reports, let’s first understand the advantages and disadvantages of reading research reports.

Pros and cons of reading stock research reports:

Frequent reading of the research reports of public companies has both advantages and disadvantages. Here are the few common ones–

Pros of reading research reports:

  • You can develop analytical skills: If you continuously read the stock research reports, you can learn the approach that the analyst used to analyze the stock and his/her stock data interpretation techniques. 
  • Saves time to collect data: If you are new to the stock market and do not know where to obtain the company data for research, then stock research reports can help you a lot. These reports contain many essential stock data in a customized format.
  • You can get an extra opinion: By reading the research report of a company by different analysts, you can get an additional opinion- which can help you avoid the confirmation bias.

Cons of reading research reports

  • You might get influenced by the opinion of the analyst: It is very common to get influenced by the buy/sell opinion of the analyst after reading the report. And this might not always be profitable for the investors.
  • Paralysis by Analysis: Sometimes reading multiple research reports might make your investment decision ‘complex’ and ‘indecisive’. If three analysts are giving buy call and the other three are arguing to sell, then it might be little tricky to decide which step to take.

How to make the best use of stock research reports?

The best way to effectively use stock research reports is to read the analysis and ignore the section where the analyst makes his/her recommendation (buy/sell call). Take your own independent intelligent decision after reading the report.

Moreover, it’s not difficult to make your investment decision- once you get used to reading and understanding the research reports. If you start reading even 2-3 research reports per week, you can develop good analytical skills within a few months. 

Note: If you are new to the stock market and want to start your investing journey, here’s an amazing online course– ‘HOW TO PICK WINNING STOCKS?’. Enroll now to enter in the exciting world of stock investing.

Best websites to find stock research reports of Indian companies for free:

There are two easy approaches to find the stock research reports of Indian companies. First, simply google the company whose report you want to study. You will get many useful links to research reports. However, this approach might be a little inefficient for the beginners.

The second method is to get the research reports from a few financial websites who collect this information. There are the two best websites where you can easily find the stock research reports of Indian public companies.

1. Trendlyne

trendlyne

Website: https://trendlyne.com/research-reports/all/

Here are the steps to find research report on Trendlyne website:

  1. Go to trendlyne.
  2. Select ‘REPORTS’ on the top menu bar.
  3. Search the stock name whose report you want to read.
  4. You’ll get a complete list of the research reports by different brokers/analysts.

2. Marketmojo

Website: https://www.marketsmojo.com/

Here are the steps to find the stock research reports of Indian companies on Market Mojo–

  1. Go to market mojo and create an account/log in using your email id.
  2. Select ‘RECOS’ on the top menu bar.
  3. You will the complete list of the research reports and recommendations. 
  4. Further, for finding a specific stock report, use the search bar on the header.

Also read: 7 Must Know Websites for Indian Stock Market Investors.

Bottomline:

One of the most significant skills required to succeed in the stock market is to analyze stocks and make an informed decision. Although, it’s not easy to read ten-twenty page stock research report, however, with practice and experience you can improve your analytical skills. Nonetheless, reading the stock research reports of companies can help you a lot to understand the different analysis approaches.

Sectors for Long-term Investment in India

5 Ultimate Sectors for Long-term Investment in India.

5 Ultimate Sectors for Long-term Investment in India:

When you are investing in stocks for the long-term, the first critical factor to check is the life-span of the products/services offered by that company. The products should be in use for at least the next 10-15 years. The last thing you want is that people do not need that product anymore and the company ran out of business.

Further, if you want to make good profits from stocks in long-term, then make sure that you are investing in the growing sectors. Few sectors in India like utility, mining etc were good in the past as they were growing at a decent pace at that time. However, these sectors will hardly grow any more in the future (with the same speed). On the other hand, few industries like technology, machine learning, renewable energy, electric vehicles etc are on the verge of the rapid growth. 

In this post, we are going to discuss five best sectors for long-term investment in India for consistent returns. So, let’s get started.

Best sectors for long-term investment in India –

1. Information Technology (IT)

The 20th century was the era of manufacturing. From the 1990s to 2010, it was the time for the internet boom. And currently, it’s the time for information. As a general matter of fact, IT companies are growing at a much faster rate compared to the manufacturing companies. And obviously, skilled employees in the information technology industry are earning a lot more than those in the traditional industries.

There are many factors that are boosting the growth of this industry like technological advancement, economic needs, the Indian government taking beneficial decisions (digital India) etc. Considering these factors, the information technology industry can be assumed to continue to grow. And hence IT stocks can be treated as one of the best sectors for long-term investment in India.

Few of the major players like IT Industry like TCS, Infosys, WIPRO, HCL, Tech Mahindra etc has already established a good brand value and created huge wealth for its shareholders. Nonetheless, these companies can still be considered as a safe bet for the long-term. However, if want fast-growing stocks with good upside potential, the mid-cap IT industry stocks are an amazing fit for long-term investment in India.

Also read: 10 Best Blue Chip Companies in India: TCS At A Whopping Rs. 7,32,521 Crore Market cap

2. FMCG (Fast-moving consumer goods)

Will the people still be using soaps, shampoo, surf, oil etc– 15-20 years from now? I think so.

FMCG is the most defensive sector for long-term investment in India. Most of the products in this Industry have been used by the people for over 100 years and yet will continue in the future. Few FMCG companies like HUL, Dabur, Emami, ITC, Nestle etc are common names in Indian-houses. Majority of the people living in Indian cities/towns have been using their product for a very long time.

Unlike many sectors which follows the contraction and expansion cycle, the products offered by FMCG industry will always be in demand. During a recession or economic crisis, people may not buy a new automobile or might not take new loans or avoid investing in real estate/infrastructure, but because FMCG products are the basic necessities- its demand won’t decrease as much compared to the other industries.

In the past few years, these companies have also started growing in the Indian rural areas/villages. Earlier, people in rural areas do not like to use the products of FMCG companies. However, the trends are changing these days. Therefore, these companies have a very good growth opportunity in those areas area. If you are looking for a safe industry to invest, then FMCG industry is one of the best sectors for the long-term investment in India.

3. Housing finance companies

India is a growing country (in fact the fastest growing country in the world). And housing finances companies or NBFC (Non-banking finance companies) are going to play a crucial role in the growth story of India. This is easily one of the best sectors for long-term investment in India.

Unlike major public sector banking companies in India, housing finance companies are performing well for the past many years and will continue to do so. They have actually a low NPAs (Non-performing Assets) when compared to the PSU banks. Few major players in this industry can be HDFC, LIC Housing Finance, Indiabulls Housing Finance, GRUH Finance, and DHFL.

4. Automobile

It’s safe to say that the world (along with India) will run on electric vehicles by 2030.

According to a CNBC report- The world’s fleet of electric vehicles grew 54 percent to about 3.1 million in 2017. The forecasted number of electric vehicles on the road around the world will hit 125 million by 2030. (Source: CNBC)

(Image source: Bloomberg New Energy Finance)

Therefore if you are futuristic and want to invest in the best sectors for long-term investment in India- you might not want to miss this revolution. 

Now, if you study electric vehicles, you will find that few important parts which make the EVs are batteries, braking system & micro-controller. Of course, other routine auto parts like body, tires, driving system etc are also involved- but these three are the critical ones.

For making electric vehicles successful, batteries should be powerful and efficient to run longer distances without discharging. Different companies are already working to improve the technology of existing lithium-ion batteries.

Apart from lithium, aluminum is another metal which is going to play an important role. Aluminum will be used in car structures as they are excellent conductors. (Read more here- the electric vehicle revolution will spur aluminum demand).

To summarise- here are a few companies that will be playing a crucial role in the electric vehicle revolution —

  • Batteries: Amara Raja, Exide Industries, Eveready.
  • Metals: Hindalco, Vedanta, NALCO (National Aluminium Corp), Graphite India, Hindustan Copper.
  • Auto Companies: M&M, Tata Motors, Maruti Suzuki, TVS Motors, Hero Motocorp, Bajaj Auto.

Note: Although auto ancillary companies (like Minda Industries, Motherson Sumi etc) will also play a significant role, however, to keep this answer streamlined, I didn’t not focused on them. Nevertheless, even those companies have an amazing potential to reward its shareholders in the long-term.

5. Infrastructure

When you go to a developed country, what is the first thing that you notice? Big buildings, towers, flyovers etc, right?

For growing countries like India, the growth is the infrastructure is the fastest. You might have already noticed the continuous work in building new airports, railway stations, metro etc in India. Infrastructure companies are the key players in the growing countries and hence are obviously this sector of the best sectors for the long-term investment in India. Few major players in this industry are L&T, Adani Ports, GVK Infra etc.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Bonus:

6. Pharmaceuticals

It’s really impossible to ignore the pharmaceutical industry when we discuss long-term. Although this sector is in bear phase for last few years, however, they are few one of the best sectors for long-term investment in India. With the evolving technologies, pharmaceutical companies are investing heavily in their research and development activities. Many of these companies are consistently developing better & cheap drugs and are also getting support from the government. Few of the major players in this industry are Lupin, Sun Pharma, Glenmark Pharma, Aurobindo Pharma etc. 

New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Bottomline:

Long-term investment in consistent industries can help you to build great wealth to secure your future. Many large-cap companies like Infosys, WIPRO, HUL etc has amazingly rewarded their loyal shareholders. As an intelligent investor- it makes much sense to invest in the growing sectors for long-term investment in India.

Nevertheless, an important lesson to learn here is that not every growing sector is going to give amazing returns.

For example- Internet companies gave amazing returns in the 1990s and 2000s as they were growing at a good pace then. However, the same was not true for the airline industries during its peak.

The airline industries started growing at a good pace during the 1970s. It was considered revolutionary as people argued that it will change the whole course of the transportation sector. And obviously, the people were investing heavily in airline companies. Although the industry did grow a lot in the past 50 years, however, hardly any airline company stock in India gave consistent returns or became a huge multi-bagger.

Therefore, while selecting the best sectors for long-term investment in India- the best approach is to diversify. Allocate funds in different sectors that you believe will grow -so that the risk is diminished and you also don’t miss out any booming sector.

Habits To Overcome Poverty and Become Rich

3 Simple Habits To Overcome Poverty and Become Rich.

“You are the master of your destiny. You can influence, direct and control your own environment. You can make your life what you want it to be.” ― Napoleon Hill, Think and Grow Rich

We all have heard numerous stories about people who started from scratch and with empty pockets but turned out to be millionaires and billionaires.

What makes these people different from us? Have we really accepted our so-called “pre-written” mediocre fate? Sadly yes. Like it or not, but these behavior and habits do play a life-altering role. To be in a much better place, financially, we have to stick to a previously written set of rules; don’t worry, there are very easy to follow. We can always look for inspirations from those who have gone through similar phases.

In this post, we are going to let you know about some life-altering habits that will make you have a tighter grip on your financial aspects. However, some pieces of advice work for some people while they don’t for the other set of people. In that case, take your pick wisely!

Who’s actually poor?

The notion of being poor is actually quite subjective. But moving forward, we have to establish who we are considering poor?

A person having insufficient wealth to meet the necessities or comforts of life or to live in a manner considered acceptable in a society. (Quick note: Being poor is different than being broke. Poor is a long-term situation. While broke means that you have no money, but it’s a temporary situation.)

Needless to say, nobody prefers to be poor or would want to live a life of misery. But this world is full of terrific examples of people who were born poor but ended up becoming super rich. Fancy!

Nonetheless, if you are not satisfied with your financial mobility/stability right now, you can always move past this phase and search for better opportunities. Always remember; good things come to those who fight for them.

Quick Note: There was a famous survey posted by the Wall Street Journal regarding how to get rich. Here’s the result of the poll. Carefully observe the manner by which people think they can get wealthy.

rich vs poor

3 Simple Habits To Overcome Poverty and Become Rich

Let us now see what all habit you need to incorporate into your daily life in order to make financial stability follow you.

1. Change Your Mindset:

“The starting point of all achievement is DESIRE. Keep this constantly in mind. Weak desire brings weak results, just as a small fire makes a small amount of heat.” ― Napoleon Hill, Think and Grow Rich:

After a while, you’ll definitely understand that life is nothing but a game of mindset. If you are considering your situation to be the end game then sorry to burst your bubble there, it is definitely not. Even if you have a chance to tilt-shift your mindset, why not focus on positive aspects then? Your financial position is not fixed, it never will be. There’s a simple rule in life that follows everywhere and hence in the financial world as well: change your mindset and see things rolling back to you quickly.

Changing your mindset also does relate linearly to changing your environment. If you are stuck in a toxic environment filled with alcoholics and gamblers all around, you already know where you are lacking. Looking for a solution? Change your location by choosing a better surrounding and environment around you. Simple, right?

Also read: 3 Amazing Books to Read for a Successful Investing Mindset.

2. Be a little Analytical about Your Financial History:

We understand how long a chain of debts can become roadblocks when it comes to having a grip on your financial status. That’s pretty normal even. What’s not normal is not analyzing where your money is going or how long has it been going. The solution is both simple yet tricky; use analytics as an end game.

Every repetitive history has a loophole if it doesn’t seem to work out. Find yours. Keep looking for better investment options while considering the safety factor, of course. Moreover, make sure that you don’t get trapped in the web of “easy money” through illegal sources. It is never, I repeat, never an option. If you look up to someone who manages his/her financial structure quite tremendously, don’t feel shy about striking a conversation with them.

Unload your pressure of debts and other faulty saving scheme and drop out the traditional ways that don’t work well in the current scenarios.

3. Live Within Your Means

Interestingly, if you notice the survey mentioned earlier, luck ties savings in the poll.  “Getting lucky through an inheritance or winning the lottery.” tied with “live frugally and save money.”

Earning millions of bucks wouldn’t matter if you wouldn’t know how you can actually put them to use. Let’s statistically give you a harsh reality check; more than 65% of your salary goes into your housing and food expenses. While these two things are certainly the most important things in life, you can save a lot more here. Swear to yourself to not spend more than 25% on your housing and 15% on your food. I know it is more of a rosy picture but you certainly can do it.

Adding to the list never be in one of those never-ending credit card debt loans. No matter how tempting it feels at first, it is going to get your financial account crooked for the longer term. Out of all your expenses, primarily shift your focus to your emergency fund. You can always buy that extra piece of cloth or that extra piece of footwears later.

Also read: The Best Ever Solution to Save Money for Salaried Employees

BONUS: 50-30-20 Rule

Till now we just covered the theory. However, this rule gives you a practical formula for spending to avoid poverty. Here is the straightforward 50-30-20 rule.

  • Spend 50% of your income on your needs: For example- Housing, food, utility, necessities etc.
  • Limit your wants to 30%: For example- dining out, vacations, entertainment etc.
  • Save remaining 20%: Final twenty percent should go towards financial goals like an emergency fund, retirement fund, debt repayment, investing etc

50-30-20 rule

This rule of 50-30-20 can be very beneficial if you are just starting out to budgeting. Breaking down the basics categories (percentage-wise) can help you create a balance between your obligations, goals, and extravagance.

Bottomline:

Being rich is a goal of the majority of the population. However, most people never get there. Many of us are just one paycheck away from becoming poor.

The hacks discussed in this post are solid and proven methods for overcoming poverty and becoming rich. Nevertheless, there’s a reason why these strategies are called personal finance. Well, personal finance is ‘personal’ and totally depends on how you deal with it. Good luck.

Invest in Foreign Stocks From India

3 Easy Ways to Invest in Foreign Stocks From India.

3 Easy ways to invest in foreign stocks from India:

Hi there. Welcome to the day 7 of my ’30 days, 30 posts’ challenge. Today we are going to discuss a very interesting topic that has been demanded by multiple newsletter subscribers of Trade brains. So, let’s get started.

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Apple, Google, Facebook, Amazon, Microsoft, Samsung, Twitter… These are some well-known companies in the world. We all have grown up using the products/services offered by these companies. But along with using their products, can we also own a part of these companies?

Wait, these are not Indian companies, right? Therefore, they won’t be listed on the Indian stock exchanges. These companies will be listed in their respective country’s stock exchange. So, how to buy shares of a company that are registered in the foreign stock exchanges?

Don’t worry, if you really want to buy these stocks- you’ll get it. Always remember the famous movie dialogue by King Khan- “Kehte hain agar kisi cheez ko dil se chaho … to poori kainath use tumse milane ki koshish mein lag jaati hai

In this post, we are going to discuss three simple ways through which you can invest in foreign stocks.

First, why should you invest in foreign stocks? Are they better than Indian companies?

Before you even read the ways to invest in foreign stocks, firstly you need to clear up your mind that why you want to invest in foreign companies. There are over 5,000 listed companies in Indian stock market. Aren’t they enough? Why do you need alternative stocks?

Further, which one is better to invest- Indian companies or the foreign companies?

Well, I’m really not in a position to answer the second question. These are giant multi-billionaire companies that we are talking about here. They have lots of highly qualified professionals in their management team. It won’t do justice if a boy sitting on his couch judges these companies. Nevertheless, I can share a few of my personal opinions regarding why to invest in foreign stocks.

Also read: 10 Best Blue Chip Companies in India that You Should Know.

Top reasons why many Indian invests in the US or other foreign stock exchanges—

1. People want to invest in they favorite companies: Apple, Google, Twitter, Facebook, Amazon, etc. are the darlings of this generation. And of course, many people want to invest in these companies. 

2. Diversification: Investing in foreign stocks helps in diversification. Let’s assume that the Indian equity market starts falling due to some local region. However, investing in foreign stocks can mitigate the risk in your portfolio as the local reason may not have a significant effect on the international markets.

3. The bigger opportunities: Once you start to invest in foreign stocks, there are no boundaries anymore. You can hunt for better (profitable) opportunities in the international markets.

Besides the above-mentioned points, few investors believe that the foreign companies have better resources, facilities, government cooperation, and standards. That’s why they invest in foreign companies.

Nevertheless, while deciding to invest in foreign stocks, you should also remember that India is that fastest growing economy in the world. On the other hand, most of the international markets are little saturated. Therefore, growth-wise, India has better potential.

Anyways, it totally depends on your preference regarding where and how much to invest. As already discussed, there are both pros and cons to trade in international stocks.

Also read: 9 Simple Yet Powerful Rules of Successful Investing.

Few Critical Points to know before you invest in foreign stocks:

1. Up to $250,000 can be invested overseas by the Indian residents: As per the RBI notification in Liberalised Remittance Scheme (LRS), an Indian resident individual can only invest up to $250,000 overseas per year. With the current exchange rate of ($1= Rs 68), this amount turns out to be over 1.7 Crores. Anyways, if you have a family of four, you can invest 4 x $250,000 = $ 1 Million. That’s enough money to invest, right?

2. Be ready for the high charges: While investing in the international stocks, you’ll be transacting in foreign currencies. For example, if you are trading in the US stock market, you have to pay the brokerages in US dollar. And hence, the stock brokerages may be a little higher compared to the charges in the Indian stock market. Similarly, the annual/monthly maintenance charges may also be higher compared to domestic accounts.

3. Profits are subjected to currency exchange rate: Let’s assume that you are investing in the US stock market. When you bought the US stock, the currency exchange rate was $1= Rs 68. However, next year- when you sold the US stock, let say the Indian currency got stronger, and currency exchange rate becomes $1 = Rs 62. In such case, you have already lost 8.8% due to change in exchange rate. That’s why when you invest in foreign stocks, profits are always subjected to the currency exchange rate.

Quick Note: Besides the above factors, you also need to keep in mind the foreign stock risks. As these stocks will be listed on foreign stock exchanges – the environment and the factors (like local government policies, local trends etc) will affect the share price of those companies.

How to invest in foreign stocks?

Now that you have learned the basic concept of investing in the international stock exchanges, here are three simple ways to invest in foreign stocks—

1. Open an account with Indian Brokers with a tie-up with a foreign broker-

Many full-service Indian brokers (like ICICI direct, HDFC Sec, Kotak Sec, Reliance money etc) has a tie-up with the foreign brokers. They have made it very simple to open your overseas trading account with their partner (foreign) brokers.

2. Open an account with the foreign brokers-

Few international brokerage firms like Interactive BrokersTD AmeritradeCharles Schwab International Account etc permits Indian citizens to set up an account and trade in US stocks, mutual funds etc. In fact, brokers like ‘Interactive brokers’ also has an office in India where you can visit, get your queries answered and open your overseas trading account.

3. Buying Indian MF/ETFs with global equities—

There are a number of mutual funds/ETFs who invests in international markets (global market, emerging market etc). You can invest in those mutual funds/ETFs to indirectly invest in the foreign equities.

This is the easiest approach to invest in foreign stocks. An advantage of investing through mutual funds is that you won’t need to open any overseas trading account. Further, you won’t also require to invest a hefty amount. Compared to direct investing in foreign stocks (where you might be asked to maintain a minimum of $10,000 deposit), investing in mutual funds/ETFs are cheap.

Few of the popular of popular mutual funds who trade in global equities are—

(Source: Moneycontrol)

Conclusion —

Investing in the foreign market will help you widen your investment horizon. Here, you can invest without boundaries in your favorite companies. Moreover, in the era of the internet- it’s not much difficult to invest in the international market.

Nevertheless, investing in the international stock market has both advantages and disadvantages. The most significant advantage is that it helps in diversifying your portfolio. However, the obstacles are higher expense charges and currency exchange rates.

A complete guide to NSE Certification Exam

Want to Take NSE Certification Exam? Now You Can!

A complete guide to NSE Certification Exams:

Recently, I received a number of emails with the same question -“Bro, how to get certified by NSE? Is the NSE Certification helpful to get a job in the Indian stock market industry?”

Therefore- in this post, I decided to walk you through the exact process to take an NSE certification exam. Here are the topics that we will cover today-

  1. What is NCFM?
  2. Can NSE Certification add value to your career?
  3. What are the modules offered by NCFM?
  4. NSE Certification exam details.
  5. How to enroll for the NSE Certification exam?
  6. Few additional tips before taking the examination.
  7. Bonus

To be honest, it’s quite easy to get certified by NSE – if you have good enough knowledge in this field. Nevertheless, even if you are a beginner, you can comfortably clear the examination if you are ready to spend some time and efforts.

What is NCFM?

NSE Academy Certification in Financial Markets or NCFM program is an online testing and certification program that tests the practical knowledge and skills required to operate in the financial markets. The NCFM program operates on NSE intranet and is administered through their designated test centers located across India. (Source: NSE India)

In short, NCFM is an online testing and certification program to maintain a higher level of excellence in finance personnel.

NCFM offers different modules for different roles. For example, if you are interested in technical analysis, you can attempt the NCFM module for the technical analysis certification.

Can NSE Certification add value to your career?

Frankly speaking, there’s no formal education given to the students regarding investing or the stock market in school/colleges. Therefore, taking an NSE certification exam can help you to enhance your theoretical and practical knowledge.

Moreover, if you are from a non-fiance/commerce background and want to work in the share market industry, this certification can definitely help you. It will give your profile an advantage when compared to the applicant with the same qualifications, but no certification.

In short, NSE certification can be helpful for the students/professional aspiring to make a career in this field.

Also read: Should you Quit Your Job to Trade Stocks?

What are the modules offered by NCFM?

First of all, I would like to mention that NCFM offers dozens of modules (as given below). And of course, you cannot consider giving all of them at once. Apply to the certification exam for the roles/fields in which you are interested. (It’s doesn’t makes much sense to give a certification exam for investment banking operations if you are interested only in equity research.)

Now, NSE Academy offers different modules for Foundation (Beginners), Intermediate and Advanced investorsEach module is designed to impart specific knowledge in the given domain relevant to the personnel working within that specified area. Here’s a quick snapshot of the different modules offered by NSE:

1. Foundation Modules: NCFM Foundation modules

2. Intermediate Modules:

3. Advanced Modules:

NCFM Advanced Modules

4. NCFM Proficiency certification:

NCFM Proficiency certification is a combination of exams to get a predefined certificate. You have to complete all the modules (as pre-defined) in order to receive this certification. Here are the different proficiency certificates currently offered by NCFM:

(Image Source: National Stock Exchange of India Ltd.)

NSE Certification Exam Details:

Eligibility:

There’s no specific eligibility to sit in the NSE certification exam. In other words, there’s no special qualification requirement or age limit to give the test.

Exam details:

Here are some general details of the certification exams:

  • The questions will be asked in Multiple choice questions (MCQ) format. This means that you will be given 4-5 options for each question and you have to select the correct answer.
  • Most of the certification exams are 120 minutes long and have either 60 or 70 questions.
  • The maximum mark for the examination is 100 marks and the pass mark is 60-70%. (The passing mark varies with the module you are attempting).
  • Few modules have negative marks on the questions. This means that for each wrong answer, some marks will be deducted from the total score.
  • After clearing the examination, you can immediately print the certificates as it will be available online on your portal. However, the paper certificate will be couriered to you- which might take 15-20 days to reach (depending on your address).
  • Generally, the fee for the majority of the modules in Rs 1700 + GST. However, for some advanced modules- the fees are higher.

Test Centers:

You have to give NSE Certification exams on the designated test centers.  Here’s a list of available centers

How to enroll for the NSE Certification exam?

Here is the step-by-step process to enroll for the NSE certification exams-

  • First, you need to visit this link to check out the available modules, their fees, and course content. Select the modules in which you are interested.
  • In case, you want to take a model/free test, you can try it here.
  • Once you’ve decided the module that you’ll be attempting and test center- next you need to pay the fee and register for it.
  • To register for the examination, you have to create an account on the NCFM Portal. Here’s the link to the registration pageIt’s quite simple to register on the NCFM portal. All you need to do is to enter your details (personal info, address, qualification, pan card etc) and submit the form.
  • After your account has opened, you can pay the fee for the module (in which you are interested) and book the test date and center.
  • Finally, you’ll also receive an email with the course material (ebook) that you need to study and you admit card for the examination.
  • Prepare well for the exam and Good luck!!

That’s all. This is exactly the process to register for the NSE Certification examination.

Few additional Tips:

  1. Give at least 2 weeks for preparation: For the intermediate and advanced modules, you need to study for at least 2 weeks. For the foundation (beginner) modules, this preparation time can be shorter. But to be on the safe side, go through the course materials/ebook at least once before attempting the exam.
  2. Avoid incorrect answers- There will be negative marking in most of the modules. And remember, your final marks will be printed on the certificate. Don’t take bets on the MCQ questions that you don’t know.
  3. Stay calm and enjoy the test: The last thing that you want to do is to ‘freak out’. You can give multiple attempts for the certification examination. If you were not prepared nicely or the exam didn’t go well, simply re-attempt. It’s not the end of your career.

Also read: 3 Best Sites to Learn Virtual Stock Trading in India (Without Risking Your Money)

BONUS:

Besides NCFM, here are few other popular websites where you can enroll for certified courses-

Bottomline:

NSE Certification can help to boost your resume and your knowledge. If you are looking for a career in the stock market/finance industry, this certification can definitely give you an advantage.

Anyways, even if you not planning to pursue a career, you can take this test for fun or check your knowledge. NSE certification exam is quite cheap compared to most financial exams like CFA, CFP or any other financial courses on EDX, Coursera etc.

Nevertheless, even after getting certified- you have to put a lot of efforts from your side and have to continue your life-long education to become a successful investor/trader. In short, the certification won’t help you much in real-time investing/trading. However, your knowledge and experience will!!

That’s all. I tried to cover most of the points. In case, if I missed anything or if you’ve any query- feel free to comment below. I’ll be happy to help you out. Cheers!!

what is value investing

A complete guide on Value investing in India.

A complete guide on Value investing in India.

“Price is what you pay. Value is what you get.” -Warren Buffett

There are many successful strategies in the stock market. However, three of the most popular investing strategies are- Value investing, growth investing and dividend investing. It’s really difficult to say which one is better as it totally depends on the investor’s knowledge, style, and preference.

Nevertheless, value investing is one such proven strategy which has created huge wealth for many investors who has followed this strategy with discipline. In fact, one of the biggest followers of value investing is the legendary investor- Warren Buffett.

In this post, we are going to discuss the principles of value investing. Here are the topics that we are going to cover today:

  1. What is value investing?
  2. A brief history of value investing.
  3. Fundamental philosophies of value investing.
  4. Does value investing in India works (w.r.t. Indian stock market)?
  5. Best books to learn value investing in India.
  6. Conclusion

It’s going to be a captivating post for the long-term investors who are trying to understand the concept of value investing in India. So, without wasting any further time- let’s get started.

What is value investing?

The basic strategy of value investing in very simple.

You find an amazing company, calculate its true (intrinsic value) and pay a lot less to purchase the stock (when it is on sale in the market). As you have bought the stock at a discount, you can make a profit by selling the stock when the price reaches its true value.

Few common tools that value investors use in order to find undervalued stocks are- lower than average price to book value, a low PE ratio or higher dividend yields.

Quick Note: I’ve already covered important financial ratios and valuation methods like relative valuation, DDM etc in my earlier posts. Further, if you want to learn different valuation tools (in details), feel free to check out my online course: ‘HOW TO PICK WINNING STOCKS?’

A brief history of value investing:

“It is much better to buy a wonderful company at a fair price than a fair company at a wonderful price.” -Benjamin Graham

Although value investing is a very old strategy of investing in stocks, however more than anyone else, Benjamin Graham is credited for popularising this concept. Graham developed the value-investing philosophy after surviving the great depression of 1929-30s -when the Dow lost an unbelievable 89% over a three-year span.

Graham was the professor of finance at Columbia business school and authored the book ‘The Intelligent Investor’ in 1947. Coincidently, Benjamin Graham was also the mentor of the ace investor-Warren Buffett. After inheriting the concept of Value investing from Graham, Buffett further popularised it among the investing population.

Like Graham, Warren Buffett also looked for undervalued companies that have a steady cash flows driven by straightforward models. His company- Berkshire Hathaway has generated an average annual return of above 20% for more than 50 years, making Buffett one of the richest people in this world.

Fundamental philosophies of Value investing

Value investors believe that the market overreacts to good and bad news and hence they do not correspond with the company’s long-term fundamentals. Therefore, at a specific time in the market, stocks can be overvalued, undervalued or decently valued.

The strategy of value investing is to find the undervalued stocks -which are trading at a discount because of short-term reasons or market not yet realizing their true potential. Here are the three fundamental philosophies of value investing:

1. Companies have intrinsic value.

What distingue value investing from other popular strategies is that value investors believe that stocks have an intrinsic or true value. They find this concrete number using different valuation methods like discounted cash flow analysis. When the market value of that stock is below the calculated value, the value investors purchase that stock. Further, as these investors have bought the stock at a discount, they sit back and relax until the stock reaches its true value.

Quick Note: Value investors do not believe in the Efficient Market Hypothesis (EMH).

2. Always have a Margin of Safety.

The margin of safety is the guiding philosophy of value investing to reduce risk and avoid loss. Here, the value investor gives a benefit of doubt to themselves by purchasing a stock with a margin of safety.

For example, let’s assume that an investor calculated the true value of a company to be Rs 100. Here, buying the stock at any price below Rs 100 can be considered as an undervalued price. However, if the investor wants a margin of safety of 20%, then he/she will buy that stock at Rs 80 or less. Here, the value investor is safeguarding his investment by adding a significant margin of safety in his/her purchase price.

3. Don’t follow the herd

“Be greedy when others are fearful and be fearful when the other’s are greedy.” -Warren Buffett

Interestingly, you can find a large population of investing community following herd mentality psychology in making various financial decisions like buying new property or investing in the stock market. Seeing others getting profited with an investment, our brain tells us to go for it without a second thought.

However, the value investors avoid herd mentality. They do not believe in group thinking or buying a stock just because everyone else is buying. That’s why, many a time- the value investing strategies looks similar to the contrarian investing

charlie munger quote value investing

Does value investing in India works?

Yes, Definitely!!

Tell me one thing- If I offer you to purchase a brand new iPhone X at a discount of 50%- Isn’t this deal profitable to you?

Yes!!!. Even if you don’t plan to keep the iPhone, still you can sell it for a price way higher than your original purchase price. There are a number of online websites like Olx or Quickr where you can easily find a buyer for this phone.

Value investing works on the same concept. Here, you buy terrific stocks at a price below their intrinsic value (i.e. discount price) and hold it till they reach their true value.

So, does value investing in India works?

Absolutely!! Value investing is a time-tested strategy. From Benjamin Graham to Warren Buffett to Joel Greenblatt to Raamdeo Agrawal -all have made a massive fortune by following the strategies of value investing.

Best books to learn value investing in India.

Although, I tried to cover most of the critical points related to value investing in India in this post. However, there are still many concepts yet to learn for the beginners. Here are the best books to learn value investing in India. (Note that few of the books mentioned below are written by foreign authors, but the concepts are applicable everywhere)-

Also read: 7 Best Value Investing Books That You Cannot Afford to Miss.

Bottomline:

Value investing is a proven strategy to build wealth. And value investing in India definitely works for those who apply this strategy with discipline.

However, value investing is subjective and depends on the investor’s style of investing. While many value investors only look for undervalued stocks, few also consider the future earnings expectations and cash flows to determine the future value. For example, the star fund manager Peter Lynch (Author of One up on wall street) was more interested in undervalued stocks with good growth prospects. That’s why he preferred PEG ratio over PE ratio.

Whatever the approach- the underlying principle of value investing is the same– find an amazing company and pay less than what its true worth with a significant margin of safety.

Should you Quit Your Job to Trade Stocks

Should you Quit Your Job to Trade Stocks?

Should you Quit Your Job to Trade Stocks?

One of the most frequently asked questions that I receive in the emails is – ‘Can I make a living trading stock?”.

It’s a fascinating idea, right? Quitting your job and working from home trading stocks. No boss, no employee, no logistics, nothing. Just a laptop and an internet connection. 

So, can you make living trading stocks?

The straight answer to this question is- YES, it is possible to make living trading stocks.

I know a dozen of people who are making tons of money in their 20s by living in the well-fashioned flat in Mumbai and trading stocks.

There is no entry barrier in this field. Anyone can enter and make living trading stocks. Even you don’t need any tremendous amount to start trading. You can leverage money from your brokers which means that you can control a significant amount of capital with a small investment. To make living trading stocks- all you need is a passion, desire to earn and energy.

Also read: What is the difference between trading and investing here.

But wait… This can’t be so simple, Can it?

No!! There’s no shortcut in this world, my friend. Especially, not for an average person.

Every year thousands of people quit their job to become a full-time trader. Few become successful and start living their dream life. But the majority of people ‘FAIL’.

In reality, making living trading stocks in tough.

It’s just like learning any other skill. A large number of people learn guitar or a few other musical instruments. Even many of them play pretty well. But making a successful living out of it or becoming a rock star is RARE. Only a minority of the people can do it.

You need a specific skill set to become successful in any field- which requires thousands of hours of hard work in the back end. Similarly, to become a star trader- you will need to achieve a same level of excellence.

Here, I’m not discouraging you, but just highlighting the reality. Anyways, if you are ready to put thousands of hours of efforts from your side- then you also become a successful full-time trader.

Questions to ask before You Quit Your Job to Trade Stocks:

Before you quit your job to trade stocks, here are few points that you should consider asking yourself–

1. Do you have enough education?

By education, I don’t mean a degree or qualification. What matters here is whether you have enough knowledge and experience of trading or not? If not, then first you might need to take some time reading books, enrolling in courses, attending webinars, or browsing the internet.

2. Do you have a sound trading methodology?

Just because you did well in paper trading (virtual stock trading) doesn’t mean that you’ll do similar in the real-time scenario. You need a proven trading methodology (which should be tested over time). Without a sound trading strategy and risk management skills, it’s difficult to consistently make earnings from trading. Before you quit your job to trade stocks, master a trading methodology.

full time trader

3. Do you have an emergency fund?

Before quitting your job, make sure that you have an emergency fund of at least one year. Stock market trading involves market risks and if you are ready to dive-in completely, then having a backup fund can ease your life and reduce your stress in the difficult days.

4. Are you emotionally prepared?

You know that you can’t win every trade, right? But are you ready for it emotionally? After quitting your job, you won’t receive a monthly paycheck. Your income will be based on the profits or losses on your trades. Before deciding to leave your day job to trade stocks, first- you should get emotionally ready.

5. Have you chosen the right option for you?

There are multiple options available in the trading. For example- you can be an independent trader (day trading from home) or become a proprietary trader. Further, you can also trade in forex, currency market or commodities. The critical question here is- have you chosen a right option for you?

Bonus: Here’s an interesting video that I found on youtube regarding how to become a full-time stock trader by Nitin Bhatia- which might be useful to you-

Bottomline

Making a full-time living trading stocks requires a lot of hard work and efforts. However, this is not a rocket-science, and thousands of people are doing it. Therefore, it’s possible for you to quit your job to trade stocks. 

However, before making your decision to quit your job to trade stocks, you should find the answers to the questions discussed in this post.

Anyways, once you have mastered the art of trading, you can build a lot of wealth and financial freedom. A successful full-time trader is his own boss and can work from anywhere. 

New to stocks? Confused where to begin?  Here’s an amazing online course for beginners: ‘HOW TO PICK WINNING STOCKS?‘ This course is currently available at a discount.