Friday, February 2, 2018

Smart Equity Investing

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Can financial assets give me stable returns like my horses?" asked X, a prospective client. I wondered if this was a trick question. Horses and stables conjured up images that were far removed from equity and debt. 

X elaborated that he had been investing his money in horses for many years. He not only bet on them, but also bought and sold horses. However, he was getting a bit weary of this business and wanted to explore other investment options. 

After conducting his financial plan, we recommended he invest a part of his portfolio in equity. To convince him, we drew several parallels between investing in stocks and horses. Like equity, you had to buy horses at a low price and sell high to make money. Like stocks, you had to keep emotions aside and not fall in love with your horses. Similarly, it was important to stay away from overvalued horses that had won few races, and invest in those with better pedigree, long-term prospects and racing history. 

We also explained that equity investing was in many ways different from equine investing. It required specific skill sets to win in the stock market derby. Equity investing is not for the faint of heart. It requires a high level of persistence and perseverance, not to mention frayed nerves and sleepless nights.

Let's not forget 21 January 2008, the Monday that battered the confidence of even the staunchest equity supporters. But those who weathered that storm saw the sun shine bright on their fortunes. 

When we buy a stock, we behave like the owners of a company. Ownership entails we partake in the fortunes and misfortunes of the company. We must have some interest in the way a business operates, the challenges that it faces and how it sees through different business cycles to generate value for its shareholders. We must know how to read financial statements, understand how companies makes profit, evaluate risk taken by the management and how these can affect business in the future. We need to understand specific sectors, their cyclicality, and the socio-economic conditions of the country with respect to those sectors. 

What does it take for someone to be successful in equity investing? By equity, I specifically refer here to single stock investments and not equity mutual funds. I believe you need three things to be successful: time, money and access to information. 

Time: For most of us who hold day jobs, lack of time is the biggest impediment to investing consistently. Think about it. You come in to work and within a few minutes are barraged with calls from your broker about buying or selling some stock. You stall him saying you need to research them first. You pore through the company fundamentals over the day and get back to him with your decision. The broker calls you back in a few days about another hot stock. This time, you are preparing for an important meeting and have no time to entertain his call. You stall him a few more times and eventually lose interest. Stock investing is an intense activity, best left to those whose full-time job is to research and pick the right stocks, such as a fund manager in a mutual fund. 

Money: If you invest in stocks, you must have a strategy in place. Random buying and selling without a plan is speculating, not investing. You may make some money on a few trades but you will find it hard to sustain your luck over longer periods. Often I find a random mishmash of 70 or 80 stocks in a portfolio, with no logical thinking or strategy supporting them. Sometimes the value of a single stock is a few thousand rupees in an overall portfolio of a few lakhs. Even if this stock were to perform spectacularly well, it will hardly move the needle on the overall value of the portfolio. Strategy is critical for providing direction to your convictions, be it about a sector or a theme. For example, your strategy could be to replicate an index. You need enough money to be able to buy the stocks in the index and hold them with similar weightages. You cannot execute this strategy with a few thousand rupees, or even a few lakhs. 

Access to information: We live in an age of information overload. Often, we make hasty decisions based on what we read in the newspapers or what we see on television. Nothing could be worse than this form of investing. Markets react to news—whether good or bad—within minutes. By the time you read the news in the papers the next day or watch it on television later in the day, you are already too late. The stock's price has already adjusted to the news much before you got wind of it. 

In the short term, playing the stock market is a zero-sum game. For each stock that someone considered undervalued and purchased, there was someone who perceived it as overvalued and sold. Those who made money did so at the expense of those who lost money. The loser, obviously was someone who did not have the three fundamental attributes mentioned earlier. However, if you hold a well-managed, diversified portfolio of stocks over the long term, the zero-sum game does not apply. All investors will have made money over the long term, since the entire market appreciates over time. 

At the end of this investing lesson, X acknowledged that he did not have the wherewithal to do his own stock picking. We told him we had a better solution for him—to invest in equity mutual funds, where a fund manager possessed all the skills necessary for managing a stock portfolio well. 

"My precious mares would agree!" exclaimed a delighted X. "This way, I can retire and so can my horses." We couldn't agree more, especially since it came straight out of the horse's mouth! 




SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

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Thursday, February 1, 2018

How to Invest in SIP

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With systematic investment plan (SIP) inflows in FY17 more than FII inflows, disciplined regular investing has suddenly gained more traction and attention. How did this phenomenon happen?

Things don't happen overnight

The SIP investments for 2016-17 was at Rs 43,921 crore. And for the period till October 2017 (seven months of this fiscal ), SIP investments are at Rs 34,887 crore. For the same period last financial year, SIP investments were at Rs 23,584 crore. The SIP investments are reflecting the strength of the investor confidence in the financial instruments. This is also driven by the fact that returns in the other asset classes—gold and real estate, have given poor returns over the past many months.

SIP or Lumpsum Investment (One time)?

Now another thought is driving the investor's mind. Is SIP or lumpsum investments the right way? As the Sensex and Nifty are moving up, there is a fear of correction. Market movements cannot be predicted. When the government announced PSU banks recapitalisation, stocks of state-owned banks rallied 10-50% overnight. So there is no right answer to what is the best approach.


Let's look at data over multiple time periods in a diversified large cap fund and then decide what history has dished out.


Let's consider three periods:

First period – April 14-Oct 17 (43 months),

 second period – April 16- Oct 17 (19 months) and

the third, Jan 2007- Oct 17 (10 years and 10 months) .

In the first period, if you had invested a sum of Rs 1 lakh lumpsum in a diversified large cap fund, the value as on Oct 31, 2017 was Rs 1.86 lakh ( a CAGR return of 19%). A SIP of Rs 10,000 per month in the same period delivered a return of 15.96% . The Sensex return were in the region of 19%. In this instance too, both the SIP and lumpsum investment returns beat the Sensex returns, with lumpsum, delivering a better return, overall. In the second period, if you had invested Rs 1 lakh lumpsum in a diversified large cap fund, the value as on October 31, 2017 was Rs 1.39 lakh (a CAGR return of 24%. On the other hand, a SIP of Rs 10,000 per month in the same period delivered a return of 21.87%. The Sensex return was 12%. In this instance, both the SIP and lumpsum investment returns beat the Sensex returns, with lumpsum, delivering a better return, overall.

In the third period beginning 2007, if you had invested a sum of Rs 1 lakh lumpsum in a diversified large cap fund, the value as on October 31, 2017 was Rs 4.32 lakh ( a CAGR return of 14.9%). A SIP of Rs 10,000 per month in the same period delivered a return of 15.89%. In this instance, the SIP returns were higher than the lumpsum investment returns. Let's take another scenario. The period 2007– Oct 2008 witnessed the stock markets touching the zenith and then falling like ninepins. In that period, if you had allowed your emotions to control your investment behaviour and you had stopped the SIP and also withdrawn the investment, both in SIP and lumpsum, what would have been the investment status?

For Rs 1 lakh invested in lumpsum manner in a large cap fund, the value on Oct 19, 2008 was Rs 0.81 lakh and if you had not redeemed and allowed it run the course till 2017 (October), the value would have been Rs 4.32 lakh. Similarly, for the SIP investments of Rs 10,000 per month for the period Jan 2007 –Oct 2008, if you had stopped the SIP and redeemed, you would have ended with a loss of 38% over the 22-month period . However, if you had not redeemed and only stopped the SIP, the corpus would have grown to Rs 11.33 lakh with a CAGR return of 18%. More importantly, in the event you had continued the SIP, the corpus would have grown to Rs 31.90 lakh.

Conclusion

There is no set pattern. What is important is that you invest with a goal. Market timing is difficult and is a matter of luck many a times. SIP or lumpsum, what is important is the time horizon for investment and the emotional quotient you display.





SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

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Not all listed share transactions will get LTCG exemption

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In the 2017 Budget, an amendment was made to the provisions relating to the exemption for long-term capital gains on sale of listed equity shares on a recognised stock exchange. The amendment provided that the exemption would not apply to equity shares acquired from 1 October 2004 onwards, where no securities transaction tax (STT) was paid on the acquisition. 

The government has been given the power to exclude certain types of transactions from the exclusion, that is, to notify certain types of transactions that would continue to get the benefit of the exemption, even though STT was not paid on such transactions on or after 1 October 2004. The final notification of such transactions was finally issued in the first week of June 2017. The notification is worded in a negative manner. All transactions qualify to continue to get the exemption, except three types of transactions. There are exceptions even to these three types of transactions—these exceptions will also continue to enjoy exemption. Which are these three types of transactions, and what are the exclusions?

The first type of transaction that will not qualify for the exemption is the acquisition of existing listed shares through a preferential issue, where the shares of the company are not frequently traded. Frequent trading would be judged by whether 10% or more of the total number of shares of the company have been traded during the earlier 12-month period. The issue of shares should be one considered as a preferential issue under the regulations by the Securities and Exchange Board of India (Sebi). There are certain exclusions in the Sebi Regulations (such as conversion of debt); these would continue to get the benefit of exemption. 

An exception to the first type of transaction are cases where the acquisition has been approved by the Supreme Court, High Court, National Company Law Tribunal, Sebi or the Reserve Bank of India. These cases would be situations of mergers, demergers, restructuring of capital, and others. Besides investments by non-residents under the foreign direct investment route, or by alternative investment funds, venture capital funds or qualified institutional buyers would also be excluded. All these would continue to qualify for the exemption. 

The second type of transactions that will not qualify for the exemption are transactions of acquisition of an existing listed equity share not through a stock exchange. In this case, the exceptions which will continue to get the exemption, besides the exceptions to the first type of transaction, include allotment of shares under an employee stock option plan (Esop) and the transfers that are exempt from capital gains. Transfers exempt from capital gains would include shares received by way of inheritance, as gifts, on partition of a Hindu Undivided Family (HUF), on settlement on a Trust, on conversion of preference shares or debentures, or others.

The third type of transactions that will not get the benefit of exemption are the acquisition of shares of a company during the period in which it is delisted, before re-listing.

Purchase of an infrequently traded share on a stock exchange would not be affected by the amendment, and would continue to get the exemption on sale. It is only if the shares are allotted by a company under a preferential issue, that there would be denial of exemption on sale. Transactions such as conversion of convertible securities into shares will still qualify for the exemption, as will receipt of shares under Esop, inheritances, gifts, partition of HUF, and others. Besides, shares of a company that are acquired when they are not listed, but which get listed later, would also get the benefit of the exemption on sale.

There are, however, still some genuine transactions that may get impacted. While settlement of shares on a Trust would qualify as an acquisition eligible for exemption on sale, there is no clarity about the position of the beneficiary of a Trust receiving shares on distribution by the Trust. Similarly, if you happen to purchase listed shares of a company from friends or relatives, to accommodate their immediate need for funds (often this may happen when the shares are not dematerialised), you may find yourself having to pay capital gains tax on ultimate sale of the shares. 

By and large, the notification addresses most of the major concerns that taxpayers had when the budget amendments were brought in, and excludes most genuine transactions from the ambit of the amendment. There are, of course, exceptional situations that may still get impacted. It is admittedly difficult for any legislation to deal with all possible permutations and combinations, and therefore the notification is fair and reasonable. 

The only problem is the language of the section and the notification, which makes it difficult for even a professional to comprehend. The tax exemption has an exclusion, which has notified exceptions. The notified exceptions have exclusions, which again have exceptions. This could be a real test for law students to test their comprehension skills. 



SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

UTI SIP Returns

Best SIP Funds to Invest Online



SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Fixed Deposit Products

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Once you decide to start saving money, what is your first stop? For most Indians, it is deposit products, thanks to their convenience and guaranteed returns. Many first-time investors who are not familiar with different types of financial products, such as mutual funds, also prefer these as an initial step.

Very senior citizens (whose need for funds are very near term), and those who are absolutely risk-averse also prefer deposit products. While these do not score high on real returns, there are investors who prefer deposit products. Here's a look at some of them. 

Savings account deposits

This is the most basic type of deposit if you have a bank account. The current interest rate is 3.5-7% per annum, depending on the bank and the amount invested.

This deposit also comes with clauses such as minimum balance requirement. A savings deposit account can be used to receive money and for the amount that you need for regular expenses, including loan instalments. 

Bank fixed deposit investments

Your money earns a higher interest in bank fixed deposits than it does in a savings account. The drawback of this deposit is that with it you have less flexibility than in a savings account. Plus, it comes with a pre-defined maturity date.

While investing in these, know that, usually, the lower the tenure of the deposit, the lower will be the interest rate.

The rates of interest also depend on liquidity and cost of fund requirements of the bank. The current interest rates on bank fixed deposits range between 3.5% and 7.5%, depending on the tenure. The tenure can vary between 7 days and 10 years. One good thing about these is that senior citizens get higher interest rates. Some of these offer tax benefit. Banks also offer variants of fixed deposits such as sweep-in facility where after a certain limit in your savings account, the money automatically moves to a fixed deposit. Bank fixed deposits work for people in the lowest tax bracket; those who are risk averse; and those who want guaranteed returns. 

Recurring deposit

This product allows you to deposit money on a recurring basis. Most banks offer this product. It usually works for people who don't have a lump sum amount to invest at one go but can deposit on a monthly basis. The interest rates currently range between 5.50% and 7.50%. It comes with a maturity period (6 months to 10 years). Like fixed deposits, if you withdraw your money from a recurring deposit before maturity, a penalty will apply or you may have to let go of the interest. In case there is a delay in paying the instalment, you will have to pay a penalty. This product works for those who are in the lowest tax bracket or first-time savers who want to inculcate the habit of saving regularly. 

Corporate fixed deposits

As part of the process of raising money, companies also issue fixed deposits. Usually, the interest rate on these is 100-200 basis points higher than bank fixed deposits; but they are also riskier. Currently, the interest rate on some of these is as high as 9.50%. Tenure is similar to that of bank fixed deposits. These deposits come with credit ratings—the higher the rating, the lesser the chances of default. Before investing here, do your due diligence on the company's fundamentals; there have been cases of default and even fraud. 

Products from Post offices: India post

India Post also offers multiple deposit products. The interest rate on savings deposit is currently 4% per annum, and minimum amount for opening one is Rs20. The recurring deposit in post office offers 7.1% per annum, which is compounded quarterly, and comes with a 5-year lock-in. The time deposit offers 6.8-7.6% for tenures of 1-5 years.



SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Mutual Fund Portfolios

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Want to invest in mutual funds but don't know which schemes to buy? Already invested in mutual funds but not sure if they are appropriate? Hold a large number of schemes and want to cut them down to a manageable number? 

If these issues are troubling you, our seventh anniversary cover story could provide solace. We have designed five model fund portfolios for investors of different risk profiles and financial situations. 


These five portfolios cover almost the entire spectrum of the investing population, ranging from aggressive investors who are willing to live with volatility to conservative investors who want reasonable growth with minimal risk. We also have a portfolio for retirees looking for returns that can beat inflation and provide regular income from the investments. Each of these portfolios have five funds. The funds have been chosen on the basis 



SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

IDBI Focused 30 Equity Fund

Invest in ELSS Funds Online and Save Tax


 


Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Top Performing Tax Saving ELSS Funds. Save Tax Get Rich

Top 10 Tax Saving Mutual Funds of 2018

Best 10 ELSS Mutual Funds to Invest in India of 2018

1. Tata India Tax Savings Fund 

2. Mirae Asset Tax Saver Fund

3. DSP BlackRock Tax Saver Fund

4. Sundaram Diversified Equity Fund

5. Birla Sun Life Tax Relief 96

6. ICICI Prudential Long Term Equity Fund

7. Invesco India Tax Plan

8. Reliance Tax Saver (ELSS) Fund

9. Axis Tax Saver Fund

10. BNP Paribas Long Term Equity Fund


Invest in Best Performing Tax Saver Mutual Funds of 2018

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Download Top Tax Saver Mutual Funds Application Forms


For further information contact SaveTaxGetRich on 94 8300 8300

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Call us on 94 8300 8300