Showing posts with label good return. Show all posts
Showing posts with label good return. Show all posts

Thursday, July 16, 2015

Direct Equity v/s Equity Mutual Fund

Direct Equity v/s Equity Mutual Fund

I have seen many investors have often not sure whether they should invest in direct equity or invest in equity mutual fund. According to me, both are good instrument to create wealth in long term but both have different type of risk. We will discuss here about these instrument today.

Direct Equity:
Investing in direct equity is suited for those investors who have plenty of time and understanding of finances of companies. It is very good for those who have time to track the financial health of the company. Such investors invest in good companies at very beginning and earn multifold return in long term. You should have large sum to invest in such companies at the starting.

Equity Mutual Fund:
Investing in equity mutual fund is very good instrument for wealth creating in long term. It is very suited to those people who have no time to track the market and companies and also not understanding of finances. One can easily invest in equity mutual fund in lump sum or in step by step in the form of SIP (Systematic Investment Plan). There is no need to have large sum at initial stage of investing like in direct equity. It also give the multifold return in long run on your investment. One can start investing a very small amount like Rs 500 also and gradually increase this as per their income.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,
Arvind Trivedi
Certified Financial Planner

Friday, May 2, 2014

Is Endowment Plan with guaranteed return good for you?

Endowment Plan with Guaranteed return…!!!!

I have discussed in my earlier blogs about endowment policies. In fact these types of policies failed both purpose insurance coverage and return. Neither it provides proper insurance coverage nor gives the good return. I get query about almost on daily basis regarding guaranteed saving insurance plan. We Indian investor always like “guaranteed “ word and often trap with this word. We pay a very high price for this word.

One of my blog reader has asked recently whether he should purchase ICICI prudential guaranteed saving insurance plan. In my opinion, never invest in those product which provide insurance and investment opportunity both. The selling pitch of these products often so attractive that investor do not resist themselves from such type of product.

The realty of these products that it do not give the proper coverage and it also not give the good return. This particular product gives only 5% return on your paid annual premium and provide only 20-25 times insurance cover of your annual premium. If you go with term insurance you can get up to 700 times insurance cover of your annual premium.

For return point of view if you have conservative risk approach and invest in other debt product like debt mutual fund, PPF, bank FD and others the you will get easily return between 8% to 10% return. If you want to lock your money for more than 10 year then equity investment can give you average 15% return. Many mutual fund schemes like ICICI prudential dynamic fund, Birla SL 95 ELSS has given more than 20% return also.

In endowment product 5% return is not good return according to me after 15-20 year investment. In endowment scheme who guarantee the fix return have many types of expenses and hefty agent commission like 15% to 20%. It badly affects your return on investment. Endowment guarantee plans are only beneficial to agents who are selling this product through emotional sales pitch.

I would like to advise all of my reader that they should avoid such type of products and invest in those avenues which are capable to beat the inflation and provide good return also. Liquidity is also the crucial factor at the time investment.

If you want more information regarding investment or you have any other query about investment feel free to ask us.
Warm regards,

Arvind Trivedi
Certified Financial Planner


Wednesday, February 26, 2014

A very good piece advice from Warren Buffett

A very good piece advice from Warren Buffett

The great equity investor Warren Buffett’s investment skill is well known all over the world. His words on investment consider like a bible in investment world. Most of investment advisors, fund managers and professionals follow his investment philosophy. I am also a follower of the great Buffett sir. Today, I am going to share some excerpt from an article which has been read by me today’s newspaper.

In 1986, Buffett bought a 400 acre farm in Nebraska and in 1993, he invested in retail property near the New York University campus. This deal had happened after farming and real estate bubbles had bursts. It means the prices of real estate and farming land was on very low level. Although, he was not expert in the real estate and farming and had very little knowledge about it at the time when deal taken place.

Many years later, the farm was worth 5 times what he paid for it, and the building now returns annual distributions that exceed 35% of the initial equity investment.
The above mentioned deals teach us very important lesson of long term investment. He says “You don’t need to be an expert in order to achieve satisfactory returns.” He further writes “But if you are not expert, you must recognize your limitations and follow a course certain to work reasonably well.”
He says, “Games are won by players who focus on the playing field-not by those whose eyes glued to the scoreboard.”

One more good advice he says, “Do not bother about daily market shout-out and keep your focus on long term.” Some investors believe and follow the market pundit’s advice on the equity market day to day basis that it the worst thing if you follow them blindly. So ignore the chatter, keep your cost minimal and focus on real return after paid taxes.


For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi
Certified Financial Planner

Tuesday, August 27, 2013

A good lesson for investors

A Very Good Story for Investors


This is a wonderful story which I have come to know from one of my fellow advisor, and it is the story of Chinese bamboo, which I think I must share with you. 

Unlike other trees, growing Chinese bamboo requires lots of time and more of passion.  It takes 5 years and 3 months, that is almost 63 months for Chinese bamboo to grow to the height of 80 feet. So, what’s so unique about this tree?  It’s very good for any tree to be grown to 80 feet in 5 years and 3 months.  

The height to which Chinese bamboo tree grows is not unusual, but the way it grows is very unusual. As for almost 5 years you keep watering the place where you have planted the seed of Chinese bamboo on daily basis without fail, but you don’t see a hack growing out of the soil. 5 years of watering and passion!!! Huh!!! That’s long time. Still during all this time, you see noting but just a small sprout coming out of land which can be measured to couple of inches if you are lucky. In many cases nothing’s visible above the ground for 5 years. After 5 years you can see the first sight of the green small bamboo trying hard to coming out of soil, and that small Bamboo which gave its first appearance after watering the soil for 5 years, grows to 80 feet in less than 90 days. Yes, it’s true. 
 

 
Sometimes the waiting period fluctuates from 4 to 6 years, but the sure thing about the Chinese bamboo is, it’s definitely going to start growing and once it starts growing the speed is definitely going to be unusual. It definitely will reach the height of 80 feed from ground zero, which is equal to the 8 storied building, in the small period of 6 weeks to 12 weeks.

There are great chances of person quitting the idea of growing Chinese bamboo due to the long waiting period. Everyone can find the soil and plant the seeds and also can start watering it, but when it comes to waiting, sooner or later many drop the idea. Only few who keep watering the soil consistently with full faith, can get the 80 feet high bamboo tree. 

Equity investment is also like growing Chinese bamboo tree. One should have passion after planting the seeds. All know that the Chinese bamboo tree takes a time to start growing but once it starts it grows rapidly to the 80 feet. The same way, in case of equity investment also we all know that after investing you should wait for long time but in practical world very few have got that passion to wait.  

You do your own homework or take an advice from someone regarding the best equity stock or equity Mutual Fund scheme. Then you plant your seed of investment by opening up the investment account and start investing into the equity and wait... and wait.... and wait. You are very discipline in watering the plant of your investment seed with the regular investments. Neither market nor your investments are moving anywhere, on the other way it starts falling and eating away the value of your money. You still wait... And wait. Oh sure, you have been told by people that it takes while to grow your money into equity and you are also ok with that. Because you believe “waiting for while is surely going to pay you the premium”.

Year one is over and you are entering into the second year.  You are still watering but started being a little bit of sceptical about the power of your investment seed to grow. You continue to wait and keep on reading and researching about all possible and so called temporary negative factors which are stopping your investment to grow to great heights. Though you have earned nothing, you are a man of persistence and not prone to giving up. But seeing no result is making you to doubt about the power of equity investment. Anyways, you have heard about so many other success stories about many successful people who also invested into the same market and made their fortune. So you kept on watering your seeds by regular investing  your saving into it.

Now, it has been three years and you started wavering and doubting about your choice of investment seed. Some voice inside of you have started telling you that you are a special kind of a fool to believe into the something which was too farfetched. You start thinking about other possible seed which you might have planted instead of equity. You really feel being fooled when someone tells you that they are earning a great fixed income starting from day one by investing into the fixed deposit. You wonder why you had to pick up an equity investment only. You start losing sight of your purpose and your faith starts to diminish…You decided to re-commit yourself for the entire third year. 

Now you’re entering into the fourth year. You are becoming more disillusioned and are experiencing a deeper sense of doubt, regret, frustration and anger. You started wondering,


“Is it when I invested was a wrong time?”
“Perhaps, my Luck isn’t strong enough for my investments to grow.”
 “Could it be that I am hanging out with crazy people and who are lying to me?”
“Am I just too proud to accept defeat and nothing is really going to come out from this?”
“This couldn’t be my fault… my investment advisor gave me wrong advice.”

You were going crazy, because you’ve already spent a lot of time and invested a lot of money. So after the years of lot of dedication and effort toward this investment, you have decided to give it a chance for one last more year. 

It’s a whole lot of 5 years wasted on investment account with regular watering by keep on investing into it every month, but alas!.... nothing happened. So you decided to QUIT. And you withdraw your money with no or little profit which is less than the interest of bank fixed deposit.

The day you QUIT, the equity market starts taking small upward leaps, and you wonder what’s happening. Within couple of years the bamboo of your equity starts growing rapidly and grows to the newer height but unfortunately you couldn’t get anything out of it.

Equity is just like the Chinese Bamboo, it’s possible that it doesn’t give you any return for years but then in very small period of time it starts growing with the unusual and unbelievable speed which eventually you compensate for all your dedication, passion and faith.

Looking at the history of the Indian market, whenever it has not moved upward for few years, it is always followed by a strong bull run that too in very fast speed. Take an example of the period, starting from Feb 2000 to December 2007. During this time the Indian equity market delivered the return of approx 240% absolute (Sensex went up to approx 20.5k from 6k). But if someone entered into the market in Feb 2000 and kept on investing for some time would surely have got frustrated, as after almost 4.5 years, market gave no return. The Sensex was trading at near to 6k in Feb 2000 which went down to 2600 and again in Nov 2004 it came back near to 6k. Now the time of 4 and a half year is long time, isn’t it?

Many of the investors left the train in between and thought of it as a worst mistake to invest into the equity market. But after 2004 it started its nonstop journey and in next 3 years it grown to 20k PLUS. Equity market gave approximately 240% absolute return in span of 7 years, but to get those returns, one has to plant the seed and wait for 7 years. Wherein, for the first 4.5 years, returns were either not present or negative.

Now let’s compare someone planted the seed into the December 2007 itself and waiting till now he has not seen any sign of investment tree growing.  There is no sign of return (Bamboo) so what? It’s definitely going to start sometime in near future, once it starts the speed will also be definitely UNUSUAL.

Be faithful and keep watering your Chinese bamboo tree.

(This article has been contributed by a fellow financial advisor Mr Jigar Parekh from Prudent CAS Ltd, Ahmedabad and it first appeared in www.wealthforumezine.com on August 03, 2013)

For more detail about any other query related investment, you can contact me through my email.
Warm regards,
Arvind Trivedi

Certified Financial Planner

Friday, May 10, 2013

Why real estate investment is bad for long term..?


Why real estate investment is good for long term..?

In our country many investor think that property investment will give the best return in long term and it is safe. I am not expert in real estate investment. Today, I have read an article about written by Mr Ajay Shah (Professor, NIPFP). I want t o share the same article with all of you. It may be useful to all real estate investor.
Most people in India are convinced that real estate is a great asset. More caution is in order. Real estate investment is not a guarantee of profit. It is hard to be diversified, and illiquidity hampers portfolio structuring. Most important, the outlook for supply over the medium term implies that there is no great upside.

Too many intelligent people in India believe that one can never do wrong by investing in real estate. Some facts will help bring more sense. Consider investing in the best commercial real estate of Bombay -- Nariman Point -- in 1994. The price was Rs.35,000 per square foot. Today, almost 20 years later, the price is Rs.25,000 a square foot.

Over this period, Nifty produced returns of 362%. Inflation ate away 272%. Net of inflation, Nifty delivered an average annual return of 1% while Nariman Point commercial real estate delivered -9%.

This is, of course, just an anecdote. Many individual real estate investments have done very well and have occasionally outperformed equities. My point is a limited one. We should not mindlessly assume that real estate is always a good investment. We should not assume that real estate will always outperform equities -- as the above example shows things can be as bad as underperformance (compared with the Nifty index fund) of 10 percentage points per year over a 19 year period.

Why did Nariman Point underperform over this period? Because of new supply. That is the heart of the problem of real estate as an asset class. There is no long term returns in owning steel or bricks. Every time there is a real estate boom, it triggers off fresh construction. This supply quenches the boom.
Bombay is a pretty bad place in terms of availability of space, because of both geography and governance. Elsewhere in India, the case against real estate is even stronger. The government in India is slow to build roads and water supply and police stations in outlying areas. But with a lag, these facilities do come about. Ultimately, when the price of structures exceeds the price of bricks and steel, new supply emerges, which is bad for real estate prices. The rise of a professional real estate industry, coupled with access to formal finance including foreign capital, has increased the scale of supply and given bigger and faster corrections.

Some claim that India has a large population and there is a shortage of land. A little arithmetic shows this is not the case. If you place 1.2 billion people in four-person homes of 1000 square feet each, and two workers of the family into office/factory space of 400 square feet, this requires roughly 1% of India's land area assuming an FSI of 1. There is absolutely no shortage of land to house the great Indian population.

The biggest story about the future of real estate prices in India is the FSI. In most of India, the FSI is below 2. This is an abysmally small number by global standards. All over Asia, FSIs are above 5, going up to 20 or to no limit. In the long run, politicians in India will see the light and FSI will rise. A higher FSI results in lower rental rates for households and firms, as was seen in Hyderabad which was a pioneer in FSI reform. When FSI goes up, this will unleash supply on a big scale. As an example, if Bombay moves from an FSI of 1 to 2 -- which would still make it worse than the FSI seen anywhere else in Asia -- this would trigger off a doubling of supply.

These arguments are not specific to India. While datasets about real estate investments over long time periods are not easy to come by, academic evidence is slowly building up of fairly poor returns to real estate. Net of inflation, real estate tends to produce roughly 0 over long periods, while equity indexes produce significant and positive returns after inflation.
Finally there are the practical difficulties of diversification and liquidity. Most people are not rich enough to buy 50 properties spread across India. Buying and selling involves very large transactions costs and delays, and generally involves black money.

Skepticism is in order. If less than 1% of the land area of India is built out, this is enough for the entire population. There is no long-run return in hoarding bricks and steel. Real estate booms the world over are quenched by supply. The prospect of holding real estate in India is worse because FSIs are tiny. In the future, FSIs will go up, which will further fuel supply. Households investing in real estate are also hurting on account of inadequate diversification, illiquidity and the use of cash.


For more detail about any other query related investment and financial planning, you can contact me through my email.
Regards,
Arvind Trivedi
Certified Financial Planner


Friday, January 25, 2013

How to get the best from equity market ?

How to make great return from Equity Market?


Today, I have got a very interesting and useful mail for investors. It has appeared Outlook Business magazine. It is article about art of compounding. I am going to just share with all of you.

Why is the average investor confused by equities? And why doesn’t he earn anywhere close to fair returns from his investments? It’s not rocket science: equities are a remarkably simple asset class, in fact. But in the 20 years that I have been in the markets, I have lived through three major cycles — and in each one of these, the majority of investors mistimed their investments. That’s, in fact, a very disturbing statistic.
As the Sensex went up from 3,000 levels in 2003 to a peak of above 21,000 in January 2008, before ending close to 15,600 levels in March 2008, net sales of equity mutual funds increased from just Rs 118 crore in FY03 to Rs 53,000 crore in FY08. Since then, in down markets and at lower P/E multiples over the past four years (FY09-12), cumulative flows into equity funds have been negative Rs 6,000 crore. In simple terms, when P/Es were high, more than Rs 50,000 crore worth of equity funds was purchased in one year and when P/Es were lower, nearly Rs 6,000 crore worth of equity funds was sold or redeemed by investors across the country.
That’s a basic, return-unfriendly approach to investment so it’s really not surprising that most investors aren’t satisfied by the return on equities. But in an all-too human way, they blame the market when it’s their investment strategy that needs work. And as long as they continue investing disproportionately large amounts after strong past returns and at high P/Es and investing close to nothing after poor market returns and at low P/Es, investors will continue to gain less from equities and will continue to feel dissatisfied.
They’re certainly going about the same way even now, going by the current lack of flows in equity funds for the past several quarters and, in fact, some redemption. Albert Einstein summed it up very nicely: “Insanity is doing the same thing, over and over again, but expecting different results.” But why do otherwise astute individuals show such poor timing when it comes to equities? In my opinion, the key reason is that a majority of equity investments are done with a short-term view, despite the fact that the best equities have to offer is only over long periods.
And by taking a short-term view, investors miss out on what Einstein referred to as the “eighth wonder of the world” — the power of compounding. Just think about it: at 15% CAGR, 1 becomes nearly 2 in 5 years, 5 in 11 years, 10 in 17 years, 20 in 22 years and so on. Returns from equities mimic economic growth in nominal terms (real growth plus inflation) over long periods and, thus, equities have a high compounding potential, particularly in high-growth economies such as India.

But instead of targeting meaningful returns over long periods from compounding, most investors due to improper understanding of equities, target only small gains over short periods. As the investment horizon is short term, the focus is on guessing near-term market movements. This inevitably leads to extrapolating the markets in either direction and, therefore, in rising markets, the expectation is that markets will keep on rising. The greed for quick returns leads to higher inflows in equities and as the trend sustains, confidence and greed levels keep on increasing, leading to even larger inflows.
Similarly, in downward-moving markets, investor expectation is that the markets will keep on moving lower, leading to lower inflows. The lower the markets move or the longer the markets do not move, the greater is the conviction among investors that markets will fall further or that markets are going nowhere, resulting in drying up of fresh investments or even redemption of existing investments.
Also, when markets are moving up, the news flow is generally good and vice versa. Therefore, generally, in rising markets the perceived risk is low whereas the actual risk is higher as valuations are high. On the other hand, in adverse times, when the markets are not doing well and the news flow is not good, the perceived risk is high whereas the actual risk is lower as valuations are attractive.
The net result is that, time and again, a majority of investors end up investing large amounts at high valuations and small amounts at low valuations. Clearly, such an approach to investments is not conducive to generating good returns and if followed, is likely to lead to disappointing results time and again.
A practical approach to investing
While no approach is perfect, it would be better if investors base their investments in equities not on news flow or past returns but simply on P/E multiples. Investors should practise low P/E investing with a long-term view — that is, investments in equities should be steadily increased as long as the P/Es are low. It sounds simple but isn’t — low P/Es are typically available only in adverse environments, when the news flow is negative, when markets have not done well and when the sentiment is not good. In such an environment, fear of losing money prevents a majority from investing in equities. Subjecting yourself to a plan of staggered investments in a low P/E environment or SIPs should be effective in at least partially overcoming the handicap of poor timing by investors.
Market outlook
Equities are hard to forecast over short to medium periods but are fairly reliable over long periods, more so in a secular growth economy such as India. Past experience suggests that P/Es tend to move between 10 times and 12 times at the lower end, and between 20 times and 25 times at the upper end. The journey from bottom to peak and back again takes considerable time (a cycle) and investor patience at lower P/Es is well rewarded over time. At present, though the markets are up 25% from the lows, keep in mind that the markets are lower compared with levels seen in 2007. In this period of five years, the economy has grown, profits of companies have increased and multiples are lower than long-term averages. Further, interest rates are likely to move lower and this is also supportive of higher P/Es.
It is no doubt true that the economy is still facing challenges, notably of high fiscal and current account deficits. But, I believe, the worst of these is behind us and the current year and the future years should see a steady improvement. Investors should maintain or increase allocation to equities in line with their risk appetite and with a long term view.
Here, it may be worthwhile for investors to keep in mind Sir John Templeton’s comment: “Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.” In May 2012, we had mentioned that pessimism is all that one sees all around. Things have changed since then. I believe we’re now in the scepticism phase. So you know what to expect next.

Feel free to ask any queries related investment

Regards,
Arvind Trivedi
Certified Financial Planner
(Article by Mr. Prashant Jain, Chief Investment Officer, HDFC Mutual Fund This article first appeared in Outlook Business magazine, Jan 05, 2013.)