Monday, February 11, 2013

MCX-SX Exchange : A Younger Index


MCX-SX : Born of one more equity trading exchange


MCX-SX is new entrant in trading exchange space. It trade in equity and equity derivatives segment.  Now in our country the no. of full fledged equity exchange become three. It has begun trading from yesterday with lower volume than expectation. It offer platform for trading 1,116 stocks. MCX-SX benchmark index has 40 stocks. Let us review our other trading exchange’s landmark event.

From 1979 to 1994 BSE (Bombay Stock Exchange) has been dominant player in the exchange trading. When NSE(National Stock Exchange) has commenced trading operation in the Indian share market BSE was the dominant player in the market at that time. BSE was top in the 1993-94 with Rs 84,500 crore turnover. BSE had 40% market share as the total turnover of all exchanges was around 2 lakh crore. Launch of NSE’s online trading platform was turning point for NSE. It has transformed India’s capital market with well managed institution. NSE has also won the people’s trust by providing modern technology and efficient trading platform. Till 1995-96 NSE has become the largest exchange of Indian in terms of turnover. Before launching online platform, the retail investor was not participant in equity market. But it has given the market access to everyone. Anyone can trade in India from anywhere. From 1995 to 2001 cas segment has grown over 10 times.

But from 2000-01 to till date cash segment turnover has not been very good. In fact it is declining from 2010-11. The main reason behind this decline is a new derivative segment has come in the picture from 2000. Future and options  has witnessed a huge success among traders. According to FY 2012 data the turnover size of derivative segment is 35,77,998 crore.

In spite NSE’s effort debt market segment is still waiting for success. There is almost no trading in retail debt market. We hope now MCX-SX will give new boost to the cash market in equity and debt market segment.

If you have any query about investment or financial planning feel free to ask through mail.

Regards,
Arvind Trivedi
Certified Financial Planner

Tuesday, February 5, 2013

Some basic rule for investment - II


How to be Successful Investor – Part II

In my previous blog we have discussed about some principle of smart investing. Today we will share some other rules about smart investing.

  1)Diversification of portfolio: It would be good if you diversify your portfolio      between equity and debt according to your age, financial goal and time horizon. No one can predict about future of the market, specific sector. It would be wise move if you have invested in a well diversified manner.

  2) Proper homework and research: Do proper research and homework before any investment. If you do not have time then take help from the experts. Remember, you are buying company business or assets. You are not buying the just number. If you expect a company to grow and prosper, you are buying future earning of the company.

  3) Stay calm and don’t panic: Don’t panic if you have not sold your stock portfolio before market crash. Don’t rush to sell the next day after huge market crash. If you can’t find more attractive stocks, hold on to what you have.

  4)Review portfolio in some interval: Review your investments time to time as no market is permanent either bull or bear. Keep get update yourself about those sectors and companies which have invested. Latest information and knowledge is the key to be successful investor.

  5) Avoid short gain or any market tip: There is no free lunch. Never invest on sentiment or on any tip. Avoid market rumor and IPO. Most of the IPOs decline after market listing . The recent example is Facebook IPO and many more. This does not mean you should never buy an IPO.

Outperforming the market is a difficult task. It would be better if you make a financial plan and accordingly fulfill the future goal. It is very difficult to implement all these discussed rules here. Everything is in a constant state of change including economic and political environment. So be careful adopting any rule of investing as the time changing investing rules also change. It would be better contact a good financial planner and expert before any investment decision.

If you have any query about investment or financial planning feel free to ask through mail.
Regards,
Arvind Trivedi
Certified Financial Planner

Monday, February 4, 2013

Some basic rule for investment - I

How to be successful investor - Part I

There are many types of material available on this subject. Everyone wants success in investment but to get success there is some basic rule. Every investor should follow some basic principles of investing. Today, I am going to share with you some rules of investing which is described by Sir John Templeton (founder and former chairman of The Templeton Funds) and very vital for any type of investors.
1)      Understand Real rate of return: It means the return on investment after taxes and inflation. Investors often fail to consider tax and inflation and at last their goal don’t get fulfill. It is vital to protect the purchasing power of your money. Inflation is the biggest enemy for your investment so keep it in mind when you go for investment.
2)   Recognize the difference between trader and investor: Do not trade or speculate. Be a sincere and patient investor. Do not treat the stock market as a casino. If you trading frequency high then you will give more brokerages and commissions to the broker and government. Avoid this habit and invest in a company after full information of company. Don’t gamble, buy some good stock and hold it till it goes up. In India there is no long term capital gain on equities so get benefited from this rule.
3)   Be open-minded about types of investment: Every asset class give return in cyclical form. It means there is no one kind of investment that is always best. Now a days, in India people are mad about gold investment and real estate investment as it has given decent return from last some year. Keep in mind, if particular industry or type of asset becomes more popular with investors, that popularity will always prove temporary and when lost may not return from many year. There are many times it is better to sit on cash and take advantage of investment opportunities.
4)   Buy at low prices: It is very simple concept but difficult in execution. Never follow the crowd. Buy when most people including experts are pessimistic, and sell when they are actively optimistic. It is extremely difficult to go against the crowd- to buy when everyone else is selling and to buy when things look darkest.
5)   Buy value, not market trends: As a wise investor, you should find the true value of stock. Ultimately it is individual stocks that determine the market. Individual stock can rise in bear market and fall in bull market. Many investor focus too much on the market trend or market outlook. The stock market and the economy do not always in lock step. Bear markets do not always coincide with recessions, and decline in corporate earnings does not always cause a decline in stock prices. So it is very important to choose a quality company. Quality may be strong management team with proven record, quality may be well capitalized company, quality may be high profit margin consumer product, quality may be famous brand. It is difficult to find 100% perfect quality stock but do your best to find value and quality stocks.

    Today we have discussed some rule for success investor. There is many     more which we will discuss further. If you have any query about investment                  and financial planning, feel free to ask.
                           

Regards,
Arvind Trivedi
Certified Financial Planner

Wednesday, January 30, 2013

Impact of RBI's rate cut


Impact of RBI’s Rate Cuts on the common person

Yesterday, Reserve Bank of India (RBI) has slashed repo rate and CRR 25bps point each on the occasion of its 3rd quarter monetary policy review for FY 2013-13. How can the investor get benefit from it. On short, Repo rate is the rate at which banks borrow from the central bank (RBI in India) and CRR (Cash Reserve Ratio) is the amount of deposit which banks keep deposit with RBI. After cut the rate now repo rate and CRR are at 7.75% and 4% respectively.

Interest rate factor play very significant for home loan borrower, equity investor, debt fund investor and fix deposit investors. Indian banks has given already some indication about base loan rate cut yesterday. After the base rate cut all home loan borrower will get benefit definitely but it depend on the timing of the rate cut announcement of the particular bank. If your bank is charging already high interest on home loan then it would be better transfer your balance loan amount to other bank. The bank would charge some minimal conversion charges for the loan amount transfer.

The equity investor would also get benefit of rate cut. As corporate will borrow at lower cost and it would increase profitability of the companies. It means working capital will available to companies at cheaper rate compare with earlier cost. Equity investor should invest through SIP.

Fixed income investors have better option to long term bank FD and long tenure income fund with a 12 -24 months time horizon. There is much expectation rate cut further within 1 year point of view so bond investor can make a capital appreciation with interest income. Bond investment is very suitable option for higher tax bracket investor in tax saving point of view.

Feel free to ask any queries related investment

 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.)

Tuesday, January 22, 2013

Import gold duty hike and link gold ETF to gold lending

Good news for gold ETF investors
Increasing gold import bill and crude oil bill are the biggest cause of  worry to govt of India today. The government announced to raise duty on gold from 4% to 6% yesterday as the demand of gold is not reducing in our country and current account deficit is not coming down. To combat this situation the government has increased the duty on imported gold.
When we import the gold, our foreign reserve went out of the country. India has already imported gold worth 38 billion $ till third quarter of financial year 2012-13. This step is towards reducing demand and the improve the of forex reserves no.  
While it is still uncertain how much of an impact this 2% hike will make. Earlier such type of step we have already seenThe high price is driving the demand, and if the price goes any higher that will drive demand higher as well.
The other step is good news for ETF gold schemes investors. Apart gold duty hike, the other important announcement is linking gold ETF schemes to bank’s gold deposit schemes. When we buy a unit of a gold ETF, it represents about a gram of gold and the gold ETF sponsor buys and stores gold on your behalf with a custodian. This gold is lying idle and give no return at all.  The ETF’s gold will be linked to gold deposit schemes where gold merchant or jeweller can borrow the gold from banks and pay interest on this gold, and at a future date pay the money equivalent to the gold that they borrowed at the then prevailing price.
This will help reduce the import of gold to the extent that it is borrowed, but in the long term if the demand for gold doesn’t come down then it will not reduce imports, it will perhaps play a small role in delaying the imports but not make a long term impact on lowering gold imports or the current account deficit.
However, this would be good news for ETF owners because any interest or earning that the ETF earns out of lending gold will ultimately accrue to the owners and it would reflect in their schemes returns. The more details are still awaited, but if the lending starts, it would be good news for gold ETF investors.
Feel free to ask any queries related investment

Regards,
Arvind Trivedi
Certified Financial Planner

Thursday, January 17, 2013

GAAR update

Recent announcement on GAAR from government
During the last budget a very controversial act GAAR (General Anti Avoidance Rule) had been introduced in hurry. After much pressure from everywhere government had postponed at that time after extreme criticism. The announcement of GAAR at that time had impacted very badly on FII investment and share market largely. We had already discussed about GAAR in detail at that time in our blog.
In short, these rules applicable on any transaction or business arrangement with intention of tax avoiding. When this rule invoked, that particular transaction or business arrangement would be impermissible & denied the claimed tax benefit.
After the much flip flop on the GAAR, the government has announced at last on Monday some significant changes and defer its implementation by two more year. It will apply only to investments made after 30 August, 2010. The other most important change is it will not apply on non resident investor in FIIs. GAAR will not apply on those FIIs who do not claim any double taxation benefit. GAAR will apply only when tax benefit exceeds Rs 3 Crore.
The one critical issue is still not clear that after GAAR implementation whether India–Mauritius Tax Treaty would be continued or not.
Regards,
Arvind Trivedi
Certified Financial Planner