Investor Think Pot

Size does Matter...

2008-03-21T20:48:00.003+05:30

"Size Doesnot Matter"... Whoever said it, shall be proven wrong in the case of Investments. Imagine the following two cases : -

A person invests Rs 1000/- into a scheme "A" which performs at the rate of 100% p.a. With this the Capital Gain amounts to Rs. 1000/-
Same person invests Rs 10000/- into a scheme "B", in this case just a meager performance of 10% or above p.a. could fetch a return of Rs 1000/- or more.

Hence while dealing with Investments a mere performance in terms of "%" alone is highly insignificant, if the Cash you have put in is meager. The amount of Cash / Fund Size allocated does matter..

Hence Size does Matter?????

Never Chase Dividends....

2008-02-18T22:19:00.002+05:30

DIVIDENDS!!!!!.. We do have a craze for Dividends, Increments, Rewards and Bonus. But beware, Never Opt a Mutual Fund Scheme for it Dividend declaration Record alone. This is because of the following : -

Dividend is a part of a same cake : Say a MF scheme's NAV climbs from Rs 10/- to Rs. 20/- over a period of time. A dividend of Rs 5/- (50%) is declared because of which the NAV of the scheme on the record date drops to Rs. 15/-.
Cheap NAV : Dividends are frequently declared by some of the MF to eventually attract retail investors by projecting cheaper NAVs on Post-Dividend stage.
Huge Fund Size : MFs with huge fund inflow are scared of the fund size hence decide to chunk out heap of cash out of the fund in the form of Dividend to get the fund size under control.

Thus it is advisible to pick a fund based on 3 to 5 year CAGR (Compounded Anual Growth Rate) record instead of following Dividend Record alone.

Hence GROWTH Record and not DIVIDEND Record alone that MATTERS!!!

Investment Portfolio...How to go about it...

2008-02-17T13:37:00.006+05:30

Every individual should have an Ideal Investment Portfolio to suit his Risk Profile and inturn aid him in attaining his targeted financial goals at various stages of his life. The following are the various investment areas or sectors an individual can aim at. It is arranged in the order -

Low Risk - Low Return Products to High Risk - High Return Products :

Bank Deposits
Postal Savings : PPF, NSC...
Government Bonds
Industrial / Company Deposits
Mutual Funds
Real Estate
Equity (Share Market)

Though having a House or Land has been a major financial decision in the life of any individual, a typical Indian investors has not crossed beyond Bank and Postal Savings Deposits stage of investing.

Security and Safety has always been our prime objective rather than aiming for Higher returns through diversification. Present economic boom and performance of sharemarket indicates the necessity for every individual this participate in this financial game of life.

A typical equity exposure for an individual is (100 - His Age in Years) i.e. for a 25 year old - max 75% of his Portfolio could be tilted toward Equity.

So what is your AGE now....?

SIP.. Wise way of Investment....

2008-02-17T13:13:00.007+05:30

SIP - Systematic Investment Plan refers to an organized and disciplined approach of having a Mutual Fund Investment. With this you can make small portions of your savings reap significant returns if followed in a periodic fashion for a reasonable duration.

Benefit : Rupee Cost Averaging

i.e. Higher the Net Asset Value (NAV) - Lower the Units you get

Lower the Net Asset Value (NAV) - Higher the Units you get

Oppurtunity : Make use of the fluctuations in the Market

Ideal Combination :

Scheme : Equity Diversified (May vary based on ur choice)
Type : Open Ended (Preferably)
Fund Allocation : Say Rs. 500/- (minimum or as per the scheme details)
Period : Monthly Basis (Ideal)
Date : within 5 days of Receiving ur Salalry ( i.e 5th of the Month)
Option : Dividend Payout ( To enjoy the fruits periodically)
Mode of Payment: ECS (electronic Clearing Scheme)
Term : Min 3 Years

... Then wait and watch the Power of Compounding...

Decision Paralysis....Cut down your losses

2008-02-17T11:30:00.004+05:30

It is always better to cut down your losses if your share underperforms in the market. But it is a normal practice or tendency among us, not to sell these shares, with an unrealistic or irrational hope of seeing the share bounce back to normal.

Remember... if your share falls by 50% from the Purchase Value then it should perform at the rate of 100% to come back to earlier state.

But the normal mentality of an investor is to delay this decision of selling the underperforming shares, just because he is not ready to take up looses. This is coined as Decision Paralysis.

Ultimately this delay in decision may lead to further looses in your portfolio. Hence beware of Decision Paralysis.. and prepare yourself mentally to combat yourself out of such situation.

Behavioural Finance.. An Interesting Subject

2008-02-15T19:18:00.010+05:30

Behavioural Finance is an upcoming field of study in financial sector. It is about the impact of emotional aspects of Human behaviour in making financial decisions whether on a personal or organization scale.

For example: Say you earn Rs 100 today and on the way back home you find a book for sale on a street shop. The price of the book is Rs 100., you may decide not to purchase or atleast think twice before going for the same. On the otherhand, if you received Rs 100 that day in the form of a gift or picked the note lying on the stranded streets, then your chances of disposing this money to purchase that book is on the higher side.

Thus our decisions on the money we control varies on basis in which we have accrued. Hence the statement...

A Good Project Manager may make Right financial decisions while utilizing his organizations funds, but may fail while handling his household budgets.

If u can't Time the Market.. Give Time to Investment.. It Pays

2008-02-15T10:38:00.004+05:30

Even an expert can't time the market, hence never dare to do so. Assess and arrive at a fund amount you can allocate towards shares, identify fundamental stocks that you personally have faith in, don't watch instead participate in the market.

If you are not Confident enough...Take turns!!!. That is invest in smaller chunks of the fund amount in the identified shares. Do so in a periodic manner till your planned fund amount is fully utilized. In due course if you are not satisfied or your mind says quit please quit. And never Dare to enter the Markets!!!. If not stay invested for a minimum period of 3 years, review your share's performance on a half yearly basis.

Give time to your investment... It Pays...

Start Early...Be Consistent..Do Diversify...

2008-02-14T21:56:00.004+05:30

The earlier you start investing the more time the investment gets. This inturn leads to higher returns and lower the risks. Maintain an investment startegy keep hold to it consistently. Do diversify your investment. Work like a BEE. Bees do scatter themselves in various directions in search of Nectar. On Doing so the Bees combat the risk of not finding any food. Similarly on diversifying your investments our risk of having lower returns gets diluted thus resulting in a profitable outcome.

Do Invest...