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Important tips to make the best of close-ended mutual funds

Important tips to make the best of close-ended mutual funds
18/07/2018

With prices soaring on the back of the ever-rising inflation, more and more people are considering mutual funds as a reliable source of extra income. Mutual funds not only give better returns but also do so while diversifying the risk involved. With the power of compounding and rupee cost averaging, mutual funds have very efficiently managed to give inflation-beating returns and drawn a lot of investors’ attention in the market.

With the high demand for mutual funds, some very efficient funds declare themselves as closed-ended mutual funds, meaning that they cater only to a limited set of investors. Due to this, close-ended mutual funds raise the capital only through the IPO (Initial Public Offering) route.

How are close-ended mutual funds advantageous?

Close-ended mutual funds are often preferred by a large number of investors due to the following advantages it holds:

  • Portfolio Management: Close-ended mutual funds are efficiently managed by professional fund managers. Since the volume is pre-planned, they are generally devoid of any unnecessary chaos and mismanagement.
  • Have stable securities in the portfolio: As closed-ended funds are planned well in advance, the number of shares and the securities which are to be invested in is pre-decided as well.
  • Dividend reinvestment plans: Close-funded mutual funds often have the option of dividend reinvestment, where the dividend earned on the investments is further reinvested to upscale the investment value.  This helps in compounding the investment and results in a much higher Net Asset Value (NAV) of the investment, especially in the long-term.
  • Close-ended funds are not affected by market panic: Investors don’t sell their shares in panic due to low liquidity and this remains a plus point especially when it comes to bringing stability. This does not let redemption pressure to come overhead.

Tips to make the best of close-ended mutual funds

If you too are looking forward to making investments in close-ended mutual funds and make the best of the above advantages, here are the tips which could help you out:

  • Thoroughly analyze the portfolio: There’s no past history or real-time analysis of the fund as it is declared and available only during the IPO. This means you have to completely rely on your analysis of the portfolio. Before making any decision, you need to ensure that the portfolio you have chosen has the right set of securities for a better return on investment.
  • Consider the low liquidity of the fund: Close-ended mutual funds offer low liquidity, i.e. unlike open-ended mutual funds, you do not have the option to exit anytime. The only way you can sell a close-ended mutual fund prior to maturity is on the stock exchange. This means you need to make sure that you can afford to fix your funds for a longer duration.

No SIP option available: If you do not have a large amount to invest in one go and are looking forward to a SIP (Systematic Investment Plan), then you need to consider this. Close-ended mutual funds do not offer the option of SIP, hence, you need to invest whatever amount you want to in one go during the IPO declaration.

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TCNS Clothing Co Ltd IPO Note- Not Rated

TCNS Clothing Co Ltd IPO Note- Not Rated
by Nikita Bhoota 18/07/2018

Issue Opens: July18, 2018
Issue Closes: July20, 2018
Face Value: Rs 2
Price Band:  Rs 714-716
Issue Size: ~Rs 1,122-1,125 cr
Public Issue: 157.1 lakh shares
Bid Lot: 20 Equity shares       
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

43.69

32.42

Public

56.31

67.58

Source: RHP

Company Background

TCNS Clothing Co Ltd (TCNS) is India’s leading women’s branded apparel company. It has portfolio of brands including (a) ‘W’, a premium fusion wear brand, (b) Aurelia, a contemporary ethnic wear brand and (c) Wishful, a premium occasion wear brand. As of March 31, 2018, its store count stood at 465 exclusive brand outlets (EBO), 1,469 large format store outlets (LFS) and 1,522 multi-brand outlets (MBO), located in 31 states and union territories in India. Further, it has total 6 EBOs in Nepal, Mauritius and Sri Lanka as well.

Objective of the Offer

The object of the offer is to achieve benefits of listing and sale of up to 157.1 lakh shares (Rs1,125cr on upper end) offered by the promoter group and other shareholders. This is a 100% offer for sale issue.

Financials

Consolidated Rs Cr

FY15

FY16

FY17

FY18

Revenue from operations

301

485

701

838

EBITDA before ESOP exps

51

86

150

177

ESOP expenses

0

90

74

22

EBITDA

51

-4

76

155

EBITDA margin (%)

17.0

-0.8

10.9

18.5

Adj PAT

26

-41

16

98

EPS (Rs)

4.3

-6.8

2.6

16.0

P/E (x)*

167.1

-105.8

277.9

44.8

P/E(x) (Adjusted ESOP exps)*

167.1

90.8

49.1

36.7

P/B(x)*

39.8

90.9

15.6

10.2

ROE (%)

27.1

-52.3

9.6

27.5

 Source: RHP, 5Paisa Research; *Ratios at higher end of the price band.

Key Points

  1. It has a strong track record of developing home-grown brands and leveraging its deep understanding of Indian women’s fashion needs. Its product portfolio consists of top-wear, bottom-wear, drapes, combination-sets and accessories catering to a variety of women’s wardrobe requirements, including every day wear and casual/ work/occasion wear. Revenue from sales of products under W, Aurelia and Wishful grew at a CAGR of 23.43%, 47.80% and 39.73% respectively over FY16-18. Revenue from these three brands stood at Rs485.6cr, Rs283.7cr and Rs73.1cr respectively in FY18.

  2. It has established long-standing relationships with its vendors in order to ensure the delivery of quality products to its customers in an efficient and cost-effective manner. During FY18, it sourced raw materials, such as printed fabrics, unprocessed fabrics and trim materials from ~181 suppliers located across India. In addition, it manufactures its products through agreements with job workers, and a majority of them have been working with the company for over three years now.

Key Risk

  1. The brand ‘W’ contributed 57.65%, 61.06% and 65.58% to the company’s revenues during FY18, FY17 and FY16 respectively. Too much dependence on brand ‘W’ poses risk for the company. Any decline in the popularity of ‘W’ brand will lead to decline in the sales, which may affect its overall business growth and profitability.

  2. The company does not have any manufacturing facilities. It engages job workers for manufacturing all its products, including TCNS Limited, Group Company and Promoter Group entity. In FY18, it utilized ~78 entities as job workers, majority of them located in NCR. Expenditure related to job workers (fabrication charges) stood at 18.14%, 17.93% and 17.37% of its revenue in FY18, FY17 and FY16 respectively. Hence, consistency in quality is always a challenge for the company.

Research Disclaimer

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Secrets of successful trading

Secrets of successful trading
01/08/2018

People who are new to stock markets are often enthusiastic about trading and look for quick and easy ways to become rich. These factors usually restrict their understanding of the market, and they lose out on tactics of trading. Below are ten trading secrets for the newbie traders.

1. Limit the capital investment

Most of the beginners are eager to earn quick money. They have a perception that investing a lot of money during initial days can help them earn money. The most valuable tip for any beginner is that he should spend a limited amount of money as capital initially. It is better to set a percentage limit to the capital invested in one company or trade.

2. Do not expect early profits

The mindset of most of the beginners is to earn short term gains. It acts as a hindrance in rational decision making. Hence, beginners should make sure that they carry the right attitude for trading, not expecting quick profits.

3. Keep a trading journal

Staying updated with recent events and news is essential in the stock market. Trade journals are the best source for gaining knowledge. A trader should get into the habit of reading these journals and relate them to their daily trading.

4. Risk analysis

Risk analysis is critical to evaluate which stocks or securities should an investor invest in. Beginners tend to give less importance to risk analysis. Hence, they are not aware of the impact of loss in trading. It is imperative for traders to understand risk management right from the very beginning so that they can hedge losses.

5. Invest time to understand different techniques

People who start to learn trading are familiar with limited techniques. They become complacent with this procedure and fail to learn new methodologies. To be a successful trader, it is a must to evolve different skills and techniques.

6. Avoid penny stocks

Penny stocks are traded on the stock exchanges and provide high return along with high risk. These stocks have a small market capitalization and lack liquidity. New traders should be cautious of these stocks as they can easily get tempted to buy these stocks in order to earn high returns.

7. Control over emotions

It is very common for beginners to get carried away by emotions. It restricts their rational thinking and they lose focus on their trades. One needs to be in control of emotions irrespective of profits or losses.

8. earn the basics first

A lot of people start trading without actually knowing the basics of the stock market. They are not aware about how the market functions. Lack of knowledge narrows the focus of trader to a single strategy which he is aware of.

9. Avoid leverage

It is always advisable to not use the leveraged money (borrowed) while investing. It increases the price of trading and limits the understanding of the trader.

10. Diversification

Diversification is the process of investing in different instruments in order to minimize risk. It is useful for beginners who lack knowledge about specific sectors. It is always wise to diversify your investments across different sectors and industries. 

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How long should long-term be in investing?

How long should long-term be in investing?
02/08/2018

You would have often come across advertisements suggesting that lazy vacations or travel abroad is possible through long-term investments. They might be a lucrative option for many, but most people would still be confused by what constitutes a long-term investment? Investing in order to take care of the expenses of a marriage may take 5 years, while investing for a house may take 15 years and children’s college fees can possibly take nearly 20 years. All these are examples of long-term investments of varying lengths.

The textbook definition

For taxation purposes, investments in listed stocks and equity mutual funds are considered to be long-term if the holding period is more than one year. The holding period is defined as the period from one day after the investment has been made to one day after the investment has been encashed.

The ground reality

Going by the book, any investment above one year is a long-term investment. However, this definition could be quite inadequate for practical purposes. Most investors would look at a long-term investment as a way to even out losses and maximise gains. In fact, long-term investments are preferred because they help us to ride out the investment cycles and achieve parity, if not profit.

The bottom-line

Most analysts would agree that a better definition of a long-term investment would be “An investment that has a higher probability of maximising returns over a 10-year period as compared to alternatives.

To support this, you can draw upon some hard-hitting research on the basis of BSE data. Using this, you can also find a median which you can use a benchmark.

Before you begin, let’s take a couple of parameters into consideration-

  • Growth isn’t permanent. Disruptive companies continue to create ripples until bold becomes the new normal.

  • When things get worse, they usually don’t stop until they hit rock bottom. Rebounds are rare.

  • All data considered are for capital aggregation investments. Income generation schemes such as bonds, debentures, etc are not as influenced by time, as by interest rates.

  • FDs and other fixed return investments are not dependent on time as well, and so are ignored.

  • Let us first define some popular investment return targets. Let us choose the figures for 8%, 10%, 12%, 15%, and 16.2%-the last one being average market return for last 33 years.

  • The data taken into consideration uses month-end values for Sensex from April 1979 to October 2012. 

The probability of achieving these returns within a time period comes to something like this:

Year

Probability of achieving 8% returns

Probability of achieving 10% returns

Probability of achieving 12% returns

Probability of achieving 15% returns

Probability of achieving 16.2% returns

3

36%

58%

53%

50%

48%

4

31%

64%

59%

53%

52%

5

29%

68%

63%

56%

53%

6

23%

72%

66%

61%

59%

7

21%

76%

74%

66%

62%

8

20%

78%

74%

67%

61%

9

19%

78%

76%

68%

64%


The six-series’ mentioned in the graph are in order of the six rates of investments that have been set as targets.

This takes into consideration some high-performing and a low-performing stock. And as can be seen from our initial premise, the investments top out around the 10-year period.

Statistically speaking, a period of more than 10 years may be considered only for academic interest as a decade is really as far as you can see.

From analysis, you can notice the following facts-

  • The high-performing stocks started to peak after the 5-year mark.

  • They continued an appreciable rate of growth till they crossed the 7-year threshold.

  • After the 7-year threshold, they flattened out to a plateau.

  • The low-performing stock, on the other hand, continued to drop steadily.

  • The dip became more and more pronounced after the 7-8-year time period.

  • Thus, you can take an optimum measure of the 6-7-year period as the best median in which to invest for the “long-term”.

In general, a 10-year cycle would help us to reach a plateau after which our stocks’ value would either fall or remain constant. Within this phase, it’s better to cash out in the 6-7-year period and invest in the next big thing.

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Benefits of auto investing at the start of each month

Benefits of auto investing at the start of each month
03/08/2018

Investing is an excellent habit that assists us secure our future. Investors can be broadly divided into two categories: those who rely on the traditional method of investing the amount available with them at the end of each month, and then there are others who have it auto debited directly from the bank account at the start of each month.

However, experts conclude that the person who auto invests at the beginning of every month is a better saver than the one who invests from available corpus at the end of the month. Therefore, if a person wants to secure their financial status, auto investing is the way to go about it.

The top benefits of auto-investing are:

It requires you to categorize your expenditure

Saving or investing after you’ve met your monthly expenses is not advisable. This is because if you spend first and save later, you will be unable to direct a uniform amount towards this corpus. In any case, savings should be deducted from the income before expenses are met. Here, drawing up an expenditure chart at the start of every month would be practical. This would help strike off unwanted spending from the budget planning, and bring the necessary expenses on the critical list. Also, one should set aside 10% of the income for emergency expenses apart from the investment amount. Hence, it is prudent to draw up your expenses, including emergency funds, and then invest a fixed amount regularly at the start of the month.

Inculcates the habit of saving

Investing a set amount every month inculcates the habit of saving in an individual. Moreover, this also motivates one to look for ways to save from their expenditure budget. This is a triple advantage as one gets to set aside an investment amount, save emergency funds, as well look for ways to cut down on expenses. If there are any unnecessary expenses, the emergency amount comes into play. After a while, even that habit will stop.

Instills discipline

Even if a person manages to save regularly at the end of each month, there may arise a situation which would require him to use his investment amount, thus, breaking his habit. For example, an unforeseen emergency could occur that would require extra funds. Although the emergency would be a more important matter to attend, it would come in the way of that month’s savings. If the person had already extracted his savings, his habit would have been regular and unaffected. This would have ensured his financial planning. Therefore, auto investing at the start of each month instills discipline in the individual as he/she learns to manage from the funds they have set aside for expenses.

Reduces risk factor on investments

Investing in auto mode helps you ride market-related risks smoothly. When a person invests a lump sum amount in a single go, they run a risk of either an enormous loss or vice versa. As the outcome is highly unpredictable, this method is inadvisable. Regular investments through a Systematic Investment Plan (SIP), where a predefined amount is automatically deducted at a predefined time each month, provides you with the benefit of avoiding such risks. When investing in market-related investments, it is a smart practice to fund the amount regularly so that it remains safe from market fluctuation, is balanced out, and the investment grows profitably. In this manner, your wealth-building goals will be met quite effortlessly.

Thus, the advantages of auto investing at the beginning of each month outweigh the benefits of investing at the end of each month. Start an SIP model to grow your wealth and enjoy guilt-free spending of your hard-earned money.

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How To Open A Demat Account?

How To Open A Demat Account?
05/08/2018

If you want to start trading or investing in the stock markets, you will need to open a demat account. Opening a demat account involves a small and easy, four-step procedure. Before understanding the process of opening a demat account, it is very important to know its basics.

A demat account stores shares in a dematerialized (electronic) form unlike the physical shares that used to be issued previously. These are stored with a depository participant (DP), who is either associated with the NSDL (National Securities Depository Ltd.) or the CDSL (Central Depository Services Ltd.).

How to Open Demat Account

You have to Follow below steps in order to open a demat account:

Step 1: Look for a depository participant: The first step to open a demat account is selecting a suitable depository participant (DP). A DP could be a bank, a broker, or an online investment platform. Make sure that the DP you choose fulfills the necessary criteria and matches your requirements. To compare between different DPs, you could look for the list and other details on the CDSL and NSDL websites.

Step 2: Fulfill the KYC formalities: To register yourself with the DP and to open a demat account, it is very important to complete the KYC (Know your Customer) formalities. KYC formalities include submission of a duly filled application form along with the copies of required documents

Step 3: Perform verification: Once the application form is submitted along with the KYC documents, you might be required to be present at the DP’s office in person in order to check the authenticity of the KYC by performing verification.

Step 4: Acquire Beneficiary Owner Identity (BOID): Once the DP has processed the application, a unique Beneficiary Owner Identity, commonly known as BOID, is generated. You need to acquire this BOID in order to make transactions and to be able to access your demat account in the future.

If you are looking to trade in the share market on an intraday basis, you would also be needing a trading account.

Documents Required for Demat Account

Here is the list of documents generally required (for KYC) while opening a demat account:

Proof of Identity: You would require copies of any of the following as a proof of identity.

  • Voter's ID
  • Aadhaar card
  • PAN card
  • Passport
  • Driving licence

Proof of Address: You would require copies of any of the following as a proof of address.

  • Ration card
  • Electricity bills
  • Telephone bills
  • Property tax receipts
  • Passport
  • Bank passbook
  • Voter's ID
  • Aadhaar card

Features & Benefits of Demat Account

A demat account can be used for the following:

  1. To dematerialize securities and store them in an electronic format
  2. To rematerialize securities from electronic to physical format
  3. To invest in different securities such as bonds, exchange-traded funds, mutual funds, shares, etc.
  4. To track and monitor the progress of assets
  5. To get statements, including details such as transfers and current holdings, periodically
  6. To receive corporate benefits such as dividends, bonus, split, etc.
  7. To transfer assets, register Power of Attorney.