What are the Pros and Cons of investing in Mutual Funds?

What are the Pros and Cons of investing in Mutual Funds?
by Nutan Gupta 20/12/2016

Mutual funds are considered to be the most popular investment vehicle. Most of the investors invest in mutual funds in order to diversify their holdings and earn maximum return. While it is true that mutual funds provide diversification, it is also important to determine the pros and cons of mutual funds.

Pros of Investing in Mutual Funds

Professional Portfolio Management

An individual’s portfolio is managed by experienced industry professionals who have expertise in this field. They constantly manage your portfolio in a way which will help you generate maximum return on your investments.

Diversification

Mutual funds can invest in securities across various asset classes like binds, commodities or cash. This helps in portfolio diversification. If one sector is not performing well, there is a high probability of other sectors compensating for the loss.

Affordable

Investing in mutual funds is very affordable as an individual can invest as low as Rs. 500 every month in a mutual fund. There is no upper limit on the amount of money that can be invested. So, even a small investor can participate in the market by investing in mutual funds.

Liquidity

All it takes to exit from a mutual fund is one instruction to your broker/agent to sell it. The funds come back to your account in 48 hours.

Cons of Investing in Mutual Fund

Fees & Expenses

Mutual funds charge annual fees to their clients known as expense ratio irrespective of the fund’s performance. This can be defined as the cost of doing business. Moreover, there is an exit load on mutual fund schemes, if the investor wishes to redeem the investment before a particular period of time.

Lock-in Clause

There are two types of mutual fund schemes - one which allows you to enter and exit any time, which is know as open-ended scheme and the other scheme comes with a lock-in period of 3-5 years, which is a closed-ended scheme. If an investor wishes to redeem the investment before the lock-in period, he needs to pay a certain amount as exit load.

It is always advisable to consult a financial advisor and understand all the clauses before investing in mutual funds.

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How to make money by investing in Mutual Funds?

How to make money by investing in Mutual Funds?
by Nutan Gupta 20/12/2016

A lot of people wish to make money from equity markets. However, not every person has the knowledge and expertise to do so. Investing in equity markets directly is a risk not everyone is willing to take. So, they invest in equity markets through another investment vehicle i.e. Mutual Funds.

Here are a few things one should keep in mind in order to make money through mutual fund investing:

Invest for Long Term

If an investor invests for a long-term, he gets the benefit of compounding. When money is invested for a longer period of time, interest on interest is earned, thereby making the money compound into a large sum.

Particulars Value of monthly investment of Rs 10,000 invested for different periods
Monthly investment (SIP) Rs. 10,000 Rs. 10,000 Rs. 10,000
Interest Rate 14% 14% 14%
No. of Years 10 15 20
Future value of the investment Rs. 24,92,923 Rs. 56,52,071 Rs. 1,17,34,741

The above table shows that a monthly investment of Rs. 10,000 for 10 years results into a future value of Rs. 24,92,923. If an individual remains invested for 5 more years, i.e. 15 years, the value becomes almost double - Rs. 56,52,071. Investing for a period of 20 years results in a future value of Rs. 1,17,34,741.

So, a monthly investment of Rs. 10,000 can help you become a crorepati in 20 years.

Dividend Incomes

Mutual fund companies distribute earnings to its shareholders in the form of dividends. This payout is usually on a quarterly basis, from the interest generated by the fund’s investments.

Know all the expenses

Investing in mutual funds only for the purpose of tax saving is not the right approach towards investing. Make sure how much tax you are saving on the total amount invested. Also, make a note of all the other expenses - exit load, expense ratio etc. The bottom line is that you should get the value for what you pay.

Goal-based mutual fund investment

A lot of people park their money in mutual funds in order to meet certain goals at different life stages.

  • If an individual’s goals are 1-3 years away, he should invest in debt-funds. Floating rate funds is the best option in a rising interest rate scenario, while in a falling interest rate scenario, income/bond funds are considered to be a good investment.

  • If the goals are 3-6 years away, one should invest in a combination of debt and equity based funds.

  • - If the goals are 8-10 years away, equity investment is the best option. Equity has the potential to beat inflation and provide exceptional returns over a longer period of time.

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How Beginners Can Ensure Picking The Best Shares

How Beginners Can Ensure Picking The Best Shares
by Divya Nair 20/12/2016

Equities have out-performed any other investment assets in India over the last many years. NSE Nifty has given an average annual return of 12.5% in the past 10-15 years. But there are some stocks that have eroded investor’s wealth as well. Choosing which stocks to invest in is a step that decides the quality of your investments. For beginners, judging a company for investment is a challenge,

Parameters to Judge Best Shares -

Know The Company -

Investors can go through history and profile of a company. They should know the products and services the company provides, understand the revenue drivers and the status of capital in-flow. Also, investors should find out whether the company is making profit or losses and understand the reasons behind it.

Integrity In The Organisation -

We have seen in the past that unethical managements have shrunk many organisations. Even if a company does good business, engaging in unethical activities may sooner or later push it to its dooms.

Earnings -

A company with consistent financial performance should ideally be preferred over a company having a volatile financial history. Factors that determine earnings of a company are sales, costs, assets and liabilities. Before picking a company for long-term investment, people must analyse how much a company is making in profits. If the company is making profits, investors should analyze whether revenue, revenue growth, profits and profit margins are sustainable or not. In a loss-making company, an investor should investigate if there are possibilities of the company turning profitable in future.

Cash Flow -

Cash flow is the amount of money that moves in and out of a business. A company’s cash flow status reflects its operative activities. If a company is generating positive cash flow from its operations, it indicates that the company is receiving more money than it is spending.

Valuation -

A company with good future prospect would most probably have a decent market valuation. There are a number of valuation techniques that determine if a stock is undervalued or overvalued. Here are some of the relative valuation techniques:

P/E Ratio - P/E ratio is commonly uses in relative valuation. It indicates how much an investor is willing to pay off the earnings. If the P/E ratio of a company is 10, it means investors are ready to pay Rs 10 per Re 1 of EPS. Generally, a low PE stock is preferable over high PE assuming other factors of the company are same.

P/B Ratio - P/B ratio denotes how much investors are willing to pay off the book value of a company. If a company has P/B ratio of 2, it indicates that investors are ready to pay Rs 2 for Re 1 of the book value. A stock with lower PBV is preferable.

Dividend Yield - It indicates how much investors are receiving in the form of cash dividend for each rupee invested in share. For instance, if dividend yield of a company is 12%, it denotes that it pays 12% of its share price to its investors. Usually, a company with higher dividend yield is preferred, as that would mean more dividend income for investors.

Relative Comparison With Peers -

Investors should do a relative comparison of the company with its peers taking the above parameters into consideration. As a result, investors may be able to identify competitive advantages of the company over its competitors.

Conclusion -

An in-depth analysis about companies before investing in them helps investors stay away from wrong investments. Keeping the above factors in mind while analysing a business would ultimately help investors yield desired profit from their money.

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5 Stocks Recommendation For Feb 25th, 2019 – Mar 1st , 2019

Stock recommendations
by Gautam Upadhaya 21/07/2017

1) Balkrishna Industries Ltd - Buy

 

Stock Balkrishna Industries Ltd
Recommendation The stock has witnessed a breakout from its sideways consolidation
backed by an uptick in volumes on the daily chart. It has also shown
positive momentum on the daily MACD-Histogram, an indication that
the uptrend will continue in the short term.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs850-855 Rs892 Rs827
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
BALKRISIND 16543 Rs1467/741 Rs987

 

2) REC Ltd - Buy

 

Stock REC Ltd
Recommendation The stock has witnessed a consolidation breakout backed by an uptick
in volumes on the weekly chart. Derivative data indicates fresh long
positions in the stock.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs131-133 Rs139 Rs127.8
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RECLTD 26068 Rs148/89 Rs119

 

3) Mahindra & Mahindra Ltd - Buy

 

Stock Mahindra & Mahindra Ltd
Recommendation The stock has witnessed a rounding bottom formation and has managed
to close above its 10-DEMA, short-term resistance level on the daily charts.
It has also formed a bullish hammer candlestick on the weekly charts.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs641-647 Rs672 Rs625
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
M&M 80272 Rs992/615 Rs771

 

4) Raymond Ltd - Buy
 

Stock Raymond Ltd
Recommendation The stock has witnessed a breakout above its resistance levels backed by an uptick in volumes on the daily charts. It has also shown strong momentum on the daily MACD-Histogram.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs721-728 Rs755 Rs705
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RAYMOND 4478 Rs1151/593 Rs806

 

5) HDFC Bank Ltd - Sell

 

Stock HDFC Bank Ltd
Recommendation The stock has formed a bearish engulfing candlestick pattern backed by an uptick in volumes on the daily chart. Derivative data indicates fresh short positions in the stock.
Buy/Sell Range Target Stop Loss
Sell (March Futures) Rs2105-2120 Rs2030 Rs2164
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
HDFCBANK 569029 Rs2219/1830 Rs2041

 

Research Disclaimer

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What Stocks/Shares (Equity) Are And How Do Shareholders Make Money?

how do Shareholders Make Money
by Priyanka Sharma 05/08/2017

Jargon is the biggest hurdle to every new investor, particularly when it comes to those who want to invest in stocks. For that reason, it's important that before someone starts focusing on losses and gains, or the BSE versus the NSE, it's important to understand what stocks really are and what they represent. You can't make any money until you grasp the fundamentals of the tools you're working with, after all. 

Put simply, stocks represent a share in a company. If someone goes online and buys a share of ONGC stock then that individual now has a stake in how well ONGC does. If the company does well, the investor does well. If the company does poorly, then the investor can lose money. How much one stands to gain or lose depends on how much stock that person has in the company, and how that particular company performs.

Let's use an example to make this a little bit clearer. Say that Company ABC wants to attract investors. As such it divides itself up into 5,00,000 shares of stock. For every person who buys stock, that money goes to the company so it can hire new employees, build new stores and generally attempt to get a bigger share of the market. Seen this way, it's clear that trading stock is great for the company. but how do you, the investor, make money?

Method 1: Make Money Trading Stocks
Trading stocks is the most well-known way to make money on the stock market. The price of a stock is liquid, climbing and falling within the space of days or even hours. The trick to make money as a trader is to buy the stock when its price is low, and to sell it when the price rises. So, say that a stock broker heard Reliance Industries is claiming a bigger part of the market and it's poised to rebound from a slump. He or she might buy stock at Rs.50 a share, and wait. If the stock goes up then the broker can sell it at a profit. So if the stock climbs to Rs.90 a share the broker has made a Rs. 40 per share profit. That's not terribly impressive for a single share, but if the broker purchased 100 shares, or 1,000 shares then that profit is going to go up pretty quickly.

It doesn't matter whether you hang onto a stock for an hour, a year or a decade; if you sell it for more than you paid for it you made a profit.

Method 2: Making Money With Stock Dividends
When someone is a stockholder in a company, that company's profits are also the stockholder's profits. The increasing value of a stock is just one instance of this. Another may be dividends paid to shareholders by the company. In plain English, that means that every quarter the company will take a segment of its profits, split it up and give those profits to stockholders according to how much stock someone has. The more profit the company makes, the more money the stockholder gets paid at the end of the quarter. The ideal situation for you to be in is to hold stock in a company that pays dividends, and which is making record profits. If you hold onto your shares then as long as the company is making money, you're making money. In essence you're being paid to own the stock, because when you bought it you paid for a share of the company. That share of the company comes with your own little piece of the profits pie.

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The ABC’s of Investing

ABC's of Investing
by Nutan Gupta 25/09/2017

The money that you earn is partly spent and the rest is saved for a rainy day. Savings refer to the funds that are kept aside in safe custody, such as a savings account. Instead of keeping this money idle, you can invest your savings in various financial instruments which will pay you a hefty return in the near future.

The question that arises now is how and where to invest this money. Potential investors can always take the help of a financial advisor and an investment advisor, both of who are capable of providing detailed knowledge on the subject on investment and investing money. Investors can start investing after fulfilling the following simple steps:

  1. Obtaining documents relating to Personal Identification Proof and Address Proof.
  2.  Approaching intermediaries like a broker, RM etc.
  3. Filling up the KYC form and furnishing the details required.
  4. Filling up of the broker-client agreement.
  5. Opening a DEMAT Account and linking it with a savings account.

As soon as these steps are completed, an investor can start investing in the financial market.

The investment options can be well classified into 2 parts. They are:

  1. Physical assets: It comprises of tangible items like real estate, commodity, goldand silver in the form of jewelry and even antiques. 
  2. Financial assets: It comprises of FDs with banks, small savings instruments with the post offices, provident fund, pension fund, money market instruments and capital market instruments.

The money market gives the scope of short term investment options. It deals with debt instruments such as bills of exchanges, commercial bills, treasury bills, certificate of deposits etc. These have relatively low risk and relatively low returns. However, they are one of the safest investment options, especially for those investors who want to play safe.

A capital market is an option for long term investment. The various instruments of capital market are shares of companies (equity), mutual fundsSIP investmentderivatives market, IPOS, etc. These have a higher risk and higher returns in comparison to the instruments of the money market. Although stock investing is considered to be more rewarding, the high risk factor associated with it can result in loss if there is a downswing in the activities of a company.

The investment strategies of an individual depend on certain factors, such as:

  1. The risk taking appetite of investor
  2. The time horizon of investment
  3. Expected return
  4. Need for investment

Investments make our fund grow over a period of time whereas savings is just idle cash. Our short term needs can be fulfilled with the help of our savings but for the achievement of our long term financial goals, investment is a must. This is only possible with financial planning.