Mid caps looking attractive

With a bull run predominantly dominated by the blue chip stocks last year, may be there is something brewing in the mid-cap market.

"In the past year, apart from the last two months, the mid-cap stocks had significantly underperformed the large-caps. When the Sensex rallied from 12,500 to 14,000 levels, the major Sensex companies were trading at 14-18 times their one-year forward earnings, but the mid-caps were largely under-valued, trading at seven-eight times one-year forward earnings, and did not participate in the rally,"

Mid-cap stocks come with a capacity to generate higher returns but with a similar risk attached to them.

Remember the returns from stocks like unitech??

Those who are ready for a long haul can greatly benefit from investing in mid-caps.

Business line on Mid-caps

Dividened reinvestment Vs Growth

What is the difference between a dividend reinvestment option and growth option wrt. a Mutual fund investment?

For equity funds,
As per the current tax policies, both option would be the same for investors. Dividend from equity funds are tax free and hence the whole amount gets re-invested. No entry load is also charged on the re-investment amount . So , both the options would yield you similar returns as per the current tax policies.

FMP better than FDs?

For debt funds,
Dividends from debt funds are subject to a dividend distribution tax. So, only the dividend minus tax gets re-invested. So, it's better to opt for growth option in debt funds.

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Budget for expenses and record actual expenses

Budgeting for expenses in advance ( every month) and capturing all the expenses is a great habit.
If one tries to classify all his expenses under some major heads like rent, emi, food, clothes, medicine, books, entertainment, etc ...he can know where exactly his money is flowing. This can be the first step in putting a 'expenditure curtailing plan' in place. Unless one knows about' where the money goes', it will be impossible to bring down one's expenses.
An VED analysis may help once you start recording your expenses. You can classify your expenses as 'vital' , 'essential' and 'desirable' . You can try curtailing your spends on 'desirable' kind of expenses ..to begin with.
Income minus expense is savings. Savings flows into your investments. So, curtailing your expenditure through 1) Expense Budgeting and 2) Expense Tracking is a first step to increase your funds available for investment.
If you need a sample excel sheet to do expense tracking mail us.

It's raining NFOs

During the past few years , the household savings flowing into MFs has increased. It's because of growing awareness, booming economy and more disposable income in the hands of middle class.
In a race to multiply their AUM ( asset under management) , we see a lot of NFOs being floated in the market one after the another. A new fund may turn out to be a best fund of tomorrow. But it always better o go with funds with proven track record. ( Known devil is always better!!)
Investors should be aware of the gain that the agents get ( by pushing NFO) and the high amount of expenditure that the fund will incur initially for all the new funds.
'The buyer should be aware' of consequences when making investment decisions or else he can't hold anyone liable for his losses.

RD , back with a bang?

With much talk going around SIPs and FDs , RD ( Recurring deposits ) seemed to have lost its sheen.

With ICICI announcing 9.5% interest rates on RDs for a five year tenure, I think RDs are now again back with a bang.

Five year tenure with a decent interest rate like 9.5% can definitely do a lot of good to your money.

Hope many other banks will follow with such announcements soon.

note :- with ICICI committing for 9.5% for a time frame of five years,I think the high interest rate tenure is here to continue for a while now. Another important factor is that TDS (tax deduction at source) is not applicable for RDs as of now.
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Are you a victim of increasing DMI ??

Last week, I happened to meet a friend who had switched a job recently . He told me that the he switched the job as his take home pay couldn't catch up with increasing E(D)MIs. There are lot of people who are suffering from this syndrome as a result of the recent rate hikes in interest rates.
Most of the salaried middle class would agree to EMI being renamed to DMI ( Difficult to pay Monthly Installments) .
Lot of people have started blaming the government and banks for this. I wouldn't say the government is to be blamed totally. Just a few months back , we had seen people in a tearing hurry booking their flats . Easy loans and buyer's greed fuelled the real estate prices. Interest rates were also relatively low. With RBI raising the repo rates, lot of those who got a loan on floating rate basis are badly affected. A home is a basic necessity but pledging future earning of 10-15 years for just a loan doesn't make real sense. May be this is because in India , most of us like to hold assets in a physical form.
We will have to make proper calculations before we take any own or rent decision. We should also consider factors like inflation, wage rate increase, economic cycles before we take important decisions like the amount of EMI that we can afford.(In this context happened to see an article on own or rent a car in ET which made a lot of sense. )
Any financial decision ( esp long term ones like a house loan) has to be taken after a thorough analysis and understanding of factors involved. Else, we may have to suffer.
For those of them who are already committed to a loan there are a few options left. They can either try to increase their earnings (if possible), Cut down on other wasteful expenditure or make a bold decision to get of with the asset obtained through loan. If none of the above is possible ... keep your fingers crossed ..waiting for the interest rates to move southward.

Sectoral Funds VS Diversified Funds

of late, a lot of investors are showing keen interest in sectoral funds. Sectoral funds are high risk/ return funds and cannot form a base for your portfolio. When a sector is performing well, these funds tend to outperform the diversified funds. It may not be the case in the long run.( esp. in cases like a sector taking a sudden downturn).

The following data may be useful to compare the returns of various sectoral funds with diversified funds.

Traditional Approach to Investing in Equity MF is illustrated in the Pyramid given above. The approach is bottom up ( See Arrow mark direction).

SIP returns - Analysis Two obvious choices in ELSS

What equity funds to invest in?

Income Tax (IT) returns

New forms for IT returns that are to be used for filinf returns are avaialble @ Income Tax Department website.

Guidelines for filing income tax return.

The following articles on rediff should be of great use to readers to know more on the new forms and guidelines.



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Book Talk – The World is Flat

PO Schemes

PO Scheme
Tax Benefit
Min amount Rs
Max amount Rs

National Saving Scheme (NSC)
8% Compounded Half yearly
80 C available
interest taxable
No Limit
6 years

Public Provident Fund (PPF)
8% Compounded Yearly
80 C available
interest exempt
15 years ..extendable

Post Office Monthly Income Scheme (POMIS)
Not applicable
Single: 3 Lakh
Joint : 6 Lakh
6 Years, Interest paid monthly

Recurring Deposit (RD)
7.5% Compounded quarterly
Not applicable
No limit
5 - years

Senior Citizen Saving scheme
9 %
Not applicable
15 Lakh
5 -Year , Min Age -55 years

Kisan Vikas Patra (KVP)
8.41% Compounded Yearly
Not applicable
No Limit
8 Years 7 Months

Term/ Time Deposits (TD)
Not applicable
No Limit
1,2,3,5 Years

Book Talk – The World is Flat

Sensex and predictability

I am just recollecting the days when sensex was around 6000 ( Around early 2005), most of the business news channels were talking about sensex hovering around 'a peak'. one of the most watched business channels even aired the thoughts that investors need to be cautious as the sensex was at near all time highs.
When the sensex was around 8000 sometime later, our FM had issued some statements asking the retail investors to be careful. I don't remember any confidence aired by any of the experts at that point of time that sensex can touch 14,000. I remember to have read an article in rediff which said sensex was likely to touch 14-15000 levels . But , it had stated almost a longer time frame for that to happen when compared to the real speed in which sensex touched 14000.
It is very clear that any amount of expertise cannot predict the direction of sensex (exactly). This is not because that sensex (figure) is irrational always. But this is because there are a lot of factors that determine the course of index . Any movement in the globe may affect any of the indices as we are in flatter world compared to the yesteryears. All the more , investor's (and trader's) response to situations are also difficult to predict which to an extent determines the movement of the indices.
So, what can be the conclusion now. whenever you hear a prediction for the stock indices neither listen to it fully or ignore it completely. Be clear that patience (time) is the key virtue that an investor should possess .Always give a longer time frame for your investments to grow in the equity market unless you are a day trader!.

Blood bath in chinese market

Chinese stock index has fallen 15% from the levels of last week. There is great panic and it may fall further due to that.
Sensex has also started reacting to the fall in China and has gone into red after a smooth upward drive last week. RBI's concern over containing Inflation , Raising value of rupee, Monsoon this year are other important factors that are going to have a say in index. Meanwhile , there are some big IPOs in line like DLF and it's already raining NFOs in the mutual fund market.
The best thing for a retail investor at this point of time would be to take cautious steps. For MF investors , SIP route would be the safest. Any lump sum investment in any of the NFOs can potentially keep you away from panic. Caution in stock picking also will help especially when Indian markets are near an all time high.It doesn't mean that we will have a bear run from hereon...this is just to be on the cautious side.

Studying return trends

Investments like Gold, Real Estate, Equity have been giving phenomenol returns over the last few years. It's very difficult to make investment choices based on the results that have come out in the recent past. Looking at the historic data will help us aviod having a myopic view with respect to the earning capabilities of various investment modes.
Avg. Compounded Annual Return % of various investments since 1990 is given below
Gold -> 6%
Silver -> 6%
Sensex -> 19%
Debt -> 9%
We have to keep such realistic return % in mind when we chart out our financial plan for the future.
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