Fun facts about Indian Stock Market

7 Fun facts about Indian stock market- #4 is my favourite

7 Fun facts about Indian stock market:

Hi guys. In this post, I planned to write something different. And then, I come up with the idea of why not to write about the fun facts about the Indian stock market.

Everyone is so much busy reading about the valuation, fundamentals, technicals, ratios etc that they forgot that there is so much fun investing in the Indian stock market.

Therefore, today I present you with 7 fun facts about Indian stock market. Do read the post until the end, because there is a bonus in the last section. So, let’s get started.

7 Fun facts about Indian Stock Market:

1. Bombay Stock Exchange (BSE) is the biggest stock exchange in the world in terms of the number of listed companies on an exchange. BSE has over 5,500 listed companies.

2. BSE is also the oldest stock exchange in Asia. It was established in 1875.

3. The participation of the common people in Indian share market is below a satisfactory level. Less than 2.5% population of India invest in the market.

Also read: #9 Reasons Why Most Indians do not Invest in stocks.

4. When master blaster used to play international cricket, his dismissal adversely affected the Indian stock market.

scahin tendulkar stock market jinx fun facts about Indian stock market

A study by economists Russell Smyth and Vinod Mishra of Monash University in Australia showed that the Nifty index was generally flat the day after India wins a match, but the day following a loss, the index dropped by an average of 0.231%. When Sachin Tendulkar is on the losing side, the loss on the stock market is almost 20% more.

Read more here: ET Markets- Bulls need no fundamentals, just Sachin Tendulkar & team

5. The costliest share in the Indian share market is MRF. It costs Rs 69,290 to buy 1 share of MRF.

6. There is total of 23 stock exchanges in India. How many do you know apart BSE and NSE?

Read more here.

7. Nifty has given a return of 11.32 percent p.a. since its inception [till Nov’2017]: The base value of nifty was 1,000 in 1995. Recently nifty crosses 10k mark and it is currently at 10,360 points.

Bonus- Fun facts about the stock market in the world:

Here are few bonus fun facts about the stock market in the world.

1. World’s oldest stock exchange was established in the year 1602 called Amsterdam stock exchange. It was established by Dutch East India company and offered printed stocks and bonds.

2. World’s most expensive stock is of Warren Buffett’s company – Berkshire Hathaway (Class A). One stock of Berkshire Hathaway costs 284,900 USD (on 30 November’2017), which is equivalent to Rs 1.85 crores. How many stocks are you planning to buy? ;P

warren buffet berkshire hathaway fun facts

3. The month of October is considered to be jinxed month as two of the worst stock market crashes in history occurred in this month in the year 1929 & 1987. On black Tuesday in October 1929, dow jones fell around 25%. Whereas, on black Monday in October 1987, dow jones fell 22%.

That’s all. I hope this post on fun facts about Indian stock market is entertaining to the readers.

Further, if you any additional fun facts about Indian stock market, please comment below. Sharing is caring.

Happy Investing.

Tags: Fun facts about Indian stock market, facts about bombay stock exchange, basic stock market facts, did you know facts about stock market, stock market facts 2017, national stock exchange facts, Fun facts about Indian stock market 2018, interesting stories about stock market
Dolly Khanna Portfolio

Top 10 stocks in Dolly Khanna Portfolio

 Top 10 stocks in Dolly Khanna Portfolio: 

Among on the wolves of the Dalal-street, there is this she-wolf who has got so much attention by investing in the lesser-known companies which later turnouts to be multi-bagger stocks.

Dolly Khanna is a Chennai based investor. Her net-worth has crossed 500 crores.

Her stock portfolio is managed by her husband Rajiv Khanna, who is a graduate of IIT Chennai in chemical engineering. Rajiv Khanna was the owner of the ‘Kwality milk foods’ one of the well-known food company in India until he sold it to Hindustan Unilever in 1995.

From mid-1990’s, Dolly Khanna and her husband Rajiv Khanna started investing in the Indian stock market. Dolly Khanna is the brain of their investments.

Few of the biggest investments in Dolly Khanna portfolio which made her a tycoon in investing world are Neelkamal, Mannpurnam finance, Trident, Hawkins India etc.

Neelkamal gave her a return of over 900% when it grew from Rs 160 to Rs 1950.

Few small-cap companies in Dolly Khanna Portfolio which gave her good returns are Wimplast (7x return), Cera sanitary ware (7x return), RS Software (4x return), Avanti feeds (5x return) and Amara Raja (3x return).

Few of the recent investments of Dolly Khanna portfolio are in Rain Industries, Nahar International Enterprises, and Ruchira Papers.

Top 10 stocks in Dolly Khanna Portfolio (November 2017)

Here is the list top 10 stocks in Dolly Khanna portfolio updated till November 2017.

Stock Name Current Price (Rs.) Quantity Held Holding Value (Rs.)
Rain Industries Limited 343.50 68,77,710 236.25 Cr
Manappuram Finance Limited 107.55 95,34,454 102.54 Cr
NOCIL Limited 179.75 33,08,410 59.47 Cr
IFB Industries Limited 1320.00 4,23,955 55.96 Cr
Nilkamal Limited 1794.45 2,32,576 41.73 Cr
Thirumalai Chemicals Limited 1947.65 1,77,355 34.54 Cr
Srikalahasthi Pipes Limited 419.60 6,30,821 26.47 Cr
Dhampur Sugar Mills Limited 297.65 8,23,737 24.52 Cr
Tata Metaliks Limited 800.10 2,76,092 22.09 Cr
LT Foods Limited 70.30 29,07,256 20.44 Cr

Source: https://trendlyne.com/portfolio/superstar-shareholders/53757/latest/dolly-khanna-portfolio/

The stock picking style of Dolly Khanna is definitely unique due to her technique of investing in lesser-known small-cap companies. Nevertheless, it looks like her investments are working great for her.

Leave a comment below on any of the latest pick in Dolly Khanna Portfolio

Tags: Dolly Khanna portfolio, dolly Khanna latest pick, dolly Khanna latest portfolio, dolly Khanna investor, dolly Khanna best picks
Investing vs Trading

Investing vs Trading: What’s the difference?

There are two common approaches to make money from the stock market. The first one is investing and second is trading.

While investing aims to create wealth over the long term by buying good companies and holding it for a long duration, trading is quite the opposite of it. Trading aims at generating profits by frequently buying and selling companies.

Also read: #27 Key terms in share market that you should know

Examples: Investing vs Trading

Example 1:  if you buy a stock today and commits to holds the stock for the next 5 years, then you are investing. Here you believe that the price of that stock will be way higher after 5 years than what it is today.

Example 2: If you buy a stock today morning and commits to sell the stock by evening (before the market closes), then you are trading. Here you believe to make a profit by the difference in your buying and selling price.

The time period for investing is long term and many a time the holding period is more than even decades. You can find many peoples investing for their grandchildren. Many people inherit the stocks that were bought by their parents and worth’s millions today.

On the other hand, the time period for trading is short-term. It can be minutes, hours, day or few weeks. Sometimes the trading period is even less than a minute when traders buy/sell stocks with explosive movements and book profit soon enough.

Further, the attitudes of the people who follow these approaches are different.

The investors are inclined towards stress-free sound investment for wealth creation over longterm.

The traders tend to make big profits in a short period of time. They also have a love for the game of trading and find it entertaining.

Investors tend to make sound investments and relax. On the other hand, traders are actively involved in the market and require their time & presence to make profits.

Also read: How to Invest in Share Market? A Beginner’s guide

Investing vs Trading

Investing Trading
Aim Creating wealth over a long period of time by buying and holding. Generating profit by frequent buying and selling of stocks.
Daily market fluctuations Daily market fluctuations do not affect investors as they aim for long-term. They tend to get benefit of the daily market fluctuations by buying and selling stocks
Add on benefits Investors enjoys perks like the bonus, dividends, stock split etc Traders hold the stocks only for short interval and hence doesn’t enjoy these perks.
Protective element Investing in the fundamentally strong company that will bounce back to true value over time and losses will be recovered. Stop loss is used to limit the losses.
Indicators Fundamental indicators like Earnings per share, Price to earnings, current ratio etc are used. Technical indicators like moving averages, stochastic oscillators, RSI etc are used.
Period Long term Short term- day/week
Strategy Creating wealth by compound interest and dividend Timing the market (finding the right time to enter and exit a stock)
Risk Low risk but low potential return in short term. Good returns in long term.  High risk but higher potential return in short term.
Factors affecting the approach. Business fundamentals like industry, economy, financials, market, competitors etc. Technical indicators, the psychology of the market, money management, risk-reward etc
Belief The company will perform well in the future and will reward its shareholders. Share price will move in a direction to achieve the target profits.
Expected return 15-20% return per annum (compounded). 8-10% return per month.
Brokerage charges Very fewer brokerage charges are involved due to buying and holding strategy. Trading involves high brokerage due to frequent buying and selling.
Involvement required Investors make the sound investment after deep study of a company and relax afterward. Require active involvement in the market to find the correct time to enter and exit in order to book profits.

Conclusion:

Both these approaches are a successful way to make money from the stock market.

However, if you planning to choose one approach, think about the time that you can spend ‘daily’ on market activities. If you can daily spend hours in the market, then trading suits you. Otherwise, investing is a better approach for you.

Moreover, it also depends on your knowledge. If you have interest in reading financials, accounting, news, economy etc then investing is good for you. On the other hand, if you are good with trends and charts, trading makes more sense.

Finally, comes your preference. As discussed in the post many people enjoy the game of trading while many wants to be relaxed once they invested their money. Your personal preference has a high weight for selecting your style.

If you are new to stocks and want to learn stock market investing, here is an amazing online course for the beginners: How to pick winning stocks? Enroll now and start your financial journey today #Happy Investing.

Tags: investing vs trading, trading vs investing which is better, which is better trading or investing, trading vs investing returns, investing vs trading difference, trading investment meaning, trading investment definition, investing vs trading India
Where should you invest your money

Where Should You Invest Your Money?

Where should you invest your money? This is one of the most popular questions for anyone new to the investment world.

Everyone has their own living style and financial dreams. Some people are frugal while many are spendthrift.Some people live their life below their means and save money. While there is another group of people who spend a lot of money every weekend in parties and outings. They do not care about savings and have a huge credit card debt.

However, there are not only two kinds of people in this world. There are also many people whose spending habits lies between that of the extremes.

Anyways, when it comes to investing, all these kind of people are confused and have the same question- “Where should I invest my money? Where can I get the best returns on my investments?”

In this post, I am going to give a simple answer to this question- ‘Where should you invest your money?’ So buckle up and plan your financial journey ahead.

Factors affecting your investment decision:

Before discussing the various investment options available in India, first, we are going to understand the factors that can affect your financial decisions. Here are the four pillars for making a sound investment decision:

1. Investment goal:

Before you decide where should you invest your money, you need to define your investment goal. Your investment amount will depend a lot on your goals.

Your goal can be anything like buying a new car, buying a new house, savings for marriage, to fund your higher education, retirement or even just for fun.

Now depending on your goal, you will have to adjust your investment amount. If you are investing to fund your higher education (after 2-3 years), then you need to ‘save more’ and ‘invest frequently’. Here the time horizon is small and hence the power of compounding will not be that helpful.

On the other hand, if you investing for your retirement, then even the small investments will add up to a huge sum when compounded over a large period of time.

2. Risk appetite:

This is the amount of risk that you are willing to take. Not everyone believes in ‘high risk and high reward’. Many people want minimum risk for their investment so that they can a sound sleep.

Your risk appetite will decide your investment style. We will discuss the risks involved in different investment options later in this post.

Also read: 3 Amazing Books to Read for a Successful Investing Mindset.

3. Current financial situation:

If you have a huge debt like education loan, car loan, house loan etc, they pay it off first. There’s no point getting returns from your investment and directly giving it back to your lender. Therefore, get rid of your debts first.

Next, your investment decision will depend a lot on your financial situations. If you have dependents, then you might first need to have insurances, LICs etc. If you are single with no dependents, then you can invest without any worry.

Moreover, you will also need emergency fund so that you can have some financial flexibility.

4. Time Horizon:

The longer you remain invested, the greater will be the returns. The time horizon of your investment will vary with your age. If you are in your 20s you will have long time horizon compared to people who are in their 40s and just starting to invest.

There is a famous thumb rule of asset allocation while investing. This is called ‘100 minus your age’.It says that the total percentage of your investment should be equal to 100 minus the age times of your net worth.

For example, let’s say that you are 28 years old, then you should invest (100-28)= 72% of your net worth and keep the remaining in your saving account.

This rule is based on the philosophy that as you grow old, your needs will increase (like children’s tuition fee, children’s marriage, house debts etc) and hence you won’t be able to invest much. Therefore you should invest more when you are young and have minimum liability.

Where should you invest your money?

Now that you have understood the different factors affecting your investment decisions, here are the few of the common investment options available in India-

1. Fixed deposit (FD):

This is a low risk and low return investment. You can expect a return of 6-8% per annum by investing in FDs. The capital invested in FDs are considered to be safe if you do not count inflation and taxes.

2. Stocks:

Investing in the stock market involves high risk and high returns. You can expect a return of 15-20% per annum by investing in stocks.

Investing in stocks has been a life changer for many people. Although a number of people have lost money in stocks, however, many of the billionaires in India created huge wealth by investing in stock market.

New to stocks? Here is an amazing course on the stock market for beginners: How to pick winning stocks? Enroll now.

3. Mutual funds:

This is a moderate risk and high return investment. You can expect a return of 10-14% by investing in mutual funds. These funds are managed by highly qualified fund managers and hence it doesn’t require much involvement of the investors. However, these funds are also subjected to market risk.

4. Gold:

This is one of the conventional ways of investing which has been followed over thousands of years. This is a low risk and low return investment. The best part of investing in gold is that- it will always retain its face value.

Moreover, it is easily acceptable and highly liquid. You can sell your gold jewelry, gold bar or gold coin to any of your neighbor jewelry shop. The only disadvantage of investing in physical gold is its safety.

Nevertheless, after coming of GOLD ETFs, even this problem has been solved.

Also read: Getting Smart With Investment in Gold.

5. Real estate:

This is a low risk and high return investment. One of the best option available in a growing economy like India.

If you buy a property and hold it for 10-15 years, your initial investment can give multiple times returns. In many developing cities, the prices of a flat double itself just in 2-3 years.

Overall, the returns from real estate investment are tremendous.

However, the two big problems with real estate investment are high initial investment amount and liquidity. You cannot find a seller for your property in a day and it takes time for the paper works.

Nevertheless, don’t stop yourself from investing in real estate just because of these two reasons. The return on this investment is amazing. Moreover, if you do not own a house, it can be one of your biggest investment.

Few other points to know:

Stocks and real estate investment are the ones which have given the best returns in the past.

You can find a number of millionaires who made their fortune by investing in stocks and real estate. However, you will hardly find anyone who created huge wealth by investing in FDs, mutual funds or gold.

Also read: 3 Insanely Successful Stock Market Investors in India that you need to Know.

The other options available in India for investments are currencies, commodities like silver, metals, crude oil etc.

In addition, it’s better to invest in more than one option. You can own a property and remain invested in stocks at the same time.

Like the elders say -’Do not put all your eggs in one basket’. This is one of the best advice of all time.

Conclusion:

Risk Reward
Fixed Deposits LOW LOW
Mutual Funds MODERATE HIGH
Stocks HIGH HIGH
Gold LOW LOW
Real estate LOW HIGH

No investment is completely risk-free. However, the severity of the risks is different in different investment options. Select the investment option carefully depending on your investment goal, risk appetite, time horizon and current financial situation.

Take advice from your financial advisor or knowledgeable friends. But make your own financial decisions. Remember, no one cares more about your money than you do.

That’s all. I hope this post on ‘Where should you invest your money?’ is useful to the readers.

Also read: How to Invest in Share Market? A Beginner’s guide

Please comment below if you have any questions. I will be glad to help you.

Happy Investing.

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What is Contrarian Investing

What is Contrarian Investing?

What is contrarian investing?

Be fearful when others are greedy and to be greedy when others are fearful. -Warren Buffett

Hi investors. In this post, we are going to discuss one of the less-talked topic- ‘What is contrarian investing?’. And why it is difficult to be a contrarian investor?

You might have heard about value investing, growth investing, Intraday trading, Swing trading etc. However, have you heard about contrarian investing? If not, then you are going to learn about it in this post. Let’s get started.

What is contrarian Investing?

Contrarian investing is the ideology in which an investor attempts to make profits by making his decision against the popular understanding but only when the conventional wisdom appears to be wrong.

A contrarian investor moves against mass psychology and looks for an opportunity of mispricing of the stocks due to consensual opinion. They believe in betting against the crowd.

When the stock prices are down and the people are bearish, contrarian investors find good opportunity to buy the under-priced stocks. On the other hand, when the stock prices are high and the people are bullish, a contrarian investor tends to sell his stocks as he finds it over-priced and believes to make a good profit by selling it at that time.

A contrarian investor likes to invest opposite of the trends and what the majority are doing. He believes in taking advantage of the temporary mispricing of the stock by the masses. By choosing out of the favor stocks, a contrarian investor tends to make a profit by following the same old strategy i.e. buy low and sell high.

Also read: #27 Key terms in share market that you should know

How are contrarian investors different from value investors?

A contrarian investor is very similar to the value investor as both tend to look for undervalued stocks. However, the basic difference between both of them is: A value investor buys/sell stocks purely based on the fundamental analysis. Whereas, a contrarian investor also cares about volume trading, analyst forecast, and media commentary.

Why it’s difficult to be a contrarian investor?

There are very few true contrarian investor in the market. This is because a contrarian investor looks stupid most of the time when they take the decision opposite to the common thinking or what the majority are doing. Moreover, ofter in the case when the trend changes and they turned out to be correct, the contrarian investors are just referred to as the ‘lucky’ ones.

Here are a few more reasons why it’s difficult to be a contrarian investor:

1. Herd mentality: When everyone is buying/selling a stock, it takes a lot of courage to do the opposite of the crowd.

If everyone is purchasing a stock whose share price is continuously increasing for the last one year, then its really hard to ignore that stock. Similarly, when the price of a stock starts falling at a high pace and the majority of investors are bearish, it’s tough to hold that stock or buy more.

2.Group thinking: Most people are okay with a stock that is not performing if everyone else is also holding that stock. However, buying a non-performing stock (that no one in their group is buying) gives them a headache. Looking at what others are buying/selling and doing the same as their group, makes people more confident than doing the opposite and being a contrarian investor.

3. Following the veterans: Watching one of a big investor or a big institution buying/selling a stock attracts a common investor as they see them as a sign of authority. On the other hand, a contrarian investor tends to think opposite and hence doesn’t find any authority support or social proof for their investment decision.

4. Short term losses: A contrarian investor has to suffer short-term losses and sometimes these losses may extend to years until the trend is reversed. Most of the common investors can’t see their portfolio in losses when others are making money and hence disregards the contrarian investing philosophy.

Summary:

Contrarian investing is one of the most successful investment approaches over the long term. Warren Buffett, one of the richest investor of this time, follows this approach which itself validates the power of contrarian investing.

A contrarian investor tends to get maximum benefits of both good and bad market. Although it’s difficult to go against the crowd, however, if you are confident about your analysis, then following contrarian investing approach can make wonders for your investments.

Also read: Growth Stocks vs Value stocks – A logical Comparison

That’s all for this post. I hope this is useful to the readers. If you have any questions, please comment below. I will be happy to help. Happy Investing.

Stocks that gave more than 500% return in 2017

Stocks that gave more than 500% return in 2017

Stocks that gave more than 500% return in 2017

Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson

2017 has been a good year for the Indian stock market. After a small setback during demonetization, the market has taken a positive trend. Even GST has been implemented smoothly this year.

The investors remained bullish throughout the year. NSE Index ‘Nifty’ has given a return of 27% till now (From January’17 to November 2017).

Also read: #12 Companies with Highest Share Price in India.

In this post, I am going to give the names of those stocks that gave more than 500% return in 2017. There are also few stocks on this list which gave more than 1,000% return in last 1 year. For example Indiabulls Ventures, Soril Holdings, and HEG.

Note that if you just were happy with 1-2 times returns, you might have missed the multi-bagger returns from all these stocks. Do not cut your winners and stay invested for long.

Here is the list of 5-baggers to 12-baggers in last 1 year. Are you holding any?

Stocks that gave more than 500% return in 2017:

Name Last Price Market Cap 1-Year Change (%)
Indiabulls Ventures 259.85 115.64B 1.24K
Soril Holdings Ventures 228.55 10.99B 1.09K
HEG 1651.5 69.24B 1.04K
California Software Company 74.45 879.77M 962.13
Goa Carbon Ltd 873.7 8.38B 849.69
Blue Circle Services 38 773.19M 845.27
Graphite India 579.9 116.46B 714.99
Yuken India 2808 8.34B 685.92
Rai Saheb Rekh 400 5.98B 651.10
Goldstone Infratech Ltd 197.9 6.83B 631.52
Sanwaria Agro Oils Ltd 18.2 13.99B 620.15
Bhansali Eng Polymers 162.75 26.54B 591.16
Rain Industries 327.55 112.37B 581.22
CC Constructions Ltd 97.05 2.61B 572.19
Bella Casa Fashion Retail Ltd 210 2.17B 565.64
Akme Star Housing Finance 117 1.43B 554.05
Venkys India 2875.05 40.23B 553.33
Lancer Container Lines 175.45 1.05B 539.01
Jindal Worldwide Ltd 1159.25 22.31B 506.70
Aditya Consumer Marketing 101 1.48B 500.00

Note: You can get this list using stock screener from INVESTING website.

Further, I will not suggest you buy these stocks just because they have given good returns in the last 1 year. Study the company carefully before investing.

New to stock market? Here is an amazing online video course for the beginners: HOW TO PICK WINNING STOCKS?

That’s all. I hope this post on ‘Stocks that gave more than 500% return in 2017’ is informational to the investors.

Happy Investing.

Tags: Stocks that gave more than 500% return in 2017, multi-bagger stocks 2017, 10-bagger stocks 2017, multi-bagger stocks in India 2017
zerodha kite

Zerodha Product Codes Explained- CNC, MIS, SL & More.

Zerodha Product Codes Explained- CNC, MIS, SL & More

Hi Investors. For the last couple of weeks, I have been getting a number of messages and comments to explain the different product codes that are used in Zerodha marketplace.

Zerodha is one of the biggest discount brokers in India and it has over 5+ lakh clients. The different zerodha product codes will be simple to use once you understand it. So let’s get started.

Here is a screenshot of the KITE app. Please note the different zerodha product codes. The two easily understandable codes are QTY and PRICE. Here, QTY means the number of quantities of stock that you want to buy. PRICE is the cost at which you want to buy the share. However, the other codes are the ones that we are going to discuss in this post.

zerodha product codes market place

Zerodha product codes:

  • CNC: Cash N Carry
  • MIS: Margin Intraday Square-off
  • MKT: Market Order
  • LMT: Limit Order
  • SL: Stop Loss
  • SL-M: Stop loss market
  • Trigger Point
  • Disclosed quantity

Before we discuss the zerodha product codes, here are few terms that you need to know first.

What is a market order?

When you want to buy/sell a share at the current market price, then you need to place a market order. For example, if the market price of a company is Rs 100 and you are ready to buy the share at the same price, then you place a market order. Here, the order is executed instantaneously.

What is a limit order?

Limit order means to buy/sell a share with a limit price. If you want to buy/sell a share at a given price, then you place a limit order. For example, if the current market price of a company is Rs 200, however you want to buy it at Rs 195, then you need to place a limit order. When the market price of ABC falls to Rs 195, then the order is executed.

Also read: #27 Key terms in share market that you should know

What is a stop-loss?

STOP LOSS is used to limit the losses when the price of a stock starts falling.

For example, let’s say that you are holding a stock at Rs 300. However, the price of that stock starts falling and you fear to book losses. In such scenario, you can place an order to limit the loss to Rs 295. It specifies that you want to execute a trade but only if the specified price is met.

Stop loss is a very good tool to limit the risks.

Zerodha product codes explanations:

  • LMT: This is used for placing a limit order.
  • MKT: This is used for placing a market order.
  • Trigger Price: This is used in stop loss orders. It is the price at which you want ‘stop loss’ to be triggered.
  • Stop Loss (SL): This is used to place a stop loss at the limit price. Here you need to specify a Limit price and a trigger price. When the trigger price is reached, then the stop loss order is sent to the exchange at a limit order mentioned by you.
  • Stop loss market (SL-M): This is used to place a stop loss at market price. Here you just have to specify the trigger price. When the trigger price is reached, then the stop loss order is sent to the exchange at market price.
  • MIS: It stands for Margin Intraday square off. MIS is used for Intraday trading with leverage. All MIS position is auto squared off at the end of the day session.
  • CNC: It stands for Cash n carry. CNC is used in delivery based equity. There is no leverage provided in CNC. However, there is also no auto square off at the end of the session.
  • Disclosed quantity: This allows traders to disclose only a part of the actual quantity of the stocks that he bought or sold. This disclosed quantity should be more than 10% of order quantity.For example, let’s say you bought 1000 stocks. However, you can disclose only 400 stocks (if you want). Only the discloses quantity will be shown on market screen.What is the use of disclosed quantity? The order book is open to all active person on the exchanges. So, all these people can see what quantity of stocks you have ordered. However, the problem here is that once they know your quantity and price, they can change their own order (increase/decrease their order amount/quantity). This might affect your orders adversely.Disclosed quantity is beneficial for those people who trade in large quantities.

Also read: Full service brokers vs discount brokers: Which one to choose?

Now, these were the terms that are shown in the marketplace of zerodha. However, if you click on ‘ADVANCED’, you can find more ZERODHA product codes. Although you can execute all your buy/sell orders without changing the advanced order, however, it’s better to have full knowledge. 

zerodha advance options

Here are the advanced zerodha product codes:

  • REGULAR: Regular orders
  • BO: Bracket order
  • CO: Cover order
  • AMO: Aftermarket order
  • DAY: Day validity
  • IOC: Immediate or Cancel

AMO: It stands for aftermarket order. You can use this facility to place an order when you can’t buy/sell during the trading time. You can place your order between 4:00 PM to 08:59 AM i.e. after the post-closing session and before the pre-opening session.

BO: Bracket order is used for higher leverages (than that of MIS). Here, you place an Intraday buy or sell at limit order with a target price and a compulsory stop loss. All the orders are squared off before the end of the day.

CO: Cover order is used for placing intraday buy or sell at the market order for a high leverage (that trading using MIS). Here you just have to specify the stop loss. All the orders will be squared off before the end of the day.

IOC: It stands for ‘Immediate or cancel’. Here the order is executed as soon as it is released. If the order fails to execute, then it is immediately canceled. In case of part execution, the remaining quantity (which is not executed) will be canceled.

Also read: How to Open a Demat and Trading Account at Zerodha?

That’s all. I hope the post is useful to the new traders. If you have any questions regarding any zerodha product codes, please comment below. Will be glad to help.

Happy Investing!!

Tags: Zerodha product codes, What is CNC and MIS, SL and SL-M, CNC and MIS
Is it worth investing in IPOs

Is it worth investing in IPOs?

Is it worth investing in IPOs?

Everyone gets excited about new things. The new clothes, new bike, new car, new job etc. always attract the public.

Investors are also like ordinary people and hence they are also tempted by the word ‘NEW’. Be it a new technology, a new industry or a new company.

In this post, we are going to discuss whether it’s worth investing in these new companies which enter the market for the first time.

Here are the contents that we are going to discuss in this post:

  • What is an Initial Public Offering (IPO)?
  • What does ‘Going public’ mean?
  • Why do companies conduct IPOs?
  • What are the disadvantages of conducting IPOs?
  • Why do many IPOs come in the bull market?
  • Who gets benefits of IPOs?
  • Why are people excited about IPOs?
  • Is it worth investing in IPOs?

What is an Initial Public Offering (IPO)?

When a privately held company offers its shares for the first time to the public, then it is called Initial public offering (IPO). It is a way for companies to enter the stock market.

Until a company offers IPO, the public is not able to buy the company’s share.

Before IPO of a company, its shareholders include limited people like founders, co-founders, relatives, friends and initial investors (like an angel investor, venture capitalist etc). However, after the company offers its IPO, anyone (public, institutional investors, mutual funds etc) can buy the shares of the company.

Few of the famous IPOs of 2017 are BSE, CDSL, Avenue supermarket (Dmart), SBI Life insurance etc.

What does ‘Going public’ mean?

Going public means that a ‘privately owned company’ is conducting an initial public offer (IPO) to the public in order to enter the stock market as a ‘public company’.

In short, when a company is offering an IPO, it is said that the company is going public.

Also read: #27 Key terms in share market that you should know

Why do companies conduct IPOs?

There can be a number of reasons why any company offer an IPO. Here are few of the top ones:

  • For a new project or expansion plan of the company
  • To raise capital (financial benefit)
  • For carrying out new research and development works
  • To fund capital expenditures
  • To pay off the existing debts or reduce the debt burden
  • For a new acquisition
  • To create public awareness of the company
  • For the group of initial investors desiring to exit the company by selling their stakes to the public.

In addition, IPOs generate lots of publicity for the company and hence helps in creating market exposure, indirect exposure and brand equity.

Why are the disadvantages of conducting IPOs?

Here are the few disadvantages for the companies who offer their IPOs:

  1. Public disclosure: When a privately held company offers its IPO, it has to disclose a number of documents to the public like its financials, promoters list, debts etc.
  2. Entering a regulated market: Indian stock market is highly regulated by Securities and exchange board of India (SEBI) and hence the newly public company has to play by the rules of SEBI. There has been a number of cases of companies getting delisted by SEBI as they do not follow the norms of the market.
  3. Market pressure: The companies performance are closely scrutinized by the public and investors. Hence, the company’s management is consistently is pressure. Sometimes the companies focus more on short-term performance over long-term due to market pressure.
  4. Loss of control: As the shares are distributed among the investors, the decision making power is now in the hands of the shareholders.
  5. Failing of IPO: Many companies fail to attract investors during its IPO and the offered shares might remain under-subscribed. In such a scenario, the company is not able to raise enough capital that is expected to achieve the goal of IPO.

Why do many IPOs come in the bull market?

bull market ipo

The promoters of the company sell their stakes only when they are confident of getting a good price. This generally happens only in a bull market.

During a bull market, the owners of the company can raise enough fund for their cause as the public is optimistic. People are willing to pay good prices to buy the shares of the company.

Why do not many IPOs come in bear market? During bear market, people are pessimistic and are not willing to pay a good price for the shares of a newly public company. The owners feel that they won’t be getting the right price for their shares and hence most owners do not introduce their IPO during a bear market

Also read: What is Bull and Bear market? Stock Market Basics

Who get benefits of IPOs?

There is a common myth that the company’s shares are undervalued during its IPO and hence the early subscribers of the IPO feel that they have made a very good deal.

However, IPOs are the by-products of a bull market and they are generally over-priced.

The owner and the initial investors of the company (like angel investors, venture capitalist etc) are the ones who get maximum profits during an IPO as they are able to sell the shares at a good price.

Why are people excited about IPOs?

There are a few common reasons why people are excited about IPOs. They are:

  1. Under-pricing myth: When a company announces its IPO, it’s presumed that the offered price is less than its true value. People are excited about the fact that they are the first one to buy the stock and will be rewarded handsomely when the company’s true price will be realized by the market. However, it’s very rare that the owners will be willingly underpricing the shares.
  2. Herd-mentality: As everyone they know will be applying for the IPO, people do not want to be missed out.
  3. Overhype by media/ underwriters: Media gets a high advertisement fee for the promotion of the IPO. Moreover, IPOs are intentionally overhyped by the investment banker and the underwriters. They make sure that these IPO’s get enough attention as this is their job to promote and sell the shares.
  4. ‘The Next …’ strategy: People compare the upcoming IPO with the Winners in the same industry and conclude that it will perform the same. ‘The next Eicher motors’, ‘The next symphony’, ‘The next Infosys’ etc. This ‘Next’ philosophy makes a lot of people excited about the upcoming IPO.

Is it worth investing in IPOs?

A lot of investors has made huge wealth be investing in IPOs. Had you invested in ‘INFOSYS’ when it got listed, you might have been sitting at a huge pile of wealth today.

Also read:

However, the performance of the majority of the IPOs in the Indian stock market is under-satisfactory. The number of IPOs underperforming in long-term are comparatively quite larger than the number of IPOs that performs well in the market.

Further, IPOs are never priced in the benefits of the public.

In the case where few IPOs are fairly priced, it gets a lot of demand from the public during its offerings and gets over-subscribed. Moreover, it soon becomes over-priced once it starts trading in the market.

Few IPOs might give you a good return in the 1-2 months of its listing as they are introduced in the bull market, however, for the long run, their performance is quite poor.

If you are willing to invest for long-term, then be cautionary about investing in IPOs. Focus on the quality of the company, not the hype generated by media or underwriters.

Nevertheless, you can always pick these companies from the secondary market once the hype is over and the price is attractive.

There are over 5,500 companies listed in Indian stock market. It’s better if you pick a good one among them than picking the upcoming hyped (5,500+1)th company.

New to the stock market? Confused where to begin? Here is an online video crash-course for beginners: How to pick winning stocks?

Footnote:

Tags: Is it worth investing in IPOs, IPO good or bad, Is it worth investing in IPOs in India, should I invest in IPO, Is it worth investing in IPOs for long, IPO pros and cons
Market order vs Limit order

Market order vs Limit order: Basics of stock market

Market order vs Limit order: Basics of stock market

The share market is very volatile. The prices of the shares fluctuate every microsecond. You can easily find a number of shares whose price increased/decreased by 3-4% in a day.

But how can a retail investor place order to buy/sell a share in such scenarios? What to do if the stock that you want to buy was at Rs 120 at 10:00 and is currently at Rs 124 (plus continuously increasing)? How to place an order to buy the shares?

Also read: Why do stock prices fluctuate?

There are two ways by which an investor can place an order to buy/sell shares – 1)Market order 2) Limit order.

Both have their advantages and disadvantages. In this post, we will discuss market order vs limit order. Let’s get started.

Market order vs Limit order

Market order:

When you want to buy/sell a share at the current market price, then you place a market order.

For example, if the current market price of ‘Tata Motors’ is Rs 425 and you are ready to buy its share at the same market price, then you place a ‘market order’.

Here are few key points about the market order:

  • Market order is executed at market price
  • Order is executed instantaneously
  • A market order cannot be used to set stop loss.

Advantage: The order is executed instantaneously if the buyer/seller is available.

Disadvantages: As the market is dynamic, you might not be able to get the stock at the same price at which you first ordered. For example, if the current market price of Tata Motors is Rs 425, and by the time you place a market order it goes up to Rs 430, then the market order is executed at Rs 430 only.

Sometimes due to the explosive movements of the stock price, you might have to pay a lot more than what you wished for while placing the market order. Nevertheless, you will get the shares.

Also read: #27 Key terms in share market that you should know

Limit Order: 

Limit order means to buy/sell a share with a limit price. If you want to buy/sell shares at a specific price, then you need to place a limit order.

For example, if the current market price of ‘Tata motors’ is Rs 425. However, you want to buy it at Rs 420. Then you need to place a limit order.

Here are few key points about the limit order:

  • You have to specify the buying/selling price
  • Order is executed when the price reaches the trigger point
  • Limit order can be used to set stop loss

Advantage: You buy/sell the share only at your desired price.

Disadvantage: You might not be able to buy/sell the share if the trigger point is not reached.

For the same example of Tata motor share, let’s say that its share price never came down. It went up to Rs 430+. In this case, your order will not be executed and you won’t be able to buy the share.

Summary:

It’s good to place a limit order on the volatile stocks. Placing a market order is explosively moving stocks can result in a bad purchase/sell for the trader.

Also read: How to Invest in Share Market? A Beginner’s guide

Tags: Market order vs Limit order, market order vs limit order example, limit order definition, market order definition, should i use market or limit orders, market order example
Common stocks and uncommon profits book review

Common stocks and uncommon profits book review

Common stocks and uncommon profits book review

Hi investors! In this post, I’m going to give you the book review of ‘Common stocks and uncommon profits’ by Philip Fisher. The book is an evergreen classic and was originally published in 1958.

The author of the book, Philip Fisher was a very successful investment legend of his time. He had a great influence on Warren Buffet, the billionaire investor and one of the richest person on this planet. Buffett himself has stated he is “85% Graham and 15% Fisher.”

*Graham was Warren Buffett’s mentor and also known as the father of value investing.

Also read: The Intelligent Investor by Benjamin Graham Summary & Book Review

Before we start the common stocks and uncommon profits book review, let me first give you a small introduction to Philip Fisher.

Phillip Fisher started his investment journey in 1928 after dropping out of the Stanford Business School to take a job of the securities analyst. He started his own company ‘Fisher and company’ in 1931 and worked there till 1999 at an age of 91.

Philip Fisher was interested in growth stocks. His philosophy was to invest in well managed high-quality growth stocks for long term.

Apart from ‘common stocks and uncommon profits’, the other famous writings of Philip Fisher are:

Now, that you have got little knowledge about the author Philip Fisher, let’s move to continue our book review.

Common stocks and uncommon profits book review:

The book ‘Common stocks and uncommon profits’ was an instant hit when first published and Philip’s idea of growth stock investing became immensely popular.

In the book, Philip Fisher described ‘what to buy’ for high-quality stocks, where he called these stocks as ‘Scuttlebutt’. Scuttlebutts are those common stocks which have gone through a detailed analysis like the study of its promoters, suppliers, customers, stakeholders, employees, competitors etc to find out about the company’s future prospect.

The most important chapter of the book is ‘What to buy’ where Philip Fisher described his famous ’15 points to look for a common stock’.

In this chapter, Philip Fisher describes the different factors to check for a common stock like validity of products/services for long life, management efficiency to continue growth and increase sales, Research, and development center of the company w.r.t. its size, sales organization, profit margin, improving profit margin, labor & personnel relations, executive relations, cost analysis and accounting controls, competitors, and transparency & integrity of the management.

Although Philip Fisher mentioned that it’s highly unlikely that a company will meet all the 15 points in his checklist. However, if the company fails to meet multiple of these points, then it definitely is a danger point for the investors. Here is Philip Fisher’s 15 points checklist to look into common stocks before investing.

  1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
  2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
  3. How effective are the company’s research and development efforts in relation to its size?
  4. Does the company have an above-average sales organization?
  5. Does the company have a worthwhile profit margin?
  6. What is the company doing to maintain or improve profit margins?
  7. Does the company have outstanding labor and personnel relations?
  8. Does the company have outstanding executive relations?
  9. Does the company have depth to its management?
  10. How good are the company’s cost analysis and accounting controls?
  11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
  12. Does the company have a short-range or long-range outlook in regard to profits?
  13. In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
  14. Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
  15. Does the company have a management of unquestionable integrity?

The next key chapter is ‘when to sell’ where Philip Fisher argues that the best time to sell a good stock is ‘never’ as long as the company behind the stock maintains its characteristics of a usually successful enterprise.

The other important chapters of the book is ‘When to buy’, ‘Hullabaloo about dividends’ (Philip Fisher suggests that the dividend consideration should be given the least, not the most, by those desiring to select outstanding shares), ‘Five don’ts for investors’, and ‘How I go about finding a growth stock’.

Also read: 10 Must Read Books For Stock Market Investors.

Summary:

The book attempts to show what to buy, when to buy and when to sell for those who are desiring to get uncommon returns on their investments. To sum up, this is a good read to understand the fundamentals of growth investing. I will definitely recommend reading this book.

Grab a copy of ‘Common stocks and uncommon profits’ on Amazon here.

philip fisher quote

That’s all. I hope this post on ‘Common stocks and uncommon profits book review’ is useful to the readers. Further, comment below which is the best book on investing that you have ever read.

27 Key terms in share market that you should know

27 Key terms in share market that you should know

When I first entered the investing world, I spend a lot of time googling the key terms in share market. Definitely, Investopedia was my favorite website to learn the meaning of those words. Although there are thousands of terminologies that a stock market investor/trader should know, however, they are a handful of them which are repeatedly used. This basic domain knowledge of these terms is really important if you want to enter and succeed in the share market.

In this post, we are going to present an elementary guide for the beginners to help them understand the key terms in share market. Let’s get started.

27 Key terms in share market that you should know:

Share: A share is the part ownership of a company and represents a claim on the company’s assets and earnings. It fluctuates up or down depending on several different market factors and is exchangeable at stock exchanges. As you acquire more stock, your ownership stake in the company becomes greater.

Shareholder: An individual, institution or corporation that legally owns one or more shares of stock in a public or private corporation are called shareholder. Shareholders have a claim on the company’s ownership.

Primary market: Also known as New Issue Market (NIM). It is the market place where new shares are issued and the public buys shares directly from the company, usually through an IPO. The company gets the amount on the sale of shares.

Secondary Market: It is the place where formerly issued securities are traded. The second market involves indirect purchasing and selling of shares among investors. Brokers are Intermediary and the investors get the amount on the sale of shares.

Intraday: When you buy and sell the share on the same day, then it is called intraday trading. Here the shares are not purchased for investing, but to get profits by harnessing the movement in the market.

Delivery: When you buy a share and hold it for more than one day, then it is called delivery. It doesn’t matter whether you sell it tomorrow, after 1 week, 6 months or 5 years. If you hold the stock for more than one day, then it is called delivery.

bull vs bear - key terms in share marketBull market: This is a term used to describe the scenario of the market. A bull market is when the share prices are rising and the public is optimistic that the share price will continue to rise.

Bear Market: When the share prices are falling and the public is pessimistic about the stock market, then it’s a bear market. The public is fearful and thinks that the market will continue to fall and hence, selling increases in this market.

Also read: What is Bull and Bear market? Stock Market Basics

IPO: When a privately listed company offers its sharers first time to the public to enter the share market, then it is called initial public offering.

Blue chip stocks: These are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years. Their stocks have low risk compared to mid cap and small cap stocks.

Broker: A stockbroker is an individual/organization who is a registered member of the stock exchange and are given license to participate in the securities market in place of its clients. Stockbrokers can directly buy & sell stocks in the share market on behalf of their clients and charge a commission for this service.

Portfolio: A stock portfolio is grouping all the stocks that you are holding. A portfolio shows the different stocks and the quantities that you are holding. It’s important to build a good portfolio to maintain risk-reward in the stock market.

Also read: How to create your Stock Portfolio?

stock-market-buy-sellStock Exchange: Just like a vegetable market, exchanges act as a market where the stock buyers connect with stock sellers. There are two big stock exchanges in India- Bombay stock exchange (BSE) and National stock exchange (NSE).

Dividend: Whenever a company (whose shares you are holding) is in profit, the company can either reinvest the profit or distribute the amount among its shareholders. This share of the profit that you get from the company is called dividend.

Companies may or may not give dividends to their shareholders depending on their needs. If it’s growing fast, it might re-invest the profit in its expansion. However, if it has enough cash, the company will distribute it among its shareholders.

Index: Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks.

Sensex is the index of BSE and consists of 30 large companies from BSE. Nifty is the index of NSE and consists of 50 large companies from NSE.

Also read: What is Nifty and Sensex? Stock Market Basics for Beginners

Limit Order: Limit order means to buy/sell a share with a limit price. If you want to buy/sell a share at a given price, then you place a limit order. For example, if the current market price of ‘Tata motors’ is Rs 425, however you want to buy it at Rs 420, then you need to place a limit order. When the market price of Tata motors falls to Rs 420, then the order is executed.

Market order: When you want to buy/sell a share at the current market price, then you need to place a market order. For example, if the market price of ‘Tata Motors’ is Rs 425 and you are ready to buy the share at the same price, then you place a market order. Here, the order is executed instantaneously.

Good till cancellation (GTC) order: This order can be placed when an investor is willing to buy/sell the shares at a specific price and the order remains active till it is executed or canceled.

Day order: This order can be placed when an investor is willing to buy/sell shares on a particular day and the order gets automatically canceled if not fulfilled on that day.

Note: If you are new to share market and want to learn how to pick winning stocks, then here is an amazing crash course that I highly recommend you to check out.

Trading volume: It is the total number of shares being traded at a particular period of time. When securities are more actively traded, their trade volume is high. Higher trade volumes for a stock mean higher liquidity, better order execution and a more active market for connecting a buyer and seller.

Volatility: It means how fast a stock price moves up or down. More volatile assets are considered riskier than less volatile assets because the price is expected to be less predictable and may fluctuate dramatically.

Liquidity: Liquidity means how easily you can buy/sell a share without affecting the share price. A highly liquid share means that it can easily be bought or sold. A low liquid stock means that the buyers/sellers are hard to find.

Short selling: It is a practice where the trader sells share first (which he doesn’t even own at that time) and hope that the price of that share starts falling. He will make a profit by buying back those shares at a lower price. Overall, both selling and buying are done here, however, it’s sequence is opposite to the regular transactions to get the profit of the falling share prices. 

Going long: This is buying the shares in expectations that the share price is going to increase. When a trader say I am “Going long…” or “Go long”, it indicates his interest in buying a particular share.

Average down: This is an approach that investors use to buy more shares when the share price starts falling. This results in an overall lower average price for that share. For example, you bought a stock at Rs 100. Then the stock price starts falling. You bought the stock again at Rs 80 and Rs 60. Hence, the average price of your investment will be lower i.e. Rs 80. This is the approach used in averaging down.

Public float (free float): Public float or free float represents the portion of shares of a company that is in the hands of public investors.

Market capitalization: It refers to the total rupee value of the company’s share. It is calculated by multiplying the total number of shares by its present market share price. It is used to define large cap, mid cap or small cap companies based on their market capitalization.

Also read: Basics of Market Capitalization in Indian Stock Market.

Bonus:

Bid: The bid price represents the maximum price that the buyer/buyers are willing to give to buy a share.

Ask: This is the minimum price that the seller/sellers are willing to receive to sell their shares.

Bid-Ask spread: This is the difference between the ‘bid’ and ‘ask’ price of a share. Basically, its the difference between the highest price that the buyers are willing to buy a share and the lowest price that the sellers are willing to sell their shares.

Demat account: It is the short form for ‘Dematerialised account’. The demat account is similar to a bank account. Just as money is kept in your saving account, similarly bought stocks are kept in your demat account.

Trading Account: This is a medium to buy and sell shares in a stock market. In simple words, the trading account is used to place buy or sell order for a share in the stock market.

Margin: Trading on margin means borrowing money from your stock brokers to purchase stock. It allows the traders to buy more stocks than you’d normally be able to.

That’s all. Apart, there are thousands of more terminologies involved in trading/investing. However, these are the key terms in share market that a beginner should know. I hope this is helpful to the readers. Comment below if I missed any key term in share market that should be listed in this post. Happy Investing.

Value Investing and Behavioral finance by Parag Parikh- Book Review

Value Investing and behavioral finance by Parag Parikh- Book Review

Hi Investors! Today I’m going to give you the book review of ‘Value Investing and behavioral finance by Parag Parikh’. I have been reading this book for last few days and now that I have completed it, here is the book review. Stay tuned.

Related post: 10 Must Read Books For Stock Market Investors.

Value Investing and behavioral finance by Parag Parikh- Book Review

“Those who do not learn from history are condemned to repeat it” – Santayana

This book is quite compelling for value investors and covers a number of fundamental concepts.

The best part is that the book focuses on Indian stock market and all the chapters are explained with the help of Indian stocks.

The book is well structured and contains 12 chapters. Here are they:

  • Success and failure
  • Understanding behavioral traits
  • Behavioural obstacles to value investing
  • Contrarian investing
  • Growth Trap
  • Commodity investing
  • Public sector units
  • Sector investing
  • Initial public offerings
  • Index investing
  • Bubble trap
  • Investor behavior based finance.

Although there are great learnings from every chapter, however, I am going to give you the brief summary of few of them, so that it won’t kill the fun when you read the book.

In the first chapters, Parag Parikh explains why people fail while investing. He gives the explanation using the human nature of laziness, greed, self-interest, ignorance etc. One of the main reason for the failure of people that he explained is ‘unwillingness to delay gratification’. The instant gratification causes the vast majority of people to indulge themselves in short-term gain for long-term pain.

A new term about investing that I learned from this book by Parag Parikh is ‘Heuristics’.

Heuristics is the shortcut that brain takes when processing information. Our brain does not process full information. This leads to cognitive bias. Some common valuation heuristics are- Price to earnings heuristics, Price to book value heuristics and price to sales heuristics.

Contrarian Investing:

The fourth chapter is an interesting one and covers the concept of contrarian investing.

A contrarian investor can be defined as the one who attempts to profit by betting against conventional wisdom, but only when consensual opinion appears to be wrong. What really differs a contrarian investor is his emphasis on looking for opportunities where the sensual opinion has led to mispricing.

Parag Parikh explains how contrarian investors have outperformed the other investors in a long run. He clarifies the difference between a value and contrarian investor. Further, he also suggests why it’s difficult to follow contrarian investing with the behavioral reasons of group thinking, false consensus effects, ambiguity effect, herding etc.

Growth Trap:

In the chapter growth trap, Parag Parikh supports the concept of value investing over growth. He argues that many investors get trapped in growth investing without totally understanding the history and behavior of growth stocks. He explains the various reasons for growth trap like going with the herd, peer pressure effect, overconfidence bias, bystander effect etc.

Also read: Growth Stocks vs Value stocks – A logical Comparison

The myth of IPO investing:

The concept of IPO investing is explained in chapter 9 of this book. Parag Parikh suggests that there has always been the craze of new things among the public like the latest dress, latest bikes, latest cars etc. He argues that even the investors are not free from this behavior and easily get influenced by the listing of a new company or a new emerging sector.

However, investing in IPOs is not a good idea for the value investors. Parag Parikh explains this with the help of a study he conducted on the long-term performance of IPOs from 1991 to 2006. The study showed a disappointing picture.

From a total of 3122 IPOs which got their initial public offering in this period, only 1540 managed to remain listed. More than 50% of the companies either got delisted, merged, bankrupted or vanished.

Further, more than 56% companies from this list of 1540, gave negative returns in the long term. Only 15% of 1540 companies gave return more than Sensex.

Parag Parikh concluded that the IPOs are the byproducts of the bull market and a long-term investor should be very cautionary while investing in IPOs.

Commodity, PSUs, and Sector Investing:

There are also full chapters on commodity, PSUs, and sector investing.

In the public sector units chapter, Parag Parikh explains the common perception of the stock market towards PSUs, advantages, and disadvantages of investing in PSUs etc.

In the sector investing chapter, he coverers top-down analysis approach and sector investing. Here, Parag Parikh analyzed different sectors like automobile, banking, real-estate, telecommunications, FMCG etc and explained its past performance with future expectations. It’s a good read for all those who want to study the performance of different sectors or are interested in investing in a particular sector.

In the index investing chapter, Parag Parikh argues how the market index, over the long term, has given a better return than over 90% of actively managed mutual funds. He explained this with the help of returns from the indexes- Sensex and nifty.

Also read: What is Nifty? Nifty Meaning Explained for Beginners.

Conclusion:

Overall, In this book- ‘Value investing and behavioral finance’, Parag Parikh focused on value investing and manifests that over the long term, value stocks have given best returns to its investors.

The book educates the readers about the much-needed topics that are ignored by most financial websites, books, and media. It’s definitely one of the best books on value investing based on Indian stock market.

I highly recommend the readers to read this book to get the best insights into Indian stock market. And its surely worthwhile reading it.

Grab a copy of ‘Value Investing and behavioral finance by Parag Parikh’ on Amazon here.

That’s all. I hope that this post on ‘Value Investing and behavioral finance by Parag Parikh- Book Review’ is useful and entertaining for the readers.

Please comment below- which is your favorite book on investing?

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Why you never bought a stock

Why you never bought a stock?

Why you never bought a stock?

It’s a known fact that less than 2% population of India invests in share market.

After coming of PM Modi in the government, even though the stock market is bullish; however it hasn’t been able to attract more people towards investing. If we consider just the percentage of the population in India which invest in share market, it’s same as that in the 1990’s.

There has been a number of changes in the last 10 years. Smartphones, high-speed internet, social-networking, connectivity etc all have seen a boom in their industry.

If we just compare the scenario of India 10 months back, we can notice how watching youtube on your phone internet pack was a rare scene, even for the working class people. However, after coming of Reliance Jio, we can find even a 3-year old watching ‘Doraemon’ on his/her phone.

jio effect india

Image source:  Milan Nayak

The things are changing too fast with time. However, the investing world is still missing the boom. People who should start investing by their first salary, wait until their 30s to even invest their first penny.

If you are not investing, then you are missing out. The upcoming world belongs to the fast-mover. When you are busy deciding whether to invest or not, at the same time many have earned lakhs from their investments.

But why people do not invest in share market? Are they really unaware of the power of investing or are they still afraid? What’s stopping them from creating huge wealth?

Definitely, it cannot be the 4% annual return on the savings. Do you really want to keep Rs 1 lakhs in your saving accounts for one complete year, just to get Rs 4,000 in returns?

Moreover, if you are in your 20’s and belong to a working class, then what’s really stopping you? Why you never bought a stock?

It definitely can’t be fear. No one in his/her’s 20s fears spending money. If you can buy a Nike shoe of Rs 8,000, spend Rs 2,000 every weekend on drinks, then certainly investing Rs 1,000 per month on stocks won’t scare you.

Further, accessibility can’t be a reason why you are not investing. The people who are currently in their 20’s are an expert in using the internet at all platforms- no matter its phones, tablet or laptops.

Or are you afraid of opening a ‘Trading and demat account’? A generation who has credit cards, debit cards, 3 savings accounts, a passport, Aadhar card, pan card, driving license, voter id etc just can’t say that they are afraid of doing little paperwork to open a new trading account.

Also read: 3 Amazing Books to Read for a Successful Investing Mindset.

Then, why you never bought a stock?

While finding the answer to this question, I met over 300 people. Most of the people whom I asked this question were in their 20’s or 30’s.

Here are the few common reasons that I found out about the people who never own a stock.

Why you never bought a stock?

  • You do not understand the stock market and it’s like ‘Chinese’ to you: 

The most common answer that I got to my question. ‘I don’t understand why stock price changes’.

When I asked my next question that did you searched the same on youtube, most of them said ‘no’. For a generation, who spend over an hour daily on youtube, searching something that they do not understand should not be uncommon.

However, most of you will never search it. Although the answer to ‘why you never bought a stock’ is ‘I do not understand it’, however, the root answer for this is different. It’s unwillingness.

If you are new to stocks and want to start investing in stock market, here is an amazing online course for beginners- How to pick winning stocks? – which is currently available at a grand discount.

  • You do not want to start small: 

You never bought a stock because you want big profits. Why invest Rs 10,000 in the market, if even a 20% returns will make only Rs 2,000 in a year? You want to make millions from the market, and according to you ‘I need huge money to make money, If only I have Rs 10 lakhs to invest…’.

You will only invest in the market when you will have lakhs of rupees or maybe more. Nevertheless, you ignored the fact that every successful investor once started small.

  • Waiting too long for the perfect time

‘Oh, the market is quite high currently, I cannot invest in share market now’.

‘Nah, the market is falling. I won’t invest in share market in these bad times.’

This category of people is always waiting for the perfect time to invest and try to time the market. However, their emotions are taking control of them.

When the market is high, they think that they will buy the stock when it’s lower. When the market is low, they argue that they cannot make money in this falling market. Hence, they never buy any share.

Also read: 75x Returns by Sensex in last 30 Years of Performance.

  • You do not want to move your lazy a** and prefer others to manage your finances: 

lazy person

You are one of those people who are just too lazy to buy stocks on their own. Moreover, you believe in lending money to your friends, siblings or financial advisors so that they can invest in your place.

But while doing so, you forget that you never bought any stock. It was your friend/sibling/financial advisor who bought it and. You never learned how to invest and even after earning a good salary, you are financially literate.

  • Afraid it’s going to be 2008 all over again: 

stock market crash

Image source: The river seers

The market is too high, there might be a 2008-09 market crash again. This category of people relates every market movement with the 2008 economic crash.

Few of the common questions of these people are- ‘When will be the next crash in the market?’ ‘What if the market crashes tomorrow?’, ‘What if it’s even worse than 2008-09 economic scenario?’. This category of people is too afraid to invest and always considers the worst that could happen. The fear of the past stops them from buying their first stock for future.

  • You consider it as gambling or scam: 

As you never understood the stock market, you consider it as gambling or scam.

‘How can that stock give 5 times returns in 2 years? That’s impossible. It’s just gambling’. Whenever you hear your friends making money from the market, you just consider them lucky.

You think that your friends have got good luck but you are not that lucky. The image of stock market investing as gambling/scams stops you from buying your first stock.

  • You are a pessimist and only notices people who lose money in the market:

This category of people only notices how his friend lost money in the market and how much he lost. They are confident that no one can make money from the market until they are gifted on lucky.

When they are busy loathing the people who lost money in the market, they do not notice that there are many who made tons of money from the same share market.

Besides, there might be multiple other reasons that why you never bought a stock, however, these are the ones that I found common and repetitive.

Please learn lessons from this post and start your financial journey today.

Also read: How to Invest in Share Market? A Beginner’s guide

Further, if you one of those who never invested, then comment below why you never bought a stock?

#5 Things Warren Buffett looks for before investing.

#5 Things Warren Buffett looks for before investing

Warren Buffett, the veteran investor and one of the richest man on this planet, is certainly an icon to look for in the investing world. The success and wealth that Warren Buffett has accumulated are really galvanizing.

In this post, we are going to discuss the five important factors that Warren buffet looks for before investing in any company.

#5 Things Warren Buffett looks for before investing

1. Circle of competence:

Warren Buffet looks for the business he can understand and analyze. He only invests in the company that is in his circle of competence. (And it makes sense because if you can’t understand the business, then you can not forecast its future business performance.)

For example, during the technology boom in the 1990s, everyone was investing in the technology stocks. It didn’t matter to the investors to understand the underlying business of the company they were investing in it. However, Warren Buffett didn’t invest in technology stocks simply saying that he cannot understand them.

He said- ‘I can understand the business behind coca-cola, automobile or textile industry. I know how they work and how they can generate profit. I can predict their growth. However, I do not understand technology companies. These companies do not lie inside my circle of competence, therefore I do not invest in them’

The technology sector was a boom in those time and gave amazing returns to everyone that invested in that sector. However, if you fast forward a few years, you will know that there was a big crash in the technology sector which destroyed the wealth of lots of people who were just following the herd mentality.

His advice to other investors- Stick to your circle of competence and do not take an irrational decision by investing in companies that you do not understand. Expand your circle of competence but do not cross it.

Also read: Top 10 Warren Buffett Quotes on Investing.

2. Management:

Warren Buffett gives a lot of weight to an efficient management. He evaluates the management’s rationality towards reinvesting for growth along with rewarding its shareholders. Further, he is very stern about the honesty of a management.

warren buffet on management

3. Value:

‘Price is what you pay, Value is what you get.’.

Warren Buffet spends a lot of time reading the financials of the company. He goes through all the annual reports of the company to find its profitability, returnability,  liquidity, valuation etc.

Warren Buffett always analyses the value of the company before looking at its market price. This is because he does not want to get biased by knowing the company’s market price before analyzing its financial statements.

4. Moat:

The concept of the moat was popularised by Warren Buffett.

A moat is a deep, wide ditch surrounding a castle, fort, or town, typically filled with water and intended as a defense against attack. Some stocks have a similar moat around them. That’s why it’s really tough for its competitors to defeat them in its sector.

Warren Buffett always looks for a company with a wide economic moat. This moat helps the company’s business to outperform its competitors. The moat can be anything like brand value, license, patent, switching cost etc

In addition, Warren Buffett also prefers older companies which have been public for over 10 years. He avoids buying shares in Initial public offerings.

Also read: 10 Must Read Books For Stock Market Investors.

5. The margin of safety:

‘A good business is not a good investment if you overpay for it’.

The concept of margin of safety was originally introduced by Benjamin Graham, the father of value investing. He was also the mentor of WarreBuffetet.

This is the central concept of value investing.  Basically, this concept states that if you think a stock is valued at Rs 100 per share (fairly), there is no harm in giving yourself some benefit of the doubt (if you are wrong about this calculation) and buy at Rs 70, Rs 80 or Rs 90 instead. Here, the difference in the amount is your margin of safety.

Warren Buffett looks carefully for a margin of safety in a company before investing. He only invests if the company is currently selling at a discount.

To calculate the margin of safety, he first finds the intrinsic value or true value of the company. The current market value should be less than the intrinsic value of the company. Generally, he prefers to buy a. company with a margin of safety of at least 25%.

These are the five things that Warren Buffett looks in a company before investing. I hope you have learned a lot from this legendary investor’s way of investing.

Related Post: 3 Insanely Successful Stock Market Investors in India that you need to Know.

Comment below what factor you give most weight while evaluating a stock?

What are the capital gain taxes on share in India

What are the capital gain taxes on share in India?

Hi Investors. In this post, we are going to discuss taxes on investing & trading.  We will cover the taxes involved in intraday, short-term, long-term, and futures & options. However, before you study about the different capital gain taxes on share market, here are a few things that you need to know first.

Terms to know before we get started:

  • Long-term investment: When the holding period of your investment in equity is more than 12 months, then it is called long-term investment. The gain on selling these stocks after one year holding time is called long-term capital gain.
  • Short-term investment: Those investments in equity where the holding period is less than 12 months are called short-term capital investments. The gain on selling stocks under 1-year holding time is called short-term capital gain.
  • Speculative business income: The income from intraday trading is considered under speculative business income. They are appraised as other income (than your salary or business income), and hence they are taxed according to the income tax slab you fall in.
  • Non-speculative business income: The profit or loss from the Futures & options trading is considered under non-speculative business income.

Income tax slab for Individual taxpayer in India (Less than 60 years old)

In case you do not know the tax rate under different slabs, here is the income tax slab table for individual taxpayers in India.

Income Slab Tax Rate
Income up to Rs 2,50,000* No tax
Income from Rs 2,50,000 – Rs 5,00,000 5%
Income from Rs 5,00,000 – 10,00,000 20%
Income more than Rs 10,00,000 30%

Capital gain taxes on share in India

capital gain tax shares

Short-term capital gain:

For the short term capital gain, investors/traders have to pay flat 15% as tax.

It doesn’t matter which income tax slab you are in, you have to pay a flat short-term capital gain tax of 15%. For example, Let’s say your annual salary is Rs 12,00,000 and you have a short-term capital gain of Rs 50,000. Here, although your tax slab is for 30%, you have to pay the short-term capital gain tax of 15% on Rs 50,000 i.e. Rs 7,500.

However, if your net income is less than the taxable amount (i.e. less than Rs 2.5 lakhs), in such case the 15% tax will only be paid on the amount above Rs 2.5 lakhs. For example, if your salary is 1,80,000 and you have an additional short-term capital gain of Rs 1,00,000. In this case, your total income will be Rs 2,80,000. However, you have to pay short-term  capital gain tax only on Rs 30,000 {Rs 2,80,000 – Rs 2,50,000).

Here are a few other important points regarding short-term capitals loss:

  • Short term capital loss can be set off against short or long term capital gain from any capital asset. However, you cannot offset short-term losses against salary income/business income.
  • In case of loss not entirely set off, it can be carried forward for the next 8 years.

Long-term capital gain:

There is no tax on the long-term capital gain. You do not need to pay anything to the government if you are holding the stock or equity mutual fund for more than 1 year. 

According to the updated tax rules announced in budget 2018 by Mr. Jaitley, long term capital gains exceeding Rs 1 lakh will be taxed 10% after 1st April 2018.

For example, let’s suppose you bought stocks worth Rs 12,00,000 and the market price of those stocks moved up. After one year, you sold the stocks and your final selling worth is Rs 14,50,000. Here, you made a long term capital gain of Rs 2,50,000. As the government has given a relaxation of gains till Rs one lakh, therefore, you have to pay a capital gain tax of 10% on  (2,50,000- 1,00,000=) Rs 1.5 lakh.

In the case of long term capital losses, it can now (post introduction of LTCG tax of 10% in budget 2018) be set off against long term gains and can be carried forward to subsequent eight years.

long term capital loss taxation india

Source: Frequently Asked Questions (FAQs) regarding taxation of long-term capital gains proposed in Finance Bill, 2018-reg

Speculative business income:

As mentioned earlier, gains from the Intraday trading are considered under speculative business income. This is because you will be trading without the intention of taking delivery of the contract.

These gains are taxed as per tax slab you fall in.

For example, if you have an annual salary of Rs 12,00,000 and you have a capital gain of Rs 1,00,000 by intraday trading. Then your total taxable amount will be Rs 12,00,000 + Rs 1,00,000 at a tax rate of 30% on the total amount.

Here are the other important points that you should know about speculative business income:

  • You can offset the speculative income loss against speculative income. However, you cannot offset this loss against salary income, business income or non-speculative income.
  • Nevertheless, this loss can be carried forward to the next 4 years.

Also read: Fundamental vs Technical Analysis of Stocks

Non-Speculative business income:

Futures & options trading is considered under non-speculative business income as in F&O contracts are meant to be held for a longer time. These instruments are used for hedging and also for taking/giving delivery of the underlying contract.

Few other non-speculative incomes are income from rent, income from selling products etc. These incomes are taxed as per your tax slab.

For example, if your annual income is Rs 6,00,000. Then you are under 20% tax slab. If you earned a profit of Rs 1,00,000 by future trading in a year, then your total taxable amount will be Rs 6,00,000 + Rs 1,00,000 = Rs 7,00,000.

Few other important points to know:

  • You can offset the non-speculative loss against non-speculative & speculative income. However, you can’t offset it against salary income.
  • Non-speculative loss can be carried forward to the next 8 years.

Note: All the cases mentioned above are for those whose primary source of income is salary, self-employment or business. In case you declare trading as your primary business income, i.e. in case of full-time traders, you have to pay the short-term capital gain according to your tax slab (not a flat 15% tax). Other cases will remain the same as they are charged according to your tax slab.

Taxation on dividends

Income from dividends is exempted from tax in India.

This is because the company issuing dividends already pays a ‘dividend distribution tax’ to the government before giving the dividends to its shareholders. Effectively, you already paid the tax through the company. Anyways, an income from dividends above Rs 10 lakhs is taxable to 10%.

Note: For the dividends to be greater than 10 lakhs, you have to invest above 2.5 crores (if we take a high dividend yield of 4% of the stocks). [Also read: Dividend stocks: Should you invest in it?]

Conclusion:

taxes in share market india

Here is the answer to a few of the most common questions asked about taxes on share in India.

Is income from stock market taxable?

It depends on your holding period. If you are holding the stocks for long-term (more than 1 year), then the capital gain is not taxable For the long term, the capital gain exceeding Rs 1 lakh, is taxed 10%. However, for the short term capital gains (holding period of less than 1 year), there is a flat capital gain tax of 15%.

How much do day traders pay in taxes?

Day traders, who are involved in intraday trading, pay taxes according to their tax slab. For example, if you have an annual salary of Rs 12,00,000 and you have a capital gain of Rs 1,00,000 by intraday trading. Then your total taxable amount will be Rs 12,00,000 + Rs 1,00,000 with a tax rate of 30% on the total amount.

Do you have to pay the taxes if you do not sell the stock?

No, you do not have to pay taxes if you do not sell the stock. Moreover, if you sell the stock after holding it for more than 12 months, again there will be no tax then you have to pay a tax of 10% (for gains above 1 lakhs). A 15% Tax is applicable when the holding period of stocks is short-term (less than 12 months).

Are dividends taxable?

Dividends are exempted from tax. The shareholders do not need to pay any tax on the dividends it receives from the company he holds.

Footnotes: Sources

That’s all for this post on ‘What are the capital gain taxes on share market in India?’. I hope this is useful to the readers. If you have any question, feel free to write in the comment box below. 

Best seller author Prasenjit Paul on stock investing

Exclusive Interview: Best seller author Prasenjit Paul on stock investing

Exclusive Interview: Best seller author Prasenjit Paul on stock investing

Hello investors. Today we have a very special guest with us.

He is an investor, entrepreneur, and a best-selling author. His book ‘How to avoid loss and earn consistently in the stock market?’ is currently the best-selling book on Amazon.

I would like to welcome- Prasenjit Paul!!

Let me give you a brief introduction about Prasenjit. He is a software engineer by qualification with bachelors of engineering degree from IIEST, Shibpur.

He started investing from an age of 18. Due to his passion for stock market, he left his job at IBM on the first day to pursue his dreams in the investing world. Fast forward few years, and today he is running a successful equity advisory firm- Paul asset with clients from over 18 countries.

Guys, I would like you to join in the inspiring journey of Prasenjit Paul.

Q. Hi Prasenjit. My first question to you is an obvious one- How did you enter the world of investing?

While I was 18, my father told me about the stock market. After that reading books like “Rich Dad Poor Dad” and few others made me determined for taking the stock market very seriously.

Since then, I had spent my entire college life learning various aspects of the stock market. Although I was pursuing B. Tech in Information Technology, still I had completed around 25-30 books and countless websites related to the stock market.

Even I had started offering equity advisory service on Trial basis while I was in the final year. Thus even before my career took off in the IT field, I was ready for the career in the stock market solely through self-learning.

Q. Why did you quit IBM on your first day?

I had accepted the offer from IBM just to gather an idea of the working culture of the corporate world.

Once I interacted with few employees and visiting the office I was sure that I couldn’t give my 100% to an IT job. Moreover, even after spending in an IT job for 5-10 years, I didn’t foresee financial freedom or any meaningful reward.

Thus, I made my mind to take the risk of quitting fixed salary routine.

It was a very tough choice because of two reasons. Firstly, my parents, relatives and others were never in support of business instead all of them favoured corporate job. Secondly, during that time, I was not earning even fraction of the amount that IBM was offered.

However, I took that risk and later it paid off very well!

Q. When did you start ‘Paul Asset’ and how long were you running the business before you started paying yourself?

I had an edge because I started Paul Asset during my college days and during those days I have no such compulsion of paying myself.

Even after leaving college I had no liabilities like EMIs, paying to parents, rent etc. So, even with any amount of money, my target was to just stick to the target.

I was confident that with true dedication sooner or later your hard work pays off. So, the point is the earlier you start, the higher would be the reward.

Every aspiring entrepreneur should begin the journey during their teenage or during the early twenties. With the growing age, it becomes difficult.

Q. Walk me through the step-by-step process that you went through after quitting your job, to get to where you are today?

Actually, I had started the journey much before quitting my job.

Apart from Paul Asset, I had even attempted two other business ventures during college days and failed badly. My target was to become an entrepreneur so within the college life itself I had attempted various ventures and later Paul Asset clicked while rest others failed.

So, the point is to keep trying. No matter how talented you are, you can’t be successful in business with just one attempt. I just stick to the basics. Irrespective of failures, setbacks, depression, monetary loss, you have to keep trying with full dedication while keeping morals intact.

Sooner or later Success will be yours.

Q. When did you decide to write a book? Tell us about your journey from a novice to the author of the best-selling book on stock market investing.

I had purchased the domain www.paulasset.com in the year of 2011 while I was in the 2nd year of my Engineering. Initially, the target was to write blogs on the Stock Market and monetise via Google Adwords.

Fortunately, Google rejected few times while I submitted my blog and that inspired for starting subscription-based advisory service.

Today, the advisory revenue is so big that I can’t even consider Google Adwords. Inspite of rejection from Google, I noticed that almost all of my readers liked my writing style. That inspired me writing a book to reach the larger audience.

It took me more than two years to complete the book “How to Avoid Loss and Earn Consistently in the Stock Market”. The way people liked the book was also beyond my imagination.

Since the last few years daily on average 50+ copies are being sold!

Writing a book is very difficult because you need months-long concentration and patience, unlike a blog post that can be completed in one day itself.

After the massive success of my first book, I am also working on the second book (not directly related to the stock market but related to the Money). However, due to my current schedule, I can rarely concentrate over a very long duration of few weeks and be realising the real challenge of writing books!

If you haven’t checked out his book ‘How to avoid loss and earn consistently in stock market’ yet, here is a link on amazon. I personally recommend you to read this book if you want to learn investing in Indian stock market from scratch.- Kritesh

Q. How do you start your workday? What’s like a day in the world of an investor?

I have a relaxed work schedule.

Although with the growing business, I have to look after so many things, work on multiple things simultaneously still it never created pressure on me. I never keep sitting in front of trading terminal.

Daily price fluctuation doesn’t affect me at all.

I start my day with reading newspaper or magazines and then as usual. What I learnt from my own experience is that to become a successful investor you must have a calm and cool head.

Every day you will come across so many news, so many contradicting views. Many times your stocks won’t perform, you would stare at loss. In spite of all those, you have to keep your basics intact.

I also idolise MS Dhoni and try learning a lot from his temperament.

Q. What’s your investment strategy?

I prefer growth over value. While you are investing in one of the world’s fastest-growing major economy like India, you must have to put higher focus on the growth over value.

I generally prefer bottom-up analysis with long-term investing approach. I like companies where market size is huge enough to maintain the high growth rate with free cash flow generation while keeping light balance sheet.

And I never attempted short term, intraday trading, Futures and Options etc. The reward and peace of mind from long-term investing is sufficient enough to ignore any short term options.

Q. Who do you admire the most in stock market world?

I can’t take one or two names. I admire and try to learn a little bit from many renowned personalities including sports person, businessman, authors and even politicians. There is something to learn from any successful persons in any field.

Among Indian investors, I admire Ramdeo Agarwal, Vijay Kedia, Porinju Veliyath and Basant Maheswari.

Outside India, I have deep respect for Warren Buffet, Charlie Munger, Peter Lynch and many others.

Having said that I never attempted following any particular investor’s principles because I know I can’t be another Warren Buffet or Ramdeo Agarwal. So, I must have to be myself, and that is very important. Thus, I admire many successful personalities, try learning a little bit from all of them and finally be myself.

Related post: 3 Insanely Successful Stock Market Investors in India that you need to Know.

Q. What are your favourite books on stock market?

Again, I can’t name any single book. I try to keep learning from many books, magazines, websites etc.

Few of my favourites books are, “One Up on Wall Street“, “The Intelligent Investor“, “The Little Book of Valuation“, “Dhando Investor” etc.

Although not directly related to the stock market but the book “Rich Dad Poor Dad” motivated me a lot for starting my investment journey during college days. I strongly recommend the book “Rich Dad Poor Dad” to all youths.

Even outside stock market, I owe much of my success to the authors like Robin Sharma, Shiv Khera, Robert Kiyosaki and many others.

Also read: 10 Must Read Books For Stock Market Investors.

Q. What is still your biggest challenge?

The biggest challenge is to maintain the performance and reputation.

Since 2012, the brand Paul Asset helped many retail investors for the wealth creation. It makes me happy while I come to know that we helped many investors in reaching their personal goals like house, car, child’s education, marriage etc.

The biggest challenge is to maintain our own past performance for the next many decades. It is easy to score a century on three consecutive matches but very difficult to maintain 50+ batting average over few decades long Cricket career. Success is a journey, not a destination.

Q. If a newbie investor walked up to asking for your advice and you only had a few minutes to give ‘em your best tip, what would it be?

Practice, Practice and Practice.

You can’t be a successful investor just by reading 2-3 books. If you do, then it is only you are lucky in few particular instances, and it can’t be repeated, i.e. you can’t maintain the consistency.

Remember from Nursery to Graduation you have spent 18+ years to become successful in your current profession. So, there is no shortcut. With the advent of internet, everything at your fingertips but you have to work hard and give time to master any art.

Q. What’s next for you?

From the beginning, my target was to add values while keeping morals intact. Name, fame and money would automatically follow. So, the next is also value creation keeping the morals intact. Everything else would automatically follow.

Q. Thank you so much Prasenjit, for sharing your valuable time and knowledge. Anything else that you would like to share with our readers?

Keep doing whatever you believe for yourself. Successful journeys are always filled with obstacles. Successful peoples are not Lucky. Instead, Luck is attracted towards them for their honest dedication and hard work.

Whatever you are today is the result of your last 5-10 years. So, if you really want a better future for yourself on any field, make sure to dedicate at least 5-10 years while keeping morals intact. Good Luck!

———————————————————

Thank you so much Prasenjit for sharing your time. Your journey is truly inspiring for all the new and old investors.

Let me quickly summarize few of the learnings from Prasenjit Paul:

On life and goals:

  • Follow your dream.
  • Start as early as possible.

On investing:

  • Many times your stocks won’t perform, you would stare at loss. In spite of all those, you have to keep your basics intact.
  • Prefer growth over value. While you are investing in one of the world’s fastest-growing major economy like India, you must have to put higher focus on the growth over value.
  • Avoid short term, intraday trading, Futures and Options etc. The reward and peace of mind from long-term investing is sufficient enough to ignore any short term options.
  • Finally, Practice, Practice and Practice.

That’s all. I hope this interview is encouraging for all our readers to take their next step in the investment world.

Also read: How to Invest in Share Market? A Beginner’s guide

Do comment below if you have any questions. Will love to answer. 

#Happy Investing.

Tags: Prasenjit paul, how to avoid loss and earn consistently in stock market, interview with Prasenjit Paul, Paul asset, Prasenjit paul asset advisory firm
What are Penny stocks? And should you buy it?

What are Penny stocks? And should you invest in it?

What are Penny stocks? And should you invest in it?

Hello Investors. In this post, we are going to discuss penny stocks, their pros and cons and whether an investor should buy it or not. So, stay tuned.

Penny stocks are the darlings of new investors. The low market price of these stocks make them quite attractive to the beginners.

However, there are a number of things that an investor should know before investing in penny stocks. Here are the topics that we are going to discuss in this post:

  1. What are Penny stocks?
  2. Pros of penny stocks
  3. Cons of penny stocks.
  4. Who should buy these stock?
  5. Rules for investing in penny stocks.
  6. Conclusion

So, let’s get started.

What are Penny stocks?

Those stocks which trade at a very low market price (less than Rs 10) and have a very low market capitalization (typically under 100 crores) are called penny stocks in Indian stock market.

These stocks have low liquidity and are speculative in nature.

In the western world, penny stocks used to be those stocks who trade below one dollar. However, nowadays, the stocks trading below $5 are considered as penny stocks there.

These penny stocks belong to small caps companies and are generally listed in smaller exchanges. However, you can find a number of penny stocks listed on both BSE & NSE.

Here are the few examples of penny stocks:

penny stocks in india - best returns

Image source: Stock screener- Investing

New to stocks? Here is an amazing book on Indian stock market for beginners: How to avoid loss and earn consistently in the stock market by Prasenjit Paul.

PROS of penny stocks:

Penny stocks have a high potential of rewarding its shareholder.

The returns are quite high if you are able to get a good penny stock. Many penny stocks have turned out to be multi-baggers for their investors.

These stocks are able to make explosive moves. There are a number of penny stocks which has given multiple times returns in just a few months.

Moreover, due to the low market price of these stocks, the investors are able to buy large quantities of penny stocks.

Generally, penny stocks are not known to many as retail investors do not have information about these stocks and the institutional investors do not invest in these companies because of their low market capitalization. Therefore, if you are able to find one such stock before the market does, then it can turn out to be a great wealth creator for you.

Also read: How To Invest Rs 10,000 In India for High Returns?

CONS of penny stocks:

The cons list of penny stocks is too large compared to its pros. Here are few of common disadvantages of buying penny stocks:

  • High Risk: These stocks are quite risky as the percentage of a number of penny stocks outperforming the market are quite less. Many of the penny stocks become bankrupt and go out of the business.
  • These stock have very low liquidity. Therefore there will be troubles on both ends of transactions i.e. buying and selling. While buying these stocks, you might not be able to find a seller. In case you bought the stock, and the stock price starts falling, then you won’t be able to find a buyer to sell the stock.
  • There is a large bid-ask spread in these stocks.
  • Limited information available to the public about the company.
  • Price manipulations: There have been a number of cases of price manipulations in penny stocks where the insiders try to inflate the share price. Further, one can easily manipulate the penny stocks by buying large quantities of these stocks.
  • Sudden delisting and regulatory scrutiny: There are multiple cases where penny stocks have been delisted from the stock exchanges. Further, these stocks are regularly under the scrutiny by SEBI.
  • Prone to scams: There are a number of past scams in penny stocks (Ex- pump and dump).

Related post: 3 Most Common Scams in Indian Stock Market That You Should be Aware of.

Who should buy penny stocks?

Penny stocks are suitable for those investors who are ready to take high risks in expectations to get high returns. If you have a low-risk appetite, do not invest in these stocks.

Rules for investing in penny stocks:

Here are the few guidelines that can help you to invest in penny stocks.

  1. Look for value, not just the price: Even for penny stocks, you need to look at the value the company is giving. Understand the company’s business, product, services, etc. Investing in penny stock is not buying a lottery ticket.
  2. Study the company’s fundamentals: Look at the financials, management, debt etc
  3. Check the liquidity: Buy stocks that have reasonably high trading volumes so that there is ample liquidity.
  4. Promoter’s share and pledge: Check the promoter’s shareholding patterns and stock pledge if any.
  5. Invest only a small portion of your investment in penny stocks: As these stocks have a high risk, you should only invest a small amount, less than 10% of your total investment amount in penny stocks.
  6. Monitor continuously: Penny stocks are very volatile. As these stocks are known to make explosive moves, therefore monitors these stocks continuously. If the stocks are performing good, buy more. If they are continuously performing poorly, get rid of it.
  7. Do not diversify: As you are only investing a small proportion of amount in these stocks, diversifying will make the net investment even smaller. Select 2 or 3 penny stocks and invest in them only.
  8. Be disciplined: Do not invest all in if your penny stocks start performing tremendously good. Similarly, do not quit if one or two of your penny stocks failed to give satisfactory returns.
  9. Do not believe ‘it cannot go down any further’ myth. If the prices of the stock are falling, try to find the reason behind it.

Conclusion:

While there are a number of peoples who have created a huge wealth by investing in penny stocks, however for many penny stocks are wealth destroyer.

If you are going to invest in penny stocks, do your research carefully and do not speculate about the stock. Moreover, there are high risks involved in these stocks. So, be ready for it.

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all for the penny stocks. I hope this post is useful to the readers.

If you have any doubts, feel free to comment below.

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Dividend stocks- Should you invest in it?

Dividend stocks: Should you invest in it?

Dividend stocks: Should you invest in it?

Hi Investors. In this post, we are going to discuss dividend stocks and should you invest in it?

Dividends are one of the most debatable topics while picking a stock. While many consider high regular dividends as a healthy sign for a company, on the other hand, many think that giving high dividends are counterproductive for a company.

Therefore we will discuss all the prospects of dividend stocks in this post. Whether they are good or bad for an investor?

Here are the points that we are going to cover in this post.

  • What are dividends?
  • Important terms that you should know regarding dividends
  • Why some companies give dividends and other don’t?
  • Why dividend matters for investors?
  • Common misconceptions to know about dividend stocks.
  • Should you invest in dividend stocks?

So, let’s get started.

What are dividends?

Whenever a company has a profit, it can either pass it to its shareholders or reinvest that profit in its business.

The profits that the company shares with its shareholders are called dividends.

Dividends are the corporate earnings that companies pass to their holders to reward them.

Companies can give dividends to their shareholders multiple times in a year. However, most of the companies give dividends twice a year- Interim and final dividend.

Also read: 7 Best Stock Market Apps that Makes Stock Research 10x Easier.

Important terms that you should know.

Here are few financial terms that you should know regarding dividend stocks.

Dividend yield: The dividend yield is the dividend per share, divided by the current share price. It indicates how much a company pays out in dividends each year relative to its share price.

Payout ratio: The dividend payout ratio is the amount of dividends paid to stockholders relative to the amount of total net income of a company. 

The amount that is not paid out in dividends to stockholders is held by the company for growth and is called retained earnings.

dividend yield

Why some companies give dividends and others don’t?

In general, growing companies don’t give dividends whereas mature financially strong companies which do not have much scope to grow or to reinvest the profits, give dividends to their shareholders.

When the company is still growing, they invest their profits in growth. The profit amount can be used in business expansion, new project, acquiring a new company, share repurchase, etc.

Even large companies that can grow, reinvests their money and does not give dividends.

Few sectors which are saturated and give big dividends to its shareholders are PSUs, utility industry, etc. For example- Coal India, HPCL, BPCL, NHPC etc.

Why dividend matters for the investors?

If the investors are getting regular increasing dividends, this is a powerful message of efficient management and good financial health of the company.

Dividends are big commitments and are considered as a promise to the public.

When a company’s management pays a dividend to its shareholders, its a serious commitment as the company tends to give regular (increasing) dividends in future. This also shows the confidence of the company in its future performance.

Dividends are also the returns that many investors rely upon for their future plans like retirement funds, without selling their stocks.

Common misconceptions to know about dividend stocks:

  • Dividend stocks are financially strong companies:

Although most of the dividend-paying companies are mature and financially strong, however, there are few who aren’t.

There have been cases where the companies are taking debt to maintain the regular dividends to the shareholders. The investors might think that the company is giving a regular dividend and must be financially healthy, however paying dividends on debts is a terrible signal for the investors.

Also read: 8 Financial Ratio Analysis that Every Stock Investor Should Know

  • Dividend stocks are safe investments:

There are few companies which are paying high dividend yield, however, can’t be considered as a safe investment. These companies have saturated and there is not much growth left in their Industry. 

If you are planning to buy such stocks for long-term (retirement plan), then the company might not be profitable by then.

For example- Coal India. The company gives a healthy dividend. However, there is very little possibility of growth in this industry, and in the next 20 years, the company might won’t even be in any profit to reward its shareholders with dividends.

  • High yield is good for dividend stocks:

Dividends are the cash that is paid out to the customers and hence, this amount never gets reinvested in the business. A high dividend is good for your portfolio until the payout ratio is high.

If the payout ratio is large, this means that there is not much growth option for the company, and that’s why the company is giving all its profits to its shareholders in place of reinvesting the profit.

Dividend stocks can only be considered value stocks if you can find a high yield stock with a low payout ratio (<50%). Such companies are maintaining a healthy balance between reinvesting and rewarding its shareholders and thus, tends to offer high returns.

  • Dividend stocks are from boring sectors:

As a general scenario, most of the PSUs, utility company etc give high dividends to their shareholders and belong to a slow growth / saturated industry. Hence, dividend stocks are considered to be boring. 

However, there are many stocks who give high dividends to their shareholders and belong to a growing industry.

Should you invest in dividend stocks?

If you are planning to play safe and want some regular income (without selling your stocks) along with the capital appreciation in your investments, then dividend stocks are a good option for you.

However, if you want high returns and are willing to take some risks, do not invest in dividend stocks.

Although, you won’t get a dividend in growth stocks, however, the capital appreciation will be large enough to compensate for the dividend yield.

Nevertheless, if you are getting any dividend in the growth stocks, you can sleep well. Dividend matter, even for the growth investors.

Also read: Why do stock prices fluctuate?

Conclusion:

Dividend stocks are not a wealth creator. However certainly, they are a reliable source of earnings.

Now, in case you are looking to invest in dividend stocks, make sure that the company is fundamentally strong.

Dividends are only paid when the company is in profit.

In case you didn’t pick a fundamentally strong company, and it didn’t perform well in future (i.e. no profits), then you won’t get any dividends. In such a scenario, even the basic reason for your investment will fail.

Bottom line, it totally depends on your investment goals and preference to whether you should invest in dividend stocks or not. Nevertheless, it’s good to have a few dividend stocks in your portfolio for some consistent earnings.

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all. I hope this post about ‘dividend stocks’ is useful to the readers.

In case, you have any doubts, feel free to comment below. Happy Investing.

Stock split vs bonus share

Stock split vs bonus share – Basics of stock market

Stock split vs bonus share – Basics of stock market

Most of the beginners are confused about stock split vs bonus share. Whenever they hear that one of their holding stock is going to split or is giving a bonus share, they do not understand what does this mean and how this will affect their investment.

As both results in an increase in the quantity of stocks and adjustment of share price, most beginners are confused whether they are same or different.

Further, they do not understand why company announces stock split or bonus share. What is the basic difference between them?

Therefore, in this post, I’m going to explain you the difference between stock split vs bonus share with the help of few past examples from Indian share market.

Be with me for the next 5-6 minutes to understand this basic of the stock market.

Past example of stock split vs bonus share:

  • Stock Split

Yes bank split its share in the ratio of 1:5 on 26th July 2017. This means that every shareholder who has 1 share of Yes bank, had got 5 shares in total.

If you were holding 30 shares of yes bank, you would have got a total of 150 shares.

You might be thinking- ‘Awesome, I got extra shares for free!!’.

However, after the stock split, the share price of the stock also splits in the same ratio. Here is the chart of yes bank after the stock split.

yes bank stock split

Please notice that the stock price of Yes Bank changed from Rs 1880 to Rs 376 after the split.

Moreover, the price chart gets adjusted after the stock split. Therefore if you look at the same chart few months/years later than the split date, it’s impossible to estimate the date/year of the stock split. For example, here’s the price chart of Yes Bank (as of June 2018). Here, you cannot notice any spike or fall in the price of the stock split in July 2017. This is because the price history of the stock got adjusted automatically.

yes bank share price

Why does this happen and what is the impact of the stock split on its shareholders? This we will study in next section in this post.

  • Bonus Share

Now, let us see an example of bonus shares.

Hindustan petroleum corporation limited (HPCL) announced bonus shares to its shareholders in two consecutive years.

First, on 20th July 2016 in the ratio of 2:1.
Second, on 26th May 2017 in the ratio of 1:2.

Announcement Date Bonus Ratio Record Date Ex-Bonus Date
26-05-2017 1:2 12-07-2017 11-07-2017
20-07-2016 2:1 15-09-2016 14-09-2016

In the first case, the shareholders got 2 shares for every 1 share in their portfolio.
In the second case, the shareholders got 1 share for every 2 shares in their portfolio.

If you notice the stock chart of HPCL on google, you cannot identify the bonus stock dates.

You cannot decide the bonus given by the share chart as there are no sharp spikes on the chart. In the bonus share, the stock prices are automatically adjusted.

hpcl share price

However, if you check the chart on money control, you can notice two bonuses of the share of HPCL.

hpcl bonus money control

Source: Moneycontrol 

How does this happen? This we will study in next section.

Also read: 8 Financial Ratio Analysis that Every Stock Investor Should Know

Stock split vs bonus stock

We will first understand bonus shares. We will define some financial terms here, which we are also going to use later in the post.

1. Bonus Shares:

Bonus shares are the additional shares given to the shareholders by the company. This is a method of rewarding the shareholders.

How does a company give the bonus?

Companies accumulate its profits in the reserve fund. During bonus share, these reserve funds are converted into share capital and distributed among its shareholders as a bonus.

In short, when a company gives bonus shares, it’s share capital increases while its reserve fund decreases.

Why companies give a bonus?

Here are the few reasons why company gives a bonus to its shareholders:

  • For rewarding its shareholders.
  • To improve the liquidity and hence, the total trading volume of the stock.
  • To decrease the share price and to make it more affordable for retail investors.
  • It increases the confidence of the shareholders towards the company.

Impact of bonus shares on shareholders:

Although a bonus share is a positive news for the shareholders, however, it doesn’t affect their investment amount much. After the bonus is given, the share price of the company will fall in the same proportion.

Therefore, there will be no noticeable difference in the wealth of shareholder.

2. Stock Split:

In a stock split, the company splits the share price into different parts.

For example, in a stock split of 1:1, stock price splits into two parts.
In a stock split of 1:5, stock splits into 5 parts.

The fundamentals of a company remain same in a stock split. There is neither increase or decrease in the share capital or reserve in a stock split.

pizza stock split

You can remember stock split as splitting the pieces of pizza. You can split the 4 pieces of pizza into 8, however, the overall pizza will be the same.

Why company split stocks?

Here are the few reasons why company split its share:

  • To increase the liquidity of the stock and increase the trading volume.
  • To make the stock more affordable for the retail investors.

Impact of the stock split on shareholders:

There won’t be much impact on the personal wealth of the shareholder.

1 stock of Rs 10,000 or 5 stocks of Rs 2,000; both are same for the existing shareholders.

NOTE: During a stock split, EPS (Earnings per share) decreases in the same factor as stock split (because the earnings will be same, but the number of outstanding shares will increase). Hence, the price to earnings (PE) ratio will remain the same (as both Price and EPS decreases by the same factor).

If you are new to investing and want to learn stock market basics from scratch, here is an amazing book for the beginners: How to avoid loss and earn consistently in the stock market by Prasenjit Paul.

Example: Stock split vs bonus share

Assume there is a company, ABC. This company is currently trading in the market at a stock price of Rs 100.

Let,

Face value of each share = Rs 10.

Total number of outstanding shares = 10,000

Reserve capital = Rs 5,00,000

Now, the market capitalization of the company ABC

= (No of outstanding shares)*(Market price of 1 share)

= (10,000)* (Rs 100)

= Rs 10,00,000 {10 lakhs}

Related post: Basics of Market Capitalization in Indian Stock Market.

Case 1: Bonus shares

Now, let us assume that the company has announced a bonus share of 1:1.

The company will give an additional share of 10,000 to its existing shareholders.

Total number of outstanding share = 2*10,000 = 20,000

Decrease in reserve capital = 10 * 10,000 = Rs 1,00,000

Net reserve capital for the company = Rs 5,00,000 – Rs 1,00,000 = Rs 4,00,000

As the market capitalization will remain the same after the bonus share, hence the market value of the stock = 10,00,000 / 20,000 = Rs 50.

Case 2: Stock split

Let us assume that the company makes a stock split of 1:1 (in place of the bonus share).

Hence, the market value of stock after split = Rs 50 {Originally Rs 100, split in ratio of 1:1)

Here are the changes on different parameters due to stock split vs bonus share:

Originaly Stock Split (1:1) Bonus share (1:1)
Stock Price Rs 100 Rs 50 Rs 50
Face Value Rs 10 Rs 5 Rs 10
Outstanding share 10,000 20,000 20,000
Market Capitalization Rs 10,00,000 Rs 10,00,000 Rs 10,00,000
Reserve capital Rs 5,00,000 Rs 5,00,000 Rs 4,00,000

Please note that the face value of a stock also splits during the stock split and the reserve capital decreases in bonus share.

The stock price will automatically be adjusted on both stock split and bonus share on the day of implementation.

Summary:

Stock split vs bonus stock

In simple words, a stock split is the split of same stock into many parts while the bonus is free additional shares.

Stock price and outstanding shares changes in both stock split and bonus share.

While share split has no impact on the fundamentals of the company, on the other hand, reserve capital decreases in bonus share.

Bonus share is taken positively by the shareholders while there is no impact of the stock split on the shareholders.

Also read: How to Invest in Share Market? A Beginner’s guide

That’s all for this post. I hope you have understood the difference between stock split vs bonus share.

If you have any doubts, feel free to comment below.

Tags: stock split vs bonus share, difference between stock split and bonus share, distinguish between bonus issue and stock split, split vs bonus, stock bonus and split
How to choose a stockbroker in india

How to choose a stockbroker? – For beginners

Selecting your stockbroker is the one the biggest step that you take while entering the world of investing. You cannot start investing/trading until you have a broker (unless you are using someone else’s account).

When I opened my first brokerage account, I had no one to guide me. I belong to a family where no one invests in stocks. My father has few holdings in mutual funds, FDs and LICs, however, he never invested directly in the stock market.

Therefore, I have to go through a number of websites to educate myself about where to start and which stockbroker to chose.

That’s why I am writing this post for the beginners so that they can say a lot of time. I won’t be recommending any stockbroker in specific here, but I will teach you how to choose a stockbroker. So, let’s get started.

First of all, I would like to mention that your first broker won’t necessarily be your broker for life. You can definitely switch to another broker anytime you like. Personally, I have also switched brokers.

However, it’s good to start with a decent broker and choosing a bad stockbroker may ruin your first experience in investing/trading. In addition, it may also cost you some bucks as switching cost if you moved to another broker.

How to choose a stockbroker?

There are a number of factors that you need to check before choosing your stockbroker. Here are a few of them:

  • Research:

Conduct your own research. Listen to the advice of the experienced investors/traders but do not follow them blindly. You can carry out your own research by visiting various stockbroker’s website. Get a general idea about the stockbroker, account opening charges, facilities offered etc.

  • Background & reputation of the broker:

Check the background of the stockbroker and their reputations. You can inspect the reviews, complaints and have a survey of the personal experience by the existing users. If you are going to use the mobile platform, check the mobile app ratings on the app store.

hdfc securities

Image source: Google play store

  • Brokerage and other charges:

Stockbrokers are the registered members of the stock exchange and they can directly buy & sell shares in the share market for their clients. They charge some commission for offering this facility known as brokerage charge.

Now, there are two types of stock brokers in India: A) Full-service broker & B) Discount broker.

Full-service broker provides advisory service along with the trading platform. These brokers charge commissions on every trade their clients execute as a percentage of each trade executed.

Discount brokers only provide the trading facility. They offer low brokerage and charges a flat fee per transaction.

Read more here: Full service brokers vs discount brokers: Which one to choose?

Choose a suitable broker according to your preference. If you want stock research advisory, go to a full-service broker. If you just want a trading facility and do not want to pay an extra commission, go with a discount broker.

You can use this site for brokerage comparision and calculation.

  • Customer Services:

If you are new to investing/trading, you will require a lot of customer service, unless you have a guru or advisor. Check the customer service provided by the stockbroker. An easy way is to try calling their customer care helpline number. If it takes years for the customer executive to pick up the phone, then avoid that stockbroker. Further, if you want one-to-one customer service, then check the website of the stockbroker if they provide personal services.

  • Trading platform:

This is one of the most important factors to examine. Inspect whether the trading platform offered is friendly and easy to use. Check the demo videos of the trading platform on youtube.

  • Advisory & research facilities:

If you are not planning to invest in your own and need advisory, then check for the facility offered. The reliability of the advisory is a must to check. The stockbroker should have a good reputation in advisory and research works.

  • The range of facilities offered:

If you are looking for diversified investment and planning to also invest in other options like mutual funds, bonds, currencies, FSs etc, then check if these range of facilities are available with your broker or not.

  • Hidden Charges:

There should be no hidden charges and all the charges incurred while transactions should be specifically mentioned. Asked for any hidden charges with your customer care executive before selecting the stockbroker. Transparency is the key to any service.

  • Fund Transfer:

Easy linking facility with your saving account should be available. Ask for the fund transfer process in your stockbroker. Online money transfer and withdrawal should be fast and easy.

  • Tools of education:

Many stockbrokers provide education facility. For example, Zerodha educates its clients via ‘Varsity’ and its blog for free. If you are in the learning phase, ask your customer support executive if any tools of education are available with your stockbroker. This is not a ‘must have’ for your stockbroker, however it can be an add-on.

Related Post: How to Open a Demat and Trading Account at Zerodha?

Most of the important points to are already covered above. However, there are few other points also that a beginner should know on ‘how to choose a stockbroker’. They are listed below:

If you are new to Indian stock market and want to learn the basics, here is an must-read book by Parag Parikh that I personally recommend you to read: Value Investing and behaviorial finance.

Few other points to know:

  • Discounts and low-commission are not always good:

If you are new to the market and you will need a lot of help in the service while getting started. Although, its good to pay less, however, if you are getting premium facilities at a commission, it’s better for the beginners. Once you are experienced, you can carry out your investing/trading on your own.

  • Availability is important:

There are very few branches of discount brokers, whereas there are tons of branches of full-service brokers. If you can find a branch in your local, where you can easily go and personally meet the customer care executive to clear all your doubts, then its good to go.

Check out our upcoming course on stock market here.

  • Do not avoid customer services:

Investing/trading using online platforms are easy to use and have a number of resources available online. However, there may be a few times when you will require technical support. It’s good to have someone to look for in such cases. Do not avoid customer services. Look for the reviews before opting for any stockbroker and if the customer service is poor, then search another broker.

  • Look for extras/add-ons:

Many stockbrokers provide extras like no ‘annual maintenance charge’ for the first year, free brokerage amount of Rs 500 etc. Check the add-on and added benefits. It’s always good to have some bonus.

Ready to start your journey to become a succesful stock market investor? If yes, then here’s an amazing course for newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS.

That’s all. These are the important points before selecting stockbrokers. I hope this post on ‘How to choose a stockbroker?’ is useful to the readers. If you have any doubts, feel free to comment below. I will be happy to help you out.