## What is the Law of Large Numbers?

The law of large numbers is one of the most ‘ignored’ law in the financial world. Although everyone understands it, however, most big firm managers find it a little difficult to agree with this law.

In the financial context, the law of large numbers suggests that a large company that is growing rapidly cannot maintain that pace forever.

In other words, as the company grows bigger, the growth rate becomes increasingly difficult to maintain.

The law of large numbers can be easily testified with blue-chip stocks with large market cap and revenue. These large-cap stocks were once mid and small-caps who were expanding at a very fast rate. However, with time- as their revenue and profits became too big, it turned out difficult to maintain the same growth rate.

The management of large firms finds it difficult to accept this law. They do not want to make their shareholders ‘unhappy’ by accepting the fact that they are not growing at the same pace like they used to do in their initial years.

### Let us understand the law of large numbers with the help of an example.

Suppose there are two companies- Company A and Company B.

The revenue of company A at the end of the year 2017 was Rs 70,000 Cr and that of company B was Rs 10,000 Crores. Both companies are aiming at a revenue growth of 50% by the next year.

 Revenue (2017) 50% Growth in 2018 Company A Rs 70,000 Cr Rs 105,000 Cr Company B Rs 10,000 Cr Rs 15,000 Cr

For 50% growth in revenue, company A has to earn additional Rs 35,000 Cr while Company B has to earn additional Rs 5,000 Cr.

Based on the law of large number, a 50% increase would be difficult to accomplish for company A compared to company B.

This is obvious because once you’ve sold a billion product, finding customers for the next billion is likely to be a little trickier for the company A. However, this is not the case with Company B which can still maintain its growth rate for next few couple of years (until it becomes a large entity itself).

The law of large numbers can also be applied to other financial numbers like sales, revenue, and net profit, where growth is measured in percentage (%).

## Summary:

While investing in a company, you should keep in mind the law of large numbers.

Although a company might be growing at a rate of 15% per annum today, however its really difficult to maintain that pace once it becomes large. Moreover, if the company is already a large cap, then you should not expect the same growth rate compared to mid or small caps.

Overall, while making your investing decisions (based on the forecasted growth rate), keep in mind the growth difficulties these companies are going to face once they become a large entity.

## Valuation Basics: What is the Time Value of Money (TVM)?

The Time value of money (TVM) is one of the most basic concepts of finance.

The underlying principle of the time value of money is that the Rupee in your hand today is worth more than the same Rupee that you will receive in future.

For example- If I give you an option to choose between Rs 1 Crore today or the same amount next year, what would you choose?

I’m sure that that your answer would be- Rs 1 Crore today.

Why? Because you don’t trust that I’ll give you Rs 1 Crore next year. So, you might be thinking to seize the opportunity and take Rs 1 crore today while the offer is still available. Right?…KIDDING!!

Here, you should choose Rs 1 Crore today because the money available in hand today has more value compared to the same money that you will get in future because of its potential earning capacity.

Money has the potential to grow over time. It can earn interest.

For example, if you deposit Rs 1 crore today in your saving account which gives 5% interest per year, then the net value will become Rs 1.05 crores next year. In short, you will earn an additional Rs 5 lakh.

Because of this potential earning capacity, money in hand today is more valuable than the same disbursement of money that you receive tomorrow.

## Basic Time Value of Money Formula:

Now that you have understood the concept of time value of money, here is the basic formula used to find the future value of money.

## Equation 1:

Here,

FV = Future value of money
PV= Present value of money
i= interest rate
t= no of years

The above formula is used to find how much is the worth of your present value in future given the rate of interest and time frame. Let us understand this further with the help of an example.

Example 1: What will be the future value of Rs 20 lakh after 1 year if the interest rate is 10% per annum?

Here, PV= Rs 20,00,000; i= 0.10; t= 1

Using equation 1:

FV = PV * (1 + i) ^t = 20,00,000(1+0.10) =  22,00,000

Therefore, the future value of Rs 20 lakhs after 1 year with an interest rate of 10% will be Rs 22 lakhs.

## Equation 2:

We can also find the Present value (PV) by altering the equation-1 (when the rate of interest and timeframe are given).

Here is the equation of the Present Value of Money:

Let’s solve a problem to find the present value of money given its future value, interest rate, and time frame.

Example 2: What is the present value of Rs.5,000 payable 3 years hence, if the interest rate is 10 % per annum?

Here, FV=5,000; i=10%; t=3
PV = 5000/ (1.10)^3 = Rs.3756.57

Therefore, the present value will be Rs 3,756.57.

In other words, Rs 3,756.57 will turn into a future value of Rs 5,000 after 3 years if the interest rate is 10% per annum.

## Effect of compounding period:

Apart from time and interest, there is also a third component which influences the future value of money. It is the compounding frequency/period.

Compounding period has a huge effect on the TVM calculation. Let’s understand this with the help of an example.

Suppose, the Present value of money (PV) = Rs 10,00,000
Interest rate (i) = 10%
No of years (t) = 1

Quick note: For the given compounding period (n), the FV formula will become

## FV = PV * (1 + i/n) ^t*n

Where: n=number of compounding periods per year

Here we will consider four scenarios where the amount compounds yearly, quarterly, monthly and daily in different scenarios.

Scenario 1: Compounds annually
FV = 10,00,000 [ 1 + 0.1] ^1  = 11,00,000

Scenario 2: Compounds 4 times a year
FV = 10,00,000 [ 1 + (0.1/4)] ^1*4 = 11,03,813

Scenario 3: Compounds 12 times a year
FV = 10,00,000 [ 1 + (0.1/12)] ^1*12 = 11,04,713

Scenario 4: Compounds daily for a year
FV = 10,00,000 [ 1 + 0.1/365] ^1*365 =11,05,156

From the above four scenarios, you can notice that the future value is highest in the scenario 4 when the money compounds daily for a year.

Clearly, the future value of the money increases with the compounding frequency.

## Valuing a stock using TVM:

Suppose you have an opportunity to invest in a dividend stock.

This stock has a good past record of giving dividends to its shareholders and you can safely conclude that it will give a consistent dividend of Rs 10 per year for the upcoming 4 years.

You also forecasted that you will be able to sell that stock at a price of Rs 500 at the end of 4th year. Further, here you want an annual return of 15% per year on your investment.

### What should be the purchase price of that stock?

You can calculate the purchase price using the concept of time value of money.

Here, you already know the values of all the money that you will receive in future i.e from year 1 to 4. What you need to do next is to find the present value of all these money that you’ll get in future and add them up.

If the net price is cheaper than the market value of the stock (as of today), then you should purchase the stock.

Here is a detailed analysis of the present value from the above example:

 Year Future Value (FV) –In Rs Formula- Present Value (PV) –In Rs 0 0 0 0 1 10 PV = FV / [1 + 0.15]^1 8.7 2 10 PV = FV / [1 + 0.15]^2 7.56 3 10 PV = FV / [1 + 0.15]^3 6.58 4 510* PV = FV / [1 + 0.15]^4 291.59 Total 314.43

*In the fourth year, the future value will be the sum of dividend plus sell off-price i.e. Rs 10 + Rs 500 = Rs 510.

Here, your purchase price should be less than Rs 313.43 if you want to get an annual return of 15% per annum (assuming a constant dividend of Rs 10 per year and a selling price of Rs 500 at the end of the fourth year).

This is the simplest example of how you can use the time value of money (TVM) concept for valuing stocks. The same concept is used while finding NPV (net present value) in stock valuation methodologies like discounted cash flow (DCF) analysis.

## Conclusion:

Time Value of Money (TVM) is one of the fundamental concepts of finance.

It states that Rupee in hand today is worth more than the rupee that you’ll receive in future. If you are given a choice to take money today or tomorrow, always choose the first option.

Further, TMV depends on three factors- time period, interest rate and the number of compounding periods per year. The higher the time frame, interest rate, and compounding period per year, the higher will be the future value of money.

## Efficient Market Hypothesis -The Only Theory That You Need to Read Today.

Efficient Market Hypothesis -The only theory that you need to read today:

Have you ever wondered why most of the investors and fund managers fail to beat the market? Why beating the market is considered a big deal?

This can be answered with the help of one of the most controversial theory regarding stock market- The efficient market theory. Ever since its origin, there has been a lot of heated argument regarding the validity of this hypothesis.

## What is Efficient Market Hypothesis?

The efficient market hypothesis originated in the 1960s and it was published by an economist Eugene Fama.

The efficient market hypothesis suggests that the current stock price fully reflects all the available information regarding a firm and hence it is impossible to beat the market using the same information.

In other words, you cannot beat the market by using the information that is already available to the public as the market has already incorporated and reflected all the relevant information which may impact the stock.

Here are the few key points that the efficient market hypothesis followers believe:

• Stocks always trade at a fair price and reflects all the available information at a particular time.
• It is impossible to purchase an undervalued stock and sell at an inflated price.
• The only way an investor can possibly obtain a higher return than the market is by investing in riskier stocks.

## Why EMH suggests that stocks trade at a fair price?

According to the efficient market hypothesis, the market price of a stock ‘adjusts’ quickly and on average ‘without any bias’ to the new information. As a result, prices of the securities reflect all the available pieces of information at any given point in time.

That’s why EMH suggests that there is no reason to believe that prices are too high or too low. The security prices adjust before an investor has time to trade or make profits from a new piece of information. An efficient market is fairly priced and an average investor gets exactly what he paid for.

In short, the efficient market hypothesis conveys the slogan- “TRUST MARKET PRICES”.

## Three Forms of Efficient Market Hypothesis:

There are three different form of efficient market hypothesis which challenges the different strategies in the stock market investing:

### 1. Weak form EMH:

The weak form of EMH suggests that the current price of a stock fully incorporates information contained in the ‘price history‘ of stocks. Therefore, one cannot take profit by using something that ‘everybody else knows’ and hence cannot beat the market by analyzing past prices.

The weak form EMH directly challenges the technical analysts whose trades are based on the past price movements and chart trends.

### 2. Semi-strong form EMH:

The semi-strong form EMH advocates that the current stock price fully incorporates all the publicly available pieces of information.

All the information like past price movements, financial statements (balance sheet, income statement, annual sheets etc), corporate announcements (like earnings, dividends, bonus etc), economic factors ((inflation, employment etc) already reflects in the share price. The stock prices get adjusted with the publicly available data and hence, you cannot take advantage by reading what everyone already knows.

This form of EMH suggests that it is useless to read financial statement, industry or economy and make your investment decision based on it. The stock price already reflects these financial data. In short, semi-strong form EMH directly challenges the fundamental analysts who believe in making a profit from the market by studying the fundamentals of a stock

### 3. Strong form EMH:

The strong form EMH proposes that the current price of a stock fully incorporates all the existing information- public or private (insiders information). Hence, nobody should be able to systematically generate profits by trading based on insiders information (which is not even publicly known at the time).

The rationale behind the strong form EMH is that market anticipates the future developments in an unbiased manner and hence the stock price may already have incorporated the information and evaluated in a much more objective and informative way than insiders.

For example- if a company is on the verge of a revolutionary discovery, the market/public might already have anticipated it and adjusted the price accordingly. Hence, even the insiders cannot take a sustained advantage of this new discovery.

All the three form of EMH suggests that nobody can systematically beat the market ‘consistently’.

## Reasons why EMH may be wrong:

There have been a lot of arguments why the efficient market hypothesis may be wrong. Here are of the reasons that contradict EMH:

1. Many Investors have proven that they can beat the market: Stock market is full of investors like Warren Buffett, Rakesh Jhunjhunwala, Ramesh Damani etc who have consistently beaten the market contradicting the hypothesis.
2. Behavioral aspects of Investing: Not all investors behave in a similar manner. Human errors and emotional decisions also influence the prices.
3. Regulatory hindrances– There are a number of regulatory hindrances like price bands, circuits, exchange regulations etc which objects the natural movement of stocks.
4. Not all investors view stocks in the same manner: EMH presumes that all investors are informed, skilled, can analyze the publicly available data. However, the majority of average investors are not trained and have limited financial expertise.

## SUMMARY:

Although there are many staunch supporters of the efficient market hypothesis, however, this theory has its own limitations.

Those who believe in EMH suggests that market is efficient and the stocks always trade at a fair price and reflect all the available information. Therefore, they advocate that it’s useless to perform technical or fundamental analysis of stocks as nobody can beat the market using the information which ‘everybody else knows’.

In case the efficient market hypothesis is true, then you should invest all your money in the index fund. This is because- although it is impossible to beat the market, however, by investing in the index fund you can get a similar return as the market.

## 5 Things You Should Know Before Getting Your First Credit Card.

5 Things You Should Know Before Getting Your First Credit Card:

Contrary to popular beliefs, the credit cards are not to be mistaken with “free cash” or else be ready to fall into the trap of endless repayment and paying penalties.

A Credit Card, if used rationally and in a balanced way, can be a huge gift for mediocre spenders as it allows you to spend on your necessities even if you are practically broke. However, be sure that you will be able to earn cash to repay the amount in time or else there will be penalties in your name. Looking for benefits associated with credit cards? Let’s help you out with a few scenarios:

### 1. Benefits Associated With Credit Cards:

1. If you are not earning (or will not be earning) for a while, you can always pay your bills and pay for your necessities using a credit card assured if you can pay for the amount later.
2. There are multiple rewards and cash backs that come with the use of credit cards on bill payments and even for shopping.
3. Various credit card issuers provide you with insurance on your flight tickets and bus tickets.
4. With a good credit history, you can apply for loans easily in any bank.
5. Convenience is the middle name of a credit card as it allows you to pay for anything through a card and without requiring you to withdraw cash from ATM every now and then.

But with benefits, there come responsibilities and in this case the wisdom of rational spending. Let’s know things about credit cards to know more about it.

### 2. Credit Card Interest Rates in India

The interest rate varies from bank to bank in India. However, ICICI Bank is the leading issuer of credit cards in India. The interest rate keeps falling in the range of 1-3% for almost every bank that issues credit cards. Apart from the interest rate, there are other benefits associated with credit cards which have to be kept in mind before purchasing a credit card. For example:

Some banks offer free insurance on ticket bookings through credit card and others provide various cash backs on bill payments. These are a few factors that influence the mind of a buyer. The interest rate depends on the following factors:

• Repo Rate: Repo rate is the rate at which the RBI lends money to the commercial banks of India.
• Reverse Repo Rate: The rate at which the RBI borrows money from the commercial banks of India.
• Repo rate directly influences the interest rate on credit cards whereas the reverse repo rate inversely influences the rate of interest.
• Prime Lending Rate: Various banks fix the interest rate on a credit card keeping in mind the current prime lending rate.

### 3. Fees on Credit Cards:

There are times when a credit card issuer (bank) does not clear the terms and conditions for a credit card. The terms and conditions specify various fees that are to be charged before issuing a credit card to the holder. The fee structure is as follows:

1. Joining Fees: These days, many credit card issuers are issuing credit cards without associating any joining fee to it which means that a holder can gain access to a credit card without having to pay any fee in the beginning.
2. Annual fees: The free (or paid) credit cards issued are associated with an annual fee which has to be paid on a per year basis. Again, the annual fee to be paid varies from one bank to the other.
3. Interest Rate: The main pointer through which a bank earns on credit cards is the interest rate that it charges on these cards. Generally, the interest rates vary from 1-3% in India.

### 4. Minimum Payment on Credit Cards:

In layman terms, the Minimum Payment is a scheme which allows you to settle a minimum amount on your overall (monthly) credit card bill if you are not able to pay the entire bill at once. However, the remaining balance which is carried forward for the next month is associated with a higher rate of interest.

Benefits:

• Save you from a penalty in case of “partial payment”.

• Interest-free credit period is not provided in case of Minimum Payment
• Keeps you trapped in an endless loop of repayment.

Note: If you are yet to get a credit card, here is a quick link to check your eligibility and apply for the best credit card online.

### 5. How Credit Cards Affect Your Credit Score?

The credit card can hugely determine your credit score as it defines your immediate decisions and management of your debt. If you plan to balance out your spending every month, credit cards can have a huge positive impact on your credit score.

• Closing Credit Card Accounts can hurt your credit score
• Your Payment history (or late repayment) can hurt your credit score up to 30%
• The amount of debt you carry can affect 30% of your FICO score.

## Porter’s Five Forces of Competitive Analysis – What You Need to Learn?

The Porter’s five forces of competitive analysis is a simple yet powerful tool to identify the profitability of a business and to understand its competitiveness.

Porter’s five forces were developed by a Harvard Business School Professor, Michael Porter to analyze the attractiveness of an industry. Here, the five different forces are basically the environment surrounding the industry that can affect its profitability and attractiveness.

This analysis was originally published in 1979, named “How Competitive Forces Shape Strategy“, Copyright © 1979 by the Harvard Business School Publishing Corporation.

Here is the detailed explanation of Porter’s five forces of competitive analysis:

## Porter’s five forces:

### 1. Competitive Rivalry:

Here you need to learn the numbers and strength of the company’s competitors.

For example- How many direct/indirect competitors the company has? How strong are the competitors? What is the size of the competitors? How are their product or services compared to that company?

A high competitive rivalry is never good for a company.

For example, Tata Motors was a market leader in the commercial vehicle segment (Trucks & buses) for a very long time. However, with the new entry and intense rivalry from Ashok Leyland, Mahindra & Mahindra, Eicher Motors etc the market segment of Tata’s has declined a lot. Further, the decline in the market segment also resulted in a decline in sales and profit.

In case of high rivalry, the competitors can cut the prices or start a strong marketing campaign to attract the customer.

On the other hand, if the rivalry is small (or the company has a monopoly), that company can do what they want without worrying too much about the competitors, along with higher sales and profits.

### 2. Supplier’s Power:

A strong supplier can negotiate the prices of the supplies which may increase the price of the company’s product/services or decrease the company’s profitability. Here, the supplier is in a higher position.

While studying the supplier’s power during Porter’s five forces analysis, you need to investigate the total number of suppliers, how strong the suppliers are, the uniqueness of the product/services provided by the suppliers, switching cost for the company in case they decided to change the supplier etc.

For an ideal situation, the more the number of suppliers a company has to choose from, the easier it is to switch and to get the cheaper price for that product/service.

How many buyers does the company have? How easy it is for buyers to drive the prices down? And how big are the orders?

Generally, a large number of buyers with low (or zero) negotiation power is best for a company.

However, if you have a small number of customers, they might be able to negotiate the price to a lower level and influence company’s profitability. Further, a large number of buyers instead of a single big buyer is also preferred.

In short, the company’s power and profitability increase if the company has a large number of customers with low negotiation power.

### 4. The threat of a Substitution:

The threat of a substitution is the likelihood of the company’s customers to find a similar product or to find a different way of doing what the company does.

For example, washing powder. It’s really easy for a customer to substitute a washing powder manufactured by some company with another one. On the other hand, the threat of substitution for Android or iOS is difficult!!

A substitution which is easier or cheaper weakens the company’s position and threatens its profitability.

### 5. The threat of new entry:

This is the last pillar of Porter’s five forces of competitive analysis. Here, you need to analyze the people/company’s ability to enter the same market. How easily can the new entry be done?

For examples, few industries are hard to enter due to its initial set-up cost. For example- a telecommunication industry. However, if a low amount of capital is required to enter the market, then it might be a big disadvantage for the existing companies.

Few other points to check while analyzing the threat of new entries are:

• Government regulations and policies
• Reputation/Brand/Customer loyalty
• Switching cost for customers.
• Time Requirement.

Further, while investigating the entry barrier, you also need to consider the possibility of a new entry from the international market.

For example, setting up a new automobile plant may be a little difficult for the Indian companies. However, for the leading automobile companies of the world, they can easily enter the Indian market with little efforts and investments.

## An example of Porter’s five forces Analysis:

Here’s an example of how to perform Porter’s five forces of competitive analysis:

### COMPANY— TATA MOTORS

 Forces Analysis Reason Competitive Rivalry HIGH There’s an intense competition in the Indian automobile sector (both in passenger and commercial vehicle segment). For example- Maruti, Mahindra, Eicher, Honda, Bharat Benz etc Supplier’s Power LOW Too many suppliers. Further, most of them not big enough to negotiate with Tata. Buyer’s Power LOW Buyers cannot negotiate the price directly with Tata Motor. (However, they can negotiate with dealers). The threat of a Substitution HIGH New Cars, Trucks, Buses launching every week. The threat of New Entries MEDIUM/HIGH Few International automobile giants already entered and many planning to enter.

Overall, Porter’s five forces of competitive analysis isn’t in the favor of TATA MOTORS. Most of the forces are highlighting a disadvantage for Tata.

Practice Question: Can you perform the same analysis on Avenue Supermarket (D’mart parent company) and Patanjali?

(Although Patanjali is not listed on the Indian stock exchange (yet), however, an analysis of Patanjali company will help you to understand this concept better 🙂 )

## Summary:

Porter’s five forces of competitive analysis can help you to understand the factors affecting the profitability of a company and its competitive advantages in different environments.

Here’s a summary of how to find an attractive and un-attractive company using Porter’s five forces of competitive analysis:

 Attractive Company Un-attractive company Low competition High Competition Weak supplier bargaining power Strong supplier bargaining power Weak buyer bargaining power Strong buyer bargaining power Few substitutes for products/services Many substitutes for products/services High barrier to entry Low barrier to entry

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

If you have any questions, feel free to shoot in the comment section. I’ll be happy to help you out.

#HappyInvesting.

New to stocks? Want to learn how to invest in Indian stock market from scratch? Then, here is an amazing online course: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your share market journey today.

## An Income Tax Basics Guide for Beginners -Understand TDS, Section 80C & More.

An Income Tax Basics Guide for Beginners -Understand TDS, Section 80C & More:

Often people cry out for Income Tax deductions but a few out of them literally understand the whole concept. Started a new job? Does Income Tax worry you so much? Don’t worry; it is no rocket science to understand. All you have to do is to sink in a few basics of Income Tax to get things clear. Some would ask:

Why is it even necessary to know about Income Tax?

To attain a financial stability, you would definitely need to understand the income tax basics. To help you out further, we are going to un-knot the complications of Income Tax and put it in a simplified manner for the beginners to understand. So, if you are just starting out with a new job, take the informed first step towards your new financial journey. Let’s start – shall we?

## An Income Tax Basics Guide for Beginners:

Head over to the HR department in your company and ask them for the salary slip. The salary slip would contain a few pointers in which your salary would be divided. Another document known as “tax statement” could also be asked from the HR department to know how much tax is deducting from your payout.

Key Note: Companies that give HRA which allows you to save tax if you are living on rent. It is one of the ways through which you can save easy bucks on the tax.

Further, you should mark the major components in which your salary is divided to know the overall scenario better.

### Assessment Year:

Assessment year is termed as the “financial year after the previous financial year”. According to Indian standards, the financial year (tax year) starts on 1st of April every year and closes on the 31st March of the following year. It doesn’t matter when you’d start your job, the financial year or the tax year would close on 31st of March, every year.

1st April – 31st March (of the following year) = 12 Months.

In the assessment year, one files the return of the previous financial year. For example, the period 2018-19 will be the assessment year for the period 2017-18 (12 months). Suppose if you start with your new job sometime in February, 2017. In that case, you’d have to fill the return for the period 2016-17 (active months from February 2017 to march 2017) until 31st of July, 2017.

To simplify it further, see this example:

Active months of working – 1st February, 2017 to 31st March, 2017
Tax Year – 2016-2017
Assessment Year – 2017-2018.

Please note that the last date to file your return is 31st of July every year (for the assessment year).

### Income Tax – More than the “Income” You Earn?

Your salary might not constitute the entire income you earn monthly/annually. There are other sources through which one earns his/her income which we are going to list down below. Make sure to note that the components divided might not even suit your case.

Where else do you earn an income from?

• Salary – The amount that you receive daily/monthly/weekly as per your employment’s agreement constitutes the income from your salary. This also includes the leave encashment and other allowances you get.
• House property related Income – The income that is gained from a house property which might be either self-occupied/rented/owned. The gain of income from any other building would also be included in the same.
• Capital Gain – Whenever you sell your asset/property, there’s a gain in your income. A tax is deducted from the gain.
• Income from Business – If you run a side business other than your “regular job”, the income earned on the same is also tax deductible.
• Other Sources – Income that arises from the savings bank accounts, FDs (fixed deposits) and other sources of saving are deductible of tax. (This does not include the amount invested in mutual funds).

### Section 80 C – Your Best Friend!(?)

Basically, the income taxable amount is calculated by the following formula:

Gross Income (sum of all the pointers mentioned above) – deductions = taxable amount.

Here’s what the elder generations preferred to do in order to increase the deductions and lower the taxable income – “Open a PPF Account”.

If you want to raise the amounts of deductions to lower the taxable amount under 80C, you can open a PPF account. A PPF account can be easily opened by depositing a minimum of 500RS. On the other hand, one can deposit a maximum of 1,50,000 INR in a year. The interest gained on the PPF account constitutes the income gained from the other sources under the section 80C. Thus, every year, you can claim the deductions and can save your income tax money.

Finally, a tax slab is applied on your net taxable income to calculate the final Income Tax amount you are liable to pay.

Income Tax Slab for Individual Tax Payers & HUF (Less Than 60 Years Old)

 Income Tax 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%

for FY 2018-19

Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.
Health & Education Cess: 4% of Income Tax.
*Income tax exemption limit for FY 2018-19 is up to Rs. 2,50,000 for individual & HUF.

Read more here: Income Tax Slab & Rates- ClearTax

### TDS (Tax Deducted at Souce):

TDS is the tax deducted at Source which gets automatically deducted from the income you gain from various sources such as the interest on your savings account. Employers estimate the net annual income and deduct (as per the tax slab) the tax payable from the salary (if the taxable amount exceeds Rs 2,50,000 annually).

### Quick Note: If you need help in e-filing your income-tax return, feel free to check out this site– ClearTax. It’s Quick, Easy & Free!!

`Tags: Income tax basics, Indian income tax basics, Income tax basics in India, learn income tax basics`

## 31 Hand-Picked Best Quotes on Investing: Buffett, Munger, Graham & More.

31 Hand-Picked Best Quotes on Investing: Buffett, Munger, Graham & More:

Over the years, there are many successful investors who have shared their wits with the world. Warren Buffett, Benjamin Graham, Philip Fisher, Charlie Munger, Peter Lynch, Seth Klarman, Joel Greenblatt etc are few of the famous investors who have inspired the world by their ‘words of wisdom’.

Here are the 31 hand-picked best quotes on Investing by a few of the world’s most successful investors. Enjoy Yourself.

## Warren Buffett

1. “Price is what you pay. Value is what you get.”
2. “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1”
3. “Risk comes from not knowing what you are doing.”
4. “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
5. “In the business world, the rearview mirror is always clearer than the windshield.”
6. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
7. “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
8. “The difference between successful people and really successful people is that really successful people say no to almost everything.”
9. “The stock market is a device for transferring money from the impatient to the patient.”
10. “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
11. “I will tell you how to become rich. Close the doors, be fearful when others are greedy. Be greedy when others are fearful.”

## PHILIP FISHER

1. “Conservative investor sleep well.”
2. “The stock market is filled with individuals who know the price of everything, but the value of nothing.”

## Benjamin Graham

1. “Buy not on optimism, but on arithmetic.”
2. “The individual investor should act consistently as an investor and not as a speculator.”
3. “If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.”
4. The underlying principles of sound investment should not alter from decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate.”

## Charlie Munger

1. “Spend each day trying to be a little wiser than you were when you woke up.” – Charlie Munger
2. “Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world.”
3. “No wise pilot, no matter how great his talent and experience, fails to use his checklist.” – Charlie Munger Peter

## Peter Lynch

1. “Behind every stock is a company. Find out what it’s doing.”
2. “Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part ownership of a business.”
3. “If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.”
4. “Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.”
5. “If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.”

## Few Other Best Quotes on Investing:

1. “Minimizing downside risk while maximizing the upside is a powerful concept.” – Mohnish Pabrai
2. “The secret to investing is to figure out the value of something – and then pay a lot less.” Joel Greenblatt
3. “Every once in a while, the market does something so stupid it takes your breath away.” – Jim Cramer
4. “While it might seem that anyone can be a value investor, the essential characteristics of this type of investor-patience, discipline, and risk aversion-may well be genetically determined.” -Seth Klarman
5. “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
6. “The four most dangerous words in investing are: ‘this time it’s different.'” – Sir John Templeton

## BOTTOM LINE:

None of the quotes mentioned above by any of the successful investors is too complex to understand. Stock investing is simple if you have the right attitude and follow the proper approach.

That’s all. I hope this post- “31 Hand-Picked Best Quotes on Investing -Buffett, Munger, Graham & More” is useful and entertaining to you.

If I missed any of the best quotes on investing, feel free to comment below. #HappyInvesting

## NEW Discussion Forum Launched – How to Leverage it to Learn Investing?

Greetings!! An exciting news for all of you.

Our brand new ‘Discussion forum’ is now live at https://forum.tradebrains.in. It’s open to all and anyone can start a new thread or discussion regarding stock market investing/trading, stock picks, investing strategies, portfolio, IPOs and more.

I and my team will be reading every topic & comment on the forum. We are confident that the discussions will turn out to be fruitful for both- a) those who are new to investing and interested to learn and b) the seasoned investors who want to enhance their knowledge alongside contributing to the investing community.

Here are few of the frequently asked questions regarding our discussion forum:

### 1. What’s the URL address of the forum?

Our discussion forum is ‘live’ at https://forum.tradebrains.in

### 2. What is the forum for?

This forum is a dedicated platform for discussing topics/queries regarding investing and personal finance. Here’s what the forum is really for:

1. General Discussion: Anyone can start a discussion regarding the stock market, IPOs, mutual funds, personal finance, and more.
3. Helping each-others: No one has more knowledge than all of us combined. Maybe, you have an experience of over +5 years investing in stocks. However, if there are 100 members in the community with even just 1-2 years of experience, the ‘combined experience’ of the community will be over 100 years. And if we leverage that, we can easily help each-other towards successful investing.

### 3. Can I Get Investing Support via the Discussion Forum?

Definitely! That’s the main aim of our discussion forum. There are a number of people who are willing to help you out. All you need to do is ‘ask’.

In our discussion forum, we are also adding new mentors and leaders (seasoned investors with lots of experience in investing). They will be answering your queries and also be participating in the general discussions.

Overall, Trade Brains ‘Discussion Forum’ is aiming to connect all the ‘givers’ and ‘seekers’ to build a strong investing community so that everyone can get full support/help whenever required.

### 4. How to leverage the discussion forum to learn to invest in stocks?

It’s quite simple to leverage our discussion forum to learn to invest in stocks.

All you need to do is ask questions/queries, participate in the existing threads/topics and keep learning from the answers of the people.

Further, feel free to reach out to other members of the forum if you need any specific help or even just to connect.

### 5. Okay, I’m ready! How can I start participating in the forum?

Here are the steps required to start participating in the forum:

2. ‘Register’ to the forum using your email id.
3. Start ‘New discussion’ or engage in the existing one.
4. Enjoy yourself.

## Parting Note: Want to contribute to the Investing community?

We are looking for new moderators of the forum who are ready to share their knowledge with the investing community and help other investors to succeed. If you are interested, please leave a comment below. Our team will add you as a forum moderator after you register.

I’m looking forward to your participation.

## Best Money Control App Hacks For Beginners.

Best Money Control App Hacks For Beginners:

Money control is one of the best apps for stock research. However, if you are new to this app, you might find it a little difficult to use. There is much information available on the moneycontrol app which can easily confuse a first-time user.

In this post, I’m going to explain few best money control app hacks for the beginners. Further, please read this article till the end as there is a bonus in the last section.

Quick Note: The first step that you need to take when you enter this app is to ‘sign-up’. This will help you to personalize the app. After signing up, you can create your portfolio, add stocks to wish-list, track the returns, last visited stocks, get alerts etc. In short, SIGN UP first.

## Best Money Control App Hacks

### 1. Home:

On the home screen of the mobile app, you can find:

• Top News,
• Indices (Sensex, Nifty etc),
• Your portfolio summary i.e net day profit/loss (if you have already created a virtual portfolio on the app),
• Stocks last visited
• Market Movers
• Mutual funds, commodities, and currencies.

The home screen is itself sufficient you give you an overall picture of the market. In addition, features like ‘stocks last visited’ and ‘market movers’ helps you track the recent stocks.

Next, if you click on the navigation (menu) button, you can select different options like markets, news, live tv, my stocks, forum, commodities, currencies etc. I will cover the important ones here in this article.

### 2. Stock Research:

Money control app gives you the power to research stocks ‘anywhere’ and ‘anytime’.

I won’t go into details about how to research stocks as it is itself a huge topic. However, I’ll give you an idea of what informations you can get on the money control app.

In every stock, you will get the following information- Overview, futures, options, news & research, forum, market depth, corporate action, financials, balance sheet, profit and loss, financial ratios, peer comparisons, shareholding, info & management.

These pieces of information are enough are analyze the stocks on your phone.

### 3. Market/Indexes:

It will help you to keep track of what’s happening in the market. Here, you can get the information regarding Indian Indices (Sensex, nifty 50, midcap, small cap, industry indices like Nifty Bank, Nifty FMCG, Nifty Energy, etc), global indices, market movers, earnings, IPOs etc.

TIP: Keep an eye on the ‘Market Movers’. This will help you to get an idea of the stocks that top gainers, top losers, active by volume, 52 weeks high, 52 weeks low etc.

### 4. Portfolio:

Using the portfolio feature, you can track your stocks, mutual funds and more.

For example, if you have bought 10 stocks, the just add those stocks (Stock name, average purchase price, quantity, and date) in the portfolio. This will help you to keep a track on your performance (daily or overall ‘profit/loss’).

Further, after adding these stocks in your portfolio, you can also read the alerts regarding those stocks like important news, block deal, bulk deal etc.

TIP: You can also add stocks which you are tracking (but haven’t purchased) in your wishlist inside the app.

Also read: Resources- Stock Market India

### Bonus:

FORUM: Money control app also provides forums for the users to engage in the discussions. Start participating and you may find few helpful information/views there.

Currencies/Commodities/Gold: Moneycontrol also gives you pieces of information regarding top currencies, exchange rate, top commodities, commodities movers, Gold price etc.

## Summary:

Money control app has made the life of investors/traders a little easier. You can easily track the market and monitor stocks and your portfolio if you are using money control app effectively.

That’s all. I hope this post is useful for the beginners. Please comment below if you know any amazing money control app hacks worth sharing.

#HappyInvesting.

New to stocks? Want to learn how to invest in Indian stock market from scratch? Then, here is an amazing online course: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your share market journey today.

## How to Meet Your Investment Objectives with Income Funds?

Mutual Funds is not only an investment or a onetime business, it goes on and gets managed professionally on a large scale. And when it comes to professional management, the best example of the type of mutual fund to invest in is the “Income Funds”. The risk involved in Income Funds differs from a fund to fund. It can be highly volatile or it can be pretty stable too. While talking about the Income Funds, the important question to ask is:

## Why does one need to invest in Income Funds at all?

Answer – As the name suggests the word “income”, income funds can be chosen to diversify your portfolio. Generally, diversification helps in mitigating the risk to a larger extent. Income Funds are diverse i.e. there is a lot to choose from these funds. Moreover, the funds can invest in both equity and debts as well. Even the investment can be merged up into the combination of both equity and debts. Income Funds are also known to invest globally and thus have a greater reach. Having said that, let’s explore more about the income funds in this article. We will also delve into details about various kinds of income funds to clarify the case further.

## Let’s answer this first: What is an Income Fund in simple terms?

Income Fund falls in one of the many categories of Mutual Fund that strongly focuses on the “current income” (which can be considered as a dividend or interest) on the current income. The investors can either choose to go for divided short-term capital for short-term spending or can go for long-term funding distribution. Example – Retirement Funding. As we see, the prospect of income fund is very flexible.

Any investor has a choice to choose in between individual securities and managed investment funds.

## Types of Income Funds:

### 1. Fixed Income Funds:

As the name suggests fixed, we can figure out that the strategy or funding has a fixed rate of interest along with a fixed maturity. Since the types of security vary widely in the case of income funds, an investor usually has a wide spectrum of choices to choose from. As there’s a fixed amount of interest rate involved, it’s pretty easy to calculate the annual and hence total return with which, the total of maturity amount can also be calculated easily in the case of fixed income funds. This kind of funding is preferred by both stable and aggressive investors differing on the quotient of the type of security.

### 2. Bond Funds:

Another kind of funding is introduced as the bond funds which is considered as the most common type of funding. Bond Funds offer varying risk as they further can be invested in various places. Considering the safest case, the Government Bond Fund is considered as the most conservative one. Since the Government Funds invest in the treasury (US Based) a slightly safer option. On the other hand, some prefer to invest in Government Security Agencies which generally turn out to provide a higher return than the former choice.

One thing to keep in mind while making an investment in the Bond Income Fund that the total maturity amount is never fixed. With the fluctuations increasing in the secondary market, the amount keeps on changing.

Tax-Free Returns: The municipal bond-funded investment offers a tax-free return to its investors which actually saves a lot more money than other investment options. On the other hand, the corporate bond-funded investment would deduct a tax on the matured amount but on the positive side, it gives a better return on the investment.

### 3. Specialty Fixed Income Funds:

Not all the income funds invest in Government Bonds and Municipal Bonds. The Specialty Fixed Income category of Income Funds is the one that invests in the senior secured loans which are fully and completely collateralized I.e. the loan is secured by the asset pledged by the borrower. Such kind of fund investments falls on the safer side of the scale of risk.

The liquidity is also high in these funds. In fact, the funds are available to access on a monthly or quarterly basis. Another example of a Specialty Fixed Income Fund is the Mortgage Backed Fund. What happens, in this case, is that the investor becomes a shareholder whenever a borrower borrows loan amount from banking institutes against the mortgage. The mortgage put forward by the borrower acts as a security for his loan amount which makes the specialty fixed income to fund further freer from risk.

### 4. Stock Income Funds:

The Stock Income Funds are different and somewhat lesser risky than the bond fund investment type. In the Stock Income Fund, the investor gains a steady dividend on a monthly or quarterly basis which is mostly 1-2% higher in terms of interest rate than the government bonds.

It all comes falling to one question again, the requirement of the user. Having said that, a proper research on the risk associated as well as the methodology of the professional management is very much needed before making any kind of investment. It takes just a couple of minutes to get updated on the current news which is the key to be a smart investor.

Nonetheless, the bottom line for an income fund investment is the conservativeness you’d prefer in your return. The rest does depend on what you pick.

## How to Invest Your First Rs 1,000 in The Stock Market?

Learning how to invest your first Rs 1,000 in the stock market is a significant step towards starting your financial journey and future investments. You might be surprised to know that even less than 2.5% population of India participates in the Indian stock market (although Indian economy is one of the fastest growing economies in the world).

In this post, I’m going to tell you the simplest answer of how to invest your first Rs 1,000 in the stock market. It’s a no-brainer way. Further, for the method described here, you don’t need to be an expert or any help from the financial advisors to invest your first Rs 1,000 in the stock market.

Quick Note: Here, I’m not going to discuss how to open brokerage accounts. I’m assuming that you have already had set up your demat and trading accounts. If you haven’t, then read this post to learn how to choose the best stock broker.

While interacting with my blog readers and subscribers who are new to the stock market, I learned that most of the first-time investors like to wait until they have amassed thousands of rupees to invest. However, that’s a mistake. You can start investing with an as little amount as Rs 1,000. Further, you can increase the investment amount in future when you have increased your savings. By following this strategy, you can utilize the time efficiently to learn the stock market so that you will be prepared when you invest a big amount in future.

Second, you do not need to be an expert to invest your first Rs 1,000 in the market. You can invest this money while you are learning or even if you just started a few weeks ago.

Third, the point here is to learn- not to earn. Rs 1,000 is not a very large money that will get you bankrupt if you lose this amount. However, Rs 1,000 is more than enough to make you enter the exciting world of stock market and enhance your financial knowledge.

In addition, do not worry about the technicalities like how to buy/sell using your trading account initially. Once you are ready to invest, you can learn all these within 20 minutes using different sources on the internet. (I have also written a couple of articles on how to invest using ICICI direct, SBI smart etc). These days, purchasing stock is even a lot easier compared to booking an online train ticket on IRCTC. All you need is a phone/laptop, internet connection, brokerage accounts and some cash in your saving account.

Now that I’ve cleared the basics, let’s learn how to invest your first Rs 1,000 in the stock market. Further, please read this post till the end as there is a bonus in the last section of this article.

## How to invest your first Rs 1,000 in the stock market?

### 1. Invest in Just One Stock:

Rs 1,000 is not a big amount. If you are buying a stock worth Rs 300, then you will be able to buy just three units of that stock. Moreover, those stocks which are trading at a market price above Rs 1,000 are already ruled out here. Therefore, if you are planning to invest your first Rs 1000 in the stock market, then you need to widen your selection criteria to the stocks pricing between Rs 1 to Rs 1,000. Otherwise, you might have to reject many good stocks whose market price is high (Say 800-900), if you are planning to purchase multiple stocks.

Further, for such an investment amount, you do not need to waste time diversifying your portfolio. Selecting multiple stocks takes time and it’s not worth the value.

### 2. Invest in what you already know-

The easiest approach of stock selection for the beginners is to invest in what you know. There are a number of companies that you might have heard from childhood and might already know a lot about it. For example- Maruti Suzuki, HDFC Bank, ITC, Yes Bank, HPCL, Bata, Coal India, Colgate India, Hindustan Unilever, etc.

There are tons of companies whose products/services you already have been using and might be more than happy with them. Find out those companies and investigate them. Visit the company website, check its portfolio (product/services), know who is the boss of the company, its future products/plans etc.

### You’ll be surprised to know that how many common companies has given uncommon profits.

For example Eicher Motors- Royal Enfield bikes parent company (over 80 times returns in last 10 years), MRF Tyres (over 17 times return in last 10 years), Symphony- coolers (over 12 times return in last 5 Years) etc.

The bottom line is to look around yourself and find some popular companies worth investing.

Search for the companies that you already know that they are doing great (like expanding at a fast rate) for the last couple of years or provide excellent product/services or has an amazing business model (easy to scale).

If you are a working guy/girl, it will be quite easy for you to find such companies. Just look in your industry and find which one is leading. For example, if you are in the banking sector, you might already know which bank is expanding fast in urban and rural areas, opening new branches every week and has low non-performing assets (NPA) etc.

If you are a doctor, you might already know a few good pharmaceutical companies which are producing the best medicines at a cheap price or are working on the medicines for a rare disease.

Even if you are a housewife, you can find a number of good companies that manufacture day-to-day life products like soap, shampoo, towels, edible oils etc.

In short, the idea here is to invest in what you already know rather than wasting too much time reading financial magazines to search for hidden companies.

### 3. Don’t spend weeks researching your first stock:

Although I’m confident that you find a good company using step 2, however, if you are unable to find any company that you have good knowledge, then invest in blue-chip stocks.

Blue chips 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.

For example- HDFC bank (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company) etc. Few other examples of blue-chip stocks are Reliance Industries, Sun Pharma, State bank of India etc. Here is the list of few top blue chips stocks in the Indian stock market:

The idea here is to ‘not’ waste too much time researching for stocks. This is your first investment and the investment amount is also small. It’s not worth your time spending weeks to research a stock just to invest Rs 1,000.

### 4. Don’t make it a very big deal.

To be frank, do not make this investment a very big deal of your life. The investment amount is too small to hurt you financially. Even if you lose 50% of your investment amount, you won’t go broke.

Don’t worry too much thinking about what if the stock price goes down. IT’S NOT A BIG DEAL!

Here your motive should be to learn, not to earn. If you are able to learn today, you can make tons of money in future. However, if you want to ‘save’ Rs 1,000 today and are not willing to take any risk, you might save this 1,000 rupee, but miss opportunities to earn lakhs in the future.

Stay calm and enjoy the ride.

## Bonus lessons:

### Stay away from penny stocks:

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

However, these stocks are very risky. You might have never heard the names of most of these companies and very limited information about the company is available to the public. The stock prices of these companies are easy to manipulate. Overall, penny stocks are difficult to investigate for a newbie investor.

My advice, stay away from penny stocks until you have got good knowledge and experience in the stock market.

### Don’t expect high returns:

This is my final advice. Do not expect high returns while investing your first Rs 1,000 in stocks. Stocks are not ‘lottery’ tickets.

Even if you get a return of 100% in 6 months, still you will make a profit of only Rs 1000 (Rs 166 per month on an average).

This isn’t going to affect your life financially. Until the investment amount is large or the principal is invested for a long duration (power of compounding), the returns won’t be too big to affect you financially.

That’s why mark my words and set a realistic expectation for your first Rs 1,000 investment.

New to stocks? Confused where to start? Check out my amazing online course: HOW TO PICK WINNING PICKS? The course is currently available at a discount. #HappyInvesting

## Do you consider yourself a ‘Smart Investor’?

Well, your success in the stock market depends on how you invest and react to different market situations.

Here are 10 questions to put your 'Investing Instincts' to test.

## Conclusion:

One thing I can take guarantee is that your experience after buying your first stock will be amazing!

Trust me, you’ll get more involved in the market if you have some money is invested in it, no matter how small it is. By investing your first Rs 1,000 in the market, you will learn ‘fast’ and learn ‘efficiently’.

Moreover, as discussed in the post, investing is not a rocket-science, rather it’s quite simple to invest your first Rs 1,000 in the stock market if you follow the steps described above.

I hope this post on- “How to invest your first Rs 1,000 in the stock market?” is useful to you. If you have any questions or doubts, feel free to comment below. I’ll be happy to help you out.

## How to Pick a Mutual Fund? A Beginner’s Guide.

How to Pick a Mutual Fund?

Are you a financial newbie and just learning to pick things piece by piece? Don’t worry; you are in the right direction. Considering you are here, reading this article, you are one step ahead.

Now, let’s quickly clear all your queries associated with picking the best deal out of many. Needless to say, investing in a mutual fund is a matter of lacks of rupees and sometimes a matter of crores, one needs to be very deterministic while picking out the best suitable option. When we say “best”, we are doing two things, mainly.

1. Evaluating different options for mutual funds.
2. Comparing those with their past (historical) records.

A good head start, therefore, can be done by self-evaluating the needs. In layman’s terms, what are you planning to achieve after you get an access to your matured fund?  – Housing? Marriage? Home Development? … Or Education?

While the reason can vary from a person to person, the risk-bearing also does.

To explain it better, if you’re planning to clear your debts with the matured amount, you can’t tolerate greater risks associated with your fund. That’s the reason for taking the end goal into clear consideration. Further, in this article, let us know what all you need to know to pick the best possible option for a mutual fund. Stay tuned!

## 1. Get Acquainted with Risk Tolerance:

Clearly, the objective or end goal does alter the consideration of “Risk Tolerance” moreover; it helps you know how much risk you can sustain in your portfolio. Personally, if you can’t toleration too much of underperformance in your portfolio then picking out highly volatile mutual funds is not an option for you.

What exactly is risk tolerance? – It is explained as the amount of deviation (negative) associated, from the expected returns on an investment which an investor can withstand.

Since mutual funds are influenced by the movement of the market, one can’t accurately predict the happenings but estimation never hurts. However, there’s a quick math for you to remember “maximum risks = maximum returns”. But the question is again, “can you sustain it?”

Pro Tip: Aggressive Risk Tolerance (ART) understanding can help various high scaled investors to put their chances on portfolios with super high risk.

On the other hand, Conservative Risk Tolerance (CRT) does give a little to no scope for a risk to penetrate into a portfolio.

Also read: How to Measure Risks in Mutual Funds?

## 2. Know about Different Fund Types:

There are several types of Mutual Funds in the market. In fact to count in all 4 directions of the world, one has 8000 choices to make for mutual funds. But it again comes down to one single point – the end goal.

1. If your needs are for the longer term and you can sustain risk, you can choose the capital appreciation funds. As mentioned, the risk associated is on the higher side but given that, the growth of return is also magnificent.
2. If your needs are to be catered for a shorter term with minimal risk, you can go for the income funds. The income funds give you a stable return with a realistic percentage. What’s the advantage? – Minimal to no risk.
3. If your needs are for the longer term, however, you don’t want any risk to be associated with your portfolio, balanced funds are the best choice you. Sure, the return wouldn’t be magical but you can get the benefit of “long-term investment” and can minimize the question of risk as much as possible.

There are several more types of funds to be explored in the market. Choose the one that you think is best suitable for your end goal.

## 3. Know about the charges and fee structure:

When you purchase a mutual fund, you have to pay a charge or fee initially or when the shares are sold. In both the cases, the fee is known as a load.

The load can be further classified into

1. Front-end load – When you have to pay the fees initially while starting a mutual fund for yourself.
2. Back-end load – When you have to pay the fees when you sell your shares in the fund. (Generally, a Back End Load is applied if you decide to sell your shares before a specific time period, say 7 years of purchase). This limits your activities of “share selling”.)

Administrative charges are another kind of charges that are associated with an investment. The administrative charges are charged by an insurer mainly for record keeping or t=other important administrative facilities given on an investment.

What do you need to keep in mind? – Make sure to read the literature of Mutual Fund before & after purchasing it to keep track of administrative charges, management expense ratio, and other charges. This will help you clear all the hidden complexities about the return on investment.

## 4. Evaluate Past Trends and Fund Manager’s Activities:

The final but very important step is to bring in the case of historical data. When it comes to a prediction, historic data helps in backing up the decisions.

When it comes to evaluation, let’s quickly know what pointers to keep in mind:

1. What are the previous results that a Fund Manager has managed to deliver without a fail?
2. Does the past trend show that the portfolio is extremely volatile under specific conditions?

Peeking into the literature of a fund manager can help you with this case, mostly. Also, taking an expert advice is always recommended for better decisions.

Lastly, you must know that in the market, the history does not (read never) repeats itself. That is, don’t rely blindly upon the past data without bringing in the possibilities for future prediction. Both the cases help in their own way when it comes to mutual funds. A little research with a proper guidance can take you one step forward to your end goal (high return on your investment) – that’s the bottom line.

## #9 Things I Wish I had Avoided During my Initial Days in Stock Market.

#9 Things I Wish I had Avoided During my Initial Days in Stock Market:

It’s not too long since I started investing, just over 3 years. That’s why I can easily remember the rookie things that I used to do during my initial days in the Indian stock market.

Now, when I look back to those days, I can easily count at least 20 ‘unnecessary’ things that I used to do then. Moreover, those things could have been easily avoided if I was little more sincere or if there was a mentor to guide me.

My parents never invested in stocks. The best that they did were medical insurances, LICs, and few blue chip mutual funds. Nevertheless, I’m glad that they didn’t stop me when I decided to enter the Indian stock market on my own. By the way, my parents did warn me how most of the people lose money in the market, so beware of it. However, exploring new things was never banned in my family.

Anyways, the biggest problem that I faced during my initial days was that I didn’t had any mentor.

That’s why I started reading books and it really helped me a lot. In a single book, you can read the whole life story of the author. By reading just 300-400 pages, you can understand what they learned in their 70 years of life, what mistakes they made and how they corrected it.

In short, starting to read investing books was a life changer for me. (Btw I also read few stupid books which didn’t teach me anything and turned out to be a complete waste of weekends).

Now that I have learned few things regarding investing, I consider this my duty to pass the same to all the beginners who are ready to learn but couldn’t find a place to start.

In this post, I’m going to discuss 9 things that I wish I could have avoided in my initial days in the Indian stock market. Further, please read this article till the end because I’m confident that you will learn a lot of interesting points in this post.

## #9 Things I Wish I had Avoided During my Initial Days in Stock Market:

My initials days in the Indian stock market was not much different than any other stock market beginner. Honestly speaking, at that time I was too much involved in the stock market price movements rather than researching the stocks.

When I started investing on my own- although the investment amount was not that big (I was investing my pocket money and savings mostly), still my involvement was no less than people who might have invested crores in the market. A funny point that I learned later is that even those people who have invested crores are not so involved in the stock market as I used to be.

Moving on, here are the things that I used to do during my initial days in the Indian stock market and wish I had avoided them:

### 1. Frequent checking of the share prices:

When I first entered the market, I was infatuated with the share prices of the companies. I had a massive wish list of stocks (in which I was interested) and I kept checking their share prices.

I used to check the price at the opening session, 10 AM, 12 PM, 2 PM, closing session and many times in between. Sometimes it was over 30 times in a single day.

Now, when I look back to my behavior of excessively checking the share prices, it doesn’t make any sense to me. The frequent checking of prices couldn’t possibly affect the fundamentals of the company, Moreover, it wasn’t helping in investing or stock research.

I should have used that time to research new stocks (there are over 5,500 listed companies) or just study some good books/blogs/websites to gain more knowledge.

### 2. Keeping an eagle-eye of my net profit/loss ‘DAILY’:

During those days, I used to track my profit and loss daily. I thought that I was monitoring my stocks. However, I was completely wrong.

If you are investing for long-term ( 5 years or more), short-term profits and losses won’t matter. Further, the monitoring means keeping an eye on quarterly results, important news, corporate actions like dividends, bonus etc. Tracking daily profit and loss is not monitoring. And, I wasted unnecessary energy while doing so.

### 3. Didn’t caring much about the brokerage charges:

Icici direct was my first broker. I was happy with its facilities it offered and I still have this account. However, I have two brokerage accounts now. The second one is Zerodha, a discount broker.

ICICI direct charges 0.55% as brokerage.

During my initial days, I used to think that the brokerage charges won’t affect me much. Even if I buy stocks worth Rs 10,000; my brokerage will be only Rs 55, I can easily afford that. I even neglected other charges like Service tax [now GST], STT, stamp duty etc.

However, the problem with that attitude was that I was losing money. The actual profits turned out much different than the realized profit when you start counting these charges.

Further, even if you sell your stock at a loss, still you have to pay the brokerages, which will further add up to your loss. In addition, the brokerage is charged on both sides of transactions i.e buying and selling side.

In short, I wasted a lot of unnecessary money in brokerages. If only I had used the discount brokers (who offer a flat rate on Intraday and zero charges on delivery), I could have saved a lot of brokerage charges.

### 4. Getting emotionally ‘influenced’:

During my initial days, I used to get sad when the stock market was down or when my stocks were performing poorly. Sometimes I even got so much disappointed that I thought this all as a waste of time.

Nevertheless, with time and experience,  I learned that short-term fluctuation is bound to happen and can be considered perfectly healthy. On the other hand, getting influenced by the stock price movement wasn’t a healthy sign for an intelligent investor. If I had understood this from the beginning, I could have saved a lot of energy.

### 5. Investing based on current news:

This is little tricky. There were times when I was unable to understand why the stock moved down when the company announced a good news. During that time, the problem was that I was noticing only the current news. I was not capturing the overall picture.

The current good news is good, but the comments about the future can scare people.

For example, let’s say that during the quarterly result, a company announced that its earning has increased by 20%. It’s good, right?

However, in the same announcement, if the company admits that the sale of one of its top product is declining. Here, what can you say about its future? The current news is good but the future is scary. If the sale of the best product of a company is declining, the company might be in trouble in future.

Overall, it’s important to notice the overall picture than just the current scenario. However, I neglected many of these aspects during my days.

### 6. Tracking the market movers, top performers, 52-week high, 52-week low stocks etc ‘daily’:

This was the worst waste of time that I should have avoided.

I used to track the top performers of the day. There’s a section in the money-control website/app which shows all these information. I used to follow the stocks who were the top performers- like the stocks that moved up by +5% in a day and bottom performers (stocks whose price fell -5% in a day).

Moreover, I also kept a track the 52 week low stocks (thinking that they could possibly be the under-valued stock) and might be a good time to purchase. Although this strategy helped me to learn the names of a lot of stocks, however, I never found any good stock in 52-week low company list. Neither did I find any decent valued stock in 52-week high stock list.

### 7. Reading analysts recommendation and reports:

Although I never invested on recommendations, however, there was a time when I used to read the analysis reports of stock analysts. What I was really looking for was a ‘social-proof’. If I had invested in some stock, and later found out that the analysts are also recommending that stock, I felt confident.

Anyways, soon I stopped when I realized that in most cases two of the analysts are suggesting to ‘buy’ and other two are singling to ‘sell’.  For example, one was suggesting to buy ‘Apollo Tyres’ and the other may be suggesting to ‘sell’. Whom to believe?

Better make my own decision and have confidence in yourself.

### 8. Buying too many stocks:

At one particular time during my initial days, I had over 20 stocks in my portfolio. There are too many stocks if you have a portfolio of just Rs 1 lakh.

Over-diversification kills the profits and are makes the portfolio difficult to monitor. Eventually, I realized this and decreased the number of stocks in my portfolio.

### 9. Feeling bored on ‘Weekends’:

Although this is not a critical issue, however, I’m embarrassed to admit that I used to feel bad on weekends.

For every regular person, the weekend is the best time of the week. However, I didn’t use to feel that way. And this was all because the stock market is closed on both Saturday and Sunday.

Nevertheless, since the days I started avoiding frequent checking of share prices, this problem started fading away. Weekdays and weekends don’t make much difference now. Even the greatest investor of all time- Warren Buffet doesn’t care if the market is open or closed. Here is what he once said:

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

## Conclusion:

I have made a number of rookie mistakes during my initial days. However, the past is always easy to analyze.

All those mistakes might look stupid now, but they were important lessons. Moreover, I never invested irrationally and tried ‘not’ to repeat the same mistake.

Overall, it was an amazing experience and one worth taking.

I hope this post is useful to the beginners. #HappyInvesting.

New to stocks? Want to learn how to select good stocks for long-term investment? Check out my amazing online course: HOW TO PICK WINNING PICKS? The course is currently available at a discount.

## What Would You Rather Have: Rs 10 Lakhs Right Now or 1 Paise Doubled Every Day For 31 Days?

A few days ago, I was having a conversation with my brother regarding the power of compounding. He’s an assistant manager at Bank of India and brilliantly understands how compounding works.

During the conversation, here’s the question that he asked-

What would you rather have:

1. Rs 10 Lakhs right now or
2. 1 Paise doubled every day for 31 days?

By hearing the question itself, I understood that it is a trick question.

Although Rs 10 lakhs (right now) seems a huge amount and sounds very tempting. However, getting your money doubled every day for next 31 days is even a bigger deal.

I chose option B. I was confident that the total amount would be greater than Rs10 lakhs. However, by how much, that was something that I was looking forward to.

When I calculated the total amount that I will get on day 31 if I choose one paise option, the result turned out to be something like this.

### How much is- 1 Paise doubled every day for 31 days?

• Day 1: Rs .01
• Day 2: Rs .02
• Day 3: Rs .04
• Day 4: Rs .08
• Day 5: Rs .16
• Day 6: Rs .32
• Day 7: Rs .64
• Day 8: Rs 1.28
• Day 9: Rs 2.56
• Day 10: Rs 5.12
• Day 11: Rs 10.24
• Day 12: Rs 20.48
• Day 13: Rs 40.96
• Day 14: Rs 81.92
• Day 15: Rs 163.84
• Day 16: Rs 327.68
• Day 17: Rs 655.36
• Day 18: Rs 1,310.72
• Day 19: Rs 2,621.44
• Day 20: Rs 5,242.88
• Day 21: Rs 10,485.76
• Day 22: Rs 20,971.52
• Day 23: Rs 41,943.04
• Day 24: Rs 83,386.08
• Day 25: Rs 1,67,772.16
• Day 26: Rs 3,35,544.32
• Day 27: Rs 6,71,088.64
• Day 28: Rs 13,42,177.28
• Day 29: Rs 26,84,354.56
• Day 30: Rs 53,68,709.12
• Day 31: Rs 1,07,37,418.24

If you chose option B, at the end of 31st day, you will get Rs 1.07 crore. This amount is greater than the first option by over 97 lakhs (even more than 10 times).

Till 27th day, Rs 10 lakhs as a lump-sum amount seems as a good option. However, on the 28th day, one paise option would have surpassed Rs 10 lakhs and by 31st day, it would have crossed the 8-figure mark.

Big difference between Rs 10 lakhs and 1.07 crores, right?

### Conclusion:

It might be little difficult to grasp the fact that Rs 0.01 doubled every day can turn out to be Rs 1.07 crores in 31 days.

Anyways, if you choose one paise doubled for 31 days, the result might seem low and disappointing in the initial days. However, if you keep on going, the final amount will be worth the patience. This is all because of the power of compounding.

In the end, here is an amazing quote once said by Albert Einstein regarding the power of compounding:

“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”

## How to Measure Risks in Mutual Funds?

How to Measure Risks in Mutual Funds?

Before you jump start your monthly-SIP or lump-sum equity plan, let’s get this clear that these investments are subject to market risk. Now when this statement pops up or scrolls by on the big fat TV Screen, what do you think it means? To put it in layman’s term ‘You cannot expect a fixed return on your fund invested.’ There’s always a risk of market volatility gawking on your funds.

Fret not; you can always research better to invest better and make sound investment decisions when it comes to mutual funds. Let’s quickly come to risk measuring.

Yes, it’s possible and within your means to delve into the true basics of indicators; alpha, beta, and r-squared that tells you what risk is associated with your fund portfolio. Other statistical measures such as calculation of standard deviation and shape ratios are important to calculate or estimate the risk.

Sure, all backs up the estimation values as when it comes to the volatility of the market, no one can put a word to it. Market volatility is altogether a sensitive scenario which depends upon several factors including politics. Let’s know learn how can we calculate/measure risks!

## Modern Portfolio Theory:

Or should we say a bible for expert investors? Although there are various “SIP-Calculators” and other calculators that track “Mutual Fund’s Growth and Return” but without considering the omnipresent risk factor, one cannot take his pick. Let’s tell you why!

MPT or Modern Portfolio Theory is a theory defined as:

For a given market risk level, the maximization of investment return is supported by the theory of Modern Portfolio.

The objective of these portfolios is to maximize the return (profit) on a fund investment while considering (and hence minimizing) the level of market risk.

As mentioned, the market is not static, it is ever changing. Therefore, to make an estimation of how the market will deviate and how will it affect your own fund. For a desirable return, it’s possible for an investor to construct a portfolio such that he/she could minimize the whole lot of risks.

The question is, how? The answer lies in the introductory part of this piece. There are a handful of indicators and other statistical measures that help us calculate the risk involved. Once we track down the possible risks (in numbers – thanks to the statistical measures), we can find ways to minimize those risks.

One thing to keep in mind is that return of your portfolio is calculated as the weighted sum of the return of the individual assets in your portfolio.

For example, (6% x 25%) + (4% x 25%) + (14% x 25%) + (10% x 25%) = 8.5%

The portfolio is divided into four parts (assets) for which the return is expected as 6%, 4%, 12%, and 10% respectively. The total becomes 8.5% and the risk associated with the assets giving 4% & 6% return is mitigated or balanced.

## Alpha:

Risk-adjusted calculation on a fund can be done using the alpha measure.Alpha uses a benchmark index which is the center of calculation for this indicator.

Basically, alpha takes the risk-adjusted return (performance) of a fund investment and compares it with the benchmark index. This comparison yields out the possible value for alpha which specifies the performance or underperformance for a fund.

Alpha is commonly a measure that specifies the security of a fund as per the benchmark index. Let’s say, after the calculation, the value of alpha is 1.0. It means that the fund has outperformed as compared to the benchmark index by 1%.

On the other hand, if the value of alpha is -1.0 – it means that the portfolio fund has underperformed as per its benchmark index (mostly due to the volatility of the market).

## Beta:

The next indicator to measure the risk associated with a mutual fund is beta. Beta talks general i.e. it takes the whole market into consideration and analyzes the systematic risk associated with a specific fund portfolio. Just like alpha, the values of beta or “beta coefficient” also tell us a “market-compared” result.

However, the value of Beta can be calculated using advanced statistical analysis technique known as “Regression Analysis”. Beta is affected by the movements in the market. By the standards, the market has a value of 1%.

If the value of beta comes out to be less than 1, the volatility of the fund will be lesser than that of the market. Similarly, if the value of Beta is captured to be more than, say 1.1% then the volatility of the fund is 10% more as compared to the volatility of the market.

What’s favorable for the fund with least risk associated? – Low beta.

## Standard Deviation:

The calculation of Standard Deviation has a plethora of applications around the globe in various sectors. And luckily, one in the sector of Finance. Standard Deviation graphically shows how scattered a particular distribution is. In plain and simple words, SD or Standard Deviation makes use of the historical data to put an analysis over the current funds.

Generally, an SD-graph would tell how deviated is your “annual rate of return” from what it is expected from the historical sources. Using this calculation, the future predictions can be made most naturally.

A volatile stock has a higher Standard Deviation.

Mean is a measure of central tendency which holds an importance while calculating the values of Standard Deviation. SD tells how much dispersion of data is there from its mean. Various expert investors make use of this indicator to minimize the risk factors in a portfolio.

## Summary:

As we have seen, there are various possible ways through which one can estimate the risks in mutual funds.

A portfolio consisting of different assets would have different risk factors associated individually. Therefore, to make the best decision and to minimize the individual risks in your portfolio, the indicators mentioned above can lend you a helping hand.

For a finance newbie, these things might be no less than a rocket science right now. However, eventually one can get a hang of it. After all, a good investment is most naturally important for a good return.

## Life Expectancy: The Most Important Variable in Retirement Planning

Life Expectancy is a crucial variable to monitor when calculating the needs for a retirement fund. The age which you are expecting to get retired in and a calculated life expectancy (obviously, keeping all the health aspects into consideration). Often while scrolling through the Google results for “how much should you save for your retirement”, the two major bars you have to set are:

1. At what age, you are expecting yourself to get retired?
2. What is the estimated life expectancy of yours?

Frankly speaking, the second bar to set is quite tough if not impossible. Precision is something which is quite hard to gain on life expectancy or your projected age. However, to stabilize a fund that’ll keep you going well for such and such years, you need to determine how much monetary fund you would require that will keep you active for dash years of inactivity. Needless to say, the calculations can’t be made accurate or 100% precise but you can always put a good analytical game to use and then act accordingly.

## Why Is Life Expectancy So Important?

Whenever the question arises, there are basically two kinds of fears that develop in people’s minds:

1. What if one gets to live more than he/she expected?

I.e. the possibility of an underestimated life expectancy. In this case, your funds might meet a shortage in the later years. For example, suppose if you decided to retire at an age of 58 and you estimate your projected age to be “70 years”. You will have to manage your funds such that you get to stretch your living for 12 long years without an active income.

Please note that it also includes all the health check-up, rents, travel, and other miscellaneous expenses.

2. What if one overestimates his/her projected case?

The matter of life and death is probably the most unpredictable notions in the world. One does not actually know what might come the very next moment. In this case, overestimation can cause inconvenience. Suppose, if one is predicting his/her survival age to be 68 years. Now, suppose if one gets to live for 60 years, wouldn’t the money in the savings fund go completely wasted?

These two reasons make financial experts believe that “life expectancy” and its accurate prediction is actually an important variable to consider.

## How to Determine Life Expectancy?

We have already established the fact that calculating one’s life expectancy is not an easy task, is it? But, there’s always a way out. We can predict a bit accurately with a few tricks that you must read.

### 1. Consult generic tables:

Researchers have worked hard to finally be able to present to us a normalized table with which we can predict our estimated life expectancy. The table is based on a generalized current age scenario through which you can actually predict how many years you are left with (according to statistics, of course).

For example, if Mr. X is 45 years old, he can expect another 38 years to live. Moreover, 0.4167% chances say that he could die this year.

Needless to say, these predictions are not including lifestyle scenarios and other health-related concerns.

### 2. Online Life Predicting Applications (More accurate):

As we have noticed that the former means of calculation wasn’t considering some of the crucial aspects that could alter a standard result. The variables include the family history of a specific disease, eating habits, and lifestyle scenarios. The online applications that predict life expectancy such as Living to “100 life expectancy calculator” (available on Apple Store and Play Store) can accurately estimate one’s life expectancy.

There are certain bars which can be manually adjusted as per the real-time scenario which helps in backing up the predicted result.

Not only that, but these applications have incredibly easy interfaces to work with. Moreover, these applications suggest you ways or two with which you can stretch your life expectancy. Adopting a healthier lifestyle always helps financially for all the health-related costs it saves I future.

Here is the link to the two popular online life expectancy calculator:

(Source: World Life Expectancy)

There are more than 50% of the people in the world who plan for the future. No matter how interesting those pep talks seem that say; “live in the present, let future come as a surprise”, no sane person would “actually” follow the advice.

Us humans being rational thinkers always plan in advance which is quite great actually. Other than being able to make rent, pay for food, and commute freely, you too might have a list of long aspirations you want to fulfill in “future”. Keeping everything in mind, you need to save accordingly.

Let’s hope for the best and let’s prepare for the worst.

## How ‘Not’ to Kill The Goose That Lays the Golden Eggs?

There’s a famous story from Panchtantra (a children book) called- The goose that lays the golden eggs. I am sure that you might have heard this story. Anyways, let me briefly summarize it:

Once upon a time, a man and his wife had the good fortune to have a goose which laid a golden egg every day. Lucky though they were, they soon began to think they were not getting rich fast enough.

They imagined that if the bird is able to lay golden eggs, its insides must be made of gold. And they thought that if they could get all that precious metal at once, they would get mighty rich very soon. So the man and his wife decided to kill the bird.

However, upon cutting the goose open, they were shocked to find that its innards were like that of any other goose. Thus the greedy couple lost both the goose and golden eggs and became poor again.

The end is pretty sad, right? How can someone be so stupid to kill the goose that laid the golden eggs?

However, this happens every day in the stock market. Yes, there are tons of people who find these goose that lays golden eggs, but instead of keeping, they kill the goose.

In this post, we are going to discuss why you need to control your ‘greed’ and how ‘not’ to kill the goose that lays the golden eggs.

## The Goose that lays the golden eggs:

First of all, you need to understand what I’m referring to the term- goose that lays the golden eggs.

Here, goose means multi-bagger stocks. Multi-baggers are those stocks that give multiple times returns over a stretched period of time. For example, a stock that gives 50 times returns is called a 50-bagger. Another stock that gives 10 times returns is a 10-bagger stock.

Few famous stocks that turned out to be multi-bagger in past are Eicher Motors, MRF, Avanti Feeds, Rain Industries, Symphony, Page Industries etc. These are the goose that laid the golden eggs if you have kept them for a long time.

## How ‘Not’ to Kill The Goose That Lays the Golden Eggs?

The goose that lays the golden eggs are not rare in the stock market. Every now and then, you can find these stocks.

However, the problem is that most people behave in a similar manner like that of the greedy man and his wife who killed the goose. Instead of nourishing the goose, people chose to take the superfast trackway and ends up killing that goose.

Here are the 3 steps that will help you to ‘not’ kill the goose that lays the golden eggs:

### 1. Invest for the Long-term:

Every stock investor who made inside the list of top-500 richest person in the world is a long-term investor.

Warren Buffett, one of the top 3 richest people in the world, understand the importance of long-term investing and has been following the same principle for over seven decades now. Here’s what Warren Buffet says about long-term investing:

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
-Warren Buffett

When you are investing for long-term, you are giving the goose an opportunity to keep giving the golden eggs.

Most stocks take 3–5 years to become a multi-bagger. That’s why you need to have enough patience to hold that stock for the long-term. Moreover, if you want to take benefits of their true potential, they remain invested for 10–12 years.

### Here’s a stock chart of Eicher Motors. In the last 10 years, it has given a return of over +10,500%- a real goose that laid the golden eggs.

Now, I have been investing in stocks for over three years now. However, I understood this strategy to not kill the goose soon enough. There are stocks in my portfolio which I haven’t sold for over 2 years.

Moreover, I’m planning to keep most of my stocks for the long-term. I’m 23 and hence I can easily hold these stocks for over 8-10 years without worrying about anything. Although many stocks in my portfolio are not-so-hidden gems (for example, Yes Bank, Titan Company, Venkys, Ruchira Papers, NOCIL etc), stills they have given good returns. Anyhow, I’m not selling these stocks in a short frame because I do not want just the golden egg. I want to keep the goose as long as it is capable of laying the golden eggs.

(Disclaimer: The stocks discussed above are used just for an example and I’m not recommending them. I bought those stocks when they were cheap and the valuation might have changed by now. If you are planning to invest in those stocks, then study them properly or take the help of a financial advisor.)

### 2. Do not book profits early.

“Time is the friend of the wonderful company, the enemy of the mediocre.”
-Warren Buffett

Suppose you have found the goose that lays the golden eggs. However, just after it gave it its first golden egg, you decided to sell the goose. You believe that you’ll get good money by selling that goose immediately. Sounds stupid, right?

However, this is what millions of stock investors do daily. To book a profit of 30-40%, they are ready to sell the stocks that have the potential to give +1,000% if they hold it for the long-term.

Do not book profits early. Don’t get easily satisfied with small profits. It takes a lot of time and energy to invest in stocks and you deserve to get big profits. Delay the instant gratification.

### 3. Have patience

“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.” -Warren Buffett

If you have understood the story of the goose that lays the golden eggs, the lesson from that story was to have patience. Even though the man and his wife had a goose that lays golden eggs daily, however, they weren’t patient enough. And that leads them to failure.

Patience is the key to successful investing. If you can’t hold the stock for few years, then do not invest in stocks. In short-term, there would be thousands of fluctuations in the market. Nevertheless, you need to have the patience to hold your goose.

## Summary:

Finding a goose that lays the golden eggs is just not enough. You also need to hold that goose as long as it can give you the golden eggs. Here are the key takeaways to learn from this post if you do ‘not’ want to kill the goose that lays the golden eggs:

1. Invest for the long term.
2. Do not book early profits for short-term gratification.
3. Have patience.

Let’s end this post with an amazing quote on behavioral finance:

“The stock market is a device for transferring money from the impatient to the patient.”
– Warren Buffett

That’s all. I hope this post is useful to the readers. Happy Investing.

New to stocks? Want to learn how to invest in Indian stock market from scratch? Then, here is an amazing online course: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your share market journey today.

## 3 Steps to Turn Your Investment Goals into Reality

Steps to Turn Your Investment Goals into Reality:

One of the most important things to do before you start investing is defining your investment goal.

An investment goal is a realistic expectation to meet the returns by investing a predefined money for a fixed time frame. The key words here are ‘realistic expectations’ and ‘timeframe’.

In this post, we are going to discuss three important points/steps that will help you to turn your investment goals into reality. Further, please read this post till the end as there is a bonus in the last section:

## #3 Steps to Turn Your Investment Goals into Reality

### 1. Set a realistic goal for your investment:

You are interested in investing in stocks. Great! However, if you are planning to invest Rs 50,000 in the market and turn it into Rs 100,000 with 6 months, then please stop there.

Historically speaking, stocks have given better returns than savings, bonds, FDs, golds etc, however expecting to double your investment amount in 6 months is more like gambling.

While defining your investment goal, set a realistic expectation. An average annual return of 10-15% is amazing if you compare it with 3.5% interest return on savings. Further, if you are investing intelligently, you can easily beat the market and get better returns.

(Sensex 5 Year Returns [April 2013-18]- 81.39%)

Nevertheless, setting unrealistic goals will force you to take ‘un-necessary’ risks in order to achieve that target. These risks can adversely affect your portfolio and even might not be achieved.

That’s why it’s really important that you set a realistically ‘achievable’ goal for your investment.

### 2. Understand that it’s difficult to make a living by just investing:

Honestly, not many people can make a living by investing alone. Why? Let me explain.

In India, for an average family, the yearly income is 10 lakhs.

As we discussed in the first point, the average annual return for the market is 10%. In order to get a return of 10 lakh in a year with a return rate of 10%, you will need to invest a huge amount of INR 1 crore.

Even if you are getting an aggressive return of 20% per annum, still you will need an initial investment of Rs 50 lakhs for making a livelihood.

Frankly speaking, not many people have this much amount of money to invest, especially, if you are in your 20s and recently started your career. That’s why people who are involved full-time in market choose ‘trading’ as a profession where they can get benefits of leveraging.

In short, if you have this huge amount of money, then great. You can start your journey as a full-time investor. On the other hand, if you do not have so much money, then you need to find out other sources of income.

NOTE: Even the legendary Investor Warren Buffett worked as a ‘fund manager’ at the beginning of his career. He wasn’t just a full-time investor in the major half of his journey. Warren Buffett gathered a big amount to buy ‘Berkshire Hathaway’s share by working as a fund manager (not an individual investor).

### 3. Avoid losses on your investment:

While investing, it’s equally important to avoid loss than to make profits. Moreover, personally, I believe that avoiding loss is even more important.

Even Warren Buffett considers the same. Here’s a quote from him regarding the importance to avoid loss.

“Rule #1- Don’t lose money. Rule #2- Don’t forget rule #1.”

Why is avoiding loss is so much important in investing?

Let me explain this with the help of an example. Suppose there are two investors- A and B.

Investor A gets a consistent return of 15% per annum for 10 consecutive years.

On the other hand, Investor B gets a return of 18% per annum for 10 consecutive years. However, in between these 10 years, once he got a negative return of 15% in his 8th year.

Who do you think will get better returns after the end of 10 years? Investor A or B?

The answer is investor A. Here is a detailed analysis of the returns gained by both these investors:

 Year Investor A Investor B (15% pa) (18% pa, Loss in 8th Year) 0 10,000.00 10,000.00 1 11,500.00 11,800.00 2 13,225.00 13,924.00 3 15,208.75 16,430.32 4 17,490.06 19,387.78 5 20,113.57 22,877.58 6 23,130.61 26,995.54 7 26,600.20 31,854.74 8 30,590.23 27,076.53 9 35,178.76 31,950.31 10 40,455.58 37,701.36

Although Investor B consistently beat investor A for 9 years with 3% margin, however for the long run, Investor A outperforms investors B.

Investor A gets more returns than investor B at the end of 10th year.

An important lesson to learn here is that a  consistent compounding with ‘no loss’ adds more money. The loss interrupts the compounding process.

### Another important point to discuss here is that the loss is much harder to earn back.

For example, Suppose you invested Rs 1,000 in a stock and lost Rs 500. Here, the incurred loss is 50%. However, in order get back your initial investment amount, you have to earn Rs 500 now by investing the remaining Rs 500. Overall, a return of 100% is required to cancel the loss of 50%.

Rs 1000 —> Rs 500 —> -50% (loss)
For Rs 500 —> Rs 1000 —> +100% (profit)

In short, although you lost just 50% on your investment amount, however, you have to earn a profit of 100% in order to break even. This is due because earning back is much harder than ensuring a loss.

To conclude, try ‘not to lose’ large amount of money by following foolish investing approaches. It’s really difficult to earn back the same money.

### BONUS:

Here is the list of few great personal finance books that can help you to define your investment goal and achieve success:

1. The Wealthy Barber by David Chilton
2. I will teach you to be rich by Ramit Sethi
3. The Millionaire Next Door Thomas Stanley

## Summary:

Here are the key takeaways from this post which will help you to turn your investment goals into reality:

1. Set a realistic expectation for your investment. Otherwise, it will force you to take unnecessary risks.
2. Understand that making a living just by investing is difficult.
3. Avoid losses on your investment. Loss interrupts the compounding process and earning back is much harder than ensuring a loss

That’s all. I hope this post is useful to you. If you have any doubts or need any help, please comment below.

New to stocks? Want to learn how to select good stocks for long-term investment? Check out my amazing online course: HOW TO PICK WINNING PICKS? The course is currently available at a discount. #HappyInvesting.

## Top 4 Things You Need to Know Before Investing in Bitcoin

Top 4 Things You Need to Know Before Investing in Bitcoin: Fast and extra cash is something that each and every one of us desires. Off lately, there has been huge talking about bitcoins and how they are “the right type of investments”, considering which, most people these days have been inclining towards these bitcoins. However, an investment should always be preceded by a good amount of research.

Just to help you with the case, let us get back to the basics and know what actually the theory of “bits and bitcoins” is.

## 1. Bitcoin Basics:

### What is a Bitcoin?

A bitcoin can be safely termed as the “internet Currency of the New World” which can only be transferred/exchanged irreversibly unlike the regular digital currencies and digital money. They are basically hardcoded into computer languages & codes and are traceable to restrict its usage more than once.

In simple words, bitcoin is a purely peer-to-peer version of electronic cash that would allow online payments sent directly from one party to another without going through a main institutional institution.

### Is the investment in Bitcoin dangerous?

With so many people talking about the bitcoins these days, you would get to hear more than one opinion for it. Some say it is absolutely wasteful to invest in a bitcoin while the others consider it to be the future of all kinds of investments.

Good or bad, investing in a bitcoin is “quite an investment” as the value of 1 bitcoin in US Dollars is 7960.08 (as of 27 March’2018).

### How can you purchase a bitcoin?

There are multiple ways to purchase a bitcoin. First and foremost of all, you would need to install the Bitcoin Wallet or optionally, you can also use the desktop Bitcoin Wallet which also keeps you updated of the current news, trends, and information related to Bitcoins. You can use your real currency to buy a bitcoin either through Bitcoin Exchanges or through private sellers as well. The Android Bitcoin Wallet let you use it as a kind-of real currency by allowing you to pay for items and services through your purchased bitcoin.

You can also purchase bitcoin using mobile apps like Zebpay, Unocoin etc.

## Bitcoin Checklist: Make Sure to Consider Each One of Them Before Investing in Bitcoin

### 2. Invest only what you can afford to lose:

Just like any other investor, you too can get overwhelmed by the power of money especially when it is proposed to come in a multiplied factor. Even many experts get lured and overwhelmed while investing. You, as an investor, need to know your baseline and never dare to jump over it.

The question arises; how to identify this baseline?

Well, researching is the key! The first rule to investing in Bitcoin lies in researching. Good News: There are various internet resources through which you can get a deep insight into how everything works from road to hill. However, the baseline is that you don’t have to put all your eggs in one basket.

Moreover, if by any chance, you find yourself getting lured in “Bitcoin debt investing” don’t do it! Bitcoin debt investing traps you in an infinite loop of debt (with sky-high interest rate) and you’d have to pay it even if your Cryptocurrency investment doesn’t show any return.

This goes the same for stock market, the only difference that the Cryptocurrency Market has is that it is global and it offers you a list of extended leverage. Also, it is digital.

Also read: Where should I invest my money?

### 3. Don’t leave a lot of money in exchanges:

Okay, this might contradict many minds of experts but it is, however, true. Even the popular exchange platforms for Cryptocurrency can be hacked (quite easily) and your entire money might get lost in a fraction of seconds. Even the longest and safest password with 2-factor notifications fails in preventing your account from malicious use.

To play it safe, either don’t make a hefty exchange via any other exchange platform no matter how trustworthy it claims it is. Optionally, if you do want to put a hefty exchange bet, make sure that you don’t leave your money (digital currency) in there for a longer period of time.

### 4. Always Go with a Safe Exchange Platform:

With a plenty of options flowing across the surface of the internet, it becomes quite tough to choose which one to go with. However, for a backed up decision, you need to consider each and every factor about the exchange platform to finally end up to a conclusion.

Some Cryptocurrency Exchange platforms offer to give extended leverages such as a wide marketplace to buy services/commodities from which might lure you to invest using their platform. A good idea, however, is to read online reviews.

A Review of an application or website interface helps you know that you are going with a trustable name. One of the major concerns to get through for an online exchange platform is of “security”. You need to know the historical records that concern safety and security when it comes to online Cryptocurrency exchange platforms.

Having said that all, Bitcoin and other altcoins have become revolutionary pillars when it comes to digital finance. Above all, make sure you take your picks wisely!

Also read: Getting Smart With Investment in Gold.

## Why Warren Buffet Suggests- ‘Price Is What You Pay, Value Is What You Get’?

Why Warren Buffet Suggests- ‘Price is what you pay, value is what you get’?

In the 2008 letter to the Berkshire Hathaway’s shareholders, Warren Buffett wrote:

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
— Warren Buffett (Source)

In this post, we are going to discuss what Warren Buffett really mean by highlighting- “Price is what you pay, value is what you get” in his letter to the shareholders.

## Price And Value:

Both price and value are the two sides of the same coin. Understanding the difference between price and value is the core principle of value investing.

Let’s explore the difference between price and value with the help of a simple example.

Suppose you are planning to buy a new phone and hence checking the prices of few phones on Amazon. There’s one phone that you really like- OnePlus 5T (Midnight Black 6GB RAM + 64GB memory).

Yesterday, the price of this phone on Amazon was Rs 30,599. However, today when you checked, the price has increased to Rs 32,999.

What really happened here?

With the change in the price, what can you say about the quality of the phone? Did it change overnight too? Is the phone still 6GB RAM + 64GB memory or did it increased just because the price increased from yesterday?

The quality is same. The only thing that changed is the amount of money you need to pay for it. Same value at a higher price.

Now, similar things happen in the stock price of companies. Although the quality does not change every second, however, the price does. That’s why, whenever you are purchasing any stock, you should remember that-

“Price is what you pay, and value is what you get!!”

## Three types of value that you should know:

Whether you are purchasing a phone or stocks, there are three types of valuing things that you should know:

1. Relative value
2. Absolute value
3. Perceived value

Let’s discuss each value type one-by-one.

### 1. Relative value:

Relative value is the valuing how much the product is worth by comparing it with its competitors.

Here, the product or company’s worth is compared to its competitors or the other companies in the same industry.

For example, while renting flats- the landlords generally use relative valuation concept to fix the price for the flat. It’s not easy to correctly evaluate the price of rent. However, using relative value, the rent can be decided by considering what similar houses are asking for rent in the same area.

Similarly, coming back to the original example of purchasing a phone, you might use the same relative valuation approach here. You can look at the prices of different phones with the same configuration and then decide which one is selling at the best price.

The same logic applies to the share market. The valuation of the companies in the same industries can be compared. For example, the price to earnings (PE) ratio of Tata Motors can be compared to that of Ashok Leyland to find out which one is undervalued. Both of these companies are in the same automobile sector.

Also read: No-Nonsense way to use PE Ratio.

Nevertheless, an important point to notice here is that you should not compare just ‘two’ companies while finding an undervalued stock, instead, compare it with the industry average.

This is because while evaluating just two products, one expensive product can still be cheaper than other expensive product.

For example, iPhone 8 will definitely be cheaper than iPhone X. Does it mean that iPhone 8 is undervalued? No. If you compare it with the industry average, you can find that the iPhone is too expensive compared to similar phones with same configuration and quality.

Quick Note: I’m not criticising apple phones here. I’m a die-hard fan of Steve jobs and appreciate Apple products. Nonetheless, I accept that iPhones are expensive. Moreover, this is the best example that I come up to explain this concept 😉

Similarly, while performing a relative valuation of stocks, do not compare just two stocks, but consider the industry average.

### 2. Absolute value:

This is a pretty straightforward method of valuation. Absolute value aims to find how much the company is truly worth by considering its intrinsic features.

For example, in order to find the absolute value of a company, you can evaluate how many assets it own like machines, pieces of equipment, cash, buildings etc and how much liabilities (like debt) the company has. However, absolute value may be a little difficult to find as it also considers intangible assets and future cash-flows.

There are different methods that you can use to find the absolute value of a company- dividend discount model, discounted cash flow model, residual income models, and asset-based models

Anyways, once the absolute value of a company is known, you can easily find out whether is under or overvalued. If the company is trading at a market value below its intrinsic value, then it is undervalued or cheap. On the other hand, if the market value is above its intrinsic value, then the company is over-valued or expensive.

### 3. Perceived Value:

This is the third valuation method and can be considered a little dangerous. Here, the value of the object depends on what the people assign to it in mind.

The perceived value is completely unrelated to the absolute value.

For example, the value an art or painting totally depends on how much you will perceive it in your mind.

Here, it might have cost a total of just Rs 500 (absolute value) for the Artist to make it. However, some people may be ready to pay Rs 1,00,000 to buy that painting and the others might pay Rs 50,00,000. It totally depends on the perception of the buyer.

### The most common example of perceived value:

Let me give you a more clear example of the perceived value that you can see in the day to day life. Let’s say you want to sell your old bike on OLX.

Now, although you can quote a price for your bike, however, the selling price will totally depend on the perception of the buyer. You might convince people to pay high, however, the bargain depends on how much the buyer wants to pay. Despite having the same quality, different people will quote a different price for your price.

Overall, the perceived value of the bike will be the price that the person will be willing to pay.

Stock price reflects perception.

The stock market also works on the perceived value. Here’s an amazing quote by Seth Klarman regarding the stock prices:

“… security prices reflect investor’s perception of reality and not necessarily reality itself.”
— Seth Klarman

The Perceived value is used a lot in growth stocks, where the company is growing at a fast pace compared to its competitors and industry. That’s why investors are ready to pay a high price for those stocks.

Moreover, many a time, these perceived values of the company are influenced a lot by the analyst’s recommendations, market news or catalyst. As the underlying company remains the same, it doesn’t make much sense to overpay. Whether you pay high or low for the company, the value won’t change.

That’s why, Warren Buffett suggests- ‘Price is what you pay, value is what you get’

(Source: CNBC)

## Summary:

There are three types of value that every stock investor should know:

• Relative value: It is the valuing how much the product is worth by comparing it with its competitors.
• Absolute Value: Here the object is value based on its intrinsic features.
• Perceived Value: It depends on the value assigned by the buyer in his mind.

Moreover, the stock price of a company reflects perception. Here, the price and value are different and most of the time unrelated to the share market.

Anyways, this is true only for the short run. Over the long period of time, the price will approach the value. That’s why if you have a stock when it was undervalued and have the patience to hold it for a long duration, then it certainly will reach its true value in future and give you good returns.

Final tip, do not overpay if you can get the same value at a cheaper price.

That’s all. I hope this post is useful to you. Happy Investing.

New to stocks? Want to learn how to select good stocks for long-term investment? Check out my amazing online course: HOW TO PICK WINNING PICKS? The course is currently available at a discount.