February 2020 - Trade Brains

Posts archive for February, 2020

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How to Buy Mutual Funds Online in India?

In this article, we are going to discuss different ways by which you can buy mutual funds online in India. However, before we begin, let us consider a few crucial topics concerning buying online mutual funds in India.

Things to need to know before you buy mutual funds

There is a large number of people in India who invest in mutual funds without exactly knowing how it works or how to pick the right mutual funds that can give them winning returns. However, we do not want our readers to take the same path. Therefore, before you purchase your first mutual fund online in India, here are a few important articles that you should read:

Direct vs. Regular Mutual Funds

Any mutual fund that you might be planning to invest offers two plans — either direct plan or regular plan.

Since Jan 2013, mutual funds have started offering direct plans for all their existing funds. The difference between a direct plan and a regular plan is that you can save a lot of money while choosing a direct plan investment route as there are no intermediates involved here.

In direct plans, You do not need to make your investment through distributors, and hence it can save you a lot of intermediate expenses. Therefore, you’ll be getting a higher return on your portfolio despite the same fund. The difference in returns from direct plans compared to regular plans can be as high as 1–1.5%. This can be a substantial amount if you’re planning to invest for a long time to build a considerable corpus.

Anyways, as investing in regular plans is comparatively more accessible, that’s why people go for it. Nonetheless, in the last few years, there has been a rise in a lot of trusted websites and mobile apps to make direct mutual fund investment fast and easy. We’ll look more into these later in this article.

Overall, you can select anyone — either direct or regular plan, depending on your preference. However, we’ll highly recommend you to choose the direct investment route while investing in mutual funds online in India.

Know Your Client (KYC)

As per the regulations by SEBI, you’ll need to complete your KYC before you invest in mutual funds in India. This is because KYC helps in verifying the buyers and eliminating the duplication across intermediaries. It also makes online investing easier and efficient.

But if you’ve not done your KYC, do not worry, thinking it will involve a lot of documentation and labor. In the era of fast internet, you do not need to move even an inch from your sofa to complete the KYC. All can be done online, and that too within minutes.

Now, if you have already invested in any fund earlier, either offline or online, your KYC might be already done. Therefore, you do not need to re-complete your KYC. Here, simply check your KYC status online.

For already registered users, they can check their KYC status online using their PAN card with any of the following KYC registration agency

How to get your KYC?

In order to get your KYC done, you’ll require following documents: PAN CARD, Proof of Identity (Aadhar card, Driving License, Voter Id, etc.), Address Proof and Passport size photographs

You’ll need to submit copies of all the self-attested documents while submitting them for verification. Therefore, if you do not have these documents right now, first get them.

Now, almost all mutual fund distributors and broker websites provide a link to complete your Know-Your-Client (KYC) online. You can visit the AMC website, upload your documents, and complete your KYC.

For example, if you are interested in investing in SBI mutual funds, you can visit their website. On their website, you can find the link to complete the KYC verification process.

Else, if you are planning to invest through any popular mutual fund apps, you can upload your documents inside the app, and they will help you get your KYC verification done.

How to buy mutual funds online in India?

Now that you have understood the basics of regular vs. direct funds, e-KYC, etc., let’s dive into the main topic of this article — how to buy mutual funds online in India.

Here are a few ways how you can invest online in mutual funds:

1) AMC Website

The fastest way to buy mutual funds is through AMC websites as you’ll buying directly from the AMC and eliminating all the intermediaries. Mutual funds are managed by the AMC’s, i.e., Asset Management Companies. You can buy all the funds offered by these fund houses from their websites.

Now, to buy a mutual fund from the AMC website, first, visit the site and download the application form. Here, you’ve to fill your details and submit along with the photocopy of PAN, KYC letter and initial cheque.

The first time when you invest in any mutual fund through AMC, you’ve to go to the AMC’s office to submit documents and make your investment. Anyways, once it is done, you can make all your future investments online. You will be assigned the PIN and folio number. Hence, you can perform the subsequent transactions ‘online’ using your net banking. Also, a lot of these AMC’s may send their Agents to your house/address to collect the application form, cheque, and other docs, which can save your time.

Anyways, if you are planning to invest in various funds offered by different AMCs, you have to perform the same procedure for all the mutual fund companies. However, this may not be very convenient.

For example, if you are planning to invest in five mutual funds, you have to visit their AMC websites one-by-one to register. Although the KYC verification procedure will not be repeated, still tracking and monitoring all the funds will also be a little difficult if you have invested through multiple AMC websites.

Note: A few of the popular mutual funds companies in India are: Aditya Birla Sun Life Mutual Fund, DSP BlackRock Mutual Fund, HDFC Mutual Fund, HSBC Mutual Fund, ICICI Prudential Mutual Fund, IDFC Mutual Fund, IIFL Mutual Fund, Kotak Mutual Fund, L&T Mutual Fund, Mahindra Mutual Fund, PPFAS Mutual Fund, SBI Mutual Fund, Shriram Mutual Fund, TATA Mutual Fund and Union Mutual Fund.

2) Broker Platforms

If you have already opened a demat account with any of the big brokers in India, you can buy mutual funds online using your brokerage account. Most of the major brokers in India, like ICICI direct, HDFC securities, Kotak securities, Zerodha, etc. have the facility to buy mutual funds from their portal.

Now, buying funds using broker platforms is a simple way to purchase mutual funds online in India. All you need to do is to log in to your account, select the scheme you want to invest, and complete the payment. The mutual fund units will be credited directly to your existing demat account.

Also read: Compare Online Brokers in India | Best Stockbrokers List

3) Independent Websites/Apps

You can also buy mutual funds online in India through independent websites or apps. A lot of Indian websites like Funds India, Groww, etc. provides the facility to their clients to invest directly in mutual funds at no commission.

A few of the popular apps for direct mutual fund investments are:

Also read: 7 Best Mutual Fund Apps for Direct Investment

Another benefit of using these apps and websites to buy mutual funds online in India is the fast account opening process and hassle-free investing. In fact, you can open your account within minutes using these platforms if you have the digital copy of all the required documents available on your phone.

Further, on these independent platforms, monitoring your funds and transacting is also very simple. These websites have a tie-up with most of the major banks in India to facilitate fast fund transfer at the time of investing.

Summary

A majority of people do not invest in mutual funds because they’re afraid of documentation work and believe that investing in mutual funds requires a lot of work. However, as discussed in this article, there are multiple ways through which you can invest in mutual funds online in India.

If we conclude the article, investing in mutual funds through the AMC website will be cheaper and includes no extra cost. However, the biggest concern with this approach to remember all the PINs and passwords at different AMC websites.

On the other hand, investing in mutual funds online in India through the independent websites/apps offers the clients a ‘single login portal’ for the consolidated view of the holdings.

Finally, purchasing mutual funds from the brokers through a demat account is a more relaxed approach compared to the above two. Here, the customers can also get added benefits like access to the research reports to make a better decision. However, they have to pay extra costs like demat account maintenance charges. Besides, not all mutual funds are available/partnered on the broker website. Therefore, for purchasing some funds, you have to visit the AMC website.

If you’re a beginner, we’ll recommend buying mutual funds online in India using independent apps like Groww, myCams, etc. And once you’re comfortable with the buying process, choose the route of investing through AMC websites.

Parting tips for investing in mutual funds

Before we end this article, here are a few of the final tips for beginners to invest their money in mutual funds:

Always go with the direct mutual fund plans. It will save you a lot of costs in the long run.
Start investing through SIPs instead of lump-sum. It will help you to avoid the risk of timing the market by averaging out.
Finally, diversify and add multiple funds with time. Do not spend all your money on a single mutual fund, no matter how appealing it may look.

Quick Note: If you are new to investing and want to learn how to invest in mutual funds from scratch, check out this amazing online course: Investing in Mutual Funds- A Beginner’s course. Enroll in the course now to start your journey in the requisite world of investing today.

That’s all for this post. I hope it is useful for you. Let us know if you have any queries regarding buying mutual funds online in India by simply commenting below. Happy investing.

February 29, 2020 Team Trade Brains Mutual Funds 2 comments

Circle of Competence – Why You Should Invest Inside It?

Although the idea of the Circle of Competence is quite old, however, it was popularised by the billionaire investor Warren Buffet. Here’s one of his quotes regarding the circle of competence.

“What an investor need is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.” – Warren Buffett (1996 Letter to the shareholders)

In this post, we are going to understand what exactly Warren Buffett meant by the Circle of competence. Moreover, you’ll learn how by understanding the concept of the circle of competence, you can significantly improve your investment strategy and returns. Let’s get started.

What is the Circle of Competence?

“I’m no genius. I’m smart in spots-but I stay around those spots.” – Tom Watson Sr., Founder of IBM

Because of different background, qualification, or experience, everyone has built up a greater knowledge in a specific area. In this certain field, these people have the expertise and hence, have a significant advantage. This is called the circle of competence.

Further, the circle of competence might vary from people to people depending on the criteria mentioned above.

For example, a doctor might have expertise in medicines, healthcare or pharmaceutical and he can consider this area as his circle of competence (COC). However, if he also runs his family, which is involved in the banking industry and he might have acquired a good knowledge of that field (through his family background). In such a case, both pharma and the banking sector lies within his COC. In other words, he has a bigger circle of competence.

An important point to mention here is that your circle of competence need not only be related to the career that you are pursuing or the education/qualification that you have. It could be ‘anything’ that you have a good knowledge of.

However, it’s really important that you should define your circle of competence and understand to operate inside it. The problem arises only when you do not exactly know your circle of competence and unknowingly believe yourself as an expert and invests in something that’s outside your circle.

Also read: #5 Things Warren Buffett looks for before investing.

Why You Should Invest inside your Circle of competence?

“We have to deal in things that we are capable of understanding.” Charlie Munger

If you cannot understand a business, then you will not be able to evaluate it effectively. Investing in something which you do not have much knowledge will lead you to the wrong evaluation and overall, it will turn out to be a bad investment. Warren Buffett’s right hand, Charlie Munger always says that the investors who get outside their circle of competence find themselves in a lot of trouble later.

Although this sounds obvious and you might be thinking – “Why would I buy something that I do not understand?”. However, most investors are not much disciplined to invest inside their circle of competence. The temptation of investing in a ‘hot’ or popular stock where most of their friends are making money is too strong.

Anyways, as mentioned earlier, you need not be an expert in a lot of areas. Just stick to where you are good and avoid the areas where you do not have much expertise. By doing so, you can maximize your chances of success.

How can you widen your ‘Circle of Competence’?

If you think that your circle isn’t too big, do not worry. With time, you can work on it and expand your circle of competence. How? By continuously learning new things. Just Read, Read, Read!

That’s the only way how experts increase their circle of competence. In fact, even an engineer can have a circle of competence is the pharmaceutical sector if he starts reading regularly. Here’s a quote by Charlie Munger highlighting the importance of reading:

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero. You’d be amazed at how much Warren reads – at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” -Charlie Munger

Further, to end this post here is an amazing quote by Warren Buffett that you should take away with you.

“Everybody’s got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside the circle.” – Warren Buffett

I hope this post is useful to you. If you’ve got any questions regarding the concept of the circle of competence, feel free to comment below. I’ll be glad to answer them. Take care and happy investing.

Kritesh Abhishek

Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting

www.linkedin.com/in/kriteshrules/

February 28, 2020 Kritesh Abhishek Investment Basics No comments yet

Why You Should Try Thematic Investments?

Suppose you believe in an idea and confident that it will perform well in future. For instance, let’s say you are optimistic towards the renewable source of energy. Here, you are assured that the grid and other conventional sources of energy will be replaced by the renewable source of energy like solar or wind energy in the future. And therefore, you want to invest in this idea.

However, you are not certain of the best leading company in this segment to invest. Moreover, you also do not want to invest in the entire energy sector through any sectoral mutual fund as you want to focus just on the renewable energy-related companies. How to proceed further with your investments? Enter the thematic investments.

What is Thematic Investment?

As you might already know, mutual funds also provide an option to invest in different sectors via sectoral funds. For example, pharmaceutical funds focus on pharma companies or banking funds focus on investing in companies in the banking Industry. However, thematic funds are different from the sectoral fund.

Thematic funds are growth-oriented equity funds that focus on investing in a set of companies based (or closely-related) to a particular theme. They follow a top-down approach and targets a broader macro-economic theme on which the fund manager has a good knowledge of. Here, the thematic fund investors studies and understand the impact of structural shift in economics, political, technological, corporate or social trends on sectors, demographics etc which may reveal investable opportunities.

For example, electric vehicles (EVs) can be considered a theme. Here, the thematic fund based on EVs do not just need to focus on one automobile industry, rather they can include a set of industries which are a part of the theme. For example- this theme may include companies from the automobile industry, battery industry, Metal companies involved in making battery parts like Graphite, Aluminium, Carbon, etc, auto-ancillaries industry or any other companies related to the EVs.

A few other popular themes in India right now are digital India, make in India, technological progress, Internet of things, blockchain, environmental sustainability, social security etc.

Mutual funds vs Thematic funds

As I already mentioned above, thematic funds are different from the mutual funds and here are a few major differences between them:

— Mutual funds are over diversified while thematic funds are compact. Mutual funds invest in somewhere between 40–100 stocks. On the other hand, the number of stocks in thematic funds are smaller, typically between 5–20.

— Mutual funds are rigid and not easily customizable. Although there are thousands of mutual funds available in the Indian market, however, they are not customizable. On the other hand, it’s easier for investors to choose their ideas/sentiments and factor their risk appetite through thematic funds.

— The costs involved with mutual funds are high. For managing a popular active fund, the fund house may charge an expense ratio as high as 2.5-3%. However, the fees involved with thematic funds are comparatively cheaper.

Advantages of Thematic Funds

Here are a few common advantages of thematic funds:

— Thematic funds are potentially more rewarding compared to diversified mutual funds.

— As thematic funds offer a compact theme, they have a concentrated impact because of news or happenings in other non-related industries.

— There are a lot of publicly available popular themes in the Indian market and hence, finding the right investment opportunity is not a tough task for investors. For example, you can use FYER’s thematic investment platform to try new different themes.

— Thematic funds allow strategic exposure to the investor’s portfolio and encourage common sense investing as themes represent the investor’s ideas and thoughts.

The risk associated with thematic funds

There’s no denying the fact that no investment strategy is perfect. And the same goes to the thematic investments. By making investments in thematic funds, you are preferring a concentrated theme. This portfolio concentration makes these thematic funds comparatively riskier over diversified mutual funds.

Moreover, there’s also a controversy regarding thematic investments which says that investing in a concentrated idea which is still untested and underappreciated, may not be a sound approach.

Also read:

Closing Thoughts

A major difference between thematic investments and traditional ones is that the thematic investors look into the future and makes decisions based on the predictions on the future trends or upcoming shift in the structure. On the other hand, traditional investors check the history and weights more importance to past performance, market behavior etc.

Moreover, we cannot deny the fact that themes change fast with time. In the last two decades, we have witnessed massive changes in the industrial and technology theme. Therefore, if you are planning to make thematic investments, be observant and careful regarding the entry and exit decisions. Only enter these funds after you have researched the idea thoroughly.

Nonetheless, if you are able to invest in right thematic funds, they are capable of giving huge returns to the investors compared to other index or diversified funds.

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

February 27, 2020 Kritesh Abhishek Investment Basics 1 comment

5 Psychology Traps that Investors Need to Avoid

5 Psychology Traps that Investors Need to Avoid: Benjamin Graham once said that “an investor’s chief problem and even his worst enemy- is likely to be himself.” It is a well-known fact that the human brain is a wonder that is capable of numerous mathematical, problem-solving and communication skills that is unparalleled with any other living species.

However, when it comes to investing, humans have been known to make terrible decisions and often fail to learn from their own mistakes. They go through a ‘roller-coaster of emotions’ as shown below.

(Image Source: Credit Suisse)

While the human mind is incredibly unique, people still fall victim to the investor traps that can have serious consequences in the financial markets. This has led to the emergence of behavioural finance, a new field that aims to shed light on investors’ behaviour in financial markets.

This post discusses the most common psychological traps investors need to overcome to increase their chances of earning high returns.

5 Psychology Traps that Investors Need to Avoid:

— Anchoring Bias

Anchoring Bias occurs when people rely too much on a reference point in the past when making decisions for the future- that is they are ‘anchored’ to the past. This bias can cause a lot of problems for investors and is an important concept in behavioural finance.

For example, if you had a favourable return on a stock when you first invested in it, your perception on the future returns of stock is positive even when there may be clear signs indicating that the stock might take a dive. It is important to remember that financial markets are very unpredictable so you need to remain flexible and seek professional advice when not-sure of making considerable investment decisions.

— Herding

Also known as the mob mentality, is a tactic that was passed on from our ancestors and believes that there is strength in numbers. Unfortunately, this is not always the best strategy in the financial market as following the crowd is not always the right move.

Ironically, this herding mentality among investors is the major reason for ‘bubbles’ in the financial markets. Investors often ‘herd’ to secure their reputation and base their decisions on past trends or on investors who have had success with the same stock in the past. However, people are quick to dump stock when a company receives bad press or go into a buying frenzy when the stock does well.

As an investor, you should perform your own analysis and research on every investment decision and avoid the temptation to follow the majority.

— Loss Aversion

Loss Aversion is when people go to great lengths to avoid losses because the pain of a loss is twice as impactful as the pleasure received from an investment gain. To put in simple terms, losing one dollar is twice as painful as earning one dollar.

As emotional beings, we often make decisions to avoid a loss, this could involve investors pulling their money out of the market when there is a dip which leads to a greater cash accumulation or to avoid losses after a market correction investors decide to hold their assets in the form of cash.

However, this perceived security of exiting the market when it is unstable only leads to a larger amount of cash circulated in the economy which results in the inflation. During the 2007 financial crisis, there was $943B worth of cash increases in the US economy.

Investors can avoid the loss aversion trap by speaking to a financial advisor to learn how to cut their losses and optimize their portfolio for higher returns.

— Superiority trap

Confidence is an asset when it comes to investing in the stock market, but over-confidence or narcissism can lead to an investor’s downfall. Many investors, especially those who are well educated and have a good understanding of finance and in the functioning of the stock market often believe they know more than an independent financial advisor.

It is important to remember that the financial market is a complex system made of many different elements and cannot be outwitted by a single person. Many investors in the past have lost large sums of money simply because they have fallen prey to the mentality of overconfidence and refused to heed anyone’s advice. Overconfidence is the most dangerous form of carelessness.

— Confirmation bias

Confirmation trap is when investors seek out information that validates their opinions and ignores any theories that refute it.

When investing in a particular stock that believe will result in favourable returns, an investor will filter out any information that goes against their belief. They will continue to seek the advice of people who gave them bad advice and make the same mistakes. This results in biased decision-making as investors tend to look at only one side of the coin.

For instance, an investor will continue to hold on to a stock that is decreasing in value simply because someone else is doing the same. The investors help validate each other’s reasons for holding on to the investment, -this, however, will not work in the long-term as both investors may end up in a loss. Investors should seek out new perspectives on a stock and conduct an unbiased analysis of their investment.

Also read:

How can an investor overcome these psychological traps?

The human mind is very complex and there are many factors both internal and external that can affect the decisions we make. The pressures we face in society make it easy to feed into temptation and fall prey to the psychological traps listed above. Being overconfident, seeking validation from others and finding comfort in other people who are in the same boat as you are just some of the reasons that can have an impact on the investment decisions we make.

Nobody is perfect and it is only human to fall into a psychological trap. The best way to mitigate these effects is to stay open to new information and think practically about how the investment will affect you as an individual. You should also seek the advice of industry experts to ensure that your investment decisions are based on well-researched information that can help you make unbiased decisions.

February 26, 2020 Divya Premkumar Investing Psychology 1 comment

Good Debt vs Bad Debt: What You Need to Know?

Good Debt vs Bad Debt: What You Need to Know?: A common misconception among most of the working population is that all debts are bad, and hence they should avoid debts at any cost. Now, it is possible that you may never take any debt/obligation throughout your lifetime. However, this is not a very smart move.

Many times, taking debts to reach your goals can be a wise action and can help people succeed in the long term. As a matter of fact, all those who run a business or have a winning mindset know that – “Not all debts are bad!”

Although buying luxury goods through debt on your credit card should definitely be considered as a bad debt, however, sometimes, it is okay to take a debt to start a business, buy your new house, for getting a higher education, etc when the possible returns in future are higher compared to the interests paid.

In this article, we are going to discuss good debt vs bad debt. By the end of this post, you’ll completely understand what good debts, bad debts, their characteristics, examples, and more are. Let us start with Good debts.

Good Debt vs Bad Debt

1) Good debts

There is a common saying in the business world– “Money makes money.” In other words, it means that you need money to make more money.

Concerning good debt vs bad debt, if you can use your debt to generate more money/value or simply increase your net worth, then it can be considered as good debt.

In general, these debts have lower interest rates than the potential returns and, therefore, treated as an investment for the future.

For example, if you’re starting a business, it is not necessary that you should have enough savings to get it off the ground. Here, if the future growth potential and expected returns from your business are high, you can take a business loan. The business loan can be considered as a good debt (on the condition that your business is fruitful).

Here are a few other common examples of good debts:

— Education loans:

“The more you learn, the more you can earn.”

If taking a degree can increase your earning potential as an employee (or an employer), it’s okay to go for that debt. You are more likely to be better paid if you have higher knowledge and degree. Always be ready to “Invest in yourself,” and hence, taking a student/college debt can be considered good debt.

Anyways, please note that an education loan may turn out to be bad debt if you do not get employment as per your developed skills after graduation. Therefore, always choose the degree/program carefully because if there’s no substantial earning potential after you have completed the education, it may not be a good debt.

— Business loan:

If taking a business loan can increase sales, earnings, and improve your company’s financial health in the future, it can be a good debt. Moreover, having a balance in the account can also reduce the financial stress of owners as they do not have to worry about running out of cash constantly. And therefore, they can make better decisions for their business.

With time, the owners can slowly pay down the debt when their business becomes profitable and moreover stable. Anyways, a business loan can also become a bad debt if the businessman is blindly taking money for a risky business idea.

— Mortgages:

Mortgages for buying a house or real estate debts for property ownership can be considered as good debt.

Generally, buying a house or property involves a massive upfront cost. If you do not have saved a lot of money to invest in a house/property, but the potential earnings that you can make from your real estate investment are way high, then taking a loan may be a good idea.

Here, you can buy the property, live in it for years, save money on rent, and also sell it in the future for making money. Else, you can buy the property and rent it out to make money as rental income. As you are taking a loan to build an asset that increases in value, mortgages can be considered as good debts in the long run.

Also read: What are Assets and Liabilities? A simple explanation.

The Risks of Good Debt:

Although good debts may sound like a viable option for a better future, however, they are always dependent on a lot of assumptions. There’s no guarantee that the future will turn out to be the same as planned. For example:

You can get a college degree from your education loan but may have no job offer.
Your business loan may be a waste if your business/startup fails
You may be paying high mortgages for your house and may be left with no savings for the future.

Even for good debts, there are a lot of risks involved as people are forecasting the future based on their assumptions. Therefore, before taking an obligation, carefully assess the risks and rewards.

For example, if you are planning to get an education loan, choose to take the loan for a degree/program that you’re confident to be fruitful. Know the expected salary after graduation so that you can plan to pay the money back.

Besides, considering the worst-case scenario may also help here as you can even plan for it. Overall, always act smartly as a good debt may not always be right for everyone.

2) Bad debts

Bad debts are the money that is borrowed to purchase depreciating assets or liabilities. In other words, if the value of assets doesn’t go up or generates income in the future, you should not buy it by borrowing money as they are bad debts.

In general, bad debts have a higher interest rate, and people can prevent taking these debts by making smart use of money. Here are a few examples of bad debts:

— Debts to buy fancy cars:

Cars cost a lot. While having a vehicle can be a necessity as it saves money and time, however, taking debt to buy an expensive car is never a good idea. The value of a vehicle depreciates over time, i.e. becomes less than what you paid for in the future. And hence, borrowing money to buy fancy cars can be considered as bad debt.

— Debts to buy luxuries:

Taking consumer/personal loans to purchase luxuries like expensive watches, clothes, dining in fancy restaurants, services, etc. are again bad debts. Personal loans have incredibly high-interest rates and are usually caused by living beyond one’s means. The money spent on these goods/services could have been used somewhere else.

— Credit Card debts:

Credit card debt is the worst form of bad debt. The interest paid on credit card debts is significantly higher than the rates on consumer loans. Moreover, as the outstanding amount accumulates each month, it makes it easy for the people to fall behind and become prey to the credit card companies.

Mixed/Special Cases of Good Debt vs Bad Debt:

The world is not just ‘Black’ and ‘White’. There’s also ‘Grey’!

Similarly, a debt cannot always be classified as good debt or bad debt. Sometimes, it can be both. It depends on your financial situation and preference. Here are a few examples:

— Borrowing to invest:

If you are getting money at a lower interest rate and making more money by investing it, then it can be considered as good debt. In the trading world, this is called leveraging, and it can help the traders to make a lot of profits using other people’s money.

Anyways, if the interest rate on the borrowed money is way high and the profits earned from your investment is low, then this money can be considered as a bad debt.

Overall, there’s a risk involved in borrowing money to invest. Until and unless, you’re trained and experienced to do so, this approach can be dangerous.

— Credit card rewards:

Although relying too much on credit cards be harmful, however, they are also a lot of benefits of using credit cards. Most of these cards come with amazing rewards like free airline tickets, movie tickets, cashback, etc. If you can use the credit cards efficiently, it can be considered as good debt.

— Consolidation loan:

In finance, consolidation occurs when someone pays off several smaller loans with one more jumbo loan. Here, the individual gets this loan at a lower rate to pay off the higher interest rate loans. In general, it can be considered a good idea to get rid of high-interest debts. However, the problem arises when the individual is not able to pay off the bigger loan or when the debts pile up.

Also read: 11 Best Passive Ways to Make Money While You Sleep.

Summary

Let us quickly summarize what we discussed about Good Debt vs Bad Debt in this article.

Good debt is a debt for getting product/service that has the potential to increase its value with time. As a thumb rule, if it increases your net-worth or value, it is good debt. The right amount of good debt can increase your net worth, value, and help you get the things that you want in your life without taking unnecessary risks.

On the other hand, if you are borrowing money to spend over depreciating assets or liabilities, it is bad debt. Bad debt tries to lure people for instant gratification. However, they do not create any significant long-term value. Try to avoid getting bad debs for luxury products/services or borrowing high-interest rate money.

Finally, there’s no fixed boundary for defining good and bad debts. A good debt for one can be bad for another, depending on their financial situations.

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

February 25, 2020 Kritesh Abhishek Personal Finance 1 comment

How Dilution Affects the Company’s Valuation?

Dilution of a company’s shares is a common scenario in the equity market. However, there is multiple effects on the valuation of the company in terms of market value and EPS (earning per share) calculation after dilution. In this post, we are going to discuss how dilution affects the company’s valuation.

This is going to be a technical yet interesting post and we would advise our readers to read this carefully. Feel free to reach out to us or post comments in case of any doubts or clarifications.

1. What is dilution?

Simply define dilution is the term used to describe the reduction in ownership or voting rights in a company.

Let’s understand this through the following example.

Assume a Company A’s equity is divided into 100 shares and we own 10 shares in the company, i.e we own 10% equity in the company. Now, let us assume that the company decided to fund its expansion plans by issuing new shares in the stock market (follow-on offerings). So, on the day of issue, the company issued 100 new shares in the market and a foreign firm with interests in the Indian market acquired all of the new shares issued.

Now, the company’s new equity is broken up into 200 shares out of which the foreign investor owns 100 shares (50% of equity) while we own 10 shares (5% of equity).

In the example, the follow-on offering is said to be dilutive for the company’s shareholders since their effective ownership has decreased in the firm.

Also read: Shareholding Pattern- Things that you need to know

2. What causes dilution?

Dilution can happen due to various some of the reasons are given below (may not be an exhaustive list)

Follow-on offerings in capital markets
Conversion of options and warrants by the holders
Conversion of convertible bonds into equity
Offerings of new shares to partners during acquisition or Joint-Ventures

3. How to identify companies where dilution is likely?

In most cases dilution happens when the company has desperate needs for infusing capital into its operations. Since modern financial ecosystem provides multiples routes and opportunities to achieve this aim, the most common strategies used by companies are to raise capital through debt offerings or through the issuance of new shares in the secondary public markets.

In case the company raises money through debt, this route need not always result in dilution of equity holdings for the investors. Dilution through debt happens only in case the company pledges to give its equity as collateral for a certain amount of debt.

Also read: How to Find the Shareholding Pattern of a Company?

4. How to calculate the shares outstanding after dilution for calculating market cap?

The shares outstanding after dilution would simply be as per the following equation,

Total dil. shares outstanding = common shares +newly issued shares

where, the newly issued shares could primarily come from (but not limited to) conversion of convertible preferred shares, conversion of convertible debt and also from shares issuable from stock options

This is shown by the following expression,

Newly issued shares
= shares from conversion of conv. preferred shares + convertible debt + issue of stock options

The calculation of the new shares from convertible preferred shares and convertible debt are pretty straightforward since most of the time these shares and debt are issued at a fixed conversion rate.

For example, Assume a Company ABC has issued 1000 preferred shares and 50,000 convertible bonds amounting ₹50 Lakh in debt. Also, the company on the date of issue stated that each of the 10 shares of preferred shares could be converted for 1 common share and 5,000 of the bonds could be converted for 100 common shares.

The newly issued shares post-dilution would be the sum of 100 (from preferred shares) and 1,000 (from convertible bonds) which is equal to 1,100 new shares.

(The shares issued from stock options is slightly complicated and is usually calculated using the treasury stock method. We shall review this method in another post.)

5. How dilution affects the company’s valuation?

Dilution affects the company’s valuation of terms of its different calculations. Here’s how dilution impacts the company’s market value and eps calculation-

— Market Value

Due to the rise in the total number of shares outstanding after the dilution, Market Value may change significantly after dilution, depending on the extent of the dilutive effect of the newly issued shares.

The formula for calculating Market Value remains the same, except that we will now use.

Total Diluted Shares Outstanding instead of Total Common Shares Outstanding.

Market Value = Price per share Total Diluted Shares Outstanding

— Earnings per share

The impact on earnings per share due to dilution is may become quite profound depending on the extent of dilution and is very important since EPS is very commonly used by investors in the final calculation of the intrinsic value of a stock.

Since companies normally get a tax benefit for interest paid on debt, after dilution this benefit is no longer applicable and we may see our net income being boosted by the after-tax amount of debt.

Another change that happens is due to dilution of the convertible preferred shares, in case the preferred shareholders were paid the dividend out of the net income of the company earlier, they need be paid anymore after dilution since they have the same status and rank as the common equity holders in the company. The change in the formula due to the dilution is illustrated by the following expressions,

The basic EPS of a company is given by the following formula,

The diluted EPS of a company is using from the below formula,

Also read: #19 Most Important Financial Ratios for Investors

6. Bottom line

In this post. we understood the impact of dilution on the valuation with the help of equity dilution example. Today, we learned that dilution can have a significant impact on the Market Value and EPS calculations of a company and may distort the true value if it is not incorporated during the analysis of a company.

Since dilution mostly comes at the expense of the common investor, we advise that our readers scrutinize the annual report to find whether dilution is good or bad for them. A careful look at the financial statements is required to make the necessary changes during dilution analysis. Afterall, a decrease in the existing shareholder’s ownership in a company also means a decreased profits.

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

Levin Jenson

Levin is a former investment banker and a hedge fund analyst. He is an NIT Warangal graduate with around 5 years experience in the share market.

February 25, 2020 Levin Jenson Investment Basics, Valuations 8 comments

21 All-Time Best Quotes by Charlie Munger

Best Quotes by Charlie Munger: The name Charlie Munger, 95, doesn’t require any introduction for those involved in the investing world. If you are new to investing, you might have heard Charlie as Warren Buffett’s right hand. However, even individually, Charlie Munger is considered as one of the world’s wittiest investors.

Anyways, let me first introduce Charlie Munger to the newbies. Charlie Munger is an American investor, businessman, and self-made billionaire with a net worth of over $1.7 Billion (as of Feb 2019). He is the vice-chairman of Berkshire Hathaway, the conglomerate headed by Warren Buffett. And like Buffett, Charlie Munger is also an active philanthropist and has donated millions of his personal wealth for good causes.

Interestingly, if you look into his background, Charlie Munger never took any course in investing, finance or economics while he was in university. During World War II, Charlie studied meteorology at Caltech to become an army meteorologist. Later, he earned a degree in law from Harvard Law School.

Charlie Munger and Warren Buffett met in 1959 during a dinner party and got along immediately. Although they knew each other for a very long time, however, they built their informal partnership by investing together only in the 1970s. Later in the 1980s, both started the present structure of Berkshire Hathaway and have been running in profitably ever since by building wealth for themselves and their investors. Here’s what Warren Buffett thinks of his business partner Charlie Munger:

“We’ve got an extremely good partnership and business is more fun — just as life is more fun — with a good personal partner and to have a great business partner. You know it’s just — we’ve accomplished more but we’ve also had way more fun.” -Warren Buffett

Charlie Munger’s wisdom is an asset for all the investing community. The knowledge and success that he has gained in the past many decades is quite inspirational. Therefore, in this post, we are going to highlight twenty-one evergreen quotes by Charlie Munger that every investor should know. Let’s get started.

21 All-time best Quotes by Charlie Munger

Charlie Munger Quotes on investing wisdom

“People calculate too much and think too little.”

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

“What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience — both vicarious and direct — on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and fail in life. You’ve got to hang experience on a latticework of models in your head.”

Charlie Munger Quotes on Wealth Creation

“The big money is not in the buying or the selling, but in the waiting.”

“What are the secrets of success? – one word answer: ”rational”

“It takes the character to sit with all that cash and to do nothing. I didn’t get to where I am by going after mediocre opportunities.”

“To get what you want, you have to deserve what you want. The world is not yet a crazy enough place to reward a whole bunch of undeserving people.”

“All I want to know is where I’m going to die so I’ll never go there.”

Charlie Munger Quotes on Importance of learning

“There isn’t a single formula. You need to know a lot about business and human nature and the numbers… It is unreasonable to expect that there is a magic system that will do it for you.”

“I paid no attention to the territorial boundaries of academic disciplines and I just grabbed all the big ideas that I could.”

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero. You’d be amazed at how much Warren reads — and at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”

“Spend each day trying to be a little wiser than you were when you woke up. Day by day, and at the end of the day-if you live long enough-like most people, you will get out of life what you deserve.”

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

Charlie Munger Quotes on Circle of Competence

“Knowing what you don’t know is more useful than being brilliant.”

“If something is too hard, we move on to something else. What could be simpler than that?”

“I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”

“We have three baskets: in, out, and too tough. … We have to have a special insight, or we’ll put it in the “too tough” basket.”

Charlie Munger Quotes on life rules to live by

“Mimicking the herd invites regression to the mean.”

“Remember that reputation and integrity are your most valuable assets — and can be lost in a heartbeat.”

“Just because you like it does not mean that the world will necessarily give it to you.”

“Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much-loved hand — you must learn to handle mistakes and new facts that change the odds.”

“Take a simple idea, and take it seriously.”

Meet the Newer Version of Trade Brains Learning App

Hi Friends. You have got a great taste of learning finance in a fun and easy way. Sure, you do. That’s why you’re a loyal reader of the Trade Brains’ website and our Newsletters.

But sometimes, blogs and newsletters are not enough to learn. Well, we understand. And therefore we just relaunched the newer version of Trade brains stock market learning app on google play store and wanted you to be the first to know.

Quick note: Here’s a direct link to download trade brains learning app from playstore.

Trade Brains- The Stock Market Learning App

Just to reintroduce, Trade Brains is a comprehensive stock market learning app focused to simplify investing and finances for beginners and intermediate investors and traders. This app is designed to ensure that newbies can learn to invest by grasping all the essential concepts regarding the financial market step-by-step.

Some of the key interactive features that we added in this new app are:

Interactive Learning: We have made the app more interactive to offer a fun and easy way to learn to trade and invest in the share market anytime, anywhere.
Structured Courses: Now, you can explore and enroll in our factory of Guided Courses specially categorized for beginner, intermediate and seasoned learners.
Build Your Profile: In order to make your learning more dynamic, the users can win points & badges after successfully completing every lesson to build their profile, track their achievements and grow.
Biggest Ever Resources: We have added all the essentials tools for stock market learners to make their journey easy like Financial Glossary, Financial Calculators, Quizzes, AI-Based chatbot & more, all at one place.

Some key tools offered in our Learning App:

★ AI-BASED FINANCIAL CHATBOT

Trained with over five hundred intents on financial concepts, our artificial intelligence-based financial chatbot will answer most of your troublesome queries. Simply ask your question in our chatbot and it will give the relevant answer.

★ FINANCIAL CALCULATORS

Our simple financial calculators will help you simplify your investments. Whether you are planning to start an SIP or want to calculate the target investment amount for your desired corpus for a goal-based investing, our simple calculators will make your calculations easy and fast. In addition, you can find all the essential intrinsic value calculators like DCF calculator, Graham calculator, etc inside the app.

★ INVESTING QUIZZES

Hey, do you think you know the investing world good enough? Then prove it! Through the specially designed quizzes, you can test your knowledge of stock market and mutual funds. We offer FREE specialized quizzes on the stock market, mutual funds, financial market and more in our learning app.

★ READ LATEST FINANCIAL NEWS

Read the latest news and headlines from leading Indian business websites like Business Standard, Livemint, Bloomberg Quint, etc in real-time to keep yourself updated with the market efficiently. This app provides a smarter way to read all important financial news in one place.

Overall, the Trade brains learning app is a Fun & Easy Pocket guide for stock market investors and learners. And that’s why, I would like to invite you to try the app.

Here’s a link to download the app from the Google playstore.

In addition, if you’ve any feedback or suggestions regarding the app, feel free to comment below. I and my team will be happy to implement them on the app.

Have a great day.

Warm Regards,
Kritesh Abhishek
Founder, Trade Brains

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

February 25, 2020 Kritesh Abhishek News No comments yet

3 Past Biggest Scams That Shook Indian Stock Market

A Study of biggest scams that shook Indian Stock Market: Do you know that if you had invested Rs 100 in the Sensex in 1979, your corpus would have become over Rs 30,000 by the end of 2017? There is no doubt in saying that the Indian stock market has yielded enormous returns to investors in the last few decades.

However, there were also times, when the market witnessed extreme malpractices carried out by a few wicked minds. Many people with foul intentions applied brainstorming techniques to manipulate the Indian stock market prices. You can have a look at this blog to understand a few common types of scams in the Indian stock market.

In simple words, a scam is referred to as the process of obtaining money from someone by deceiving him/her. The majority of the securities market scams that took place in India eventually led to a lot of financial distress to the retail investors. They adversely affected the normal functioning of the markets and degraded the trusts of lakhs of investors on the Indian share market.

3 Past Biggest Scams That Shook Indian Stock Market

Although there are hundreds of scams reported by the equity investors every year, let us have a brief study of three of the past biggest scams that shook the Indian share market.

1) Harshad Mehta Scam

During the early 1990s, Harshad Mehta, a stockbroker, started facilitating transactions of ready forward deals among the Indian banks, acting as an intermediary. In this process, he used to raise funds from the banks and subsequently illegally invest the same in the stocks listed in the Bombay Stock Exchange to inflate the stock prices artificially.

Because of this malpractice, the Sensex moved upwards at a fast pace and reached 4,500 points in no time. The retail investors started feeling tempted seeing the sudden rise of the market. A huge number of investors started investing their money in the stock market to make quick money.

During the period from April 1991 to May 1992, it is estimated that around five thousand crore rupees were diverted by Harshad Mehta from the Indian banking sector to the Bombay stock exchange. After the fraud was revealed, the Indian stock market crashed consequently. And as guessed, Harshad was not in a position to repay crores of money to the Indian banks.

Conclusively, Harshad Mehta was sentenced to jail for 9 years by the honorable court and was also banned to carry out any share trading activity in his lifetime.

(Credits: Finnovationz)

2) Ketan Parekh Scam

After the Harshad Mehta scam, a Chartered Accountant named “Ketan Parekh” had similar plans of arranging comparable securities scam. Coincidently, Ketan used to work as a trainee under Harshad Mehta earlier and hence also known as the heir of Harshad Mehta’s scam technique.

However, Ketan Parekh not only used to procure funds from the banks but also other financial institutions. Like Harshad Mehta, he also used to inflate the stock prices artificially. Apart from the Bombay Stock Exchange, the other stock markets where Ketan Parekh actively operated were the Calcutta Stock Exchange and the Allahabad Stock Exchange.

Nonetheless, Parekh used to deal mostly in ten specific stocks, also known as the K-10 stocks. He applied the concept of circular trading for inflating their stock prices. You might be surprised to know that even the promoters of some companies paid him to boost their stock prices in the market. Anyways, after the Union budget in 2001 was announced, the Sensex crashed by 176 points. The Government of India carried out an intensive investigation into this matter.

At last, it was the Central Bank who determined Ketan Parekh to be the mastermind behind this scam and he was barred from trading in the Indian stock exchanges till 2017.

3) Satyam Scam

The Chairman of Satyam Computer Services Limited (SCSL), Mr. Ramalinga Raju confessed to SEBI of the manipulation done by him in the accounts of the Company. This corporate scandal was carried on from 2003 till 2008. It is estimated that the fraud took place for around Rs five thousand crores of cash balances as the company by falsifying revenues, margins.

The stock price of Satyam fell drastically after this incident. Eventually, CBI took charge of conducting the investigation into the matter. They filed three partial charge sheets against Satyam. Subsequently, these three partial charges were merged into one charge sheet.

In April 2009, Raju and nine others involved in the fraud were sentenced to jail by the honorable court. Consequently, Mahindra Group acquired SCSL and it was renamed as Mahindra Satyam. It subsequently merged within Tech Mahindra in 2013.

Bonus: A few other popular corporate scams

Apart from the above-mentioned scams, here are a few other famous corporate scandals which also deserve to be mentioned in this post.

1) Saradha Scam

Sudipta Sen, the Chairman of the Chit-fund company called Saradha Group, operated a plethora of investment schemes. The schemes were called the Ponzi schemes and did not use any proper investment model. This scheme is alleged to have cheated over a million investors.

The Saradha Group collected huge funds from the innocent investors in West Bengal, Assam, Jharkhand, and Odisha. The money collected was used to be invested in real estates, media industry, Bengali film production houses and many more. The Saradha scam came to the fore in April 2013 when Sudipta Sen fled leaving behind an 18-page letter.

Although the Saradha scam didn’t have any direct impact on the Indian stock market, it had an indirect impact on the stock exchange. The Foreign Institutional Investors (FII) took a step back seeing such unregulated Ponzi schemes being floated in the market.

2) NSEL Scam

National Spot Exchange Ltd (NSEL) is a company that was promoted by Financial Technologies Indian Ltd and the NAFE. Two individuals named Jignesh Shah and Shreekant Javalgekar were held guilty for this scam. The Funds that were procured from the ignorant investors were siphoned off. This is because most of the underlying commodities did not have any existence at all. The transactions of commodities were being carried out only on the paper.

NSEL attracted the attention of the retail investors by offering them fixed returns on paired contracts in commodities. Around 300 brokers have been alleged roles in the ₹5,500-crore NSEL scam in 2013.

Also read: NSEL scam: 300 brokers face criminal action

Closing Thoughts

Securities and Exchange Board of India (SEBI) was established in India in the early 1990s to administer and regulate the functioning of the Indian securities markets. It is the apex authority which regulates the affairs of Indian securities market participants. If you are a follower of the financial market, you would know the frequent amendments that come every year in the SEBI Act and Regulations.

Although the occurrence of stock market scams and corporate scandals has reduced subsequent to the establishment of SEBI, but hasn’t completely stopped.

Additional resources to read

February 24, 2020 Rajarshi Bose Investment Basics 5 comments

A Complete Guide to Tax Saving Mutual Funds - ELSS

An Essential Guide to Tax Saving Mutual Funds – ELSS

An Essential Guide to Tax Saving Mutual Funds – ELSS: Whenever you research how to save taxes in India, you can easily find the experts mentioning to invest in tax saving mutual funds or ELSS. However, for beginners, getting started with ELSS investment might be a little confusing.

In this post, we are going to cover everything regarding tax saving mutual funds. By the end of this post, you’ll be able to clearly understand why exactly is an ELSS and how it works.

So, if you are a newbie and find it challenging to get started with tax saving mutual funds in India, then please read this article until the very end. It will definitely help you to demystify the majority of the questions that you might have regarding ELSS. Let’s get started.

1. What is Equity linked saving schemes (ELSS)?

An ELSS (Equity Linked Savings Scheme) Mutual Fund is a variety of Equity Mutual Fund which allows individuals and HUFs to avail Income Tax deduction from their Total Income for an Assessment Year subject to a maximum limit of Rs.1.5 lakhs u/s 80C of the Income Tax Act, 1961.

ELSS mutual fund is an Equity oriented fund which is having a lock-in period of 3 years. The said duration is counted from the respective allotment date of the unit(s).

Like any other type of Equity Mutual Fund, ELSS comes with both growth and dividend options as well.

Investment in an ELSS scheme can either be made in a lump-sum or through a Systematic Investment Plan (SIP). Investments made in a Financial Year (Previous Year) up to ₹1.5 lakhs can be claimed for tax deduction under the said Act.

Till the Financial Year 2017-18, no tax on income from Long-term capital has been charged from an Assessee on redemption of the unit(s) of an ELSS. As per the Budget (Finance Act) 2018, Long-term capital gain over ₹1 lakh is to be taxed @ 10% by the Government of India.

2. Types of ELSS

ELSS comes in two varieties. The first category is the dividend scheme and the second type is the growth scheme.

In the case of former, when the mutual fund announces a dividend, the unitholders earn income in the form of a dividend on the units held by them. Such dividends can either be withdrawn or reinvested by the unitholders.

Another part of ELSS with dividend feature is that the dividend earned is eligible for tax benefits. Moreover, the dividend earned by the unitholder is not subjected to any lock-in period, i.e. it can be withdrawn any time.

A similar provision is not applicable to the growth schemes.

3. What are the features of Tax Saving Mutual Funds?

Image source: Richvikwealth.in

In order to avail the benefit of the tax deduction, an Assessee can make an investment in an ELSS Mutual Fund for as low as Rs. 500. There is no upper limit of investing in ELSS, unlike PPF and NSC, but as said earlier one would only get tax deduction u/s 80C to the maximum of Rs. 1.5 lakh.
Investment in an ELSS scheme is, of course, meant for a long duration as it comes with a lock-in-period of 3 years.
Irrespective of the short lock-in period of ELSS funds, the later have time and again yielded substantially higher returns in comparison to NSC, PPF, ULIP, etc.
ELSS is an equity oriented mutual fund wherein the underlying portfolio majorly consists of equity investments in publically listed companies having strong business models. Being equity oriented mutual fund, it is subjected to market risks.
Tax saving mutual funds or ELSS are mostly open-ended.
Like any other mutual fund, an investor of ELSS can also make another person as his/her nominee.
Like most of the equity funds, many ELSS funds also come with entry and exit loads.
Many investors prefer investing in ELSS funds through the SIP route. It ensures rupee cost averaging that significantly cuts volatility in the stock market.

4. What are the benefits of investing in an ELSS?

Image source: Cleartax.in

Here are a few of the distinguishing benefits of investing in ELSS:

As discussed earlier, a taxpayer can enjoy the benefit of deduction from his/her taxable income (for a maximum of Rs.1.5 lakh).
We all know that Mutual Fund investments are subject to market risks i.e. systematic risks. Market risks can’t be eliminated but the fund manager invests the funds of investors in diversified equities which eliminate the unsystematic risks.
An investor may opt for not withdrawing the investment at all after the end of the 3 years lock-in-period. Holding on the units will result in the growth of the investment and will subsequently yield handsome inflation risk-adjusted return for the investor.
As said earlier, the investor can withdraw any dividend earned as no restriction is there on its withdrawal during the lock-in-period. The restriction of withdrawal is there only in respect of the investment.
ELSS, being an open-ended mutual fund, allows anyone to invest in the same at any time during the year.
One can find popular tax saving avenues like ULIP, NPS, and PPF which offer lock-in period ranging from 6 to 15 years. But, investing in ELSS will reduce the lock-in-period significantly to 3 years only.
In case an investor of ELSS is not having knowledge of the market, he/she can be rest assured that his/her funds will be managed by a qualified fund manager.
It is not necessary that one has to invest in ELSS for only availing tax benefits. ELSS can also be considered as a long-term wealth generation tool. As the lock-in-period is 3 years, one can even think of investing in ELSS for meeting any future financial goal.

5. How is the Capital Gain from an ELSS Fund taxed?

If an investor sells his/her units of an equity mutual fund after a year, tax on long-term capital gains (LTCG) will be applicable.

Up to 31st March 2018 tax charged on the long-term capital gain was nil. But, as per the Union Budget 2018, tax on LTCG of stocks and equity funds were re-introduced. If the long-term capital gain exceeds Rs.1 lakh from the redemption of an equity fund, then tax @10% will be charged on such LTCG.

Again, in the said budget it said that if investors sell their equity mutual funds within a year, they will be required to pay short-term capital gains tax @15% on their returns. The provision regarding short-term capital gain (STCG) tax was there in the Finance Act 2017 as well.

ELSS funds as said earlier, are having a lock-in period for 3 years. So, the gain on an ELSS fund by default comes under the long-term capital gain tax.

Image source: Tflguide.com

Also read:

6. How to choose the right ELSS fund?

Following key points should be considered by someone who is looking to invest in an ELSS fund:

Looking into the past performance: Past performance does not guarantee future performance of a mutual fund scheme. Looking at historical returns is the initial step of evaluating a scheme. It helps in evaluating the performance of the fund managers over the years.

Age of an ELSS Fund: An ELSS Fund has been in the market for 5 years or more is generally considered ideal for new investors. This is because they generally represent reputed AMCs and have good track records.

Risk of ELSS: Different ELSS schemes come with different risks. An investor should select a specific ELSS Fund based on his/her risk appetite.

Looking at the Expense Ratio: The Expense Ratio refers to the percentage of the fund which an asset management company charges from the unitholders. This is the charge for meeting the cost of operations of the fund.

Assets Under Management (AUM): This is the amount of money which is being managed by a mutual fund scheme. Various types of ELSS Funds have different ideal sizes for AUM.

Checking the Rating of ELSS Fund: Ratings of the ELSS Funds published in a reputed online platform helps a prospective investor to know which fund is the best.

Source: Mymoneysage.in

7. The last few words on ELSS Mutual Funds

With the rise in the equity market over the years, the investors have gained interest in ELSS mutual funds as an income tax saving instrument. ELSS is a category of equity mutual fund that is created by the government to encourage people at large to participate in the equity market of India.

As ELSS funds come with the benefit of the tax deduction, middle-aged people feel interested to invest in the major part of their savings in the Indian equity market.

There is no doubt in saying that investing in an ELSS scheme is certainly not risk-free. Even though the NAV graph of an ELSS scheme is not free from frequent ups and downs, the growth of the fund never falls below other tax saving alternatives like PPF and ULIP.

But, owing to a fact of scope for higher returns at a minimum lock-in period, Equity Linked Saving Schemes have emerged as the most demanding tax saving option today.

February 23, 2020 Rajarshi Bose Mutual Funds 1 comment

6 Common Mistakes to Avoid While Investing Through SIPs

6 Common Mistakes to Avoid While Investing Through SIPs: Since the past few years, people are increasingly showing their inclination towards mutual fund investments. However, just an attraction is not enough to invest correctly in mutual funds. They also need to know how to invest effectively and moreover, what mistakes to avoid.

While investing in mutual funds, people can either opt for lump sum or via SIP mode. For example, if you plan to invest a huge amount of money, say Rs 10 lakh in mutual funds all in one go, this is a lump-sum investment. On the other hand, if you choose to make your investments in chunks, say Rs 20,000 per month for the next 10 years, then this is considered a systematic investment plan (SIP).

In general, the SIP mode can be a little more convenient way to invest in the Indian equity market. It facilitates the people in building long term wealth without putting a lot of pressure on making huge investments all at once. Anyways, if SIPs can make your life more comfortable, it can also add trouble if you don’t use it in the right manner.

Here are some common mistakes which the majority of investors do while investing in the Mutual Funds through SIPs.

6 Common Mistakes to Avoid While Investing Through SIPs

1. Choosing an incompetent SIP amount

While investing in a Mutual Fund via SIP mode, you should know the right amount to invest in order to reach your goals/needs.

In general, most people start with a small amount for their SIPs. This may be because they do not have much money to invest at that time or any other reason. However, subsequently with time, one should not forget to increase the size of their investments. On the other hand, there are also a few investors who start investing in SIPs with big amounts without performing a proper analysis of the funds. Moreover, they also don’t monitor their investments and thereby later suffer losses.

While investing in mutual funds through SIPs, you need to find the right size to invest that you can maintain on a regular basis. Furthermore, you need to monitor your portfolio closely in order to make decisions regarding whether to increase, decrease or stop your investments in the underlying schemes.

2. Investing for short-term

Mutual Fund investing is generally meant for generating wealth in the long run. One common mistake that majority of investors make is to redeem their investments in the short term in case their portfolios are unable to earn profits.

A lot of people start their SIPs with an objective to make money in a small time period. However, the fact is that when you opt for a small tenure, you are exposing yourself to a higher risk of market volatility. It is highly unlikely that you will get higher returns in a shorter tenure. Remember, SIP investing works on rupee cost averaging approach and helps in creating wealth in the long run.

3. Picking the Wrong fund

Before you start investing, you need to ensure that you have opted for the correct fund based on your financial aspirations, risk appetite, and liquidity requirements.

If you invest in the wrong fund, your SIP investments might not fetch the expected returns. Furthermore, before finalizing your scheme, you need to check some of the key parameters like its historical performance, underlying portfolio, expense ratio, fund manager credentials etc.

You may have a look at this blog on our website to gain a basic understanding regarding how to pick a right mutual fund.

4. Abruptly stopping SIP investments

Mutual Fund is associated with long term investment and it would be highly profitable if you hold your units for a longer period of time. However, on most occasions, the investors tend to lose their patience when they find their portfolio bleeding in the short run. A similar situation was witnessed by the Indian economy last year (2018) when most investors found their Equity Mutual Fund portfolio running at a substantial loss.

It is understandable that people may start to panic seeing their portfolio in red. However, the risk of market fluctuations drives the majority of the investors to shy away from further investments and this is where they make a mistake.

Also read:

5. Completely forgetting the SIPs after commencing

Ironically, you can find many investors who start their SIP and later forgets it completely. A lot many people have this misconception that long-term wealth creation means it doesn’t require monitoring at all.

However, even the soundest mutual fund which is managed the best fund manager requires monitoring. You need to monitor your mutual fund performances every 6 months or at least a year.

6. Waiting for the perfect time to start

“Time in the market is better than timing the market.”

When it comes to timing the market vs time in the market, it is said time and again that don’t try to timing the market. You will never find the right time to enter. Here, time in the market is more important as the longer you stay in the market, the better will become your investment return.

Nonetheless, it has been seen that many investors keep waiting for the perfect time to start their SIPs.

The best feature of investing in Mutual Funds through SIPs is that it averages out your costs of investing. And that’s why there isn’t any proper time for you to start your SIP. The earlier you can enter, the higher is your chance to build huge wealth and to enjoy the benefit of compounding.

Conclusion

Mutual Fund investing through SIPs can help you reach your financial milestones if you invest in the right way. However, investing via SIP requires focus and discipline.

In this post, we tried to cover a few common mistakes to avoid while investing through SIPs. As discussed earlier, while investing in SIPs, always think long-term. Here, you can’t afford to abrupt your SIPs even if the market starts showing a bearish trend in the short duration. The longer is your investment horizon, the higher will be your scope to build wealth from the market.

That’s all for this post. We wish you all the best in your SIP investing journey. Happy Investing.

February 21, 2020 Rajarshi Bose Mutual Funds 2 comments

What are the Different Career Options in the Stock Market in India cover

What are the Different Career Options in Indian Stock Market?

Different Career Options in Indian Stock Market: The equity market has opened a lot of career opportunities in recent years. This market is getting bigger day by day and the opportunities for employment in the Stock Market are growing every day. People from all backgrounds whether science, commerce or humanities, are showing more and more interest to pursue their careers in Stock Market today.

On one hand, many people are opting to become a financial market participant and work independently. On the other, a significant number of Startups are establishing innovative ideas to create disruption in the Indian Securities Market.

In this post, we are going to discuss a few excellent share market career opportunities in India. Let’s get started.

Different Career Options in Indian Stock Market-

— Stock Broker

As you might already know, if you want to trade or invest in the Stock Market, you must open a trading and Demat Account. These two accounts are offered by stockbrokers. So, given the largely growing investing population of India, you can easily guess how prospective the career as a Stock Broker could be.

For example, If we take of Mr. Nithin Kamath, the founder of Zerodha (discount broker), he started off his career as an Engineer and subsequently started taking interest in the Stock Market. Later, he found the financial market so fascinating that he switched his profession as an engineer to a Stock Broker. In the year 2018, Zerodha, his stockbroking company was awarded the best discount broker entity in India by NSE.

(Image: Nithin Kamath & Nikhil Kamath – Zerodha Co-founders)

Further, in order to become a Stock Broker or open a stockbroking entity, you don’t require a strict eligibility criterion in terms of academics. Nonetheless, you need to clear NISM exams and get your license from the SEBI. Anyways, if you plan to be a Stock Broker, it is important to gain a practical understanding of the Market. So, it is better to work with a Securities Broker for at least 5 years to gain requisite experience if you are willing to start your own venture.

Next, if you want to get employed in a Stock Broking Firm, you will need to clear 12^th standard at the minimum. Graduating in Accounting, Economics or Finance will help you start your career from a decent level. Qualifying Post Graduation is not necessary but it might help in fast promotion in the industry. In case you have qualified professional courses like CFA, CA or FRM, no doubt your career path would become really smooth.

(Note: You can read detailed information regarding making a career as a Stock Market Broker here.)

— Financial or Investment Advisor

If you want to start your own consultancy business in the Financial Market, becoming a Financial Advisor or an Investment Advisor is a perspective option.

In recent years, AMFI has been trying hard to bring the income earners in our country to invest in the Mutual Fund industry through their campaign “Mutual fund Sahi hai!”. However, just AMFI is not big enough to educate and convince billions of people in our nation to invest their money in the financial market. As an Investment Advisor, you can reach a plethora of prospective clients.

Preparing customized financial plans, providing consultancy services on wealth management and educating people on financial products can assuredly help you to build a career and make good money in this industry.

To become a Registered Investment Advisor, you will require an education and certification criterion. If you have a graduate degree in Finance/Commerce or at least 5 years of work experience with a financial company, you meet the educational criteria. Note that if you are an engineer with just a B.Tech degree, you do not meet the educational criteria by SEBI. Here, you need work experience in the finance field for at least 5 years or a post-graduate degree in finance.

Anyways, if you are a Post Graduate degree in finance, you won’t require any work experience to apply for your license from SEBI. Further, whether you are a Graduate or a Post Graduate, you mandatorily need to clear the NISM Investment Advisory Certification exam to apply for the SEBI registered Investment advisor. Once you meet all the educational and certification criteria, you can apply to SEBI and get your license. (Note: You can read this post to learn further on how to become an Investment advisor in India.)

Besides, completing CA, CFA or CFP will also help you get the required knowledge you need to render professional services to your clients.

Also read: What is SEBI? And What is its role in Financial Market?

— Research Analyst

Apart from becoming an investment advisor, Equity Research Analyst is also a lucrative career option nowadays. Let us have a brief understanding of this.

Equity Research includes Buy-Side Research and Sell-Side Research. In the case of the former, the researcher work with a financial service organization that directly invests people’s money in the Stock Market. Here, you need to research the stocks to help the Fund Managers make decisions with respect to managing the available financial assets. In the case of Sell-Side Research, the researchers analyze equities and equity derivatives for the clients who are retail traders and investors.

If you want to start your own business as an independent Research Analyst, the eligibility criteria are similar to Investment Advisory option. Further, if you want to take a job as a Research Analyst, the top financial service entities in India look for candidates who are MBA graduates from Tier 1 institutes. Nonetheless, you can also make a career as a Research Analyst if you have completed CFA or CA. (Note: You can read further regarding Equity Research Analyst profession here.)

— Portfolio Management Services (PMS)

If you are a Mutual Fund investor, you might know that your investments are managed by experienced and skilled Portfolio Managers. The Wealth Management firms operating in India handle clients’ money via professionally qualified Fund Managers. Portfolio Management could be an extremely rewarding career if you are good at managing money and have a strong understanding of the Financial Market.

In order to enter this field, you will require professional qualifications like CA, CFA or MBA (Finance). Moreover, if you are a fresher, it is extremely hard to get into this field. Here, you may need experience of at least a decade of working in the Finance domain as you need to grasp the level of maturity of handling assets which amount in crores. Therefore, if you are considering to become a Portfolio Manager, you may first start working in the marketing and research for 5 to 10 years. (Note: Here is a blog that can answer your additional questions on the career as a Portfolio Manager)

Conclusion

In this article, we tried to cover different career options in Indian stock market. Parting advice- if you are planning to make a living from the Stock Market, you need to have an in-depth understanding of the financial world.

Although possessing academics and professional qualifications are necessary but having practical exposure to how the market exactly works is more important. Besides, whichever stock market career option you choose, having strong communication and analytical skills are always add-on advantages.

February 19, 2020 Rajarshi Bose Investment Basics, News 11 comments

How To Make Money From Dividends -The Right Way?

Everyone who enters the stock market wants to make money from their investments. And in order to do that, first, they need to understand how people really make money from stocks. Basically, there are two ways to make money from the stock market – Capital appreciation and making money from dividends.

When it comes to capital appreciation, most of the people know this method to make money from stocks. Buy low and sell high. Purchase a good stock at a low valuation and wait until the price goes up. The difference in the purchase and selling price is the profit (capital appreciation).

This is the core principle of value investing. Find an amazing stock at a cheap valuation and hold it for a long time until the market realizes its true/real value.

However, there is also a second method to make money from the stock market which is (generally) ignored by most newbie investors. It is called dividends. In this post, we are going to discuss how to make money from dividends -the right way.

— Important terms to know regarding dividends

Before we dig deeper, first you need to learn few important terms regarding dividends-

1. Dividends: Dividends are the profits that a company shares with its shareholders as decided by the board of directors.

2. Dividend yield: Dividend yield is the ratio of annual dividend per share divided by the price per share. The formula for dividend yield is given below:

Dividend yield = (Dividend per share/ price per share)

For example, if a company gives an annual dividend of Rs 10 and its current market price is Rs 200, the dividend yield of the company will be 10/200 = 5%.

Also read: Dividend Dates Explained – Must Know Dates for Investors

— Dividends by a few popular companies

Here are the annual dividends of a few famous companies in India (2019).

Bharat Petroleum – Rs 17.24 per share
Hero Motocorp – Rs 87.12 per share
Tata Steel – Rs 13 per share
Infosys – Rs 21.70 per share
Hindustan Zinc – Rs 20 per share

Now, if you calculate the dividend yield given by the above companies, you may find it very small.

If a company gives a dividend yield of 2% per year, it’s really difficult to build a livelihood using this income, right? For example, if you want an annual income of Rs 2 lakhs in dividends, then you have to invest Rs 1 Crore in that stock. This is not feasible for most of the average Indian investors.

However, there’s an important lesson that you need to learn here—

— Dividends increase over time…

This means that a good fundamentally strong company will increase its dividends with time.

For example, if a healthy company gives a dividend of Rs 10 this year and makes more profit in the upcoming years, then it will increase its dividends in the future.

Another important lesson to learn here is that– your dividends are going to increase. But your purchase price is going to remain constant throughout your holding time frame.

Therefore, if you look at the dividend yield, the numerator (dividends) is going to increase with time. But the denominator (purchase price of the stock) is going to remain constant for you. In short, the dividend yield for that stock is going to increase in the future.

Also read: How to Earn Rs 13,08,672 From Just One Stock?

Let us understand this better with the help of an example.

— How To Make Money From Dividends?

Suppose you purchased 100 stocks of a company at Rs 200. The annual dividend for that year was Rs 10. So, for the first year, the dividend yield will be 5%. This yield is small here compared to the returns from most of the debt investments.

Nevertheless, let us assume that the company is fundamentally healthy and going to give a consistent (increasing) dividends in the upcoming years. Here is a table describing the annual dividends in the upcoming years.

Year	Dividend	Purchase Price	Dividend Yield	Total Annual Dividends
YEAR1	Rs 10	Rs 200	5%	Rs 1,000
YEAR2	Rs 12	Rs 200	6%	Rs 1,200
YEAR3	Rs 15	Rs 200	7.50%	Rs 1,500
YEAR4	Rs 18	Rs 200	9%	Rs 1,800
YEAR5	Rs 21	Rs 200	10.50%	Rs 2,100

Moreover, along with the dividends, your capital will also appreciate in value as you are holding the stock for a long time. In the next 5 years, maybe the purchase price of Rs 200 has now appreciated to Rs 400, 500 or whatever high price.

For the investors, who buy that stock directly in the fifth year (at an appreciated price- let’s say Rs 500), the dividend yield for them might be low. However, as you have purchased that stock long ago at a decent price, the dividend yield will be quite high (even higher than the fixed deposits). From the above table, you can notice the increase in the dividend yield as the dividend increases.

In short, here dividends are allowing you to receive a healthy income without selling your original assets.

Quick Note: Want to learn more about dividend investing? Download our Stock Market Learning app and start your learning NOW!

— A few points of concerns regarding dividends

The biggest point of concern regarding dividend stocks is that dividends are not obligations. This means that the company may reduce or discontinue the dividends in future.

For example, if a company suffers a heavy loss in a year or if the company is planning to invest its profit in some new project/plant, then it might reduce the dividends or do not give any dividends to its shareholders.

Therefore, if you are investing in any dividend stock, then first make sure to look at the dividend history of that company. A consistently increasing dividend for the last 10-12 years can be considered a healthy sign.

Also read: 10 Best Dividend Stocks in India That Will Make Your Portfolio Rich.

— Conclusion

Buy low and sell high is not the only way to make money from the stocks. There are many long-term investors who are generating big wealth through their annual dividends. If you want a good consistent return on your stocks without selling it, then investing in a healthy dividend stock can be a good strategy.

That’s for this post on how to make money from dividends. I hope it was helpful to you. Have a great day and happy investing.

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

February 18, 2020 Kritesh Abhishek Essential Reading, Investment Basics 10 comments

5 Ultimate Sectors for Long-term Investment in India

Best Sectors for Long-term Investment in India: When you are investing in stocks for the long-term, the first critical factor to check is the life-span of the products/services offered by that company. The products should be in use for at least the next 10-15 years. The last thing you want is that people do not need that product anymore and the company ran out of business.

Further, if you want to make good profits from stocks in long-term, then make sure that you are investing in the growing sectors. Few sectors in India like utility, mining, etc were good in the past as they were growing at a decent pace at that time. However, these sectors will hardly grow any more in the future (compared to the speed at which they used to grow in the past). On the other hand, few industries like technology, machine learning, renewable energy, electric vehicles, etc are on the verge of rapid growth.

In this post, we are going to discuss the five best sectors for long-term investment in India for consistent returns. So, let’s get started.

Best sectors for long-term investment in India

1. Information Technology (IT)

The 20th century was the era of manufacturing. From the 1990s to 2010, it was the time for the internet boom. And currently, it’s the time for information. As a general matter of fact, IT companies are growing at a much faster rate compared to the manufacturing companies. And obviously, skilled employees in the information technology industry are earning a lot more than those in the traditional industries.

There are many factors that are boosting the growth of this industry like technological advancement, economic needs, the Indian government taking beneficial decisions (digital India) etc. Considering these factors, the information technology industry can be assumed to continue to grow. And hence IT stocks can be treated as one of the best sectors for long-term investment in India.

A few of the major players like IT Industry like TCS, Infosys, WIPRO, HCL, Tech Mahindra etc has already established a good brand value and created huge wealth for its shareholders. Nonetheless, these companies can still be considered as a safe bet for the long-term. However, if you want fast-growing stocks with good upside potential, the mid-cap IT industry stocks are an amazing fit for long-term investment in India.

Also read: 10 Best Blue Chip Companies in India

2. FMCG (Fast-moving consumer goods)

Will the people still be using soaps, shampoo, surf, oil, etc– 15-20 years from now? I think so.

FMCG is the most defensive sector for long-term investment in India. Most of the products in this Industry have been used by the people for over 100 years and yet will continue in the future. Few FMCG companies like HUL, Dabur, Emami, ITC, Nestle etc are common names in Indian-houses. The majority of the people living in Indian cities/towns have been using their products for a very long time.

Unlike many sectors that follow the contraction and expansion cycle (i.e. Cyclical industries), the products offered by the FMCG industry will always be in demand. During a recession or economic crisis, people may not buy a new automobile or might not take new loans or avoid investing in real estate/infrastructure, but because FMCG products are the basic necessities- its demand won’t decrease as much compared to the other industries.

In the past few years, these companies have also started growing in the Indian rural areas/villages. Earlier, people in rural areas do not like to use the products of FMCG companies. However, the trends are changing these days. Therefore, these companies have a very good growth opportunity in those areas area. If you are looking for a safe industry to invest, then FMCG industry is one of the best sectors for the long-term investment in India.

3. Housing finance companies

India is a growing country (in fact the fastest growing country in the world). And housing finances companies or NBFC (Non-banking finance companies) are going to play a crucial role in the growth story of India. This is easily one of the best sectors for long-term investment in India.

Unlike major public sector banking companies in India, housing finance companies are performing well for the past many years and will continue to do so. They have actually a low NPAs (Non-performing Assets) when compared to the PSU banks. Few major players in this industry can be HDFC, LIC Housing Finance, Indiabulls Housing Finance, GRUH Finance, and DHFL.

4. Automobile Companies

According to a CNBC report- The world’s fleet of electric vehicles grew 54 percent to about 3.1 million in 2017. The forecasted number of electric vehicles on the road around the world will hit 125 million by 2030. (Source: CNBC)

(Image source: Bloomberg New Energy Finance)

It’s safe to say that the world (along with India) will run on electric vehicles by 2030. Therefore if you are futuristic and want to invest in the best sectors for long-term investment in India- you might not want to miss this revolution.

Now, if you study electric vehicles, you will find that few important parts which make the EVs are batteries, braking system & micro-controller. Of course, other routine auto parts like body, tires, driving system etc are also involved- but these three are the critical ones.

For making electric vehicles successful, batteries should be powerful and efficient to run longer distances without discharging. Different companies are already working to improve the technology of existing lithium-ion batteries. Apart from lithium, aluminum is another metal that is going to play an important role. Aluminum will be used in car structures as they are excellent conductors. (Read more here- the electric vehicle revolution will spur aluminum demand).

To summarise- here are a few companies that will be playing a crucial role in the electric vehicle revolution —

Batteries: Amara Raja, Exide Industries, Eveready.
Metals: Hindalco, Vedanta, NALCO (National Aluminium Corp), Graphite India, Hindustan Copper.
Auto Companies: M&M, Tata Motors, Maruti Suzuki, TVS Motors, Hero Motocorp, Bajaj Auto.

Note: Although auto ancillary companies (like Minda Industries, Motherson Sumi, etc) will also play a significant role, however, to keep this answer streamlined, I didn’t not focused on them. Nevertheless, even those companies have an amazing potential to reward its shareholders in the long-term.

5. Infrastructure

When you go to a developed country, what is the first thing that you notice? Big buildings, towers, flyovers etc, right?

For growing countries like India, the growth is the infrastructure is the fastest. You might have already noticed the continuous work in building new airports, railway stations, metro etc in India. Infrastructure companies are the key players in the growing countries and hence are obviously this sector of the best sectors for the long-term investment in India. Few major players in this industry are L&T, Adani Ports, GVK Infra etc.

Also read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

Bonus: Pharmaceuticals Stocks

It’s really impossible to ignore the pharmaceutical industry when we discuss long-term. Although this sector is in the bear phase for the last few years, however, they are few one of the best sectors for long-term investment in India. With the evolving technologies, pharmaceutical companies are investing heavily in their research and development activities.

Many of these companies are consistently developing better & cheap drugs and are also getting support from the government. A few of the major players in this industry are Lupin, Sun Pharma, Glenmark Pharma, Aurobindo Pharma, etc.

Quick Note: New to stocks and confused where to start? Here’s an amazing online course for the newbie investors: INVESTING IN STOCKS- THE COMPLETE COURSE FOR BEGINNERS. Enroll now and start your stock market journey today!

Closing Thoughts

Long-term investment in consistent industries can help you to build great wealth to secure your future. Many large-cap companies like Infosys, WIPRO, HUL etc has amazingly rewarded their loyal shareholders. As an intelligent investor- it makes much sense to invest in the growing sectors for long-term investment in India. Nevertheless, an important lesson to learn here is that not every growing sector is going to give amazing returns.

For example- Internet companies gave amazing returns in the 1990s and 2000s as they were growing at a good pace then. However, the same was not true for the airline industries during its peak.

The airline industries started growing at a good pace during the 1970s. It was considered revolutionary as people argued that it will change the whole course of the transportation sector. And obviously, the people were investing heavily in airline companies. Although the industry did grow a lot in the past 50 years, however, hardly any airline company stock in India gave consistent returns or became a huge multi-bagger.

Therefore, while selecting the best sectors for long-term investment in India- the best approach is to diversify. Allocate funds in different sectors that you believe will grow -so that the risk is diminished and you also don’t miss out any booming sector.

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

February 17, 2020 Kritesh Abhishek Investment Basics 11 comments

What You Need To Know About Intangible Assets!

Evaluating the intangible assets of a company is a crucial part of the fundamental analysis, especially in a generation with a lot of leading companies in the technology and service-based industries.

However, most investors ignore this part and focus more on the physical assets like land, building, equipment, etc. One of the major reasons why people skip the part of studying intangible assets is because these assets are a little difficult to evaluate. After all, how would you correctly measure the value of a brand or non-physical assets of a company?

In this post, I’ll try to demystify intangible assets in simple words so that you can understand what exactly are intangible assets, why are they valuable for a company and how can you evaluate the intangible assets of a company.

Overall, it’s going to be an exciting post. Therefore, please read it till the end because I’m sure it will be helpful to you in assessing companies better.

What are intangible assets?

Intangible assets are those assets that are not physical in nature, yet are valuable because they contribute to the potential revenue of the company.

A few of the common examples of intangible assets are brand recognition, licenses, customer lists, and intellectual property, such as patents, franchises, trademarks, copyrights, etc.

Quick Note: Contrary to these, TANGIBLE Assets are those assets that have a physical form. For example- land, buildings, machinery, equipment, inventory, etc. Further, financial assets such as stocks, bonds, etc. are also considered tangible assets.

Although intangible assets do not have an obvious physical value such as land or equipment, however, they can be equally valuable for a company for its long-term success or failure.

For example, companies like Apple or Coca-Cola are highly successful because of the significant brand equity. Since it is not a physical asset and tricky to calculate the exact value, still brand equity is one of the primary reasons for the high sales of these companies. In India, companies like Hindustan Unilever, Colgate, Patanjali, etc also enjoy the benefits of enormous brand value.

Further, a few more examples of intangible assets can be marketing-based (ex- Internet domain names, non-competition agreements etc), artistic-based (ex- literary works, musical works, pictures etc), Contract-based (ex- franchise agreements, broadcast rights, use rights etc) and technology-based (example- computer software, trade secrets like secret formulas and recipes etc). [Credits: Examples of intangile assets- Accounting tools]

what you need to know about intangible assets cover

Moreover, in a few industries, intangible assets are more valuable:

Unlike manufacturing companies where inventories and fixed assets contribute to the majority of their total assets, in a few industries the intangible assets are more valuable:

Consumer product companies depend on the brand name. For example- Hindustan Unilever, Godrej, Colgate, etc. The bigger the brand name, the easier are the sales.
Technology companies get the most success by their technical know-how and skilled human resource. Ex- Infosys, TCS, etc.
Banking companies have their computer software license, stock exchange cards and electronic trading platform (websites). Ex- HDFC bank.
Telecom industries use their bandwidth licenses (including spectrum) to enjoy benefits. Example- Bharti Airtel
Drugs and pharmacy companies protect their sales through patents, which means that they can sell unlimited medicines of patented drug and their competitors can’t enter or replicate the same. Ex- Dr. Reddy’s Laboratory, Glenmark Pharma, etc.

And that’s why the leading companies in these industries spend a lot of money in building these intangible assets.

For example, in the IT industry, training and recruiting are more prominent than investing in physical assets like buildings.

Similarly, pharmaceutical companies spend a lot of capital in the Research and development (R&D) which may help them get a patent on a revolutionary drug. And that’s why, while evaluating companies in this industry, the capital expenditure of the different companies/competitors in their R&D work should be carefully evaluated.

If you look into the consumer product companies, they spend a lot of money in advertisement just for brand awareness. Although, this may not lead to instant sales and may add overhead expenses, However, over the long term. branding help these companies to generate more profit.

Valuing Intangible Assets

The intangible assets of a company can be found on the asset side of the balance sheet of a company. For example- here is the intangible assets for Hindustan Unilever (HUL)

Source: Yahoo Finance

You can use the intangible to total asset ratio to evaluate the worth of intangible assets in a company. For example- in the case of Hindustan Unilever, its intangible assets make around 2.05% percent of its total assets.

However, valuing intangible assets are easier said than done. One of the biggest reasons equipment high sales of HUL in India is its prominent brand recognition. A few of the popular brands of HUL are Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality the and Pureit.

Here, do you really think that the brand value of HUL contributes only around 2% of its net assets? I don’t think so. It must be worth more. However, there’s no easy way to correctly evaluate the worth of the brand recognition and other non-physical assets.

Quick fact: According to Forbes, COCA COLA’s brand value amounted to 57.3 billion U.S. dollars. It is the only company in the top seven list that sells carbonated sugar water beverages. Rest all are technology companies with Apple and Google as leaders. This is the power of branding. Read more here: The world’s most valuable brands.

Also read:

Bottom Line

Although intangible assets do not have a physical presence, they add huge value to the company. There may be even cases where the intangible assets are of far greater value than the market value of the company’s tangible assets.

However, while valuing such companies, you may have to put some efforts to study these assets as the accounting conventions do not always value the exact worth of a few intangible assets and they may be reported below their true value in the balance sheet.

Anyhow, look for the intangible assets that are definite (i.e. stays with the company for as long as it continues operations) and difficult to replicate.

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

February 17, 2020 Kritesh Abhishek Investment Basics, Valuations No comments yet

How much does a Wedding cost in India? (For Average Indians)

An overview of Wedding cost in India for Average Indians: Weddings are a dream come true event for most couples. It is the single most awaited occurrence in your life. You want it to be extravagant and lavish to whatever extremes possible and while that is absolutely normal for you to expect, the ever-increasing cost of living and inflation has always been a major factor in the decision making of the entire wedding budget. The wedding cost in India is written in brief below.

Vital factors for deciding Wedding cost in India

No two weddings in India will ever cost the same amount because of the different variables involved. The wedding cost in India may vary depending upon vital factors such as:

Guest count
Number of functions
Traditional activities
Venue location
Food expenses

Today, we will help you understand the various costs that you would have to incur while planning a wedding in India. Right from basic costs up to larger costs, we will try to cover all aspects of a traditional Indian wedding. Since the requirements of every religion differ from one another, the budget will differ too. However, we will give you a stable idea of the expenses incurred in a wedding for average Indians in Pune.

We pick Pune since it is a metro area and expenses are higher in such areas. Remember, it is always better to assume an upper limit rather than a lower one so that when you save money from your budget, you feel ecstatic.

1. Venue

A wedding venue can cost anywhere from thousands to lakhs and some even crores of rupees! But for an average Indian, the wedding venue must be one of the most time and resource-intensive decisions he has to take for wedding planning. In Pune, an average wedding venue for around 1000-1500 people should cost you anywhere around INR 1,00,000 to INR 3,00,000. This may be subject to change depending upon the number of guests, the location of the venue and the extravagance of it as well.

2. Decoration

A big business in the wedding industry is the venue decoration business. A mediocre wedding decoration set up (depending upon the venue size) can cost you anywhere between INR 70,000 up to INR 30,00,000. However, for average Indians, this cost can be approximately INR 1,50,000 for a simple yet elegant venue set up with flowers and other attractive accessories.

3. Catering

Catering is one of the major wedding costs in India and goes complimentary with the venue location decision. Like we Indians always say, “no one will remember anything about a wedding but the food!” So it is always good to research your options well before you go for any particular caterer. Again the costs will vary from vegetarian to non-vegetarian options. A vegetarian plate should cost you around INR 600 per plate and a non-vegetarian plate should cost you around INR 1,000 per plate or more.

4. Bridal/Grooms Attire

A bride has a thousand expectations for the ideal wedding attire. Her lehenga will cost her anything between INR 25,000 to INR 1, 00, 000. An average Indian girl shall have to bear a cost of INR 40, 000 for the ideal lehenga along with the jewelry that goes with it for around INR 30, 000 extra. If gold jewelry is in the picture, for every tola of gold that you wear, INR 40, 000 shall increase in your list. Make up for the bride can cost INR 15,000 for basic bridal makeup and hairdo. Various bridal dresses from the Haldi, sangeet, and wedding and up to the reception could cost around INR 1, 00, 000.

Similarly, a groom’s sherwani would cost INR 40,000 (averagely priced) along with his other attire requirements such as juttis, turban, etc.

5. Wedding Invitations

Again, planning the wedding cost in India is incomplete without a good and attractive wedding invitation card. A wedding invitation card will cost you anywhere between INR 50 – 100 per card. If you want to for more graphically created content, the cost may go up by thousands per card. So depending upon the number of invitees and your choice of content, the cost of your invitation cards can be decided.

6. Photography and Videography

Photography and videography are extremely important for any wedding. When you look back at your wedding, there are tons of precious memories captured through these photos and video creations. Thus, employing a good photographer will cost you around INR 40, 000 per day and videographer will cost you around INR 50, 000 per day.

Go for a packaged deal of photo and videography as a bundle. You will definitely save more money by doing this and you will also get both the facilities from one vendor.

7. Accommodation

Accommodation for guests traveling from outside locations (most weddings have at least some guests coming from outside) can be an added expense for a wedding. This can range from INR 1,000 per room on a twin or triple sharing basis and upwards to any amount depending upon the budget. Based on the number of guests and the number of rooms required, this cost will add up to your final wedding expense list.

8. Miscellaneous expenses

A dozen things pop up out of the blue when the wedding cost in India is ongoing. Therefore it is important for families to keep a small amount of money aside for the same. Last-minute supplies, transportation costs of paying drivers, caterers, etc., or something that you have forgotten to add initially can be covered under this allowance. Additionally, if a DJ is hired for the Sangeet, his fees should be included however this is just an additional expense whereas others are bound to happen.

Also read: Renting vs buying a home- Which one is better?

Bottom line

Here is a rough summary of the different expenses involved in an Indian wedding:

Venue: INR 1,00, 000 to INR 3,00,000
Decoration: INR 1,50,000 to INR 3,00,000
Catering: INR 600- 1,000 Per Plate
Bridal/Groom’s attire: INR 50,000 – 1,00,000
Wedding Invitation: Rs 50-100 per card
Photography: INR 50,000 per day
Accommodation: INR 1,000 per room

Overall, the average wedding in India may cost somewhere between INR 8-10 lakhs, if you are being thrifty. However, this is just an approximation of the wedding cost. Multiple factors will affect your budget and your requirements. Thus, do a thorough check and research extensively for all the above particulars stated in the above list.

Most importantly, do not over-do it. Your wedding should be as per your capability and not to show off to anyone. Be smart and be responsible with your finances. Good luck!

February 16, 2020 Fiza Inamdar Personal Finance 6 comments

How is the opening price of a share determined?

If you are new to the stock market, you might not know how is the opening price of a share determined? Why does the stock open at a specific price which is higher or lower than the previous day closing price? What determines this opening price if the stock market is closed.

The Indian stock market works for five days from Monday to Friday. The normal trading session is between 9:15 AM to 3:30 PM in both the major stock exchanges of India- BSE, and NSE. However, before the normal trading session, there is a small pre-opening session from 9:00 AM to 9:15 AM every day. This is the period when the opening price of the shares is decided.

But what exactly happens during this period? And how is the opening price of a share determined?

This is what we are going to discuss in this post. Today we are going to discuss how is the opening price of a share determined. But before we discuss it, there are few basics that you need to know first.

Types of order

There are two types of order that you can place for a buying/selling of shares in the share market:

Market Order: It is the order when the stocks are bought/sold at the market price and is executed instantaneously. For example, assume that you want to buy ten stocks of a company that is currently trading at the market price of Rs 90. When you place the market order, you will buy the stocks at the market price i.e. Rs 90.
Limit Order: This order refers to buying or selling the stocks at a limit price. For the same example stated above, let’s assume that now you want to buy the stocks at Rs 88. Then you can place a limit order and once the market price of the stock falls to Rs 88, the order is executed.

The market order is instantaneous whereas limit orders occur depending on the fulfillment of supply and demand.

Pre-Opening session in a market

The pre-opening session is divided into three segments- The order collection period, order matching period, and buffer period. Let us understand each one of them in detail now.

9:00 AM to 9:08 AM – This session is called the Order Collection period. You can place, modify, and cancel your order during this time period. However, no execution occurs during this period.
9:08 AM to 9:12 AM – This is called order matching period or trade confirmation order. You cannot place, modify, or cancel your order during this interval. Placed orders are executed during this period based on the price identification method. This is also called equilibrium price determination or Call auction.
9:12 AM to 9:15 AM – This period is called buffer period and is used for easy transition from pre-opening session to normal market session.

Also read: Stock Market Timings in India

How is the opening price of a share determined?

The opening price of the share is determined during the call auction. As soon as the order collection period is over, the order matching period starts.

The order matching happens in the following sequence:

Eligible ‘limit’ orders are matched with eligible ‘limit’ orders.
Residual eligible ‘limit’ orders are matched with ‘market’ orders.
‘Market’ orders are matched with ‘market’ orders.

Now, let us understand how the opening price is decided with the help of an example.

Example to Understand Opening Price Determination

Assume that during the order collection period, following demand (buy orders) & supply (sell orders) were available for different stock prices for a company named ‘ABC’. I had customized a simple table for easy explanation.

Here, you can notice that there are different quantities of demand and supply of stock for different share prices (based on the buy and sell order placed).

Share Price	Demand	Supply	Maximum Tradable Quantity
100	1100	900	900
101	800	1100	800
102	1000	1200	1000
103	500	600	500
104	400	700	400

The opening price is determined based on the principle of demand and supply mechanism. It occurs at the equilibrium price, where the maximum volume (tradable quantity) is executable.

If the above example, the maximum tradable quality was possible at a share price of Rs 102. Hence, Rs 102 will act as the opening price for the share.

All the outstanding orders, which are not executed in the pre-opening session, will move to the normal market session.

Quick Note: The above table is created in a simple way to let you understand the basics. However, in real-time scenarios, there will be tons of volume of buy and sell orders, making it quite complicated.

Summary

The equilibrium price determined in the pre-open session is determined as the opening price for the share.

That’s all for today. I hope this post on ‘How is the opening price of a share determined?’ is useful to the readers. If you have any doubts, feel free to comment below.

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

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

February 15, 2020 Kritesh Abhishek Investment Basics 18 comments

7 Best Newspapers for Stock Market India to Read!

List of Best Newspapers for Stock Market India: Every active investor and trader needs to stay updated with the latest news about the stock market. Missing one key information – a big corporate announcement, new deals/projects, change in management or any scam/fraud allegations about your favorite stock may result in a change in profitability in your portfolio. But how to stay updated with the current happenings and events in the stock market? A simple answer is by reading newspapers.

We all know that reading newspapers is a good habit that can provide a great sense of educational value as well as keeping us updated with the latest happenings around us. A newspaper is basically a periodical publication containing well-written information about current events. Moreover, with the availability of the ‘e-Newspapers’ i.e. online newspapers, accessing these are a lot easier. In this article, we are going to discuss seven best newspapers to read and stay updated about the Stock Market. Here they go:

7 Best Newspapers for Stock Market India

1. Business Standard

The daily newspaper Business Standard (also available as an e-paper) is the first preferred choice of serious business readers. It is one of the largest Indian English-language daily edition newspaper published by Business Standard Ltd. The Business Standard provides the latest news about Economy, Finance, Current Affairs, International Management, Personal Finance, etc. You can check out stock prices of India’s leading companies, Sensex, Nifty, Gold, Silver, etc. They also offer an Android App available in the google play store.

2. Livemint

Livemint is one of my favorite newspapers to read and stay updated with the stock market. The reason is its clear editorials and nicely designed pages. This newspaper is published by HT Media, a Delhi-based media group that is controlled by the KK Birla family and also publishes Hindustan Times. Livemint provides information about Markets, Companies, Money, Start-ups, Mutual Funds, Investment Queries, Insurance, Technology and more. They also offer e-Paper, you can log-in and get the latest news.

3. The Hindu Business Line

The Hindu Business Line is an Indian business newspaper published by the publishers of the newspaper The Hindu located in Chennai, India. It gives daily market live updates about Sensex and Nifty, information about commodities, Forex, Gold & Silver Science, World, Sports, Real Estate, and also Trending topics in the Market. The e-Newspaper for the Hindu Business Line is also available.

4.Reuters

Reuters is the world’s largest international multimedia news. It provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world’s media organizations, and directly to consumers. Here you can get updates about Stocks, Business, Technology, Sports, Entertainment, etc. You can easily subscribe to their newsletters. The Reuters app is available in the play store.

5. MoneyControl

Moneycontrol is one of the most popular websites to read financial news in India. It is owned by E-EIGHTEEN Dot Com Ltd., a subsidiary of the media house TV18. Though it is not exactly a newspaper, Moneycontrol financial portal offers end-of-day stock prices, stores of news (text and videos), analysis, data and tools on investing (across diverse asset classes), the business sector, and the economy. It also provides a few recommended Market Podcasts like ‘‘A morning walk down Dalal Street‘. You can also track the Market using Moneycontrol mobile app.

6. The Economic Times

Originated in 1961, The Economic Times is an Indian daily newspaper headquartered in Mumbai, India in English-language published by Bennett, Coleman & Co. Ltd. They provide the latest news updates on investing, Economy News, Business News, technology, etc. They offer a separate Economic Times Market section for their readers to stay updated to the stock market and financial world. Apart from the newspapers, the Economic Times also provides e-edition for the convenience of the user.

7. Bloomberg Quint

Bloomberg Quint is a multiplatform, Indian business and financial news company. It is a joint venture of Bloomberg News and Quintillion Media. They provide Bloomberg’s global leadership in business & financial news and data with Quintillion Media’s deep expertise in the Indian market and digital news delivery. Its main content is based on high-quality business news, market-moving news, top trends, economy news, international finance news, and compelling perspectives. They also offer market Podcasts.

Also read: 7 Must-Know Websites for Indian Stock Market Investors.

Bonus: 3 Additional Newspapers for Stock Market India

8. NDTV Profit

New Delhi Television, popularly known as NDTV, is an Indian television media company founded in 1988 by Radhika Roy, a journalist. NDTV gives updates like news, videos & photos about Business, Stock, Entertainment, stock talk, Sports, etc. They also have an app that is Faster and Lighter, with features that ensure you get the latest news notifications.

9.Yahoo finance

Yahoo! Finance, a part of Yahoo!’s network, provides financial news, data, and commentary including stock quotes, press releases, financial reports, and original content. It provides real-time streaming quotes for many exchanges and provides stock information like their financial statements, latest announcements, updates, etc. Yahoo Finance also offers online tools for personal finance management which are very useful for its readers.

10. Google Finance

Google Finance is not exactly a publication but a news aggregator. On Google Finance, you can find all the latest financial information about stocks, market news, economy news, and top stories around the world in Finance.

Closing Thoughts

There are hundreds of newspapers available in the market to read and stay updated with the Stock market. However, not all are equally good. Out of all the ten Best Newspapers for stock market India to read, my favorite ones are Livemint, MoneyControl, and Bloomberg Quint. Which one is yours? Comment below to answer. Further, if I missed any popular newspapers that provide genuine information about the stock market, then please do comment below. Cheers!

February 10, 2020 Varna Madhukar Economics, Market 4 comments

Is First Mover a competitive advantage for a firm?

Zerodha was the first mover in the discount broking industry. Unlike the traditional brokers like Sharekhan, ICICI Direct, HDFC sec, etc. who charge large brokerages for their trading services, Zerodha offers a low brokerage charge. And as of 2019, Zerodha has outranked all these big players to become the biggest broking firm in India.

While reading this incredible success of Zerodha, one obvious question among people is whether being the first mover in the discount business model, the biggest reason for the Zerodha’s success? How big is the actual competitive advantage for the first movers? In this post, we are going to discuss the same.

Who are First Movers?

First movers are those companies who are the ‘first’ in line to offer their products or services in the market. They are the ones to innovate and develop a product/service which was not available previously in the market. Further, they do not face similar competition like the ones in the established markets.

In many cases, such companies can build great brand recognition and loyal customers for their products/services during the time gap, i.e. before the competitors enter.

An important point to note is that first-mover advantage is here referred only to those companies who are able to scale and make establish a big market, not the ones who just started the idea but didn’t make it large.

I mean, Amazon might not be the first company in the online bookselling industry. A lot of small businesses might be selling books or their products online before its establishment. However, Amazon was the one who was able to capture a significant market, make an impact and hence, can be considered as an actual first mover in this industry.

A few other examples of the first movers in their respective industry can be Kindle (ebook selling), eBay (online auction), Apple (iPhone & iPads), Uber (taxi booking & ride-sharing), etc.

In India, companies like Flipkart, Oyo, Olx, Ola etc. are the ‘Regional’ first movers. Although they copied the concept from their global rivals, however, being the first mover in the Indian subcontinent region gave them an advantage.

Advantages of First Movers

Being the first mover, a company can enjoy a lot of benefits compared to the later entrants. Here are a few of the best advantages of first movers:

Brand recognition: First movers can create a strong impression which can help them build a passionate customer fan-base and create a big brand recognition even before any competitors enter.
Price & Benchmarking: The first movers enjoy the advantage of setting up their prices for the newly offered products/services and creating their own industry standards/benchmark.
Technological advantages: Being the first mover and having no competition allows a company to give sufficient time to build a perfect product and get a head start. Further, they can also file proprietary or patent rights to continue enjoying technological advantages.
Control of resources: First movers can control the resources by doing a strategic partnership (or exclusive agreements) with vendors, supplier; renting the best locations, hiring most talented employees in their industry, etc. The later entrants may face difficulty to find similar resources.
Switching cost: If the customer has to cost a lot of money, time, efforts, or resources to switch from one product to another, it is considered as the switching cost. First movers can enjoy the benefits of switching cost by launching their products earlier. Here, even if a better product/service is available, the customer may stick with the old company, if the switching cost is high.

Also read: SWOT Analysis for Stocks: A Simple Yet Effective Study Tool.

Disadvantages of First movers

Although being a first-mover looks a lot advantageous for a firm, however, it has its downsides too. Here are a few cons of being a first mover.

In most cases, the later entrants or competitors can reverse-engineer, copy, or even improve upon the product/services offered by the first movers.
The first movers might take a lot of time to learn and innovate. On the other hand, the following entrants generally have a lower learning curve and can build the product faster.
The first movers might find it challenging to persuade people to try new product/services. However, later entrants can reduce this education cost.
The first movers can also face a lot of competition from the free riders. As the Imitation cost < Innovation cost, a lot of copy-cats can join the expanding industry to enjoy the upwards ride and reduce the profitability of the first movers.
The second movers or the competitors can avoid the failed steps made by the first movers and hence reduce their cost/expenses.

Is First mover a competitive advantage for a firm?

In the investing world, the competitive advantages are the ones which are sustainable for the long term, not for a few years.

Admittedly, being the first mover is advantageous and have a lot of perks. However, over time, the later entrants can destroy this advantage through reverse-engineering, workforce mobility, technical advancement, or even by merely copying the products/service offered by the first mover.

Also read: Pat Dorsey’s Four Moats for Picking Quality Companies

Closing Thoughts

There’s one thing sure in this competitive world. First movers will not always be the only player in any industry. As they grow, a lot of new companies will enter that industry and try to eat their profits.

Further, a lot of big successful global giants were not the first movers. For example, Google was not the first search engine. It followed the model of Yahoo or Infoseek. Similarly, Facebook was a later entrant in the social media world after Friendster and Orkut. Even Starbucks or Cafe Coffee Day (CCD) is a copied business model of the famous local coffee chains. Still, these companies were able to dominate the market and establish a big brand and customer network.

Anyways, in a few cases, if the first movers can dominate a big market and establish a loyal customer base, they may retain a healthy growth level and profitability, despite new entrants.

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

February 4, 2020 Kritesh Abhishek Economics, Investment Basics 1 comment

How to buy a Stock using SBI demat account?

A short guide on how to buy a stock using SBI demat account – SBI Smart (Updated)? State bank of India is the biggest public sector bank in India. After the merger of the SBI with its associate banks (State Bank of Bikaner and Jaipur, State bank of Hyderabad, State bank of Mysore, State bank of Patiala and State bank of Travancore), SBI has entered the league of top 50 global banks with over 500 million customers and 22,500 branches.

Because of this huge number of customers in state bank of India, the active number of demat and trading account holders in SBI is also high. However, even though they have a 3-in-1 account, many such users do not know how to use their demat account. Or many are yet in the process to learn how to buy a stock using the SBI demat account and use it for trading.

Therefore, in this post, we are going to discuss step-by-step procedures on how to buy a stock using SBI demat account. Be with us for the next 10-15 minutes to learn the skills of how to buy a stock using SBI demat account. After reading this post, you will be able to easily start trading using SBI demat and trading account to buy and sell your favorite stocks.

However, before we start this post, let me quickly summarise the key features and charges while trading in stocks with SBI. Let’s get started.

Introduction to SBI Cap Securities

SBICap securities is a trusted brand and subsidiary of State Bank of India (SBI) with an aim to offer trading facilities to the SBI clients. Being a subsidiary of the largest national bank in India, the SBI cap has got over a million clients with a demat and trading account. They offer full service to their clients like investing/trading in stocks, derivatives, currency, mutual Fund, IPOs, ETFs, Bonds, FDs, Insurance, and more.

Charges and Brokerages

Account opening charge: Rs 850
Annual Maintenance Charge (AMC): Rs 500
Delivery Trading charges: Higher of 0.50% or 5 Paisa per share
Intraday Charges: Higher of 0.15% of 5 Paise per share

Trading Platform: SBIcap offers the SBI Smart web trading platform for trading in stocks, mutual funds, commodities and more.

The biggest advantage of trading with SBIcap securities is that they offer a 3-in-1 account. That is, users can open savings, demat and trading account, all at one place. Moreover, being an umbrella platform to invest in stocks, bonds, mf, fds etc with large office presence also makes it attractive for the clients.

On the downside, a few disadvantages of trading with SBI cap is its high brokerage charges (compared to the newly fastly growing discount brokers) and below-average customer service.

How to open SBI Demat and Trading Account?

We have already published a detailed article on how to open demat and trading account at SBI, earlier. You can read that article here. Anyways, let me give a quick summary of the account opening process with SBI.

Opening an SBI Demat and Trading Account is super simple and hassle-free. It can be done either online or offline. SBI offers a 3-in-1 account i.e. Saving + Demat + Trading account. If you already have got a saving account with SBI, then you just need to open a demat and trading account. The whole procedure to open your trading and demat account takes around 5-7 days if you open offline by visiting its office or calling a customer care executive.

For opening your account, first, you need to call on the number provided on the SBI’s contact page. Here is a link to the page. After calling the support care number, the customer care will ask for your details and a suitable time to meet you and bring the account opening form for getting signed.

In addition, the support executives will themselves come to collect the required documents to open the account. Here is the list of the documents required for opening the demat and trading account: PAN CARD, Aadhar Card (for address proof) & Passport-size photos. If you already have a bank account with SBI, you need to submit bank proof like canceled cheque or bank statement.

How to buy a Stock using SBI demat account?

Now that you’ve got a basic understanding of SBIcap securities, let’s discuss the main topic of this post i.e. how to buy a stock using SBI demat account. To trade in stocks using SBI demat account, follow the following steps.

Step 1: Go to SBI Smart website

Search ‘SBI Smart’ on Google or directly go to the SBI Smart website using this link. On the home page, click on login and select ‘Trade login’ in the drop-down menu. Here is the snapshot of the steps shown:

Step 2: Enter your login details.

On the SBI smart page, you will need your ‘Client Code’. ‘Password’ and ‘PAN Card’ to login. You will get these details via email, once your account is opened. If you are first time user, then SBI will ask you for a one time password with ‘Client code’. You will need to change to a new password after entering.

Step 3: Go to Order Entry

After you logged in, you can notice the different menu on the top like Dashboard, Trade, Market, Tools, Research, Customer Service’. Click on ‘Trade’. This will open the ‘Order Entry Page’.

Step 4: Transfer funds to your demat account.

The next step is to transfer funds to your demat account. For transferring funds, scroll down on the ‘Trade’ Page. You will find the ‘LIMITS’ option after scrolling down on the same page. Here, click on ‘MANAGE’. A snapshot of the page is shown below

Step 5: Fund Lien

After clicking on ‘Manage’, the ‘FUND LIEN’ Page will open. Now, click on the ‘FUND LIEN’ option on the right to as shown below.

Please note that there is also an option of ‘FUND UNLIEN’. This is used in the case when you transferred extra amount than required to your demat account or when you couldn’t buy the stock. In these cases, you can transfer funds from the ‘Demat’ account to your ‘Saving’ Account using ‘FUND UNLIEN’.

After clicking on the ‘FUND LIEN’, it will redirect you to the payment option. Enter the amount for which you want to buy stocks. For example, if you want to buy stocks using Rs 10,000; enter ‘10000’ in ‘Amount in Figure’ and click on ‘LIEN’. Here is the snapshot of the page:

Next. it will redirect you to the NET Banking page. Enter your login credentials (Username and password) and then complete the payment.

Step 6: Check the Lien Amount

After completing Step 5, you have transferred the funds to your demat account. You can check the transferred fund by going to ‘LIMITS’ on ‘TRADE’ page and viewing the ‘Net Lien Amount’. This will be equal to the transferred amount.

Step 7: Place Trade Order

Next step in to buy the stock. Go to the ‘TRADE’ option on the top menu and this will again open the ‘ORDER ENTRY’ page. It will look like this:

Next, follow the below-mentioned steps to buy the stock:

1. Select Equity (By default it should be equity. However, if it not, then select ‘Equity’).

2. Then select the preferred ‘Stock exchange’ beside ‘EQUITY’ Option. There will be the options of NSE (National Stock Exchange) or BSE (Bombay stock exchange). Select either NSE or BSE. It doesn’t make much difference which stock exchange you choose. Both are almost similar.

3. Besides the stock exchange, enter the name of the stock you want to buy and click on ‘GO’.

For example, if you want to buy NHPC (National hydroelectric power corporation), then enter NHPC in the blank provided.

4. After clicking on ‘GO’, the ‘market price’ of the entered stock will be shown along with the ‘bid’ and ‘ask’ price. Notice the market price carefully and decide whether you want to buy that stock or not.

5. The next step is to choose the ‘Order type’. There are two types of order types- ‘Market’ or ‘Limit’.

The ‘Market’ order type will buy the stock at the current market price. For example, if the current price of NHPC stock is Rs 30.20 and you want to buy this stock at that market price, you should select the ‘Market’ option. Further, please note that the market price fluctuates too fast and it might change till the time you click on ‘BUY’. Therefore, decide quickly if you want to buy on the ‘Market Price’ or not.

The second option is ‘LIMIT’ option. Here, you can select the amount at which you want to buy the stock. For example, if you want to buy the NHPC stock at Rs 29, then you can place the order type as ‘LIMIT’ and enter the price of Rs 29.

Further, please note that its easier to buy stocks at ‘Market’ price as there are many sellers at the market price at that moment of time. However, the sellers might not agree to sell their stocks at the ‘LIMIT’ price you are asking. In this case, you might not be able to buy the stocks. When placing a ‘LIMIT’ order type, place the limit amount logically by following the trends.

6. After selecting the order type, enter the ‘Quantity’ (QTY) of the stock you want to buy. For example, if you want to buy 10 stocks of NHPC, then enter 10 in the QTY option.

7. Finally, click on ‘BUY’ after carefully checking the details

Step 8: Confirm your Trade

After clicking on ‘BUY’, a confirmation page will appear. Click on ‘Confirm’.

After confirming the order, you have successfully placed your order. You can verify this by going to ‘ORDER BOOK’ present on the same page. Scroll down to the ‘TRADE’ page, and you will find the ‘Order book’. Once the order is successfully completed, you can check the stocks bought at the ‘TRADE BOOK’ option, present on the same ‘TRADE’ page.

Congratulations. You have finally bought the stocks using SBI demat account!!!

Also read: Different Charges on Share Trading Explained- Brokerage, STT & More

Summary

SBIcap securities offer one of the most popular demat and trading accounts with full-broker service to their clients. In this article, we discussed on how to trade in stocks using SBI smart. Besides, here is a short video of the order entry which can help you further to understand placing order.

(Source: Demos Sbismart)

That’s all for this post. I hope this article on how to buy a Stock using SBI demat account is useful to you. If you have any doubts related to trading in SBI demat account, feel free to comment below. I’ll be happy to help. Happy investing & trading!

Tags: how to buy a Stock using SBI demat account, how to buy and sell stocks using sbi, how to buy stocks using sbi, how to buy a Stock using SBI demat account and trading account, trading how to buy a Stock using SBI demat account

Kritesh Abhishek

www.linkedin.com/in/kriteshrules/

February 4, 2020 Kritesh Abhishek Investment Basics, Online Brokers 31 comments

How to Buy Mutual Funds Online in India?

Things to need to know before you buy mutual funds

Direct vs. Regular Mutual Funds

Know Your Client (KYC)

How to get your KYC?

How to buy mutual funds online in India?

1) AMC Website

2) Broker Platforms

3) Independent Websites/Apps

Summary

Parting tips for investing in mutual funds

Circle of Competence – Why You Should Invest Inside It?

What is the Circle of Competence?

Why You Should Invest inside your Circle of competence?

How can you widen your ‘Circle of Competence’?

Why You Should Try Thematic Investments?

What is Thematic Investment?

Mutual funds vs Thematic funds

Advantages of Thematic Funds

The risk associated with thematic funds

Closing Thoughts

5 Psychology Traps that Investors Need to Avoid

5 Psychology Traps that Investors Need to Avoid:

— Anchoring Bias

— Herding

— Loss Aversion

— Superiority trap

— Confirmation bias

How can an investor overcome these psychological traps?

Good Debt vs Bad Debt: What You Need to Know?

Good Debt vs Bad Debt

1) Good debts

— Education loans:

— Business loan:

— Mortgages:

The Risks of Good Debt:

2) Bad debts

— Debts to buy fancy cars:

— Debts to buy luxuries:

— Credit Card debts:

Mixed/Special Cases of Good Debt vs Bad Debt:

— Borrowing to invest:

— Credit card rewards:

— Consolidation loan:

Summary

How Dilution Affects the Company’s Valuation?

1. What is dilution?

2. What causes dilution?

3. How to identify companies where dilution is likely?

4. How to calculate the shares outstanding after dilution for calculating market cap?

5. How dilution affects the company’s valuation?

— Market Value

— Earnings per share

6. Bottom line

21 All-Time Best Quotes by Charlie Munger

21 All-time best Quotes by Charlie Munger

Charlie Munger Quotes on investing wisdom

Charlie Munger Quotes on Wealth Creation

Charlie Munger Quotes on Importance of learning

Charlie Munger Quotes on Circle of Competence

Charlie Munger Quotes on life rules to live by

Suggested Readings on Charlie Munger

Recommended Books

Hand-picked Articles

Meet the Newer Version of Trade Brains Learning App

Trade Brains- The Stock Market Learning App

Some key tools offered in our Learning App:

3 Past Biggest Scams That Shook Indian Stock Market

3 Past Biggest Scams That Shook Indian Stock Market

1) Harshad Mehta Scam

2) Ketan Parekh Scam

3) Satyam Scam

Bonus: A few other popular corporate scams

1) Saradha Scam

2) NSEL Scam

Closing Thoughts

Additional resources to read

An Essential Guide to Tax Saving Mutual Funds – ELSS

1. What is Equity linked saving schemes (ELSS)?

2. Types of ELSS