Tuesday, January 15, 2019

5 Common Mistakes while Choosing ELSS- equity linked saving schemes

Have you heard about ELSS mutual fund?
These are famous among the mutual fund unvestors who want to save the income tax using section 80c  in the ITR forms, and at the same time want to invest their money into the equity market.

So using ELSS - equity linked saving schemes, one can do these two jobs at the same time.

There are various advantages -
1. tax saving using section 80c, good returns, short lock in period.

2. The invested amount, the maturity amount and the returns are all tax free. Note that other than PPF, ELSS is the only option that comes under tax free returns.

But this is also the riskiest option under 80c, so one must be very careful. So in this post we will discuss few mistakes that people often do and must be very careful with.

1. Most people, instead of doing the SIP, do the lump sum ELSS investments in the last quarter of the financial year, i.e. in the period of January to March.

Data shows that almost 50% of the ELSS investments are done in the lump sum amounts in the last three months, and up to 25% are done in the month of March alone.

The market can be at higher points in these months, and therefore it will become costly and therefore a mistake. Yet, price averaging could have nullified that.
They do it for saving their income taxes by generaring ELSS proofs, but at the same time they lose the benefits of SIP.

2. Investing in too many Funds.
Each year people do a new fund investment, and therefore they end up with too many funds. This causes over duversification, and it becomes clumsy to track so many funds.

3. Investing only for three years.
The lock in period of ELSS funds is as less as three years. As soon as this period gets over, people withdraw their funds even if the fund is in a loss.
This can be a big mistake, because the equity markets are volatile and one should never take a loss.

4. Choosing a Dividend option and not the Growth option.

Dividends are a good regular income option, but not a good option in the long run if we compare it with the growth option. The compound effect is more advantageous, and even when you choose the dividend reinvestment option, it is bad because a new lock in period starts for the dividend reinvested.

5. Focussing on the Short Term Past Returns.

While choosing the fund, one should not look only at the recent two-three previous years' returns, but five to seven years returns. Warrent Buffett looks at the previous 10 ten years returns of the equity stocks, and mutual funds are not so different.

Explaination of Dividend Yield with current share price and Face value


People live the high dividends yielding companies, but first one must understand the dividend yield percentage to compare any two or many companies.

Dividend yield is always meausred in percentage. Let's take the example of IOC - Indian Oil Corporation Limited- the highest dividend yield company.

Let's say in the year 2018 IOC paid a total dividend of 8.75 rupees (2 rupees in August and  6.75 in December .)
The current share price is 140 rupees, therefore the yield  is:
8.75*100/140 = 6.25 % with the current ahare price.

But companies don't declare the dividend with the current share peice, but with the Face Value of the share. So if the Face value of the IOC share is 10 rupees, then the dividend yield is 8.75*100/10 = 87.5%

Now for a new investor like me, the dividend yield of Face Value is of no importance, because my buying price is the current value of the share. This is why that an individual must calculate the dividend yield separately with the current share peice.



Monday, January 14, 2019

4 Quantitative tools of Warren Buffett for Investing


The Oracle of Omaha is known for his investments and wealth creation, and therefore many people learn from his strategy. Ramdeo Agarwal- the founder of Motilal Oswal can be seen talking about him in many of his interviews.

So there is something special about investment strategy used by Warren Buffett. In this post we will talk about the 4 main factors that he uses to analyse a compant.

1. EPS( Esrning per share) growth must be positive for the last 10 years.
5* net profit > long term debt for the last 10 years.
This meand Debt to Equity (D/E) ratio will be small of that company.

2. ROE (Return on Equit) >=15%

3. ROCE (Return on Capital Employed) >= 12% for the last 10 years.

4. Free Cash Flow >0


Why Avenue Supermarts (D-mart) Stock fell with Q3 Fy 18-19 Results


Today we will discuss the fall in the stock price of D-Mart due to the Q3 of financial year 2018-19 results of the company.

First one must know that D-mart was trading at a very high PE ratio of above 100. Therefore it needs a very good growth results to sustain such a high valuation.

So let's compare the sales, operating profit and net profit declared by the company this year with the same quarter of the last year - 2017.

Dec 2017
Sales - 4094 crores.
Operating Profit - 422 crores.
Net Profit - 252 Crores

Dec 2018
Sales- 5451 crores. (33% growth)
Operating Profit- 453 Crores (7.5% growth)
Net Profit - 257 Crores ( 2% growth)

So if we look at the total sales growth, it is similar to the previous years, but the operating profit and net peofit growth is very less as compared with the previous growth record of the company. They also used to be 30-40%, and this is the main reason that stock peice fell today i.e. on 14th January 2018, by more than about 10%.

Now let's look at the most probable reasons for the slower growth rates of the profits. The increased competition from the online retail stores, Big Bazaar, and Reliance retail may have forced them for the price cuts.

Also D-mart believes is owning the real estate on which these stores stand, so the interest payments are also a bug big factor.


Sikkim to introduce Universal Basic Income (UBI)

As per our recent sources the Sikkim state in India can become the first state to introduce Universal Basic Income (UBI.)

First let's understand what UBI is!
As per BIEN (Basic income earth network) - a group of academicians advocating for UBI for all - UBI is a "periodic cash payment delivered to all on individual basis, without means-test or work requirements."

In other words, UBI is a certain fixed amount of money that the government will pay to every citizen (working or non working) periodically without any condition. This amount will be payed in currency(Indian Rupees) and not in vouchers etc. It will be paid periodically, and thus it is not a lump sump amount. And last, it will be paid to each citizen no matter jobless or working a merchant.

Sikkim is aiming to introduce it up to 2022. Note that BIEN is having its 19th conference at Banglore, India, this year.

What is the need of UBI?

The main reason behind the advocacy of UBI is the risk of automation of various jobs in the near future.

4 big Reasons of Stock Market falls in 2018

In this post you will learn about the main reasons behind the stock market share prices' decline in the year 2018. In the year 2017, the share market was booming.

For a general idea about the stock market, let's have a look at the NIFTY 50 index. It constantly rose from a level of 8000 to 10500 in the year 2017. While in the year 2018 there were bug rises and falls, and the year ended without any significant gains in the index. The two major falls were as following.

1. One can see a sharp decline in the index from a level of 11150 to 10000 in the months of Feb-March. 

2. And the second and the major fall came in September when it fell from 11750 to again almost touching the level of 10000.

Now let's try to understand the reasons behind these falls.

1) the first fall of March was mainly due to the international events. America and China trade wars remained quite in news this year. America wanted to suppress the import of Chinese goods and increase the exports. Of course, China wouldn't want that to happen.
This trade war resulted in certain global sell offs and it is considered as the main reason behind this fall. It is said that America has lost this war, because the imports from China have swollen, while the export of goods to China from USA has fallen.

2) The second reason is the 10 lakh Crores of NPAs of the banks. Public Sector Banks have 86% of these NPAs, while private banks have 14%. As of 31st March India's NPAs have risen to 9.6% of the total banks' assets(loans.)
If we compare this with the world's major economies we stood at the 2nd after Italy with 16.4% NPAs.
So what are NPAs! NPAs are the loans given by the banks to individuals or companies which are not returned by the person or company even after the 90 days of the due date. We have heard about the Vijay Mallya Scam, Winsom Scam and 2018's Nirav Modi Scam. 
These people have taken the money from the banks and have not returned it. Then government steps in with the recapitalisation plans by paying the tax payers' money to these banks. This creates the liquidity crises and a fear among the investors.

3) IL & FS and NBFC crises.
Infrastructure Leasing and Financial Services limited is a non banking finance company(NBFC) which finances the infrastructure peojects by taking short term loans from banks like SBI or PNB. It also is the major lender to the 9.28 kilometres long Chanani-Nashri tunnel project, located on NH 44 in Jammu and Kashmir.
  IL & FS had a consolidated debt of about 1 lakh crores rupees, and it had startes to default its bank loan depayments. It came into light when it defaulted 450 crores of loan from Small Industries Development Bank of India (SIDBI.) Eventually rating agencies ICRA, India ratings and CARE gave it bad ratings (AA and AI to junk status.) 
Now many mutual funds and banks have big investments in IL & FS, but in the atmosphere of distrust the share prices fell down aiming towards zero. Therefore government had to intervene. The fear got spread into the other companies of NBFCs and consequently to the whole share market. This was the main reason behind the September's fall.

4) Elections bring a lot of excitement and volatility in the market. The recent legislative assembly elections' results in the five states have created a lot of volatility and it will continue till the general elections to be held in the April and May months of the year 2019.
So the market will likely show more ups and downs in the first half of the year 2019. As per the various opinion poll results the BJP govt is likely to form the cabinet once again, but let's see what happens because nobody knows the future.

Sunday, September 2, 2018

Our Walmart Founder was a Morning Person - 'Sam Walton - Made in America' - a Book Summary

So I am reading 'Sam Walton - Made in America,' and currently I am on the eighth chapter titled 'Rolling Out the Formula.'  I came across a paragraph where Sam tells about his morning work routine. Here I put it for you as it is:

"Four-thirty wouldn't be all that unusual a time for me to get started down at the office. That early morning time is tremendously valuable: it's uninterrupted time when I think and plan and sort things out. I write my letters and my articles for Wal-Mart World, our company newsletter."

You can buy this autobiography of Sam Walton by purchasing through the following link in the image.

As you know Walmart is the biggest retail store chain in the world, and it was all the efforts of Sam Walton and his team. Today, when Sam has passed away, all of his sons and daughters are worth around 40-50 billion dollars individually. This is what the hard work and good habits give out.