Niveshika

ARE YOU WORRIED ABOUT MARKET TURBULENCE?

2024-11-28T19:07:00.054+05:30

Indian stock market is experiencing a sharp fall for the last one and a half months. When market falls sharply, everyone, who has invested in the market, gets disturbed. It's not possible not to feel fearful in the crashing market. But you need to remind yourself that *This shall also pass*. It has never happened in the last forty five years of the Indian stock market history that it didn't rebounce. Real money is made when you invest in a falling market. If you are fully invested, please sit tight on your current investment. Your loss is just notional. The profits will come back if you are patient. When things get uncertain, it doesn't make sense to get out of the market.Volatility is an inherent characteristic of the market.

If you look back at 16 to 18 years of data, *every year* y ou have had*double digit correction* baring I think, 2 years. When you have below par performance is when you get that big boost. Let's go back in history, from 1994 to 2003. That was the only period in sensex history of nine years, when net return was almost zero. Mind you, SIPs were still able to beat FD returns because of the non-linearity of the stock market. From *2003 to 2007,* the market went up *six times.* So, you have to be patient in equity market. When things get uncertain, it doesn't make sense to get out of the market. All of us understand that one can lose money in the equity market in short term. But the *bigger risk is also not being invested* in equity market. So, one has to manage with risk controls because being out of the market also has its risk. If you look back and analyse 45 years of old data, you find that if you *miss out of 10 best days,* it takes out *2/3rd of your returns* and if you miss out on *30 best days*, you miss out on *90% of the returns*. So, one can't really time the market. The only timing one can do is buy more when markets are falling and book some profits in form of tax harvesting and re-invest if you don't require that money.

Many of you must be new to equity market. With 10% market fall in the last two months, your portfolio might be in *red*. Do you need to worry? Absolutely *NO* if you are a SIP Investor. If you start investing in mutual fund SIPs and the markets start falling, then it is blessings in disguise and *the best* thing that may happen to you. You know why; It is because you keep *accumulating more units at a lower price.* Ultimately, markets have to *go up in the long term* because that is the inherent characteristic of the stock market. The market will generate greed and fear. Stock investment is *more of Psychology and less of intelligence*. One who can control his greed, fear and emotions will win. So, *NOT TO WORRY* about market turbulence and try to take advantage of it by continuing your SIPs and top up your SIPs with lumpsum investment.

Indian stock market has been experiencing a sharp fall for the last two months.The following factors are currently weighing on investor sentiment.

*Dollar surges to 4-month high*

Donald Trump's victory in the U.S. election has strengthened the dollar index, which has risen by almost 3% in the last one month.

*Continued FPI selling*

The total outflows for November till last Monday is almost ₹22,000 crore, according to the latest Trendlyne data. Throughout October, FPIs remained net sellers, offloading ₹1.14 lakh crore worth of Indian stocks through exchanges.

*Geopolitical tension*

Due to the geopolitical tension in the Middle East, the market is unsure about the upcoming sessions. This status of uncertainty is also a reason for sharp selling in the Indian stock market.

*Concerns over extreme valuations* Indian stock market is expensive compared to the rest of the emerging markets. Before the fall Nifty 50 was trading at PE of 24.5, midcap 100 at 44.5 and small index was at 34.5. Even after 8 to 9% fall, the nifty 50 is still trading at PE of 22.2 midcap 100 at 41.2 and small index was at 31.4.

*A Slowdown in Q2 Earnings*

The disappointing Q2 earnings from major companies have also fueled selling pressure on Dalal Street. Q2 results of the 2024 season have remained below market estimates while the falling Indian National Rupee (INR) has fueled buzz for the *pressure on the fiscal deficit* of the Indian economy.

*China's Recent Stimulus Package*

China's recent stimulus measures have attracted overseas investors, hoping that these new initiatives will help Beijing revive its economy, which has been under pressure following the COVID-19 pandemic. Foreign Portfolio Investors (FPIs) are *shifting investments from overheated Indian stocks to cheap Chinese markets*, as they do not see any near-term catalysts to justify maintaining valuations at elevated levels in India.

*Rupee reaches another low*

The strong surge in the US dollar, coupled with persistent FPI outflows, is exerting significant pressure on the Indian rupee, which fell to a new record low of ₹84.41 against the US dollar.

*Concerns over delay in rate cuts*

While major central banks worldwide, including the US Federal Reserve, have already started reducing interest rates, Reserve Bank of India (RBI) has maintained a status quo.

*Rising Inflation in India*

Rising inflation has been a persistent issue, affecting consumer demand, especially among middle and lower income groups. Inflation can significantly impact the purchasing power of consumers, leading to a decrease in their standard of living. As the prices of goods and services increase, consumers have to spend more money to maintain their current lifestyle, leading to a decrease in their disposable income.

If you are still worried about recent market fall, then I will like to tell you that after every steep fall, market bounce back. Market is looking for some direction right now. It may remain sideways for time being. Stock market returns are slaves of earnings of the companies. Any bad news, market may fall again. Maharashtra win for incumbent government was a short blip. If RBI cuts interest rates, then market should give a thumps up. We may to wait till Jan 25 for Q3 earnings. If the results are better than Q2, then again it's good news for the market. If government takes some steps to boost the consumer sentiments, again market will go up. Stock market movement is always non linear but it will go up in long term because historical data shows us the same. Let's have a look at last 15 years of data. First column is Time period, second is return of BSE 500 and third column shows the next 12 months return.

*Pd* *BSE 500* *1 yr ahead*

Jan 08-Mar 09 -66% 128%

Jul 11-Oct 11 -13% 19%

Jun 13-Sep 13 -10% 60%

Apr 15-Feb 16 -16% 33%

Oct 16-Jan 17 -11% 43%

Apr 18-Nov 18 -8% 15%

Jun 19-Sep 19 -10% 10%

Feb 20-Apr 20 -37% 99%

Nov 21-Jul 22 -17% 25%

It is clearly evident that every market fall is succeeded by a sharp market rise. Though past data can't guarantee the future returns but it shows some kind of trend of stock market. If funds are available to you at this point, then it is advisable to top up your SIPs to get extra momentum in your investments. Take advantage of lower prices and buy more. You should become greedy when others are fearful (Warren Buffett).

FINACIAL LANDSCAPE

2024-11-28T19:05:00.024+05:30

India’s financial landscape is transforming, driven by technological advancements in digital finance. The shift has democratized access to investments, enabling individuals to manage portfolios and make informed decisions through mobile apps and online platforms. While digital investing offers convenience, it also brings challenges, including cybersecurity threats and fraudulent schemes like Ponzi and pump-and-dump scams. Despite these risks, with a clear understanding of financial goals, risk tolerance, and the importance of diversification, *seeking professional financial guidance* remains essential for navigating this evolving landscape.

The digital finance revolution has largely simplified the investment process. No longer confined to the traditional methods of in-person or telephone trades, investors today can access a plethora of platforms that offer an array of services.

Mobile apps now allow users to open demat and trading accounts easily, execute trades, and monitor their portfolios, providing access to detailed market insights that guide well-informed decisions. The rise of robo-advisors in India is on the rise which is another significant development in digital finance. Having said that, inspite of these mechanisms, Investors may still feel the *need to consult registered financial advisors* which will provide the best of both—people and client experience technology to achieve the best outcomes.

While technology provides efficiency, accessibility, and data-driven insights, it *cannot replace* the empathy, understanding, and personalized touch that a *registered human financial professional* brings. Investors often need more than just algorithms; they seek guidance from experts who can understand their unique aspirations, risk tolerance, and life goals.

A harmonious *blend of technology and human expertise* ensures that investors not only receive efficient and accurate information but also benefit from deep, personalized conversations about their financial well-being. The real magic lies in the *integration of cutting-edge client experience technology with experienced financial professionals* who genuinely care about helping investors align their capital with their values and dreams. This combination enables a more meaningful financial journey, where investors can confidently navigate the complexities of the market while focusing on living the life they have always imagined with their money.

Let’s now look at some of the basic yet effective ways of investing:

*Basics of Investing* : While technology has simplified the investment process, it's essential to grasp the *fundamental principles before committing capital*. Here are some key aspects every investor should consider:

*Define Your Financial Goals*

Before starting your investment journey, clearly define your *financial goals*. Are you investing for retirement, a child's education, a down payment on a house, or long-term wealth accumulation? Understanding these objectives will help you choose the *right investment vehicles and strategies*. Goals can be short-term or long-term, and having a clear vision will guide your decision-making process.

*Diversification is the Key*

A cornerstone of *effective and stable investing* is diversification. Spreading your investments across different asset classes, such as equities, fixed income, and real estate, can *mitigate risks and enhance returns*.

*Understand Your Risk Tolerance*

Assessing your risk tolerance is crucial in the investment process. Risk tolerance refers to the degree of variability in investment returns that you are willing to withstand. Younger investors with a longer time horizon may opt for higher-risk assets with greater potential for growth, while those nearing retirement may prefer safer, more stable options.

*Consider a Financial Coach*

Navigating the complexities of finance can be challenging. A financial coach can help you *stay focused to your financial plan*, preventing emotional reactions to market fluctuations from derailing your long-term strategy. It is always important to have a human touch to your financial journey.

*Maintain a Long-Term Focus*

Investing is a *marathon, not a sprint*. It requires patience and a long-term perspective. Markets will inevitably experience volatility, but historical data demonstrates that long-term investors tend to achieve better returns than those who try to time the market. A young investor with a long-term horizon may choose a high-risk portfolio composed primarily of equities, while someone nearing retirement may prefer a more conservative allocation with a mix of fixed-income securities.

Regards,

Col Sanjay Datt

Associate Business Partner,

Investor First

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off), +91-1353520386(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

TAX LOSS HARVESTING

2024-11-28T19:03:00.076+05:30

Selling off equity investments at a loss in order to offset capital gains from other equity investments and lower the tax burden is known as tax-loss harvesting.

Find the Equity Investment Losing Money: Find out stocks and mutual funds that aren't making money right now. To lower your total taxable income from capital gains, these losses can be offset against profits.

Sell the Losing Investments: Sell the identified losing investments before the end of the financial year to realize the losses. These losses will be considered realized losses and can be offset against capital gains.

Offset Gains with Losses: STCL (short-term capital loss) can be used to offset both STCG and LTCG.

Set off Long-Term Losses: LTCL (long-term capital loss) can only be used to offset LTCG.

Carry Forward Losses: Unutilized losses can be carried forward for 8 assessment years and offset against future capital gains, provided they are declared in your income tax return.

Reinvest the Funds (Optional): Depending on your plan, you can reinvest in the same or different stocks after realizing the loss. Though India doesn't have a strict wash-sale law like the US, you should nevertheless exercise caution when it comes to the "wash-sale" rule, which prohibits selling an asset at a loss and then buying it again right away.

Maintain Records:

When filing income tax return, you'll need to have documentation of every transaction, including the buying and selling of the investments. So, keep track of everything. In your income tax returns (ITR-2 for individuals with capital gains), be sure to include information about both capital gains and losses.

Seek Professional Advice: Harvesting tax losses can be complicated. To make sure that your plan is optimized and that tax regulations are followed, it is advisable to speak with a financial counselor.

Short-term capital losses can be offset against short-term capital gains: For example, if you have a ₹1 lakh short-term capital loss and a ₹1.5 lakh short-term capital gain, you can offset the losses against the gains and only pay taxes on the net gain of ₹50,000 .

Long-term capital losses can be used to offset long-term capital gains: For instance, if you incur a ₹2 lakh long-term capital loss and have a ₹3 lakh long-term capital gain, you can offset the gains by the losses, resulting in a net taxable gain of ₹1 lakh.

If you have both short-term and long-term capital losses and gains, you can offset short-term losses against short-term gains and long-term losses against long-term gains.

Long-term capital losses can be offset for up to eight years against long-term capital gains:

If you have unused capital losses from previous years, tax loss harvesting can be employed to offset gains and fully utilise any carried-forward losses.

Tax-loss harvesting can be a useful strategy to manage tax liabilities, but it requires careful planning and attention to market conditions.

Regards,

Col Sanjay Datt

Associate Business Partner,

Investor First

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off), +91-1353520386(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

TAX HARVESTING

2024-11-28T19:01:00.076+05:30

None of us enjoys paying taxes. Yet we need to pay tax on our income, GST on things we purchase, and since 2018 on the gains we make from our investments in Equity stocks or Equity Mutual Funds.

Investors who have an investment in an equity portfolio will have higher incremental gains. Therefore, if you want to pay low or no taxes, you need to ensure these gains don’t build up far beyond the tax-free limit, and that’s what Tax Harvesting is all about.

Tax Harvesting is the strategy of selling a part of your Equity stocks or Equity oriented mutual fund units to book long-term capital gains and reinvesting the proceeds in the same or different mutual fund scheme.

Under current tax laws, gains of up to ₹1.25 lakh on LTCG from equity investments are exempt from tax. Any gains above ₹1.25 lakh are taxed at 12.5% without indexation. Therefore, you can utilize this ₹1.25 lakh exemption strategically through tax harvesting to further reduce your tax liability.

After realizing the gains, you can repurchase the same or similar investments. Since, you are moving from equity to equity, there is no risk of volatility. This resets your cost base to the new purchase price. This strategy ensures that future gains will start from a higher base, which can help in avoiding taxes in subsequent years as well. You can follow this strategy every year to maximize the ₹1.25 lakh tax exemption.

Your net worth is capital plus profit. Please understand that your net worth will remain same. You must try to increase your capital and decrease your profits to reduce your future tax liability. Actually, your profits may look decreased but part of your capital is profit. The important figure is NET WORTH. For example, if you have invested ₹5 lakh in equity shares or equity mutual fund and after one year, it becomes ₹6.25 lakh then your Net Worth is ₹6.25 lakh. If you sell this entire portfolio or scheme and realized LTCG of ₹1.25 lakh, then you don't have to pay 12.5% income tax while filling return. Now, when you re-invest this amount of ₹6.25 lakh again, your Net Worth will remain the same. The capital is ₹6.25 lakh and profit now is zero but ₹1.25 lakh of profit is already invested as capital. The important thing to remember is that you need to reinvest this capital soon to avoid significant loss, if the market goes up before you re-invest.

I hope this is well understood now. Next, I shall try to explain how to double or triple this amount of tax harvesting.

Long-Term Capital Gains (LTCG): Gains on equity shares or equity mutual funds held for more than 12 months are classified as LTCG. LTCG above ₹1.25 lakh is taxed at 12.5% without indexation.

This is true for a single mutual fund account. Instead of one account, the investors can have more than one account. Open mutual fund account for every member of the family who is more than 18 years old. For example, if you have two more members in the family i.e. your wife and one child, then you can open 3 mutual fund accounts and your free income tax limit will be 1.25 lakh x 3 i.e. ₹ 3.75 lakh. Mind you, this is profit and does not include capital. If your mutual fund account is 3 to 4 years old then you capital would be as good as your profit. So, in every financial year you can take out approximately ₹7-8 lakh. If you have any requirement of capital, then use this amount otherwise reinvest ASAP in equity market to avoid the loss if market runs up before you invest.

Also, if the income of your wife and child is less than yours then even if they book the profits, either they will be paying less tax than you or no tax.

Important Notes:

Ensure that the investments you are harvesting have been held for more than 12 months to qualify for LTCG.

The tax harvesting strategy only works on equity shares and equity-oriented mutual funds; it doesn't apply to debt funds or other asset classes.

Regards,

Col Sanjay Datt

Associate Business Partner,

Investor First

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off), +91-1353520386(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

The Magical Power of Equity Mutual Fund SIPs

2024-03-30T11:49:00.023+05:30

Nearly two decades ago, Franklin Templeton introduced Systematic Investment Plans (SIPs) to India. Since then, SIPs invested in reputable funds have produced impressive returns and helped investors become wealthy. SIPs provide a straightforward and methodical approach to long-term wealth accumulation. With the exception of producing better risk-adjusted returns than bank recurring deposits, mutual fund SIPs function similarly to recurring deposits. Retirement planning with mutual funds Systematic Investment Plans (SIP) has several advantages: -

SIPs' greatest benefit is that they eliminate the need to time the market. Accurately predicting the behavior of markets is impossible. One is invested at both market highs and lows when they make regular investments, such as once a month. SIPs, which average investment costs, perform well in erratic markets.

A disciplined approach to investing is fostered by SIPs. You can create a corpus for your long-term financial needs by investing a set amount of your regular savings. Uninvested money is frequently spent on items you might not need.

Even if the broader index doesn't give any returns for several years, the SIPs will be able to give you better returns than fixed income instruments because of high volatility in the market. That is the beauty of the SIPs. Due to non linear movement of the index, you keep buying at lower levels also and that makes your returns superior to fixed income instruments.

If you start investing in mutual fund SIPs and the markets start falling, then it is blessings in disguise and *the best* thing that can happen to you. You know why; It is because you keep accumulating the more units at lower price. Ultimately, markets have to go up in long term because that is the inherent characteristic of the stock market.

Volatility is an inherent characteristic of the market. SIPs help mitigate the impact of market fluctuations by spreading investments over an extended period. Through regular investments, investors benefit from the "Rupee Cost Averaging" approach, where they buy more units when prices are low and fewer units when prices are high. This strategy helps reduce the risk of making large investments at unfavorable market conditions.

SIP is better as it averages out the purchase cost rather than lock up the money at a particular NAV as in lump sum investments. SIP ensures investments are not hurt too much by market falls. You convert market falls into investment opportunity by buying more units.

Recently SIPs have become hugely popular in India with around Rs 19,000 crore flowing into the market every month via SIPs.

SIPs in equity funds over the long term have created wealth for the investors. SIPs benefit from the power of compounding, and therefore the earlier we start our SIP, the greater is the potential for wealth creation. However, it is important to select a good fund for our SIPs. Your financial advisers can help you select a good fund that is suitable for your risk profile. As your risk profile changes over time, you should re-balance your portfolio to align with your risk profile.

We, at *INVESTOR FIRST* can manage your mutual fund portfolio if you so desire. We have different plans for different people as per their risk appetite and goals. People who are fixed income centric or have moderate risk appetite can be advised and invested accordingly.

The process of investment will be online only. It will take 1 or 2 days for registration with us. We will give you an *app* for monitoring and execution of your mutual fund investments. If you so desire, you may please contact us at the following address :

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off), +91-1353520386(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

Regards,

Col Sanjay Datt

Associate Business Partner,

Investor First

*REFERENCES*

https://amc.ppfas.com/media/quotes/the-power-of-sip.php

https://www.advisorkhoj.com/articles/Mutual-Funds/How-Mutual-Fund-SIPs-have-created-wealth-over-the-last-15-years:-Large-Cap-and-Diversified-Equity

https://www.cnbctv18.com/finance/the-power-of-sips-smart-investing-in-indias-current-market-16735471.htm

*DISCLAIMER:* The opinion expressed above is our personal opinion and in no way recommendation of buying or selling. You must consult your financial advisor before making any fresh investment in equity market. Please also note that past performance of funds does not guarantee future returns.

HOW TO REMAIN INVESTED IN THE STOCK MARKET FOR LONG TERM

2024-01-06T12:15:00.004+05:30

It is now very well known that to create wealth in the stock market, the investor needs to remain invested for a long time. This is a proven truth. The various indices have shown that had you remained invested with your investment without interfering too much, you would have made massive wealth. But this is easier said than done.

The most difficult aspect in the stock market is to sit ideal and remain invested for a long term. Retail investors do not create wealth because they exit the markets too early. Sometimes, the investors become greedy and cuts off their profit too early and sometimes, the investors become fearful and exit when the investment shows a southward trajectory. Also, over a period of time, the investor sells off all his profit generating good stocks and keeps on averaging loss making stocks thus, having a portfolio of only junk stocks. Most of us, commit the same mistake of riding losers and selling winners.

The market will generate greed and fear. Stock investment is more of Psychology and less of intelligence. One who can control his greed, fear and emotions will win. So, how do you balance yourself to remain invested for a long term to create wealth. let us discuss the same in the succeeding paragraphs.

1. Hot Tips; Don't get too involved in the market on a daily basis unless you are a trader. Avoid the urge to chase "hot tips"; resisting the lure of penny stocks; and picking a strategy and then sticking to it.

2. Ride a Winner; Peter Lynch famously spoke about "tenbaggers"—investments that increased tenfold in value. He attributed his success to a small number of these stocks in his portfolio. But this required the discipline of hanging onto stocks even after they’ve increased by many multiples if he thought there was still significant upside potential.

3. Sell a Loser; There is no guarantee that a stock will rebound after a protracted decline, and it’s important to be realistic about the prospect of poorly performing investments. And even though acknowledging losing stocks can psychologically signal failure, there is no shame in recognizing mistakes and selling off investments to stem further loss.

4. Tax implication; Always be aware of tax implications. Too much selling and again buying can attract heavy taxes which you realize only at the time of filing income tax return.

5. NAV Vs Stock Price; Mutual fund investors can remain invested for much longer than direct stock investors because investors never remember the NAV of the scheme but the price of the stock is always there in the mind. So, if your expectations from the market are to earn 14-15% annual returns in the long term, then avoid direct stocks and invest in good quality diversified equity and hybrid mutual funds. Most of us will not be able to beat equity mutual funds returns over a 3 to 5 years time period. 14-15% mutual fund returns are very difficult to beat in the long term. It gives you compounding of unimaginable levels once your portfolio reaches a significant size. After 10 to 12 years, the multiplier effect of compounding takes place and it gives snow balling or parabolic effect in compounding which is huge. Every five years the money is doubling.

6. Reinvesting the Profits; Even in mutual funds, investors book profits in a bull market but are not able to reinvest when the market is down. Stock Market turns around so fast that it doesn't give you any time to reinvest.

7. Booking Profits; If you are investing in stocks then it is a good idea to keep booking some profits to the extent that it gives you a good feeling and to give you a tax advantage (Long term capital gains up to 1 lakh are exempted from income tax). But do this only when your portfolio reaches a significant size. Now, what is a significant size. For every investor it will be different. I think, it should be atleast 2 times your annual income. So, psychologically you are better off. If the market keeps going up, the investor should be happy that the balance of his investments are still growing and he is in the money. And if the market falls, the investor should again be happy that he could take out some profit at the right time and is ready to reinvest. This psychology can make you remain invested for a long time. Make sure, the profit booking should not be too large.

8. If you are investing in mutual funds, the above technique can be implemented to take advantage of the LTCG exemption of ₹01 lakh. If you need money, go and spend but you don't require it, reinvest again in terms of small chunks or additional few SIP installments without waiting too long for the market to fall. The profit booking always makes you happy.

9. Goals; Match your investments to your goals. If you don't have any goal then wealth creation can also be a goal. If you have enough wealth then think of creating bigger wealth for inter-generation transfer of wealth. You can't spend every penny that you generate and have to leave a portion of it to the next generations.

10. Investment Advisor; Last but not the least, an investment advisor can always help you to guide through greed and fear in the market. But for that you need to trust him first. There is no shame in taking guidance from someone who knows more than the normal retail investor. Right choices at the right time can only help you generate wealth in the long term.

We, at INVESTOR FIRST can manage your mutual fund portfolio if you so desire. The process of investment will be online only. It will take 1 or 2 days for registration with us. We will give you an app for monitoring and execution of your mutual fund investments. If you so desire, you may please contact us at the following address:

Website: https://investorfirst.co.in/

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333(personal), +91-8410116967(off), +91-6397808084(off), +91-1353520386(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

Regards,
Col Sanjay Datt,
Associate Business Partner,
Investor First.

DISCLAIMER : The opinion expressed above is our personal opinion and in no way recommendation of buying or selling. You must consult your financial advisor before making any fresh investment in equity market. Please also note that past performance of funds does not guarantee future returns.

IS THERE ANY RISK IN EQUITY MARKET

2023-12-27T10:02:00.005+05:30

I think there is no risk in the equity market. We must understand the difference between risk and volatility in the equity market.

Risk is where there is danger of permanent loss to the capital whereas volatility is market's nature of rise and fall but no permanent loss to the capital. The beauty is that the volatility will make your profits grow more than the benchmark index. This will keep giving you the opportunity to buy at lower levels. So, never be afraid of equity market's volatility and make it work in your favour by investing systematically through SIPs and STPs in good quality equity and hybrid mutual funds.

Let's have a look at the returns of the Sensex from 1980 to 2023:

Date Annual return

01-04-1980 3.50%

01-04-1981 35.25%

01-04-1982 27.12%

02-04-1983 -3.76%

03-04-1984 16.06%

01-04-1985 42.39%

01-04-1986 59.57%

01-04-1987 -8.95%

04-04-1988. -22.21%

03-04-1989 82.26%

02-04-1990 8.16%

01-04-1991 52.45%

02-04-1992 267.61%

02-04-1993 -47.32%

04-04-1994 63.57%

03-04-1995 -12.28%

02-04-1996 2.81%

01-04-1997 0.51%

01-04-1998 15.83%

01-04-1999 -7.14%

03-04-2000 37.07%

02-04-2001 -29.42%

01-04-2002. -1.85%

01-04-2003 -11.98%

01-04-2004 86.33%

01-04-2005 15.05%

03-04-2006 75.08%

02-04-2007 7.70%

01-04-2008 25.46%

01-04-2009 -36.63%

01-04-2010. 78.68%

01-04-2011 9.77%

02-04-2012. -10.00%

01-04-2013 7.93%

01-04-2014 18.99%

01-04-2015 25.90%

01-04-2016. -10.58%

03-04-2017 18.36%

02-04-2018. 11.18%

01-04-2019 16.89%

01-04-2020 -27.29%

01-04-2021 77%

01-04-2022 18%

01-04-2023 -0.48%

As shown above, it has been pretty rough at times but after every major fall there has been a great recovery. This is volatility. It works in your favour. This is the fundamental nature of the equity market. The sensex started with 100 and today it is above 70,000, a CAGR of approximately 15%. Which other asset class can give you this kind of return with so much of ease, transparency, liquidity and mental peace? Even if the returns are low or negative for one or two years, your SIPs may still give you better than FD returns even during distress due to volatility (regular rise and fall). Don't wait for tomorrow; it never comes. Start today and invest slowly. Increase your investment as your income rises.

Remember one thing very clearly in your mind that your capital will never become zero in equity mutual funds. It may happen in direct stock buying or trading ( Future and Options). What you need is investing in good quality equity and hybrid mutual funds as per your age, risk appetite, goals and need. A good financial advisor can always help to make your journey smooth and profitable by guiding you in the times of hyper activity in the market.

We, at INVESTOR FIRST can manage your mutual fund portfolio if you so desire. The process of investment will be online only. It will take 1 or 2 days for registration with us. We will give you an app for monitoring and execution of your mutual fund investments. If you so desire, you may please contact us at the following address :

Website: https://investorfirst.co.in/

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off), +91-1353520386(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

DIRECT EQUITY VS MUTUAL FUNDS

2023-12-07T10:38:00.001+05:30

Mutual fund (MF) scheme issued by mutual fund houses, collects money from various investors who wish to invest in equities. The fund houses then invest the money collected across various financial instruments to generate high returns. The MFs are professionally managed. You as an investor also have an option to buy these stocks directly from the stock market.

There are various benefits of investing through mutual funds, which may not be available if one invests directly through shares. Direct equity investment can be very rewarding, however, the risk of loss in direct equity is also very high. It is not easy to understand equity. One needs to understand the underlying business and industry the business operates in, before investing in equity (stocks).

Most important factors to invest in equities are

- Do you understand equities?

- Do you understand the underlying business and how it earns money?

- Can you figure out the fair value of that business?

- Do you have time to trade & track stocks?

- Do you have discipline to continually allocate time to make investment decisions?

Do you want to create wealth in the long term or you want few gains here and there. The most difficult thing in the stock market is to sit tight on your profits. The moment you see your capital doubles, you will sell. Also, when your stock is down, you will try to average it. Investing is less of intelligence and more of Psychology.

Another problem in direct stocks is the sizing. You can make money in direct investing if your allocation to good stocks is very high. Even if your stock rises 4-5 times but your allocation is not large enough, your gains will be limited. You will not be able to increase your allocation in rising stocks. Can you increase your allocation in a stock which has risen 2-3 times its buying price. More often than not, you will sell it before it gives you substantial gains. You will always increase your allocation in stocks which are falling. That's the whole tragedy of direct investing.

Most of the investors buy on tips which you keep getting every day on the mobile. Even, if you follow some market expert for stock buying, he may tell you some good shares which are looking good at that point but he may change his view after a while due to many reasons associated with the stock. So, if you want to be in the business of direct stocks then you will have to rely on yourself and not on anybody else. Experts keep changing their views as per the market conditions. But to rely on yourself for buying direct stocks is easier said than done. You need to understand the market thoroughly and must have seen 2-3 bad cycles.

Also, you should be able to at least, I say ATLEAST, read and understand the balance sheet, profit and loss account and cash flow statement of the company. This is the minimum requirement of direct stock investing.

Mutual fund investing is low ticket size. You can start with capital as low as Rs 500/-. In direct equities you require higher capital. Also, exit from mutual fund is easier than in stocks.

Investors may not have the necessary skills to identify the right stocks. Not everyone can dedicate time to do research. Mutual funds, therefore, offer investors the expertise of fund managers with a whole research team. Also, mutual fund investing is easy, less emotional, disciplined, cheap and tax efficient.

It is very easy to have access to information and knowledge about the market and companies but to become wise out of this information and knowledge is MOST DIFFICULT and more often than not, it will be the opposite.

Look at the mutual funds. You will get 14-15% compound annual growth rate without losing your sleep and without looking at the market everyday. The problem in direct investing is the attachment with the stock. You can't sit idle with the stock price. If it goes up, you will sell and if it goes down, you buy and keep averaging. So, over a period of time, you will sell all your good stocks and accumulate junk stocks. Also, buying and selling entails brokerage charges and capital gains. So, your profits will further reduce.

Mutual funds do not have stock price but net asset value (NAV) which no body tracks. In fact, whenever the market falls, due to your SIPs investing, you accumulate more units of mutual fund Scheme because of the cheap NAV. So, you can really sit tight and can keep increasing your allocation in your mutual funds for many years. That is where the power of compounding kicks in.

All humans have urges. Stock investing can also be an urge. If you really want to indulge in direct stocks then allocate 10-20% of your corpus in direct stocks and rest can go to mutual funds. Compare your returns after 3-4 years. If you have made more money in stocks then increase your allocation slowly in stocks.

Also, to reach a target of ₹2 Crores in 20 years, you need to invest ₹10,000/- per month in good quality 2-3 mutual funds with an annual increment of 1,000/- which is easily achievable.

Also, to reach a target of ₹5 Crores in 20 years, you need to invest ₹30,000/- per month in good quality 4-5 mutual funds with an annual increment of ₹2,000/-. This can be easily done without losing your peace of mind.

We are also operating a Mutual Fund Distribution Firm INVESTOR FIRST. For better understanding of mutual fund investments or Investment Planning for future targets, you can contact us at the following address :

Website: https://investorfirst.co.in/

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off), +91-1353520386(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

01 CR IN 10 YRS AND 01 LAKH PENSION EVERY MONTH

2023-09-21T18:56:00.006+05:30

SIP : 30k per month

Step up amount : 3k per annum (that means your SIP Amount in 2nd year: 33k, 3rd year: 36k, 4th year: 39k, 5th year: 42k, so on and so forth till tenth year).

Expected rate of return: 13-15%

Amount after 10 years : 1.07 crore with an expected rate of return of 14%

The expected rate of return from the equity market is 12-15%. I have taken 14%. Conservatively, even if equity markets give 12% rate of return, one may take 11 years to reach the target of 01 Cr. One year will not make much of a difference. The aim is to reach there.

Now the most important part; HOW TO GET PENSION OF 01 LAKH PER MONTH

Yes, one can easily withdraw 01 lakh per month from this account through out your life and your principal of 1.07 crores will remain with you all the time. The logic is very simple. Equity markets are expected to give 12-15% returns in long term. So, if you withdraw 12 lakh per annum (ie 12% of 1 crore), your corpus of one crore will not get effected, since it will fetch you 12 lakh again. Yes! It may not be as simple as it looks here on paper because of volatility of the market but I am sure if you stick with your investment, you can withdraw the above amount per month and your corpus will not get effected in long term.

We are also operating a Mutual Fund Distribution Firm Investor First. For better understanding of mutual fund investments or Investment Planning for future targets, you can contact us at the following address :

Website: https://investorfirst.co.in/

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off), +91-1353520386(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

HOW TO MAXIMIZE MUTUAL FUND RETURNS

2023-09-03T10:19:00.007+05:30

In the last article, we compared SIP investment versus lumpsum investment and found out that in most cases SIP investment is a better option for long term investment. In this blog post, I would like to discuss the options available for increasing the probability of maximizing returns in mutual fund investing. To maximize returns from mutual fund investment, the undermentioned Three Pronged approach is probably the better option:

1. SIP

2. Lumsump (switch from liquid or short term fund during falling markets)

3. Step up of SIP

Three Pronged Approach:

SIP. The investor should have a target of Terminal Value (TV) to be achieved in a particular period of time. Minimum ten percent of the terminal value should be accumulated within first 2-3 years of investing. So, if the terminal value in mind is Rs 2 Cr then 20 lakh must be accumulated within first 2-3 years through SIP and lumpsum both. The expected CAGR of 14-15% in the Equity Mutual Funds can double the money in approximately 5 years. The SIPs will take little longer, specially in early years, since the complete amount is not available for compounding. But once a base is made of substantial amount, the power of compounding kicks in, on the base amount and on the increasing amount of SIP every month.

Step Up the SIP every year by 10%. This enhances the power of compounding and helping the investor to increase the base amount on which compounding is happening.

Lumpsum. During draw downs of the market or market crashes, top up the portfolio with lumpsum investment. This can be done if the amount is available in the bank account or one can maintain a certain amount of money in debt funds and use switching option. Capital Gains will have to be considered before switching. You can take the advice of your Mutual Fund Advisor to understand the tax implications on short term and long term capital gains. But it will not be significant, considering the gains in equity. The lumpsum strategy can also be used to top up the SIPs whenever you have extra cash available.

In the normal SIP approach, the mutual fund investment can double every 5 years, in long term (around 15 years) with an expected CAGR of 14-15%. With the above mentioned three pronged approach, mutual fund investments can double every 3-4 years with an expected CAGR of 14-15% in long term. The data shows that this has happened in the last forty years and if we believe in India’s growth story, the chances of this happening in the next forty years are very bright and better than before.

Let's illustrate by an example: (normal SIP with Step Up)

SIP and Step Up Only:

Terminal Value (TV) to be achieved: 02 Cr

Time available : 20 years

SIP amount : Rs 10,000/- per month

Step up amount : Rs 1000/- per annum (I am not even considering 10% every year, which keeps on increasing after first year)

TV after 5 years : Rs 10 lakhs

TV after 10 years: Rs 35 lakhs

TV after 15 years : Rs 89 lakhs

TV after 20 years : Rs 02 Cr

Look at the compounding, after first 05 years, it takes off parabolically. Once you make a base of some substantial amount, the power of compounding kicks in. Look at the parabolic growth. If the SIP amount and Step Up is doubled i.e. SIP amount is increased to Rs 20k per month and step up is Rs 2k per year, you will reach the target of Rs 4 Cr in 20 years. Tweaking of investment is in the hands of investor. Think of the target and start reverse calculation. One can always take the advice of Mutual Fund Distributor for better understanding. You should never be penny wise pound foolish.

This value can be as large as Rs 8 Cr, if you start with a base of Rs 20 lakh and start SIP of Rs 10k over this base and you keep increasing the step up amount by 20% of monthly installment every year and also invest lumpsum amount during markets draw downs. You can use SIP calculators freely available on internet (copy and paste the under mentioned links in the web browser).

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php#google_vignette

https://www.advisorkhoj.com/tools-and-calculators/mutual-fund-sip-calculator-step-up

If you want to leave your legacy for future generations or start an SIP investment of your children at very early age, then let me demonstrate the power of compounding for next 20 years for SIP amount of Rs 10k and step Up amount of 1k :

TV after 25 years : 04 Cr

TV after 30 years : 09 Cr

TV after 35 years : 18 Cr

TV after 40 years : 37 Cr

So, if an investor starts his investment journey at the age of 40, with an investment of mere ₹10,000/- per month, by the time time he retires at 60, he would accumulate almost Rs 02 crores. But if he starts his investment journey at the age of 20, he would accumulate almost Rs 37 crores at 60 years of age. He would create huge wealth for his retirement. Time is the most important factor in power of compounding. Even a small amount can create huge corpus, if invested for long time. The sooner one starts the better it is.

Of course, every one doesn't have that much time left but you can always increase the SIP amount, step up amount and lumpsum amount to reach your realistic target in your time horizon. Mutual fund investment is not for regular income but for future wealth creation. But once the wealth is created, one can draw a healthy monthly income through SWP or STP (to debt funds) or intermittent withdrawal from equity mutual funds. Your Mutual Fund Advisor can help you in planning all your future expenditures, be it for retirement purposes or creating wealth for future generations.

Every Indian leaves some assets for future generations be it land, house, gold or cash. Nothing can be better than leaving your legacy of mutual fund investment for your future generations. You will ensure your future generations will never be poor because besides the huge wealth, they will also realize the power of compounding.

REFERENCES: NIL

We are also operating a Mutual Fund Distribution Firm Investor First. For any kind of investments in Mutual Funds or Investment Planning for future targets, you can contact us at the following address :

Website: https://investorfirst.co.in/

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off), +91-1353520386(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

LUMPSUM Vs SIP- WHICH IS BETTER INVESTMENT STRATEGY FOR EQUITY INVESTING

2023-08-25T11:06:00.006+05:30

Lump sum investments are one time Investments. you need to be aware of the market cycles or trends to identify the right time to invest lumpsum amount. This investment is generally opted for when the market is bearish.

Systematic Investment Plan (SIP) is an investment option available for mutual fund investors. Investors can invest a fixed sum on a regular basis. Also, one can start with a one time investment in SIP and then continue with regular periodic investments.

One of the many questions that every investor has is whether they should invest in equity mutual funds through SIP or lumpsum. We are not talking about debt investing where the obvious choice is lumpsum because there is no volatility in debt market.

SIP Investments are for those who don't have large sums of lumpsum amount and have regular cash flows from monthly income. SIPs Investments give you mental peace and good night sleep in the falling market because you accumulate more units of mutual funds. It provides the advantage of rupee cost averaging, prevents the problem of timing of the market, inculcates a discipline approach of investing.

For a long term investment, of say 15-20 years, SIP is a better option because market always remain volatile and SIP provides rupee cost averaging, which in long term, give high returns.

Remember 2008, if you had invested rupees 12 lakh as lumpsum, that investment would have gone down by more than 50% (as seen in the chart below) by the end of the year. Only those had a very strongly appetite could see off this phase and see their one-time investment grow back to rupees 10.6 lakh (which is still a loss) by 2009 end.

The SIP route, too, saw a fall during 2008 but the drop was less alarming when compared to lump sum investment. in addition, the Rs 12 lakh investment grew to 16.39 lakh by the end of 2009, which means an SIP investor made a gain of more than Rs 6 lakh as against a lumpsum investor.

Clearly SIP beats lumpsum investment when the markets are negative or volatile. Markets will always remain volatile and will never move in one direction. Hence, chances of SIP beating the lumpsum investments are always high.

Lumpsum investment tends to do better when the markets are on the rise. There is only one situation when lumpsum investment can be better than SIP Investment. Suppose, you invest today and in the next 15 years, the markets keep on rising every year for the next 15 years then your lumpsum returns will be better than SIP. But this will never happen in the equity market. The nature of the equity market is always volatile. It never moves in one direction.

Suppose you start investing in SIPs and markets start coming down or moves sideways for the next two to three years. What will be your reaction after watching no returns from your investment in SIPs? You will be frustrated and start doubting your wisdom to invest in equity market. This is where you need to understand the concept of SIPs. During these periods of distress in the market, you will be accumulating more number of mutual fund units than in the rising market (units will be cheaper due to lower NAV), which will fetch you much higher returns in the end. Market drawdowns and crashes are considered as the biggest enemy of mutual fund Investors. Please don't consider the falling markets as your enemy. SIP investment makes your enemy (falling market) your best friend because that is the time when you make most of your money. So, the SIP mutual fund investor must never be afraid of falling market rather you should be happy about it.

If you start your SIP and markets remain volatile throughout your investment horizon, your returns will be maximum because you will also keep buying at lower NAVs and collect more and more units. Finally, what matters is the number of units you have. The terminal value is the number of units multiplied by NAV. Markets will always remain volatile. It never moves in linear fashion. Understand and enjoy the beauty of SIP.

Japan equity market didn't move up for thirty years. According to a survey, If someone had invested in Japan equity market 30 years back as a lumpsum then even today, you would have been sitting at loss but if you had invested through SIP then even today you would be sitting at profit. This is the advantage of rupee cost averaging.

Moreover, the longer the investor stays, they can realize the beauty of SIPs and enjoy the benefit of power of compounding which is the eighth wonder of the world (Albert Einstein). Investing is simple, don't make it complicated. Consult your Investment Advisor or Mutual Fund Distributor for understanding the investment strategies before investing in Equity Market.

We are operating a Mutual Fund Distribution Firm Investor First. We are one of the highest ranking investment firms in Uttarakhand and Dehradun. Rest assured that your interests and benefits will always be first and foremost. For any kind of investment planning, you can contact us at the following address :

Website: https://investorfirst.co.in/

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

REFERENCES:

https://scripbox.com/mf/sip-vs-lumpsum-when-to-choose-what/

https://www.youtube.com/watch?v=oVqlsAeoNWM&t=2223s

https://www.valueresearchonline.com/stories/50916/sip-or-lumpsum-which-is-better/

https://www.businesstoday.in/personal-finance/investment/story/lump-sum-vs-sip-which-mutual-fund-suits-you-best-331199-2022-04-26

DISCLAIMER : The above information is available on public domain and has been taken mostly from the above mentioned websites and YouTube videos freely available on internet. The opinion expressed above is in no way recommendation of buying or selling. You must consult your financial advisor before making any fresh investment in equity market.

IN WEALTH CREATION WHAT IS IMPORTANT - TIME OR AMOUNT

2023-08-22T09:49:00.000+05:30

Start investing early in life. It is not very important that how much you invest but how long you can remain invested. Understand power of compounding. It's the eighth wonder of the world(Albert Einstein).

Example :

Amount : 10k per month

No of years : 30

Expected rate of return: 15%

Your investment: 36 lakh

Resultant Amount: 07 crores

Amount : 1 lakh per month

No of years : 15

Expected rate of return: 15%

Your investment: 1.80 crores

Resultant Amount: 6.77 crores

The above example shows that to reach the target of 7 Crores in half the time i.e. from 30 years to 15 years, you have to increase the amount by 10 times (from 10k to 1 lakh). Power of Compounding creates magic in long term. With an expected CAGR of 14-15 %, the investment doubles every five years. Once a substantial base is made of, say 20 lakhs, the power of compounding kicks in. 20 Lakhs to 40 in next 5 years to 80 in next 10 years to 1.60 Cr in next15 years to 3.2 Cr in next 20 years. You can extrapolate what will happen to your investment in another 20 years. So, remember it is the time which is more important than amount in long term investing. Start early and keep stepping up your investment every year by 10% and reap the benefit in next 20 years.

DISCLAIMER : The above information is available on public domain and has been taken mostly from websites and YouTube videos freely available on internet. The opinion expressed above is in no way recommendation of buying or selling. You must consult your financial advisor before making any fresh investment in equity market.

ASIAN PAINTS: THE GREAT MONEY MAKING MACHINE

2023-08-21T21:51:00.001+05:30

Set up in 1942, the Asian Paints group is the largest paint manufacturer in India also engaged in the business of manufacturing of varnishes, enamels or lacquers, surfacing preparation, organic composite solvents and thinners. It operates in 15 countries and has 26 paint manufacturing facilities in the world serving consumers in over 60 countries.

Besides Asian Paints, the group operates around the world through its various brands viz. Asian Paints Berger, Apco Coatings, SCIB Paints, Taubmans, Causeway Paints and Kadisco Asian Paints.

It also manufactures metal sanitary ware such as bath, sinks, washbasins and similar articles. Recently introduced Lightings, Furnishings and Furniture thus adding more products in the Home décor and Interior Design category.

Asian paints is the only business in the history of the planet which has grown revenues at 20% per annum for the last six decades now. Asian paints went public in 1982 and from 1982 to till today it has given a *return of 1800 times at 28% CAGR.* The business of Asian Paints doubles in every three year.

The company was founded by Mr Champak Lal Chowksi. He built a great *money machine* which cannot be matched till today. Till 1969, paint was sold as a FMCG product. Logistics chain of selling used to be a whole seller, a distributor and a dealer or retailer. The whole seller and distributor where taking almost 20% margins. The dealer or retailer were getting only 3%. Asian Paints removed whole seller and distributor and started selling directly to dealer. Dealers were not ready for this new change. They protested that they didnt have so much off space and money to store so much of inventory. Mr Champak Lal Chowksi offered dealers that every three hours Asian paints truck will come and replenish the inventory. People thought, he has gone out of his minds. How can you replenish four times a day. You have forty thousands dealers and how on earth would you deliver hundred and sixty thousands times a day. Remaining 28 years of his life, what Champak Lal Chowksi built was so powerful that even after 22 years after his death, nobody in their right minds can think of competing with Asian Paints across the globe. What did he actually do to build this kind of business which has created unprecedented competitive advantage and great MOAT? He made Paint, the only product in our country which goes directly from the factory to the dealer near your house. He ensured that there is no intermediary in between. He made the Paint, the only product which stocked and restocked 4 times a day and 28 times a week. Everything else you and I buy, is replenished once a week or maximum twice a week.

Asian paints is the only firm in India which takes home 97% of the MRP. 3% goes to the dealer. Every other product in India, 30-40% of MRP goes to this logistic channel and 60% is taken by the manufacturer. So, *60% for everybody else and 97% for Asian Paints*. Today, they have more than *seventy thousand* dealers and they deliver almost three lakhs times a day. Number two company Berger delivers forty times a day and number three company Akzo Noble delivers ten thousand times a day. How does Asian Paints does it in a country where infrastructure and logistics are nothing to talk about atleast till the last decade. Asian Paints does it with the help of technology. In 1970, Champak Lal Chowksi spent rupees 8 crores to buy first super computer of India, 10 years before ISRO or any IIT and 20 years before any other company in India. The world finest ERP implementation is NOT Amazon or Walmart but Asian Paints. What they could achieve is simply amazing and unmatched.

Behind this remarkable network architected by Champaklal Choksey, is 50 years of proprietary data on paint demand for each neighbourhood in India, for every hour of the day, for every day of the year. That allows Asian Paints to forecast your paint demand just like Amazon can second guess what you will buy when you visit their website next. What colours are selling, what quantities are selling and what tin sizes are selling. This mountain of data is their selling machine and with every passing day this data is going up and up. With this kind of data and logistics, the smartest people in the paint industry say that nobody in their right mind should think about competing with Asian Paints. Their data gives them the power to predict sales of every dealer with more than 95% accuracy. It is all automated. Asian Paints’ proprietary data, its forecasting ability and its distribution network give them a working capital cycle of 8 days. From raw material to cash in bank in 8 days. Nobody else in the paint sector comes remotely close to Asian Paints on this metric. The next nearest competitor Berger Paints, who is one third in top line(sales) than Asian Paints; working capital cycle is 45 days. Asian Paints ROCE is between 35-40, Berger Paints ROCE is between 20-25. Akzo Noble( earlier ICI) is one tenth the size of Asian Paints; working capital cycle is 105 days and ROCE is 16%. The above story has been told very passionately by Mr Saurabh Mukherjea of Marcellus Investments, in his many TV shows.

While Nerolac and Berger together deploy about 46,000 tinting machines through their dealer network, Asian Paints alone has 50,500 machines.

You will be surprised to note that the best paint in India is made by Akzo Noble but best paint company in India is Asian Paints.

Consistent Growth

With 35-40% ROCE, 28% ROE, 11% Sales Growth, 14% Profit Growth the business doubles every three years and in ten years, it is 10X.

Economic Moat

Asian Paint has built such a huge barrier to entry or MOAT that it is almost impossible to penetrate and compete with. It has got the power to sustain the inflation by constantly increasing the price and thus manage to pass on the input cost inflation. In the last two months, Asian Paints has increased the prices of its products by 15% without effecting its sales. This will give a big jump to its topline and over times, this will also reflect in its bottomline.

The company is also focused on R&D and introduces 25 colour additions every year. They also have installed paint dispensing (NNG) machines with almost all retailers which saves them warehousing and encourage retailers to sell Asian Paint products. This also acts as a solid moat. Therefore, Economic Moat category gets 5 stars in Asian Paints shares fundamental analysis.

KEY POINTS

Revenue Breakup

Decorative Coatings - 83.70%

Industrial Coatings - 2.40%

International Operations - 11.60%

Home Improvement Business - 2.30%

Leadership

- 3rd Largest Paint Co. in Asia.

- 9th Largest Coatings Co. in the World.

- 50+ Years of Market Leadership in India.

- Leading wallpaper manufacturer under the brand NILAYA.

- 3x of nearest Competitor in India.

- Top 3 player in decorative paints in 12 of the 14 countries outside India.

Paint Business

The group enjoys a dominant share of over 50% in the organized domestic paints market (the second-largest player has a market share of about 16%). In the decorative paints segment, which comprises about 70-75% of the Indian paints industry, the group has a share of about 60%. It also has a healthy position in the automotive industrial coatings segment with a market share of about 20%.

Kitchen business

The industry has been witnessing a shift towards branded modular kitchen solutions from local carpenters and interior designers. The Company forayed into the Kitchen business by acquiring 51% stake in Sleek in FY 2013-14. During FY 2017-18, the Company acquired the remaining 49% stake in Sleek from the previous promoters to make it a wholly owned subsidiary. There's huge potential for Co. as the overall market in India is estimated to be worth more than 15,000 Crores and is a fragmented market with many unorganized players.

Bath business

Asian Paints forayed into the Bath business by acquiring the front-end business of Ess Ess in FY 2014-15. Over the years, the Company has expanded its network footprint as well as the range of products it offers.

KEY PARAMETERS

Market Cap : ₹ 311,135 Cr

Stock P/E : 95.6

PEG : 4.83

Book Value : ₹ 130

Dividend Yield : 0.55 %

ROCE : 34.8 %

ROE : 27.3 %

ROA : 15.41%

Op Margin : 18.72%

Net Margin : 14.46%

EBITDA Margin : 23.89%

HISTORICAL DATA

Compounded Sales Growth

10 Years : 11%

5 Years : 9%

3 Years : 9%

Compounded Profit Growth

10 Years : 14%

5 Years : 13%

3 Years : 15%

Stock Price CAGR

10 Years : 28%

5 Years : 30%

3 Years: 32%

1 Year: 25%

Return on Equity

10 Years : 28%

5 Years : 26%

3 Years : 26%

1 Year : 27%

Free Cash Flow CAGR

7 Years : 16.71%

5 Years : 18.94 %

3 Years : 53.04 %

1 Year : 70.29 %

CONCLUSION

No company can sit on the laurels and performance of the past. It is a highly competitive market and to maintain the leadership position, the company has to keep innovating and expand the business in the related field. Asian Paints has remained focused through its journey and kept on entering the business of tiles, kitchenwares and bath and sanitaryware which are all related to paint business. The company has never tried a new business where they don't have any expertise and knowledge. Businesses fail when the promoters start foraying into unrelated fields where they have no expertise and knowledge. The glaring examples of failure are unitech foraying into the field of telecom. ADAG group entering all kinds of businesses. Sun Pharma's founder Dilip Shanghvi buying 23% stake for 1800 Cr in Suzlon, JP Associates started entering all kinds of businesses with very high leverage. There are many more examples.

Presently, the stock is highly priced. But you will never find such consistent compounders under priced. It has always been trading at higher valuations than its peers. You need to be patient or to have a strategy to buy such stocks.

Asian Paints is a leader in an industry that’s mature and fairly stable. Today, the company earns more than ₹ 21,000 crore in revenue, more than the combined revenue of the three largest incumbents. It earns the highest margins in the industry and commands a market share of more than 50%. No wonder then that people pay such high premiums for the stock. It's not a gem but a KOHINOOR of Indian Stock Market.

REFERENCES

https://finshots.in/markets/the-asian-paints-story/

https://www.google.com/amp/s/finception.in/stocks/asian-paints/index.html

https://youtu.be/u6sHSOQJrmQ

https://youtu.be/jlSUboLofA4

https://youtu.be/ieqE7umO6To

https://www.topstockresearch.com/INDIAN_STOCKS/PAINTS/FundamentalAnalysisOfAsian_Paints_Ltd.html

https://marcellus.in/blogs/marcellus-unusual-billionaires-flip-the-competitive-paradigm/

https://investyadnya.in/stock-o-meter/asian-paints

DISCLAIMER

The above article is not a buy or sell recommendation. It is made for the purpose of information, knowledge and education and should not be used to start investing in the stock. Please do your own research and consult your financial advisor before investing in the market. The content, data and views have been taken from various websites and YouTube videos freely available on the internet. Few of the references have been given below.

7-5-3-1 RULE FOR EQUITY INVESTMENT

2023-08-21T09:18:00.005+05:30

STEP#1 : HAVE A 7+ YEAR INVESTMENT TIME FRAME

It is believed that equity markets usually do well over 7+ year timeframes and this has been proven with the usage from historical data. When you invest with 1 year timeframe, in the past 22+ years, the Nifty 50 TRI has delivered over 10% annualized returns just 58% of the times. Chances improve to 80% for more than over 10% realized returns within a 7 year time frame. Best part is that there are no instances of negative returns for investment period of 7 year time frame. In worst case, annual returns were >5% when invested for 7 years.

The above illustration for lump sum investment also applies to Equity SIP. In fact, incase of SIP, because of Rupee Cost averaging, returns are far in excess, i.e., minimum 7% CAGR. Therefore, best Equity SIP investments should be for at least 7 years, i.e., 84 instalments in case of monthly SIP.

STEP#2 : DIVERSIFY YOUR EQUITY PORTFOLIO USING 5 FINGER STRATEGY

Different investment styles, market cap segments and geographies do well during different market phases. Hence, it becomes important to diversify across them. Unique equity portfolio construction strategy ‘5 Finger Framework’ has been built keeping this in mind. Five Finger Framework aims to deliver consistent outperformance with lower downsides over longer timeframes. The portfolio should be diversified across different investment styles like

- Quality,

- Value,

- Focus

- Growth at Reasonable Price,

- Large Cap

- Mid Cap

- Small Cap

In the last 10 years, the 5 Finger Portfolio has outperformed the Nifty 50 TRI by 4% on an annualized basis.

STEP#3 : PREPARE MENTALLY FOR THE 3 COMMON POINTS OF FAILURE

Equity markets have historically provided superior returns over longer time frames. The initial years of investing journey can be very difficult as intermittent market falls lead to a sharp dip in equity returns. The real challenge is to survive the three temporary but inevitable phases of failure that happen during the initial years, most likely in the first 5 years of equity investing.

1. The Disappointment Phase : The phase where the returns are subpar (7-10%).

2. The Irritation Phase : The phase where the returns are much lower than our expectations (0-7%).

3. The Panic Phase :The phase where the returns are negative (below 0%).

These phases happen as a result of equity market volatility. In the last 42+ years of Indian market history it has been shown that temporary market falls of 10-20% happen almost every year and 30-60% falls can be expected once every 7-10 years. Though such phases cannot be avoided but always remember that these falls are temporary in nature. Historically, the equity markets have always recovered and the returns improved significantly in the next 1-3 years after the great falls, rise of 2020 and 2009 are recent example. The historical data of NIFTY 50 TRI for SIP returns shows that for 7 year investment horizon, there is no panic zone for returns below zero.

STEP#4 : INCREASE YOUR SIP AMOUNT AFTER EVERY 1 YEAR!

Even a small increase in your Equity SIP amount every year can make a huge difference to your final portfolio value over the long run. An increase in SIP amount every year helps you to reach your financial goals faster. Expand your financial goals over a 20 year period. Your portfolio value, when you increase your SIP amount every year by 10%, is almost twice the original portfolio with a constant SIP amount every year! Thus, following 7-5-3-1 rule, you are sure to make significant wealth with your equity investment through SIP.

REFERENCES :

https://www.thehindu.com/brandhub/fundsindias-7-5-3-1-rule-for-successful-equity-sip-investing/article65550234.ece

https://www.abplive.com/business/the-7-5-3-1-rule-for-successful-equity-sip-investing-know-details-here-2147658

https://youtu.be/Uq8U9dqx2EE

DISCLAIMER : The above information is available on public domain and has been taken mostly from above websites and YouTube videos freely available on internet. The opinion expressed above is in no way recommendation of buying or selling. You must consult your financial advisor before making any fresh investment in equity market.

We (Investor First) are an investment firm and Mutual Fund Distributor (MFD). For any kind of mutual fund investments, you can contact us at the following address :

Website: https://investorfirst.co.in/

Head Office : Investor First, 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

POWER OF COMPOUNDING

2023-08-21T08:39:00.009+05:30

Sensex was 100 in1979 and 65000 in 2023. A gain of 650 times in 44 years (CAGR of 14.5 to 15%). That is the power of compounding. Look at the short term and long term chart. Short term chart is zig-zag but long term chart is linear(red line) and going from South to North consistently, inspite of all the hiccups, scams, assassinations, calamities, black swan events and other headwinds. No other asset class can give better returns in long term (at least 7-10 years) with full transparency and liquidity. Equity is the asset class, one can't miss now. With country expected to grow at 6-7% GDP, 14-15% equity returns are highly manageable. It is easy to invest but difficult to sit tight on that investment. Your investment advisor can help you sail through difficult times in bear market and control your emotions during bull runs.

₹01 lakh as lumpsum in a Largecap or Multicap fund, started in 1979, would have grown to ₹6.5 crores in 44 years without doing anything. ₹3000/- SIP in a Largecap or multicap fund, started in 1979, would have grown to 17.12 crores in 44 years with CAGR of 15%. This is power of long term investing and the magic of power of compounding. It's never too late in life. Markets will remain here only. Make up your mind and prepare a financial plan for all your goals in life. We can help you achieve your future goals by preparing a comprehensive financial plan at INVESTOR FIRST with no cost.

We are operating an investment firm Investor First. We are one of the highest ranking investment firms in Uttarakhand and Dehradun. Rest assured that your interests and benefits will always be first and foremost. For any kind of investment planning, you can contact us at the following address :

Website: https://investorfirst.co.in/

Head Office : 2nd Floor, 159/129/96, Sri Krishna Tower, Near Hotel Ramada, Ballupur Road, Dehradun-248001, Uttarakhand.

Contact Numbers: +91-9164046333 (personal), +91-8410116967(off), +91-6397808084(off).

Mail Address: sangam157@gmail.com, info@investorfirst.co.in

FINANCIALISATION OF INDIAN HOUSEHOLD SAVINGS : PART IV

2023-08-15T20:05:00.002+05:30

Value Vs Growth: Two approaches to stock investing

Growth and value are two fundamental approaches, or styles, in stock and stock mutual fund investing. Growth investors seek companies that offer strong earnings growth while value investors seek stocks that appear to be undervalued in the marketplace.

Growth or value... or both?

Which strategy — growth or value — is likely to produce higher returns over the long term? The battle between growth and value investing has been going on for years, with each side offering statistics to support its arguments. Some studies show that value investing has outperformed growth over extended periods of time on a value-adjusted basis. Value investors argue that a short-term focus can often push stock prices to low levels, which creates great buying opportunities for value investors.

Growth stocks, in general, have the potential to perform better when interest rates are falling and company earnings are rising. However, they may also be the first to be punished when the economy is cooling.

Good companies will always trade at higher valuations. *Good under valued companies are very very difficult to find.* If a company is under valued, there has to be some problem. People are not willing to pay the premium. All PSU stocks are highly under valued because of the inherent lack of efficiency, bureaucratic labyrinth, no decision making, government interference and highly inefficient and ineffective management. *So, please don't start searching for under valued companies and think they will be multi baggars*. They will remain under valued for decades together. if you pay peanuts, you get monkeys only. Look for companies with fair valuations. Wait for market corrections. When market corrects, all stocks fall irrespective of size, quality and price. Good well managed high quality companies will fall less and will be first to rebound. *Patience and discipline are the two most important parameters for good investment and wealth creation.*

Investment Vs Trade

When it comes to wealth creation in equity market, investing and trading are the two genres of the field. However, investing and trading are very different approaches of wealth creation or generating profits in the financial market. Imagine, today, you and your friend bought equal amount of seeds to sow in your fields but you sold them to someone in a day because you could earn profit. And your friend sowed the seeds and let them grow for a few years till they gave new seeds. He sowed the new seeds and continued this for years and sold a lot more seeds eventually than were bought. By investing his seeds he would have made profit quite different than what you made by trading your seeds. This is simply the difference in investing and trading.

The advantages that accompany a stock investing mindset are numerous. All you have to do is base your bets on a business that is strong in its core offerings, is constantly innovating and adapting to customer requirements and has a solid management team backing it. Once you are sure of this, you just need to “buy right and sit tight”.

An investment approach will ensure success in a longer period of time. It will also allow you the much-needed peace of mind that traders never get in their attempts to time the market.

So analyze a company fundamentally, invest in the business, remain unperturbed by the market noise and stay invested to reap long term benefits.

My take.....You should only invest and never trade. This is the only noble piece of advice i can offer with full conviction. If you trade, one day you will destroy all your wealth. More than 95% of traders never ever make any money. You can choose your fate....

There are many powerful well run Indian and multinational companies in the Indian stock market and many good fund houses and classes of equity mutual funds in the market. Start slowly and you will soon be able to differentiate the men from the boys. As I said earlier, I will again repeat; The powerful franchises have created huge wealth for themselves and for their shareholders. Market leaders keep changing with disruptions in technology, pricing, equity investment, logistics, greed, ambition so on and so forth. The problem is stock selection and lack of patience. We want to get rich overnight the moment we think of stock market. The CAGR of around 15-16% will make you rich by the time you retire and compound your money enormously. Your money is doubling every four to five years which is huge. Once, you have substantial corpus of say 15-20 lakhs, the doubling in every 4-5 years is magic. Within the next three cycles, you will be crossing a crore. The key is to start early to have the time advantage. It is not the amount but the time which is most important. Even if you start early in life and contribute less, you have all the chances to enhance it over a period of time because of your increasing salaries, bonuses etc. But, if you start late, the chances of compounding reduces. Please remember the rule of 15*15*15. If you invest Rs 15000 per month for 15 years with an expected CAGR (rate of return) of 15%, you will generate Rs one crore. So, starting early in life is the key to wealth creation.

Diversification

Diversification is the practice of spreading your investments around, so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.

One of the keys to successful investing is learning how to balance your comfort level with risk against your time horizon. Invest your retirement nest egg too conservatively at a young age, and you run the risk that the growth rate of your investments won't keep pace with inflation. Conversely, if you invest too aggressively when you're older, you could leave your savings exposed to market volatility, which could erode the value of your assets at an age when you have fewer opportunities to recoup your losses.

One way to balance risk and reward in your investment portfolio is to diversify your assets. This strategy has many complex iterations, but at its root is the simple idea of spreading your portfolio across several asset classes. Diversification can help mitigate the risk and volatility in your portfolio, potentially reducing the number and severity of stomach-churning ups and downs.

One can diversity the investments into equity (direct stocks or mutual funds), debt funds, Gold(around 5-10% of the corpus), FDs, various secured Govt schemes like PPF, SCSS, PMVVY, POMIS etc.

In the end, I will like to only suggest to be wise and prudent before start investing your savings. You can't exclude equity from your investment portfolio howsoever small or big it may be. That depends on your age, risk appetite, goals and passion. This is the only way of wealth creation in long term.

REFERENCES:

https://economictimes.indiatimes.com/markets/stocks/news/the-crux-of-growth-stocks-vs-value-stocks/articleshow/102225415.cms?from=mdr

https://www.business-standard.com/content/specials/growth-vs-value-investing-by-sidhavelayutham-founder-ceo-alice-blue-123080900595_1.html

https://www.thehindubusinessline.com/portfolio/personal-finance/growth-vs-value-the-age-old-investing-debate/article66906872.ece

https://www.youtube.com/watch?v=_18G87z6uwI

https://www.youtube.com/watch?v=Ty4dBujXRIA

DISCLAIMER : The above information is available on public domain and has been taken mostly from above mentioned websites and YouTube videos. The opinion expressed above is in no way recommendation of buying or selling. You must consult your financial advisor before making any fresh investment in equity market.

FINANCIALISATION OF INDIAN HOUSEHOLD SAVINGS : PART III

2023-08-15T16:38:00.004+05:30

Cusp of Change.

We are on the cusp of change. This pandemic has changed the entire working culture of industry today. The world and its working have become almost virtual. There is a huge shift the way companies used to work. Today companies are more lean and thin and running the business with super efficiency. They are investing in technology and logistics to build a "moat" which can give them very high competitive advantage and barriers to entry by others. The technology is coming in a big way to help industry to reduce cost and increase profitability. Companies which understand the technology and logistics will grow leaps and bounds. Companies with high "moat" and having high competitive advantage, dealing with items of basic day today needs, which you and me need every day, have created huge barriers to entry, well run promoters, not stealing money from it and not living flashy lifestyle like owning a jet, or buying a cricket franchise or a football team or been seen around in the cricket and football matches but rather concentrating on the business and not always seen in the power of corridors, will definitely do well. We have many....

Direct Equity or Equity Mutual Funds??

Mutual fund scheme or direct equity? Well, though both the investments are done in equities, the risk associated differs. Direct equity investments give investors greater flexibility to invest in companies they believe in and know. It involves a high risk but is a high-reward investment option.

Mutual funds, on the other hand, come with diversification opportunities which helps when the markets are volatile. Investing in mutual funds via SIPs allows investors to gain from price movements and frees them from timing the markets.

Mutual funds, as experts advise, must be the preferred option for new investors as these are professionally managed by fund managers. Investing in direct equity, meanwhile, should be opted by people who want a greater degree of freedom in creating their own portfolios and have sufficient knowledge about stocks.

However, the bottom line is whether one goes for mutual funds or stocks or a combination of both, the key lies in sticking with the investment plan.

The total number of Demat accounts increased from 39.6 million to 111.6 million between January 20 to Jul 23. The monthly average of new accounts opened has, meanwhile, stayed above the 2.1 million-mark consistently for the last 5 months.

During the same period mutual fund folios have also increased from 8.71 crore by the start of January 2020 to 15 crores by end of Jul 23. Net new SIPs registered are clocking in 23 lakhs on a monthly basis for the calendar year. Mutual fund industry registering net inflows of Rs 15,000 crores on consistent basis. Net AUM of MF industry has grown to Rs 46 Lakh Crores.

However, the question still exists -- which investment is better? How to do it??? Can you go for direct stock picking? Upto you... Acquire basic skills, just the basic... More financial noise will not make you any wise. Watching business TV channels will never make you wise rather it will do opposite. You will destroy your wealth. Just understand the BASICS of stock market. Read good books, listen to review of financial books, read excerpt of good books. *Listen to wise men of the industry*. Try to extract wisdom from knowledge. Social media is full of clutter but you need to filter the wisdom from knowledge and it takes time and patience. If you have that, please go ahead. If you feel you don't have time and patience to invest your resources, then please take the mutual fund route. Talk to someone whom you consider a financially savvy person and your friend to whom you can trust and understand. Trust is most important. Take your time but never ever invest your hard money without understanding it. Take your time before investing and not after investing. You will be much more sure of your investment and will be at peace once you have understood the concept of short term volatility of the market. Volatility is very good to grow your money. You should be able to use it in your advantage. Equity Market is not a gambling den. If you invest wisely and conservatively, you will never regret.

If you are new to the equity market, mutual fund is the best route to follow. If you have already acquired the basic skills and ready for direct equity, please explore the universe of stock market without getting over excited. Please don't start searching for Multibaggars. They can make you MULTI-BEGGERS too. No science can predict today that a new company will be a mulibaggar in future. Once it runs for 4-5 years, the earning can be predicted. Stick to the well run powerful companies with high "moat" and dealing with niche segment with high barriers to entry.

REFERENCES:

https://timesofindia.indiatimes.com/business/india-business/explained-why-indian-households-may-more-than-double-savings-in-5-years/articleshow/96250095.cms

https://www.thehindubusinessline.com/money-and-banking/financialisation-of-household-savings-gaining-pace-crisil/article66267798.ece

https://marcellus.in/blogs/marcellus-the-big-shift-in-small-town-india/

(main source of information)

https://www.youtube.com/watch?v=Q1eS6tfSaUs&t=24s

(main source of information)

https://www.livemint.com/opinion/columns/the-evolution-of-financial-services-and-savings-trends-in-india-11678620519140.html

FINANCIALISATION OF INDIAN HOUSEHOLD SAVINGS : PART II

2023-08-15T16:13:00.001+05:30

The World is changing from Physical Assets to Financial Assets.

In one of the RBI reports, it is highlighted that 95% of Indian house hold savings are in physical assets like gold, silver, land, flats and only 5% in financial assets. This may be because of no financial inclusion in lower strata of population. Most of the Indian people reside in villages where bank accounts were never heard of. But now with Jan dhan accounts and direct subsidy transfer, almost everyone at every place has a bank account and an aadhaar/Pan card. So, the financial inclusion has already started. This will shift the household savings from physical assets to financial assets. In the 2019 financial year, Indians held around 168 trillion rupees in physical assets as part of individual wealth. This was a big jump in asset valuation compared to the previous financial year's 156 trillion rupees' worth of physical assets (Published by Statista Research Department, Mar 8, 2021). So, there is a huge scope of this shifting from physical assets to financial assets. Even a 10% shift will be very very huge. The banks will automatically get capitalised and will have more cash to disburse. The business will have more lending and capex will increase. This is how the economy improves. So, how do we benefit from this physical shift to financial assets. The need of the hour is to shift focus from physical to financial. By not investing in financial assets, you are missing the India's growth story.

The people from lower strata of society will go for bank deposits, you and me who have better understanding and more educated, must look for better financial products. Where is the opportunity? Can you start a new venture at your own? Can you start a business. NO.... Then what??? We all can participate in the well run businesses by investing in equity market. There are around six thousands listed companies. Yes, you can become a shareholder of any company by investing even a Rs 100 per month. *Companies have grown from few crores to thousands and lakhs of crores of market cap today.* You name it, reliance, TCS, Infosys, HDFCs pedigree, HUL, ITC, Bata, MRF, godrejs, nestle, HCLs, Maruties, Eichers, Gillets, Page, Reddy's, Heros, L&Ts, Asian Paints, Berger Paints, Havels, Aditya Birla group, battery gaints like like Exide and Amarraja, Muthoot, mannapuram, lux, ttk, symphony, wipro, Mindtree, Mittal's telecom, titans, pidilites, daburs, maricos, Britannias, bajajs, Abbots, divis, other pharma companies, the new kids on the block like India Mart, CAMS, Dixon tech, route mobile, affle india, happiest minds etc etc etc....when their market cap and earnings are increasing over the years why will not your wealth. Also, on the other side, companies like Satyam of Raju's, kingfisher airlines, jet airways, Suzlon, JPs, Unitech, GVKs, GMRs, ADAG group, vodaphone, Yes Bank, DHFL, Gitanjali gems of Choksi's, Deccan Chronicle and many many more have completely decimated the investors wealth. The world is highly competitive. The greedy, over ambitious and selfish promoters will surely destroy their companies and shareholders wealth.

There is lot of inertia in investing in stock market primarily because most of us loose money in the equity market. Why is it so, when the data suggests otherwise. If sensex has risen from 100 in 1979 to almost 65000 now ie 650 times (65000%), why you and me can't make money. The only reason is lack of patience and desire of making money overnight. You need to invest in equity markets intelligently and conservatively to augment your money compounding for future growth of financial assets. Ofcourse, with a fine balance of your short term and long term needs. Asset allocation is the buzz of the market today. Yes, it is important. Decide how much money you can spare without needing it for the next 20 years. It may be one thousand or one lakh rupees a month depending upon your income. Have liquidity with your bank saving, FDs, short term funds and some security in terms of Provident Fund and other schemes like SCSS, if you are eligible. How to park the excess corpus? You have to consider equity an option because there is no other competitive option and no alternative. Interest rates are down. Inflation is expected to rise. Oil is already making a century. Real estate and gold are cold. Equity markets are rising every day. There is a FOMO ( fear of missing out) factor among the retail investors. The approach should be simple, for long term, without any clutter and noise, disciplined, modest and with reasonable expectation. The route is direct equity or mutual funds.

Fundamentally, a bull market and commodities mean input cost pressure. It leads to inflation and therefore one needs to invest in strong franchises which have pricing power to deal with inflation and protect their operating margins. Across the world, it looks inevitable that commodity prices and inflation will go up strongly. Therefore, the focus as ever should be to invest in powerhouse franchises which have the pricing power to make sure that the topline growth comes through the bottomline.

And the fact is that there is a huge opportunity waiting for wealth creation. Good powerful clean run franchises with clean and modest promoters will generate wealth irrespective of governments, policies, pandemics, politics, oil prices, US bond yields, inflation and printing of money. The need is to identify and invest judiciously, intelligently and conservatively with a high degree of discipline, modesty and simplicity.

According to Mr Ramdev Agarwal of Motilal Oswal Sensex can reach 2,00,000 (2 lakh) within next 10 years. The calculation is very simple. With 15-16% of CAGR (compound annual growth rate), you get doubling in every 4-5 years. Sensex is already 65,000. Next 5 years, it may cross 1,00,000 and another five years it will double to 2,00,000. So, it is very much possible.

The powerful franchises have created huge wealth for themselves and for their shareholders. Market leaders keep changing with disruptions in technology, pricing, equity investment, logistics, greed, ambition so on and so forth. The problem is stock selection and lack of patience. We want to get rich overnight the moment we think of stock market. The CAGR of around 15-16% will make you rich by the time you retire and compound your money enormously. Your money is doubling every four to five years which is huge. Once, you have substantial corpus of say 15-20 lakhs, the doubling in every 4-5 years is magic. Within the next three cycles, you will be crossing a crore. The key is to start early to have the time advantage. It is not the amount but the time which is most important. Even if you start early in life and contribute less, you have all the chances to enhance it over a period of time because of your increasing salaries, bonuses etc. But, if you start late, the chances of compounding reduces. Please remember the rule of 15*15*15. If you invest Rs 15000 per month for 15 years with an expected CAGR (rate of return) of 15%, you will generate Rs 01 crore. So, starting early in life is the key to wealth creation.

I am not suggesting to go out today and buy the stocks of good well run companies. Market is at all time high and there is euphoria all around. The stocks are at very high valuation right now. There is plenty of liquidity flowing all around. It's a bull market. We want to buy high flying stocks without much fundamentals or history of consistent earnings. Markets were there, markets are here and markets will be there. It is not going anywhere. Markets never follow a linear path. The basic nature of market is volatile. There will always be better times to invest. But when will that better time come, nobody knows. And even if that time comes, there will be few takers. When the market crashes, there are very few braveheart to invest. People invest more in bull markets. So, don't sit tight and hold all your investments. Stay Invested and buy slowly. When you get better opportunities, buy little more. Cash is the king in the bull markets.

You need to follow a simple and balanced approach for equity investment (direct equity or mutual fund). But simple and balanced approach is not that simple. It comes with time and patience. You need to go through atleast two bull and bear cycles to experience the vagaries of stock market. You need to burn your own fingers to feel the pain and not repeat the mistakes.

REFERENCES:

https://timesofindia.indiatimes.com/business/india-business/explained-why-indian-households-may-more-than-double-savings-in-5-years/articleshow/96250095.cms

https://www.thehindubusinessline.com/money-and-banking/financialisation-of-household-savings-gaining-pace-crisil/article66267798.ece

https://marcellus.in/blogs/marcellus-the-big-shift-in-small-town-india/

(main source of information)

https://www.youtube.com/watch?v=Q1eS6tfSaUs&t=24s

(main source of information)

https://www.livemint.com/opinion/columns/the-evolution-of-financial-services-and-savings-trends-in-india-11678620519140.html

FINANCIALISATION OF INDIAN HOUSEHOLD SAVINGS: PART I

2023-08-15T16:01:00.007+05:30

Are Indians shifting their savings from Physical Assets to Financial Assets???

Assets are widely known as anything that has value and return generating potential. It represents value of ownership. Investment asset can usually be of two types: Financial assets and Physical assets. Even though they seem similar, they are very different from each other based on their features and characteristics. Financial Assets include stocks, bonds, funds held in a bank, investments, accounts receivable, company goodwill, copyrights, patents, etc. whereas Physical Assets, also called real assets have a very identifiable tangible presence. Examples of such physical assets include land, buildings, machinery, plant, tools, equipment, vehicles, gold, silver, art etc.

Investors derive psychological comfort in holding a physical asset because they can have the feeling of possession. This difference in comfort is a major reason why most of the wealth of Indians is locked in Real Estate and Gold.

Indians have an affinity towards physical assets - be it real estate in the form of plots, farming land, and developed real estate or gold. The attraction for these physical assets can be attributed to the lack of alternative instruments in the financial asset area. Over the last few decades, the financial markets have grown from level to level and now have become an asset class that can be reckoned with. With the arrival of information technology, telecommunication, and the internet, the interactions have made deep infiltration. The mindset of an average Indian is now varying with an inclination towards financial assets.

Everybody in this country needs to think very clearly about investing. The reason for that is that in the last fifteen years the country has changed in a very fundamental way and most people, even the most affluent people, have not figured it out. What happened to our country in last decade or so and that happens to every country when it changes from a desperately poor third world country to more gradually become a second world country, physical assets like houses, lands and gold stop giving you a real rate of return. See, when you are a poor primitive society, your financial systems are under-developed and the people have less faith in the financial systems and the official assets give you pretty decent returns. But when the country matures and move towards developing country, the physical assets stop giving you any meaningful returns. Moreover, the physical assets are not only giving you more and more low returns but the inflation in our socio economic strata, regardless of what govt might say, is around 7%. Anything, right from a toothpaste to mobile phone, the cost and quality are rising even more than normal rate of inflation.

Next generations will bound to spend more because of aspirations of new world, better education, awareness and to explore the world. There is very little in our country that we consume, other than what is there on the dining table, is actually Indian. The cost of living goes up at 6-7% every year, it is very important to generate min 6-7% rate of return, above the cost of living. And that is very very hard to do in india. In our parent generation, inflation was 2-3% and the the rate of return in LIC policy, fixed deposit, gold, land, govt bonds was around 7-8%, which was quite decent. The real rate of return used to be around 5% which was quite decent at that point of time. The requirements were very less. No flashy things in life, no mobile phones, no interior decorations, no personal designer clothing, no big cars, no big houses, no traveling, no dining outs etc etc etc. But now look the life all around. Everyone needs everything. From where will you generate the income which is a fixed sum every month.

Now imagine, a person retiring at 55 to 60 years of age and expected to live for another 20 years and with no real pension policy and he has invested all his money in LIC policies, govt bonds, gold, fixed deposits, recurring deposits, he will have to keep cutting down on all expenses in life which otherwise will keep increasing due to health issues and old age. If the inflation is 6-7% and the rate of return of your savings/investment is only 5%, you have 2% of guaranteed wealth destruction every year. Means, in 25 years, 70% of the wealth will be wiped out. And that is what most of us are doing. And, this is the epic disaster which is happening in front of everyone. People don't want to accept it, thinking that they have a flat in Delhi Noida Bangalore Pune which will fetch them enormous amount of money whenever they want. Gone are the days when there used to be huge amount of money in land and flats. There is a huge supply and very less demand. Rules of the games have changed. Lot of transparency have come in the system. RERA act is also passed by parliament in 2016. The founding objective of this body is to monitor the real estate sector and adjudicate disputes related to real-estate projects. Earlier, the demand of real estate was pent up because of lack of investment options and huge marketing of these assets. Now tell me what is the point of buying a house of 70 lakhs when you can't even rent it out for more than 20 thousands a month that makes you generate 2.4 lakhs per annum on this amount ie not even 3 percent. Even a bank FD can give you better return with all the liquidity in your hand. On top of that, it is a huge liability of finding a suitable tenet every now and then, maintaining the property and always scared of the tenet what if he stops giving you rent and doens't vacate. Yes, one good comfortable house is required of your modest/ flashy living, what ever you like, may be an extra small piece of cheap land but beyond that it is stupidity. It is like increasing level of cholesterol in your arteries, which keep clogging up and one day you realize you have heart attack.

REFERENCES:

https://timesofindia.indiatimes.com/business/india-business/explained-why-indian-households-may-more-than-double-savings-in-5-years/articleshow/96250095.cms

https://www.thehindubusinessline.com/money-and-banking/financialisation-of-household-savings-gaining-pace-crisil/article66267798.ece

https://marcellus.in/blogs/marcellus-the-big-shift-in-small-town-india/

(main source of information)

https://www.youtube.com/watch?v=Q1eS6tfSaUs&t=24s

(main source of information)

https://www.livemint.com/opinion/columns/the-evolution-of-financial-services-and-savings-trends-in-india-11678620519140.html

Which investment is better: Insurance Endowment Plan or PPF or Equity Mutual Fund

2023-08-11T23:26:00.041+05:30

There are a number of different options available to you when it comes to investment. In this article, we'll take a look at three of the most popular types of plans: Endowment Plan, PPF and Equity mutual fund.

Endowment plans often have a policy term of more than ten years, and the rate of return earned throughout that time, including various bonuses, has been much lower than that of well-performing equity mutual funds. In the long run, equity mutual funds are able to build a significantly greater corpus than endowment plans or fixed-income vehicles. Equity mutual funds also provide significantly more liquidity than endowment programs. Furthermore, one should maintain their investment and insurance needs distinct at all times. Choose a pure term plan with an amount assured of at least 12 to 15 times your annual salary if you don't have enough life insurance.

Let's calculate and see the result for ourselves. Take any Endowment or Money Back Insurance Plan like for example, Jeevan Anand.

Jeevan Anand Maturity Calculations

Yearly Premium - Rs. 1.5 Lakhs

Tenure of Policy - 15 Years

Sum Assured -18 Lakhs

Maturity Value = Sum Assured + Reversionary Bonus (Added every year) + One Time Terminal Bonus

Current Reversionary Bonus(CRB) Rates are - Rs. 41 per thousand Sum Assured

(Formula for CRB - Sum Assured * Bonus Per Thousand Sum Assured*No. of Years)

Current One Time Terminal Bonus (TB) for this policy - Rs. 35 per thousand Sum Assured for 15 years policy

(Formula for TB - Sum Assured * Bonus Per Thousand Sum Assured)

Maturity Value = Rs. 18,00,000 + Rs. (41/1000)* Rs 18 Lakhs*15 Years+ Rs. (35/1000)* Rs 18,00,000

= Rs 18,00,000+Rs 11,07,000+Rs 63,000 = Rs 29,70,000

Your family will get a sum assured of 18 Lakhs if you die in between.

Do you know how much is the Rate of Return in Jeevan Anand Policy - less than 5%. Rs 1.5 lakhs per annum at around 4.5% CAGR for 15 years, will get you Rs 29.70 lakhs.

If you do the same calculation for PPF, you will get around Rs 48 Lakhs in 15 years at 8% CAGR, which is the current rate of interest in PPF. The only advantage in insurance policy can be that you will get the sum assured of 18 Lakhs, even if you die in the first year. It is better to buy a Term Insurance policy of Rs 50 Lakhs (much more than Rs18 lakhs) by paying a premium of only Rs 7,000 per annum). You deduct the premium and invest the remaining amount of Rs 1.43 Lakhs in PPF or in Equity Mutual Fund, you will get much more.

PPF Maturity Calculations

Yearly Premium - Rs. 1.43 Lakhs (at the beginning of year)

Tenure of Policy - 15 Years

Current Interest rate- 8%

Amount after 15 years - Rs 42 Lakhs

Difference of 12.30 Lakhs (42.00-29.70) in 15 years.

Therefore, If the same amount (Rs 1.43 lakhs) is invested in PPF for 15 years, the return would be around Rs 42 lakhs with current interest rate of 8% per annum.

Also, there is option of partial withdrawal available in Jeevan Anand whereas in PPF, one can withdraw partial amount after 6 years.

Equity Mutual Fund Calculations

Yearly investment - Rs 1.43 Lakhs

No of years - 15 Years

Expected Rate of Return- 15%

Amount after 15 years - Rs 80 Lakhs (approximately)

Difference of Rs 50.30 Lakhs (80.00-29.70) in 15 years.

Hence, If the same amount (Rs 1.43 lakhs) is invested in equity mutual fund for 15 years, the return would be around Rs 80 lakhs with expected rate of return of 15% per annum.

So, you should never combine your insurance with investment. You will always be a loser. Any insurance agent selling you the endowment plan, please ask him the same calculations. Always buy a pure Term Insurance Plan for insurance and invest in Equity Mutual funds for long term investment and Debt Mutual Funds for short term investment. Equity mutual funds have given an average CAGR of 15% in the last 40 years. There is no reason the same will not happen in next forty years.

GMM PFAUDLER : HIGH GROWTH & MULTIBAGGER RETURNS

2022-01-09T15:17:00.012+05:30

*GMM Pfaudler* was established in 1962 as *Gujarat Machinery Manufacturers* and listed on the Bombay Stock exchange. It's a *small cap* company with a market cap of around *₹ 6500* crores. In 1987 Pfaudler Inc., USA the world leader in *Glass Lined equipment* subscribed to 40% equity to form a joint venture. Pfaudler Inc. further increased their stake to 51% in 1999 and the name of the company was changed to GMM Pfaudler Ltd. *A truly world class organization, GMM Pfaudler is an ISO 9001 company.*

With over five decades of manufacturing experience, GMM Pfaudler is a well-established and *financially stable* company. With a *market share of more than 50% in Glass Lined equipment*, GMM Pfaudler is the *market leader* in India. Pfaudler Inc is a *130-year old* Company, founded by the inventor of the process of the glass-lining of steel. *Glass-lined equipment* is a necessity in industries such as chemicals, pharmaceuticals, food and beverages etc., where the production process goes through *very very high temperature* and volatile environment, requires equipment with high corrosion resistance or cleanliness properties.

Over the years, GMM Pfaudler has diversified its product portfolio to include *Mixing Systems, Filtration & Drying Equipment, Engineered Systems and Tailor Made Process Equipment.*

GMM is operating in *pharma, agro chemicals and speciality chemical sectors* which are growing at a *CAGR of about 15%*. Indian pharma is *40 billion dollars* industry and world's *third largest* producer of drugs. There are lot of tailwinds for pharma and speciality chemical business in India due to favourable govt policies(like PLI scheme for pharma industry), China ban and China plus one policy.

*KEY SUCCESS FACTORS FOR GMM*

*Technology edge*:

The quality of glass-lining is a key differentiator in this business. GMM’s majority ownership by Pfaudler gives it a clear *technology edge* – and a critical *competitive advantage* – in the Indian market. Only two companies in the world are having the patent of making glass lined equipment of which GMM is one and the leading player.

*Long-standing customer relationships:*

GMM Pfaudler has been operating in India for close to *five decades* and has been a *credible supplier* to most of the large Indian companies in the pharmaceuticals, chemicals, and petrochemicals sectors.

*Scale benefits:*

GMM is the *largest glass-lined equipment* maker in India by a wide margin. Using their technology edge and leveraging on their execution skills and local customer relationships, GMM has expanded capacity by *50% in the last 3 years*. The company now has more than *twice the revenues of the second-largest player* and has a 48% overall share of industry’s revenues. GMM’s *EBITDA margins* are nearly *double of its nearest competitor* and so is its RoCE.

*Strategic capital allocation:*

The management team of GMM has consistently displayed *prudent capital allocation skills.* Organic growth has been a key priority for the company, having utilised *free cash* from the business to increase capacity by over *50%* in the last 3 years. Recently, in 2020, GMM acquired the assets of De Dietrich Process Systems (DDPS), the other global glass-lined equipment maker in India. With the exit of DDPS, GMM has further strengthened its technology leadership in India.

*GMM has history of acquisitions through most prudent and efficient capital allocation.* In 2008, the company acquired *Mavag AG in Switzerland*, a maker of equipment used in downstream processes in the chemicals and pharmaceuticals industries. In 2019, it acquired the industrial mixing division of *Sudarshan Chemicals*. Also, it announced the acquisition of *De Dietrich India's (DDPS)* sole Indian manufacturing facility in Hyderabad.

GMM managed to turn around Mavag’s operations, with Ebitda moving from negative when acquired to an operating margin of 13 per cent now. The Sudarshan Chemicals' division bolstered the portfolio of Mavag products in India.

*The management team of GMM has consistently displayed prudent capital allocation skills,* and with the exit of DDPS, GMM has further strengthened its technology leadership in India. They followed this up with the acquisition of the Pfaudler Group’s non-India business. The move is expected to give GMM lifetime access to Pfaudler’s technology base and innovation capabilities. It is seen to be enabling the group to optimise manufacturing between GMM’s India factories and Pfaudler’s global facilities, giving the former access to Pfaudler's overseas markets .

*Is GMM Pfaudler's Debt too high?*

As of September 2020 GMM Pfaudler had ₹405.9m of debt, an increase on ₹245.6m, over one year. But it also has ₹2.22b in cash to offset that, meaning it has ₹1.82b net cash.

*Is GMM Pfaudler's Balance Sheet strong?*

We can see from the most recent balance sheet that GMM Pfaudler had liabilities of ₹1.88b falling within a year, and liabilities of ₹777.3m beyond that. On the other hand, it had cash of ₹2.22b and ₹894.6m worth of receivables due within a year. So it actually has ₹464.1m more liquid assets than total liabilities.

This state of affairs indicates that GMM Pfaudler's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₹63.1b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, GMM Pfaudler boasts net cash, so it's fair to say it does not have a heavy debt load!

*At what price should one buy the stock?*

This is the million dollars question. As you can see, if someone would have bought the stock over Rs 6000/- (52 week high is Rs 6900/-) an year back, he would still be making losses till today. The stock is available at 63% discount to its 52 week high but trading at almost double to its price two years back. So, the lesson learnt is that you should not buy any stock blindly, specially when the stock price has sky rocketed from 1300/- to 6900/- in one year. You need to stagger your investments in four to five tranches. Every investor needs to adopt its own strategy as per his/her risk appetite and time horizon for the stock. For short term, always put a stop loss though I never advocate for short term investment. Also, remember that it is a small cap stock and will be more volatile. So, allocate only a small percentage of your total capital in the stock.

*KEY CONCERNS*

*Stock Price Correction:*

GMM’s high valuations and the 33% discount in the OFS issue are not the only things that stand out in this story. The floor price for the offer for sale (OFS) issue was set at ₹3,500 apiece, far lower than the prevailing market price then. The peak price of GMM Pfaudler was *6900/-* on 11 Aug 20 with a PE of 148. The share price sky rocketed to 6900/- from 1300/- in one year period. So, the OFS offer came at discount of almost 50% from its peak price. Also, the majority of selling came from the Private Equity Fund DBAG and promoters family has only sold very miniscule percentage. The positive of OFS is that it has increased the free float in the market from 26% to more than 40% which will increase the liquidity and volumes in the market. The sufficient supply of shares will lead to more stability in the share price in future. Its shares has risen by *4700% in last ten years*. The current market price of GMM Pfaudler is around ₹ 4400.

*Revenues & Earnings:*

The current profits of Q1 FY 22 looks weak inspite of very robust revenue growth due to accounting adjustment for PPA (Purchase Price Allocation)and that is non cash item and doesn't affect the cash flow. Net profit of GMM Pfaudler declined *86.50%* to Rs 2.59 crore in the quarter ended June 2021 as against Rs 19.19 crore during the previous quarter ended June 2020. Sales rose *257.24%* to Rs 551.68 crore in the quarter ended June 2021 as against Rs 154.43 crore during the previous quarter ended June 2020.

As per management commentary, the revenues are expected to be around 2800/- crores with 16% EBIDTA margin by FY 24. This means that it can generate around 325/- crores of PAT by FY 24.

*IMPORTANT PARAMETERS*

*Sales Growth*

1 YEAR : 24.1%

3 YEAR : 27.06%

5 YEAR : 22.79%

*Profit Growth*

1 YEAR : 53.09%

3 YEAR : 49.65%

5 YEAR : 38.95%

*ROE*

1 YEAR : 30.27%

3 YEAR : 25.28%

5 YEAR : 21.81%

*ROCE*

1 YEAR : 35.59%

3 YEAR : 33.58%

5 YEAR : 30.32%

*CRITICAL RATIOS*

*Debt/Equity : 0.25* (As on Mar 21)

(It is a measure of the degree to which a company is financing its operations through debt versus wholly owned funds. Generally, a good debt-to-equity ratio is anything lower than 1.0.)

*CFO/PAT (5 Yr. Avg.) : 1.08*

(Essentially, the operating cash flow ratio shows, whether you are making enough money from operations to pay your bills. A business's operating cash flow ratio should be 1.0 or minimum 0.8 to 0.9).

*CONCLUSION*

GMM Pfaudler is a *market leader* in a *niche space* making some of the most *critical equipments* for Pharm/Chem companies. The *growth* in this space, due to a lot of *production moving to India,* provides a *large opportunity* to the Indian Companies and for which *GMM is a proxy.* GMM does not carry the regulatory, environment and pricing risks associated with the Pharma/Chem companies but still provides a good opportunity to play the upturn.

GMM has a history of *Consistently Increasing Sales, Earnings & Cash Flow*. Absence of any strong competitor, GMM Pfaudler is expected to stay as a *sole majority supplier* in glass coated equipment. It is a *rare Indian company* that too a small cap, which has made a *global leadership.*

*DISCLAIMER*

The above article is not a buy or sell recommendation. It is made for the purpose of information, knowledge and education and should not be used to start investing in the stock. Please do your own research before investing in the market. The content, data and views have been taken from various websites and YouTube videos freely available on the internet. Few of the references have been given below.

*References*

https://gmmpfaudler.com/index.php

https://www.moneycontrol.com/financials/gmmpfaudler/ratiosVI/gmm01

https://ticker.finology.in/company/GMMPFAUDLR

https://youtu.be/wFmm22j7w8w

https://youtu.be/D77cUDzonhw

https://m.economictimes.com/markets/stocks/news/after-8500-rise-croreparti-maker-smallcap-gmm-pfaudler-not-inspiring-confidence-any-more/articleshow/78269249.cms

https://youtu.be/ApoE4930VEc

https://youtu.be/Xb9fMFIxmIc

https://www.bloombergquint.com/amp/opinion/the-curious-case-of-gmm-pfaudler#aoh=16314280341380&referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%251%24s

https://simplywall.st/stocks/in/capital-goods/nse-gmmpfaudlr/gmm-pfaudler-shares/news/is-gmm-pfaudler-nsegmmpfaudlr-using-too-much-debt

What are some of the mistakes of Indians that are destroying their financial lives?

2019-02-23T20:18:00.001+05:30

Buying insurance policies for investment purpose: Have you invested your money in insurance plan to get a return in future? Big mistake! Out of 100 people I have spoken, 95 have made this mistake.. Very few people understand the difference between term plan, endowment plan, etc.

Not able to crack the credit card mystery: Are you paying the minimum amount due on your credit card payment? If yes, you are trapped in credit card mystery. On the other side, very few people really enjoy the benefits like free lounge access, buy one get one movie ticket, etc.

No idea about the power of compounding: Everyone has come across the formula of compounding but very few people really understand its power. This is the reason people do not start saving early and hence lose out on the power of compounding. Albert Einstein said that power of compounding is the eighth wonder of the world.

Buying stocks based on tips without any knowledge: You will find every Tom, Dick and Harry giving stock tips over Facebook, Whatsapp and TV. Unfortunately, a lot of people fall in a trap of these people and invest money without any knowledge. What is the end result? They lose everything!

Becoming a victim of lifestyle inflation: Moving from 2bhk to 3bhk just because you have got a good hike, upgrading your car because you have got some bonus are some of the examples of lifestyle inflation destroying financial lives.

Buying things just because they are on discount: From Amazon’s “Great Indian Sale” to Flipkart’s “The Big Billion Days”, everyone is encashing on the weakness of Indians buying things just because it is on discount. Funny thing is now you will find such sales every other month.

Getting tempted to go for an exotic vacation just because someone put a post on Facebook and Instagram: Instagram and Facebook are introduced as Social Media Platform but they are actually destroying the entire social fabric. Friends are jealous of each other. Most of them are just social media friends. Facebook and Instagram are more of a marketing platform where people post stuff just to get some likes and companies promote their product and services.

Spending a bomb on weekend parties: 5 days work and 2 days party: This is the new culture in India. Pubs are jam-packed on weekends where people would spend a bomb on drinks. By the end of the month, they are left with no money.

No track of cash flow: Very few people keep a track of their expenses. Most of them just don’t know where the money is gone.

No emergency budget: Not having any extra money in the case of an emergency results in embarrassing situations of borrowing money from friends and relative. Some people even break their investments and make a big mistake.

No medical insurance: I have seen people losing out the lifetime savings just because they did not take medical insurance. One accident can shatter all financial dreams. Better be insured. Healthcare cost is rising and it is impossible to manage it without insurance.

No financial plan: People do not know why they need to save money because they don’t know their financial goals.

No diversification: Some people would invest all their money in real estate, some would invest all the money in gold, some would just keep it in the locker, some would invest all the money in the stock market. Very few people understand the right way of diversifying the investments.

Spending all the hard earned money on children marriage: Thanks to our hypocritic society! People save their entire life just to spend all the money on random relatives who only bother about the food and arrangements. What is the topic of discussion at weddings? “Sharma ji ne to unki beti ko car gift kari. (Mr Sharma has gifted a car to his daughter)”. “Mehta ji ne unki beti ko 50 tola sona diya” (Mr Mehta has gifted 500-gram gold to his daughter.)

Buying excessive gold only to keep it in the locker: Gold worth lakhs is kept in lockers only to be used once or twice a year. This is resulting in the money getting blocked and hence not getting any returns on it.

An extremely conservative approach with investment: Traditionally, people have been risk-averse. They would just have an FD and live on 6–7% annual interest. Some would just keep the cash at home.

Lack of clarity between asset and liability: Having a car is not an asset because it consumes fuel and has a maintenance cost. Its price will only depreciate in the future. Car is a necessity but people spend a lot of money and even take the loan to buy a luxury car over and above their budget.

Considering frugal as cheap: A lot of people confuse economic spending with being cheap. An economic spender does not compromise with quality but does his research well enough to buy the product or service at the lowest rate.

Procrastinating investment decisions: “I will invest from tomorrow”. But the problem is that tomorrow never comes.

Spending a lot of money on fancy stuff: A fancy car, a fancy house, a fancy watch, a fancy vacation. People want fancy stuff and willing to pay a premium irrespective of the value it generates.

Lack of patience: “I can’t wait for my wealth to grow. I want to double my investments in 6 months. I need to invest in the stock market.” A lot of people lose their lifetime of savings because they don’t have the patience to understand the investment option and would blindly trust anyone with their investment.

Depending upon others for investment decisions: “I don’t know anything about investment. Please manage my money.” Unfortunately, a lot of people are dependent upon others with their hard earned money. This is the reason we have a lot of self-proclaimed experts giving stock market tips.

Not discussing the money matters in the family: Discussions related to money are considered as a taboo in Indian families. Nobody really discusses money matters.

Getting too greedy with investment: People blindly invest their money in penny stocks, day trading, futures and options. They eventually lose all their hard earned money. What is the root cause? GREED.

Buying stocks at the peak and selling on fall: Most of the retail investors get over excited with a rising market and invest when the market is at its peak. Eventually, the market corrects and they sell the stocks at a loss.

Wasting time on unproductive things: Rather than learning new stuff and growing the skillset, people end up wasting time on social media and YouTube.

Lack of disciplined investment: Instead of spending what is left after investing, people invest what is left after spending. This results in indisciplined investment.

Root Cause: Lack of knowledge about personal financial management!!

Note:- This is not my original write-up. Just found on WhatsApp. Considered it to be worth sharing. Just a disclaimer.

If you are not investing in equity as an assest class, then you are doing a great damage to your financial future.

2018-11-11T21:28:00.000+05:30

A Bitter Truth

Indian household have invested nearly 1 trillion dollars in gold and that is a destructive consumption. Had we invested this 1 trillion dollars in infrastructure (equity), India would be a different country. Every second household in USA invest in equity market but only 5% of us invest in Indian stock market.

Another Myth - Stock Market Is Very Risky

Risks are of two types, one is volatility and other is losing your capital or money. If you are investing in a company and that company goes out of business due to some or the other reason, there is actually lot of risk. But if you are investing in a passive manner means that if you are investing in the GDP of the country then your risks are mitigated. Indian GDP is presently around 2.5 trillion dollars and out of this, the top 50 companies constitute about 1.5 trillion dollars of the GDP, which is nothing but Nifty and Sensex. So, if you are investing in the GDP of the country, you are always safe because nothing is going to happen to the GDP of the country and it will grow in long term. As and when the GDP of the country grows your investment will grow. It is as simple as that.

Correlation between the GDP and the index

In 2012, india's GDP was 1.25 trillion dollars and Sensex was 16000. In 2018 India's GDP is 2.50 trillion dollars and Sensex is nearly touching 35000. There is a direct correlation between the GDP and the index. By 2027, the GDP is expected to be 5 trillion dollars at 7-8% growth rate, and if there is a direct correlation between index and GDP, Sensex may touch 70,000.

Finally....

So, what do you say?? Is it not prudent to invest your long term savings in the equity market. The most important term here is LONG TERM SAVINGS. Please don't expect any miracles from stock market in short term and only put your extra savings (the money which you don't require in short term) in the equity market. I am sure a lot of wealth can be generated from long term equity Investments.

HAPPY INVESTING.....

FEES FOR FINANCIAL ADVICE ?

2018-10-21T22:20:00.003+05:30

There are charges for every investment and service. The same way, a financial planner must be paid for services provided.

To achieve your financial goals through investing, you need professional guidance to keep you on track for accomplishing your goal by helping you choose the best investment strategy. For this, a professional mutual fund advisor is your best bet.

It is amazing to hear people say that one should not trust advisers because they only work for money. I wondered if wedding planners or brokers, through whom they invested in property, did not work for money or get fees for the services provided? Even when one buys gold jewellery there are charges like wastage and making, which can sometimes work out to be even 20% of the overall value. Why does no one questions the jeweller on the high margins? I doubt wedding planners work at less than 10% margin.

Somehow, people are willing to pay fees in some form for almost everything they buy—including groceries, movie tickets (convenience fees of 10%) and flight tickets (convenience fees of 3%)—but are not willing to pay for financial advice that will help them manage the most important asset they own, their money. There are many reasons why people don’t want to pay financial advisory fees:

(a) They feel that they don’t have enough money to be managed by an advisor,

(b) They are confused and not sure about what the advisor is recommending,

(d) Given that most individuals were investing in traditional instruments, they don’t see the need for an advisor.

The main issue, however, is that only a few have made market-related investments and have little understanding of the same. Most people do not know how to assess the suitability of a financial product for their portfolio and neither do they know what are their portfolio returns.

Though many believe they are planning their finances, seldom do people really create a formal financial plan or even execute the same.

It is seen that for most participants, financial planning is about choosing instruments based on what friends are investing in or comparing fund recommendations on a couple of websites and choosing the common suggested funds on these sites. Nowhere, there is a structured approach to planning investments.

Given that returns on traditional investments are no longer attractive and market-linked instruments are the only option to beat inflation, financial planning has become even more important. Hence, people need to change their attitude towards financial advisors.

Identifying a financial advisor who will suit you is not a very difficult task. There are advisors who work on commissions and those who work on fees only. Advisors could be from banks, financial institutions or be functioning independently. Any established, known and reliable financial advisor is the best option as he/she is in the business and hence come with more stability and optimal advice. Fees between 0.5% and 1.5%—depending on the asset class being invested into—should be reasonable. ‘Fee only’ financial planners are preferable. One should also clearly ask the advisor how he/she is getting paid. No one works for free. If they are not charging fees, then it is built into the product being bought. If that is the case, ask the advisor how much goes towards commissions.

It is once again reiterated that it's better to pay meagre consultancy fees to financial advisor than to suffer losses on your Investments due to sheer ignorance. Imagine, your corpus of Rs 1 crore giving you only 5-6% safe post tax returns than giving you more than 8% nearly safe returns and 14-15% volatile returns of equity market. You will loose 2-3 lakhs every year even for safe returns . It's better to pay 0.5% and earn 3-4% more. Choice is yours.

Finally, before starting a relationship with an advisor, it is important for individuals to be informed investors. For this, they would need to spend time educating themselves on personal finance.

References :

Mutual Fund Advisor- Meaning, Roles and Responsibilities of a Fund Manager (indiainfoline.com)

How to Find and Choose a Financial Advisor in India (groww.in)

Mutual fund advisor: Do you really need a mutual fund advisor? (indiatimes.com)

Mutual Fund Advisor - Role of Fund Advisor in Mutual Funds (mutualfundssahihai.com)

FINANCIAL MANAGEMENT: INVESTMENT OF RETIREMENT BENEFITS

2018-10-20T21:55:00.001+05:30

These days when we retire, we get a large corpus of our own hard earned money accumulated through different govt schemes like Provident Fund, Group Insurance, Gratuity, Leave Encashment and Commutation. Mind you, it's all your hard earned money which is returned to you by the govt. There is no gift from the govt. So, it's more of a reason to invest this money in a prudent and judicious manner, so that it can provide financial support to all your future needs.

Retirement Planning

Some of us will like to put this money into savings and enhance our depleted monthly earnings, through interest earned on the savings, since pension is half the pay and commutation makes it further half. So, practically you are getting one fourth of your last pay, if you don't take any reemployment. Is it prudent??? Is it enough and will it last long??? Savings can never compensate your depleted pension over a long term. Saving can only give you inflation adjusted returns. You may feel it is sufficient today but after 10-15 years, your monthly expenditure requirements will be much more than today, due to inflation eroding your wealth. The inflation adjusted returns will never be able to compensate you. Inflation is a monster which will eat away all your savings. Your cost of living will go up every year due to inflation. Hence, savings are not enough to financially survive in long term. You need to diversify into other options of INVESTMENT. There is a difference between savings and investment.

Difference between Savings and Investment

The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called investment. Money loses value over time, and prices of goods and services go up. That’s why your money also needs to grow—and preferably at a pace faster than inflation—to be able to afford at least the same things that you could buy once upon a time. That’s where an investment helps. Putting money away in a savings bank account, FDs, RDs can be classified under ‘savings’ but not ‘investment’. This is because in these financial instruments, your money lies idle. Too much savings and too little investment doesn’t create wealth. Even a liquid fund (a category of debt mutual fund) is just a parking vehicle; a savings vehicle. This is not investment. You need a basket of equity and debt funds, as per your risk appetite, as investments for wealth creation. It’s always wise to save money for small term goals, emergencies and casual expenses as it provides quick access. This makes it easier to meet small goals. But in the long run, consider your changing needs, limited income sources and inflation; savings may fall short for bigger financial goals. Remember you are planning for future. Savings are for the present and investments are for the future.

While you must secure your needs for the next few years with safer assets, you should be taking on more inflation-beating assets if your savings are to last 20-25 years. The problem emerges in later years of life when the value of money erodes due the monster called inflation and that makes the pace of withdrawal fast. Not having some equity exposure at this stage is more destructive to your portfolio. Without it, you will struggle to maintain the quality of lifestyle in future that you desire.

There is no point putting your entire corpus into schemes which will fetch you only 5-6% post tax returns. Our efforts should be to earn minimum 8-9% post tax returns. If you have not taken re-employment and availed commutation, you may come under 5% tax bracket (Rs 2.50-5.00 lakhs) with Rs 1.5 lakhs savings and newly introduced Rs 40,000/- of standard deduction. So, if you have no other disclosed income, you may still earn 7.5-8% post tax returns in schemes like SCSS, POMIS etc. In that case, you may go ahead with these schemes. But if you are reemployed, you will again be in 30% tax bracket. Therefore, we all need to diversify into investments, where post tax returns are healthy. Whenever you have to earn more than govt schemes, there will always be some risk involved in short term. But today there is risk in every sphere of life. You can't avoid an option because there is little risk involved. Before going any further, let me give you some sanguine advice to allay all your fears:-

1. Never put all your eggs in one basket.

2. Don't be fearful of equities and mutual funds.

3. To earn little more, you need to take little more risk.

4. Don't put your hard earned savings blindly into any scheme.

5. Mutual funds are not only equities (risky assest) but there are comparatively safer debt mutual funds available.

6. Equity is not gambling at all.

7. The knowledge required to invest in equity market is nearly zero: Warren Buffet.

8. It is nearly impossible to loose money in equity market in long term ( minimum 10-15 years) : Warren Buffet.

I am 100% convinced of all the facts given above. You see, index (sensex) was 100 in 1979 and crossed 35,000 recently. That means it has given nearly 350 times returns in almost 40 years. During these 40 years, it has seen all earth shaking upheavals like 1992 indian economic crisis, Harshad Mehta scam, Dot Com Bubble, Ketan Parikh Scam, the great American Sub Prime Loan crisis and all kinds of coalition governments in India. There were many more disasters in between which I have not mentioned. But index has survived and still marching ahead with full force. Please don't miss this opportunity due to unnecessary fear and invest some portion of your corpus into equities. When I say equities, I only mean EQUITY MUTUAL FUNDS. ALSO, NO LUMPSUM INVESTMENT IN EQUITY MUTUAL FUNDS. IT IS ALWAYS SIP OR STP. Please don't take exposure to direct stocks unless you have the sound financial knowledge about buying and selling stocks. This will be highly detrimental to your financial health and you will never be able to collect courage to enter equity market in future, due to your misadventures in the past.

INVESTMENT OPTIONS

OK, now come to the brass tacks of different options of comparatively safe investments. The best bet is to start investing in the name of the son/daughter above 18 years/old age, parents or in-laws. Gifting money to them and then investing it, is a perfectly legal strategy. “You can gift any amount to them without any tax liability". You can gift any amount legally to your lineal descendants/ascendants or your spouse's lineal descendants/ascendants ie parents, grand parents and great grand parents, your brothers and sisters and your spouse's brothers and sisters, even brother and sisters of your parents. Please remember, there is no point gifting money to your minor children or wife because, though the amount gifted to them does not attract any income tax, but any income generated by them, due to the gift, will get clubbed to your income.

So, please gift some portion of your corpus money to your parents, in-laws, major son/ daughter, if they are not income tax assesses. Your parents or in-laws can invest in following schemes without paying any TDS and income tax and you will get full 8-9% post tax returns (since they will not be income tax assesses) on your investments, which is pretty good and highly secured:-

1. Senior Citizen Saving Scheme(SCSS) - 8.3% per annum (15 lakhs each)

https://economictimes.indiatimes.com/wealth/invest/all-you-need-to-know-about-senior-citizen-savings-scheme/articleshow/57251600.cms

2. PM Vaya Vandana Yojana (PMVVY) - 8.3% if you choose yearly interest payment (15 lakhs each).

https://www.licindia.in/Products/Pension-Plans/Pradhan-Mantri-Vaya-Vandana-Yojana

3. Post Office Monthly Income Scheme (POMIS) - 7.6% per annum (4.5 lakhs each).

https://cleartax.in/s/post-office-monthly-income-scheme-pomis

4. Public Provident Fund (PPF) -7.6% per annum ( Rs 1.50 lakhs per year per individual). All members of the family can invest in respective PPF accounts. A family of four can invest Rs 6 lakhs per annum. There is a lock in period of 06-07 years in PPF.

https://economictimes.indiatimes.com/wealth/invest/looking-to-open-a-ppf-account-here-are-7-things-to-consider/articleshow/57406458.cms

5. Debt Mutual Funds - Around 7-8% returns per annum. Invest around 50 lakhs( 4-5 different short term/ ultrashort term/ liquid funds). Presently, long term debt funds may be avoided due to current economic scenario of tight liquidity. Even Debt Mutual Funds can be purchased through your relatives who are not in income tax bracket, to save tax.

https://cleartax.in/s/debt-funds

6. Equity Mutual Funds - 12 % per annum( very conservative returns) for a longer duration of 8-10 years. Invest systematically either through SIP (Systematic Investment Plan) or STP (Systematic Transfer Plan) from debt mutual fund. NO LUMPSUM AMOUNT IN EQUITY MUTUAL FUND. Around 20,000/- 30,000/- per month in 3-4 good quality equity mutual fund schemes can be invested.

https://cleartax.in/s/equity-funds

The key to Investment is to ensure tax free returns. This can only be achieved through your parents/in-laws who are senior citizens and eligible to invest in SCSS, PMVVY and POMIS. Your major sons/daughters can invest in PPF/Debt Mutual Funds/Equity Mutual Funds. They will not be in income tax bracket or may be just under 5% tax bracket. So, their tax liability is almost nil. Equity Mutual Funds in long term (8-10 years) are almost safe. Equity exposure, as per the risk profile of individuals is a must. How much to invest totally depends on your risk profile and present and future needs. But remember, when you start investing, please keep investing for another 10-12 years to reap the rewards of long term wealth accumulation. So, you should only invest that portion of your corpus which is not required by you in near future. I am again reiterating, not for the sake for repetition but for my conviction, that not having some equity exposure at this stage is more destructive to your portfolio and long term wealth creation. Without it, you will struggle to maintain the quality of lifestyle in future that you desire. Whatever I have stated above, I have followed for parking my corpus. But that doesn't necessarily means that it will be ideal for you also. If you can select two senior citizens from your family or from your spouse's family, you can easily invest around Rs 70 lakhs in safe financial instruments with out any risk. You can invest Rs 15 lakhs each in SCSS (15+15=30), PMVVY (15+15=30) and 4.5 lakhs in POMIS (4.5+4.5=09). Around 30 lakhs you can gift to your children above 18 years. Rest you can utilize for your own consumption.

Remember, it's your money and finally, you will be responsible for all your losses and gains. If you feel, you can't handle it alone, please take help from your internet savvy children, friends, well wishers or any good financial advisor. But if you go to anyone with the knowledge of above explained facts, you will better off. No financial advisor can cheat you if you have little bit of financial knowledge.

All debt mutual funds are not very safe in short term. Long term debt mutual funds, Gilt funds and dynamic bond funds may please be avoided at this stage as they are highly volatile.

I hope this article will help you save and invest your hard earned corpus of retirement benefits in a wise and judicious manner to fulfill your future dreams and needs.

Niveshika

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Regards, Col Sanjay Datt,Associate Business Partner, Investor First.

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01 CR IN 10 YRS AND 01 LAKH PENSION EVERY MONTH

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LUMPSUM Vs SIP- WHICH IS BETTER INVESTMENT STRATEGY FOR EQUITY INVESTING

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ASIAN PAINTS: THE GREAT MONEY MAKING MACHINE

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FINANCIALISATION OF INDIAN HOUSEHOLD SAVINGS : PART IV

FINANCIALISATION OF INDIAN HOUSEHOLD SAVINGS : PART III

FINANCIALISATION OF INDIAN HOUSEHOLD SAVINGS : PART II

FINANCIALISATION OF INDIAN HOUSEHOLD SAVINGS: PART I

Which investment is better: Insurance Endowment Plan or PPF or Equity Mutual Fund

GMM PFAUDLER : HIGH GROWTH & MULTIBAGGER RETURNS

What are some of the mistakes of Indians that are destroying their financial lives?

If you are not investing in equity as an assest class, then you are doing a great damage to your financial future.

FEES FOR FINANCIAL ADVICE ?

FINANCIAL MANAGEMENT: INVESTMENT OF RETIREMENT BENEFITS

Regards,
Col Sanjay Datt,
Associate Business Partner,
Investor First.