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Welcome
What is this Ebook ?
This is just a dump of my blog http://www.jagoinvestor.com in PDF format , Its
not formatted well and created manually by me by copy pasting it . So please
bear the unclean posts and no proper formatting . Posts are from New -> Old .
So you will find the new articles in the start , If you are a new Reader , you can
go through it from back , Even if you read it from Start , it wont be a much
problem as I have linked it back to my blog whereever required .
What is Jagoinvestor ?
http://www.jagoinvestor.com is a leading Personal Finance website which
provides education in field of Financial planning and Stock Markets related
topics . To be associated with http://www.jagoinvestor.com in future , I would
recommend you to
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Mobile.
Questions and Answers , Part 3

Here are a set of 4 questions and answers asked to me on "Ask a question
section" . These questions are on the topics on Insurance , Stock market and
Futures and Options , ULIPs and Motivation. You can also look at other
Questions and sections part here at Part 1 and Part 2
Question 1 # by Vishnu
I am 25, single and my parents are my only dependants. My Dad is aged 65 and mother is aged 55. I
have a Group Health Insurance Plan from my company which is given as a part of my
compensation package. The insurance cover is for 4 lakhs (2 lakhs for self, one lakh each for my
mother and father). Given the features of the plan and my current need, the coverage of 4 lakhs is
sufficient. But, I don't have any other health insurance plan. Should I go for an additional plan,
personally? I also assume that I would be given similar health policies in all my future jobs.
Answer
This is often a question in people mind , you say 4 lacs cover is sufficient , what if you had 10
dependents ? , then each one would have 1-2 lacs cover and would you say 10-20 lacs is
sufficient , what you must see is how much is "each person" cover, For you , its 2 laks , and for
your parents its 1 lakh , now this logically , what is chances of you getting any health issue
than your parents who are old (55+)
So the real situation nails down to this . Parents has 1 lakh of cover each and they are Old
(probability of health issue drastically high compared to you) . Now there is another issue ,
which is psychological , people think that chances of bad things happening to them is low than
others , which is totally baseless . God forbid , but suppose there is some surgery or any health
issue , you can imagine how much does it cost these days .. Lakhs of rupees .
Conclusion : U should seriously consider covering your parents , Because of old age your will
face some issue getting health cover now , also the premiums will be high (good enough) , now
its you who have to decide if you want to save those premiums (which can go waste , as some
logical people declare) or pay the high cost of Hospitalization or Surgery or whatever when it
comes , but save those premium . your call :)
To get SMS Alerts from Jagoinvestor , Click Here
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Question 2 # by Taranprit Singh
I am beginner in this stock world and doing trading just for earn money, money and only money. I
can say I am doing good in intraday trading of equities. Now I want to enter in future and options
but the problem is I have ZERO knowledge about them, so please it's my humble request to give
proper guide for the same by which I can understand FNO easily.
Answer
I want to congratulate if you are making money in markets with intraday , Keep it up . But !! ,
if its just 1 week or 1 month that you have made money then wait , It can be because of luck
or market may not have shown its real face to you . I would suggest you to keep trading for 1
yr and see all the faces of markets , beleive me , 1 yr is minimum time you should trade to see
if you can do it consistenly :) . take the greed out of your mind to make lakhs and crores using
F&O . I am experienced enough to say that it would kill you badly if you jump into it .
I would suggest you this .

• Keep trading the way you are doing and see if you can do it consistenely for 6 months
• Once you succeed in that , then keep trading and slowly learn F&O , buy books and
read on Net , practice a lot .
• Paper trade F&O trades , dont jump into it with money
• Once you succeed , then do some real money trades with small money , Grow slowly :) ,
Its like sex , forplay is important ;) .
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If you are a Fan of Jagoinvestor , Fill the Fan book to tell how much you like it
Question 3 # by (Name not allowed to Disclose)
have taken a new Aviva Lifeline,whole life plan(its still in free look period),i want your opinion abt
it... details, Annual premium:Rs.25,000 Premium Policy Term:20years Policy term 72years (i m 28
years - 100 years policy max years) Invested Amt(for 20 years) Rs.5,00,000 Expected Return at 6%
is Rs.8,00,000(at the end of 20 years) is this plan good from normal middle class person(of salary of
Rs.15,000 per month) point of view.?
Answer
Lets not ask a question "Is it good or Bad" , let us ask a question , Can we do better than this
ourself with simple things .
Equity Returns over long term have been more than 17% . Good Mutual funds over 10 yr of
history have returned somewhere around 20% . If we think about future and assume even
12% return over long term , Your investment of 25k per year will become 20 lacs after 20 yrs .
>>> 25000 * (1.12)*(1.12 ** 20 -1)/.12

2017468.
If you think aggressively and assume 15% , it would be 29 lacs after 20 yrs
>>> 25000 * (1.15)*(1.15 ** 20 -1)/.15

2945253
At 6% , it comes out to be 9.7 lacs

>>> 25000 * (1.06)*(1.06 ** 20 -1)/.06
974818.
Learn the Calculation in this Video
The reason why you were told 8 lacs is because of the charges and may be some mortality
charges for penny insurance you might get there . Check it yourself .
Even if you take a term insurance of 30 lacs yourself now , it will not be more than 10k per
year, remaining 15k you can invest in 2-3 good mutual funds for long term . at the end of 20
yrs , you will have at least 12 lacs assuming 12% return . Apply logic and maths and thats it ,
you are your own financial planner :)
So my suggestion : Break this policy before the free look up period , and take what you get
back , the amount spent on medical exam if any will be deducted .
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Question 4 # by Vikas
I am 35 and havent had much opportunity to invest till 33 yrs. I have now invested some funds in
MFs (DSP Equity, Magnum Contra, DSP TIGER, HDFC Prudence and Sundarm Tax Saver).
I dont have an established career and have taken any suitable opportunity that came along my way.
Off late, I am jobless but have strong desire to start something independently of my own. However
that "something" is what I am searching for. I have to start small with no doubt due my financial
restraints, but I know I have special liking for computer related jobs, exports, something creative
like handicrafts etc.
Could you please suggest some books or articles or links or your own opinion how to translate this "
virtual something" in my mind to "real something". I am absolutely sure if i strike the right chord,
nobody can stop me, I have worked so hard for others in my regular job so I dont see why I cant put
my "everything" to get that elusive "something" :-)
Answer
Great .. All the mutual funds u have are nice ones and keep continuing in them . Regarding
converting your "virtual something" into "real something" , I have this to say confidence in
yourself is amazing and worth appreciation . To find out what you want to do , you may have
to try out various things which may fail in start , but you need to have enough reserve of
confidence to tell yourself that you will get it someday . "Making mistakes is a privilege which
Unsuccessful people don't get in life" , I said this one day to my friend and realised what a
nice quote I made :) . Believe in it . Most of the people are doing jobs which they hate or cant
excel at , just because they dont have that guts to start some thing on their own or change
their jobs, you are much ahead of them , congrats on that . Meet new people , try some ideas
and make a list things "which you dont want to for sure" . Prune out the things you dont like .
That would be a better way for finding what you want to do .
One important thing , We many times think that just because we have lot of confidence and
desire to do something on our own will make u succeed , but there are something which have
no substitute like Hardwork , spending time reading about what we like , Jagoinvestor was
not build in a day , or a month , It needs work and patience and confidence that it will succeed
. There have been instances when I wrote 20 posts in a row after doing so much reading and
hardwork , writing in night , but there no was comment which said "Nice job" , that is kind of
heart breaking sometimes and makes you feel that "You are going no where" , but what you
need is that "belief" that things will turn out well at the end , just do your karma and results
will come , and when they dont come , just get out and accept it and be ready to move one just
like it happens in Trading or Relationship . Its all the same thing at the end .
I did Trading in Markets (options) and failed like anything . I am still learning and my
confidence and belief in myself does not allow me to quit . Best of luck to you in trying to find
your way . Dont get underestimated by the failures . Failures will come and they will teach
you more than your success . Its only the times when you feel like quiting is the tim when you
really need to keep up yourself . "Difference between Coal and Diamond is that Diamond
takes a little extra pressure" ,So dont let that extra pressure make you quit :)
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Wednesday, August 19
List of Best Equity Diversified Mutual Funds for 2009
Which is the best Equity Diversified Mutual Fund ? . I am going to list down some
of the best Mutual funds which I have figured out from Valueresearchonline.com .
I am listing down 6 Equity Diversified Mutual Funds and 3 Tax-saving Mutual
funds . I will highlight the main points of Mutual funds like its History , its
performance and its Portfolio Allocation.
Best Equity Diversified Funds
These funds are suitable for people who are looking for long term investments and are ready to take
the risk of mutual funds .
DSPBR Equity-G
• 12 year old fund , Return Since Launch is at an excellent : 24.6%
• Strong 5 yrs return at 33.4% beating its benchmark by impressive 8.4%
• 50% Portfolio in Small and Mid cap Companies (Risky Fund, with High Potential)
DSPBR Top 100 Eqt Reg-G
• 6.5 year old fund , Return Since Launch is mind boggling : 36.8%
• Strong 5 yrs return at 30.6% beating its benchmark by 6% .
• 80% Portfolio in Large and Giant Companies
• Looks less risky Fund compared to DSPBR Equity-G
HDFC Top 200
• 13 year old fund , Return Since Launch is excellent : 25.3%
• Strong 5 yrs return at 31.8% beating its benchmark by 7% .
• 65% Portfolio in Large and Giant Companies and 30% in Mid caps . Well Diversified Fund
• One of the best funds available with long term Track record . Must Have
Magnum Contra
• 10 year old fund , Return Since Launch is excellent : 27.6%
• Strong 5 yrs return at 35.86% beating its benchmark by astonishing 11% .
• 55% Portfolio in Large and Giant Companies and 35% in Mid caps and Small cap .
Reliance Regular Savings Equity
• 4 year old fund , Return Since Launch is 21% even with the bloody market Crash.
• Strong 3 yrs return at 21.5% beating its benchmark by 12.5% speaks for its potential in
Future .
• 45% Portfolio in Mid caps and Small cap makes it a Risky and Aggressive Fund .
• With minimum investment required of Rs 500 , It can find a small corner in one's Portfolio
• Only for Risky Investors , Its a new Fund and hence does not have Strong and Long track
record like its seniors .
Sundaram BNP Paribas S.M.I.L.E. Reg
• 4.5 year old fund , Return Since Launch is 22.5% even with the bad markets.
• Good 3 yrs return at 16.5% beating its benchmark by 7% .
• With close of 75% Portfolio in Midcaps and Small cap makes its Fund with heart of real
Risk takers . Don't get into this if you don't like messy markets . It can take your heart our of
your body and play hide and seek with it .
You should see this Video to understand how to choose a good mutual fund on your own
If you are fan of Jagoinvestor or Manish , you might like to Fill up the Fan Book
Best ELSS Mutual funds (Tax Saving Mutual Funds)
These are tax saving Funds , used for saving the tax under Sec 80C upto Rs 1 lac . Suitable for
investors who want to invest for long term and also require tax saving .
Sundaram BNP Paribas Taxsaver

• One of the oldest Tax saving Funds with 10 yrs of Strong Track Record
• Return Since Launch is 22.3% .Strong 33% return in last 5 yrs beating its benchmark by
impressive 6.5% .
• Very good performance in last 2-3 years in falling markets with 17.3% return in last 3 yrs
which is almost double of its benchmark returns .
• Well diversified amoung Giant , Large and Midcap companies makes its a Good fund .
• A little aggressive fund with 55% portfolio in just 3 sectors of Energy , Finance and
Construction , betting on India's future ..
• A very flexible fund know for its adaptability with any situation makes it suitable for every
kind of investor.
Canara Robeco Equity Tax Saver
• One of the oldest Tax saving Funds with 16 yrs of Good Track Record
• Return Since Launch is 15% which is decent enough in such a long term .
• Very good performance in last 5 years with 30.5% return beating its benchmark by
impressive 7% .
• Mind Boggling 60% return in till date in current year (2009) shows that some great potential
is building in this fund .
• Well diversified amount Giant , Large and Midcap companies makes its a Good fund .
• High Concentrating in midcaps (around 50%) makes it a risky Fund .
• Minimum Investment of Rs 500 makes it an attractive choice for Risky Small Investors .
HDFC Tax Saver-G
• This one is the quite genius who does not shout much about its achievement . Not much
appreciated among its peers but has one of the best long term track record which has ability
to put all the tax saving funds in shame .
• One of the oldest Tax saving Funds with 13.5 yrs of excellent track record.
• Return Since Launch is 34% which is an unmatched achievement in itself .
• Close to 29.5% returns in last 5 yrs beating its benchmark by 6% .
• It is now becoming more aggressive by increasing its allocation in Midcap funds .
Note : This is not an exhaustive list of Good funds . There are many good funds which are not here .
Its just a Compilation of funds which I personally feel are good ones and have ability to perform in
Future . All the funds have high Equity Allocation and can be very risky . You should invest in these
only after understanding your Asset Allocation and Risk-appetite to handle the ups and downs of its
performance .
I will come up with the compilation of some good Sectoral Funds , Debt Funds and Balanced Funds
later . Watch for it :)
Comments Please and let me know which fund is your favorite and why . If I had to choose 1 fund
, it would be Sundaram Tax Saver because I did a detailed Analysis of it myself and It went ahead of
SBI magnum which had number 1 position from long time .
Source : ValueResearchOnline
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Tuesday, August 18
New Mutual Funds Charges from ICICI
ICICIDirect has revised its brokerage charges for Mutual funds Investments . Some time back SEBI
abolished mutual funds entry load , In this post we will see the new charges by ICICIDirect and
analyse if its good or bad . The new revised charges look good to me . In case you don't know what
is SIP , Read here
So ICICI Direct came up with this Rule . If your Mutual Funds portfolio with them is
Your Mutual Funds Portfolio Above 8 Lacs with ICICI
So , it means you can just invest through ICICI Direct website and your brokerage would be Nil and
you wont pay any thing in charges .
Your Mutual Funds Portfolio is Below 8 Lacs with ICICI
You will have to pay lower of Rs 30 or 1.5% of the amount each time if you go for SIP . On a lump
sum investment , you will pay Rs 100 .
Is it Good or Bad ?
If your SIP payment is High
This revised charge structure will be very good for you if you are making Higher SIP payments like
10,000 . In that case your charges would be Rs 30 each time , which is 0.3% , which is 87% cheaper
than earlier cost (2.25% entry load) . Even with 5,000 SIP , your charges would be .6% , which is
much better than what you were paying earliar and this all with the convenience of doing everything
online yourself .
Read why SIP is best for salaried class people
If your SIP payment is Small
If your SIP payments are less than 1,500 , then your charges would be 1.5% , which is near 2.25% ,
what you earlier paid, you are still benefiting , but not to great extent . Now its you who have to
decide
• if you would like to go with direct Mutual funds investing yourself (without any charge at
all)
• You can find some other agent who charges less than 1.5%
• You are ok with 1.5% charges and comfort is more important to you .
Suggestion to people who have lot of Mutual funds in your portfolio
In case you have too much mutual funds in your portfolio and your SIP payment in each of them is
small , the better thing would be to prune out most of them and consolidate your mutual fund
portfolio to maximum 5 funds and better to more payment in each , for example if you have 15
mutual funds of Rs 1,000 each , change it to 4 mutual funds with 4k payment to each or Something
like that . It will help in management of funds also and also help you reduce the charges .
There may be some other agent or web portal who are not charging at all for mutual fund
investments through them . For people who are yet to open a Demat account and also looking for
Mutual fund investments , Opening a ICICI Direct Demat account may be worth looking into .
What is most Important
Don't try to put too much thinking in this , less charges are good , but its not the main thing , you
must concentrate on your Asset Allocation and Portfolio Rebalancing and choosing a good mutual
fund for you . So if you getting a good advice , its worth to pay good fees for that , don't try to save
that small amount just for saving it .
Please comment what do you think about this ? Do you know of some other alternative route
through which the commission will be better than this .
Monday, August 17
My Interview at Ranjan Varma Blog
Ranjan Varma , conducted a small interview on Personal Finanace and Financial Planning and
published my Interview on his blog here : http://ranjanvarma.com/manish-jago-investor/ .
Please leave your comments on what do you think about what I said . Ranjan loves to write on
similar topics in personal Finance . Check out his blog to read some nice stuff :)
Saturday, August 15
How to Avoid psychological biases when investing
The following is a guest post by Sajid Karsan. Sajid regularly writes for Barel Karsan, a site
dedicated to discussing value investments and avoiding psychological biases when investing.
While mutual funds can serve as a useful mechanism to get returns on one's capital, many
individuals prefer to invest directly in the stock market. Unfortunately, there are many
psychological tendencies humans have which prevent them from obtaining the best returns possible.
While investors like Warren Buffett and Mohnish Pabrai have already mastered the psychology
behind investing, the rest of us would do well to learn them ourselves to improve our investment
returns.
Charlie Munger is Warren Buffett's right hand man at Berkshire Hathaway. In this post, we'll
discuss a psychological tendency Munger has termed "Contrast-Misreaction", as by understanding
human tendencies, we better equip ourselves to avoid psychological biases when investing.
"Contrast-Misreaction" causes people to take actions which are potentially detrimental, because
they appear insignificant or appear positive when compared to other actions. Munger uses an
analogy of the human eyes to illustrate how this tendency works: humans only see items which
contrast with their environment. In the same way, humans find it difficult to differentiate
perceptions where there is little in the way of contrast. For example, a man may buy a $1,000
leather dashboard for a car, even if overpriced, when considered in combination with the fact that
the vehicle cost is a much larger $65,000.
While the above example is one with relatively minor effects, Munger points to some examples
where this tendency can have detrimental and long-lasting problems. In business, Munger has seen
marketers use this practice to their advantage. For example, real-estate brokers may show clients
awful properties at inflated prices for the purpose of closing a sale on merely a bad property at a
merely partially inflated price. This practice is also seen frequently in mainstream advertising, with
service/product providers asserting a phony price for a product and then promptly offering a
'discount' on that price. Munger argues that even though consumers recognize this practice, it still
works! Therefore, being aware of psychological ploys does not prove to be a perfect defense!
While a minor mistep caused by this tendency is on its own not disastrous, Munger argues that a
series of seemingly minor misteps can lead to disaster. This can occur because each step represents
only a minor deviation (i.e. low contrast) from the current situation. Munger uses the example of the
live frog that boils to death because it never jumps out of a pot of slowly heated water, not realizing
that the temperature is changing because the changes are minute.
Ben Franklin said that a small leak will sink a great ship. Munger argues that this is due to the fact
that the brain often misses the small leak in the large ship.
If you enjoyed this post, you may be interested in reading some of the other human tendencies that
Munger has discussed. You may also subscribe to the Barel Karsan blog if you prefer to read about
these tendencies in your RSS reader!
Thursday, August 13
What is Direct Tax Code and How does it impact common person
There is going to be some really big changes in Taxation laws if "Direct Tax Code"
comes into existence year 2011 . There are some big changes proposed in the Draft ,
which if implemented will be the biggest ever change in Tax laws and will impact
people in a big way .Let us see what are the changes Proposed and How they will
affect you .
What is Direct Tax code ?
The Finance Ministry has released a new draft direct tax code, which is a document containing
changes in Exemptions , Tax slab . This will be a big change to four-decades old Income Tax Act .
As per the proposal , the new tax slab would be
• 0% : Less than 1.6 lacs
• 10% : 1.6 - 10 Lacs
• 20% : 10 - 25 Lacs
• 30% : 25+ Lacs
This sounds really amazing , almost 98% of Indians will them pay 10% or less tax because majority
of people taxable income is below 10 Lacs (thats very obvious) . We will see a comparison at the
end . Dont worry :)
If you are a Fan of Jagoinvestor or Manish , you might want to fill up the Fan book
Other Major Changes which can affect a Common person
1. Tax Exemptions upto 3 Lacs
At present we get exemptions upto 1 lac under section 80C . This may be raised to 3 lacs . This will
encourage people to invest and help .
2. Proposes tax on Maturity amount from Insurance Policies , PPF, EPF and GPF
This is a big turnoff . So as per the new draft , the amount you get on maturity from your PPF , EPF
or Insurance policies will be taxable, just like NPS right now . As per the proposal , the amount
accrued till 2011 will be non-taxable , thsi will be applicable to all the proceedings after 2011 , So
some relief here .
3. Interest you pay for housing loans cannot be exempted and your tax burden increases.
I know it can spill water on your plans to buy home, but thats true . If new proposal becomes a law ,
you will then be paying tax on that 1.5 lac which you could have saved . Business Pundit has a
view that Removing the tax benefit on Home Loan Interest part is positive news and will impact
positively . Read it
4. Recommends Long term capital gains tax to be reintroduced and Short Term Capital gain
tax to be added in Income
Enough is Enough , is what you may be thinking :) . But tax on long term capital gains may be
introduced , which means that you will have to pay some tax on that profit from Mutual funds or
Shares which was tax-free after 1 yrs . Short term capital gains will be added in Income and taxed at
applicable rate . Also Short Term capital gain would be before 3 yrs and Long Term capital gain
after 3 yrs . Long term Capital Gains will be less than regular tax slab , I think around 10% or 15% .
5. Suggested abolishing the Securities Transaction Tax (STT)
So the STT which was paid while buying shares will be abolished , currently when you buy shares
you pay a small tax called STT which is included in share cost by your Share broker , this will be no
longer there :)
6. Perks now will be included as a part of the income for purpose of tax calculation, so tax
burden may be sightly more.
All the perks you were getting from your employer like interest free loan , free lunch etc will get
added to your income and taxed .
7. Lowering Corporate tax to 25% from 30%
This will cheer up companies as their tax burden would reduce . I am not sure about its impact on
common person .
Comparison of New Vs Old Tax Code
Lets see an Example
Name : Ajay Patel

Salary : 8 lacs per year
Investments : Investment of 30k in Mutual funds , 30k in EPF , 20k in PPF and 20k in Insurance
Policy .
Home Loan : Taken a Home loan and pays 80k as Principle and 1.4 lacs as Interest .
Tax as per Current System

Amount Exempted = 1.4 lacs as home loan interest + 1 lac in 80C = 2.4 Lacs
Taxable Income = 5.6 lacs
Tax = 14k (10% from 1.6 to 3 lacs) + 40k (20% from 3 - 5 lacs) + 18k (30% on 5 - 5.6
lacs) = Rs 72,000
Tax as per New Tax Code

Amount Exempted = 1 lac from (mutual funds , PPF , EPF , Insurance) + 80k as Home
loan principle = 1.8 lacs
Taxable Income = 6.2 lacs
Tax = Rs 44,000 (10% on 1.6 lacs - 6.2 lacs)
Note : Your Tax Liability will be totally different and can vary a lot depending on the your condition
, Dont take this one personally , This example is just for demonstration Purpose .
Is New Tax Code Good or Bad
This is an important and good question , I will classify this tax code as a good one , the biggest
thing to note in this is that the tax slab is just 10% for income from 1.6 lacs to 10 lacs There are
many changes in the new tax code which may look bad and hurting , but at the end you will gain
from it , because the tax charged will be just 10% , So your taxable salary will go up because of
some changes but your tax liability will actually reduce . It will not reduce too much though , but
surely it will be a reason to cheer .
Your biggest doubt will be that over long term if my Maturity amount from Mutual funds ,
Insurance policies and PPF will become taxable , then yes that true , but now you will save more to
invest . So even if we assume 20% tax charged at the end , we need to invest 25% more than what
we usually do to gain , which will happen I believe .. Anyways , this is now a debatable topic and
can be argued upon .
Download the Full Direct Tax Code Bill 2009 ,Click Here
Conclusion
This was just an analysis if new Proposal comes into effect , for now Its just a proposal , do dont
panic, lot of debates and discussion will happen on this and this can take totally new direction or
may be it does not happen at all and we continue with currect tax system .
Comments Please , I would like to hear your views on New Tax code and how can it impact you ,
Do you think its a right thing to do and what are the issues involved with it ? Did you like it ?
Looks like you missed watching TV today at home , Here I bring some this small news clip about
Direct tax code if you want .
Question and Answers , Part 2
This is second post for answers to Questions asked to me in "Ask a Question" Section . The First
Part of Question Answer section is Here . This section has questions and answers related to topics
like GOLD , Real Estate , Term Insurance , Mutual Funds , "hiding Information from
Insurance Company" . See the questions ans answers below .
Question 1#
I have a requirement of physical gold after 1 year or so. I just got back some money from an old investment.
Is it ideal to buy the gold now at this price. Or do I make an FD for 1 year so that I can buy later. What do you
see the price of the gold in another year's time.
Answer
GOLD is near its support levels , so i am not sure if its a good idea to buy it for short term . Its hard
to say what will be in a years time frame ,but if its just 1 yr , better to put money in FD and buy gold
later .
Other alternative i would suggest is buy it every quarter with 25% money each time .
Question 2#
Have one general question... I was reading "Rich dad Poor dad recently".. Some interesting concepts but
was not sure how it will applicable to indian scenarios. 1. Kiyosaki tell's that Real estate is the safest way for
wealth. But in India (expecially in Chennai and Blore), it is not only the value of land we need to worry about
but also the reliabilty of the land owner (Same land is being sold for multiple people), Fake papers, Even if
everything is alright some political party/Gunda can stick a flag and claim the land. 2.Is it feasible to have a
seperate business on top of our regular job? 3.Or should just mind our job and invest our money wisely
(Stocks/MF e.t.c) What are your thoughts?
Ans
1. Real Estate is the safest way for wealth , I dont agree with it .. Real Estate is a good Investment
over long term , and you can get benefitted in short term also , but for long term , i still recommend
Equity . Regarding the reliableity of land ownership , that risk is always there , but you can minimize
it by taking precautionary measures from your side and by "not acting" foolish and greedy like many
people do .
2. Regarding Second business on top of business , yes you can . but if your current job agreement
says that you cant , then you cant , because you have agreed with them by signing the documents :) .
However I dont see any issue in regular jobs . Go ahead .
3. There is no one answer to it .. There are other things than making money .. If you like you job just
be with it and enjoy , you can side by side do good investing too . But you like investments as a
career you can enter the field and have full time job in that .
Question 3#
Hi , after a study of analysis , i am planning to take term insurance policy of 50 Lacks but am facing difficulty
to choose which one is better, as i see LIC Amulya jevan premium is 17k per year,(35 years)-50 lacs Bajaj
Allianz Life - New Risk Care is 13.5 k (40 years)-50 lacks and also having some accidental,critical benefits.
please suggest me,can i take single policy of 50 lacks or split into 25lacs,25 lacs, and to safe side choose
either LIC only or any another company like bajaj,kotak ,etc for same tenure who ever offering less premium
need to take??
Ans
Well.. you have done 95% of the job by choosing to take term insurance , now to Find the best one is
just 5% , because in a way its not too important .. I like SBI and Religare .. you can go with others
also .
Term Insurance is a simple product and all companies have it with almost same rules , so the best
one is the one with least cost most of the time :) . Riders are your choice , you pay extra if you take
them , they are not free .Divide the policy in 2 atleast , If you are too emotional with LIC , you can
have it as one of the insurers .. But there is no issues like Public or private companies.. read my
article on this .
Question 4#
I invested in some mutual funds through SIP in FY 2007-2008. My current balanace in these mutuals funds
is:- Fidelity India Special Situations Fund - Rs 10000 Fidelity Tax Advantage Fund - Rs 24000 SBI Magnum
Global Fund - Rs 10000 DSP Black Rock Fund - Rs 24000 I must admit that I had no idea about mutual
funds and invested as advised by a friend who was an agent in a Investment company. Till early 2008 , all
was looking good and the value (combined) was approx. 12000 more than Cost value (if I rememeber
correctly). But now for the past 1 year the value of these funds(combined) is less than the cost value and
curently I am at a loss by 7500. I am not sure what should I do about these funds. Should I withdraw my
money? or should let them be as they are in hope that their value will increase someday? Many Thanks for
your help
Ans
DSP Blackrock Fund : EXCELLENT funds , Keep it , increase the exposure

SBI Magnum Global Fund : RISKY and seems to be fine (its a midcap fund) , decrease the exposure
Fidelity Tax Advantage Fund : Good , Continue
Fidelity India Special Situations Fund : Its a new fund , STOP this and take some old Winner :)
You entered at bad time , dont worry its normal .. Review your Mutual funds (you may use my
suggestions if you want , Take your call , i am not responsible) and prune out the bad ones and
continue with the good one , Equity performance very good if you keep continuing investments and
give it some enough time to it to perform .
Equity have risk and hence you are going through the time when you should be calm and control
your "mind" which is concentrating too much on Losses :) .
Question 5#
I have LIC Jeevan Amulya Plan for 30 lakhs @ premium of 7.5k. During enrollment, I had a medical checkup
including blood test. My policy was confirmed after a month, i.e. after positive medical test result. During
medical checkup, there was a document given asking questions about existing health problems. I had a
minor surgery during my childhood (age of 5) and a tonsill surgery at the age of 15. But, I missed to mention
those. Now, when I read some case studies in personal finance articles, I see that hiding such information
will create problems later during insurance claim. What should I do now? Should I inform the LIC about the
same? Or, do I need to stop the insurance and start afresh giving correct information? Please suggest.
Ans
You should inform them about this as soon as possible , Premium of Life Insurance depends on the
Risk involved and Right now , The company is charging premium based on your information , If later
they come to know that this information was hidden from them , the claim can be rejected and It will
be a right thing from companies point of view , You should inform about this , Your Premium May or
may not be revised . Even if its revised , its ok .. :) . Thats a fair thing
No point in stopping this policy and taking a new one , because any ways you will declare this to
other insurance provider . Only in one case you will benefit , if new insurance provider has the
premium less than LIC , which i think many will have , do your investigation .
Please leave your comments on this section , If you have some question , please post
it HERE
Monday, August 10
What is IRR and XIRR and how to Calculate it
How do you calculate your returns when you every year you invest different amount and at the end
you receive your Money back ? Suppose your invest 5,000 , 10,000 , 6,000 , 4,000 and 6,500 in 5
yrs and Get 53,000 at the end of 5 yrs , what is your Return ? Its 17.4% . The concept is called IRR .
Read below to understand more ..
So Here we will learn two things IRR and XIRR
What is IRR and How to Calculate it ?
IRR is Internal Rate of Return , Its used to calculate the returns given some amount at a fixed
interval . For example On after every 3 months or after every 1 yr . The only thing which matters is
that there should be equal distance between two installments . We will learn how to Calculate IRR
in Excel Sheet . You would also love to read what is NPV ( Net Present Value) .
How to calculate ?
• Enter your Investments (amount which you paid) in each row (you have to put "-" before
each value)
• Enter the Amount you Received at the end (put "+" after that amount)
• Formula : =IRR(values) , in place you values , put the range of cells which contains values)
, see below .
Use this Spreadsheet to calculate IRR for yourself
Things to NOTE
• The values need to be a set of Positive and Negative Values .
• The last value is the amount you received .
• Any amount Invested will be Negative , so if you invest Rs 10,000 , put -10000
• Any amount you Receive , will be Positive , you if you get Rs 5,000 , put +5000
• All the payment or receiving of money are equidistant , Like 1st of every month OR May
15th Every year .
• All the payments are assumed to be yearly by default , If its some other time frame like
monthly or quarterly , use XIRR and put specific dates .
In the above example , the CAGR return was 17% . See this video post to understand how to
calculate CAGR .
What is XIRR and How to Calculate it ?
IRR does not solve one problem , And that is when the payments are at Irregular interval , In that
case we use XIRR . So in a Spreadsheet , we put the date and the value both . See the example
below .
How to Calculate
• Put Date and Value for each row
• At the last row , put the Date and amount you received .
• Put the formula as : =XIRR(values , dates) , values and dates are the cell ranges , see below .
Use this Spreadsheet to calculate XIRR for yourself
In the above example , the CAGR Return was 38.96% (I have multiplied the return by 100 , the
actual value will be .3896 )
Real Life scenario when you can use it .

Scenario 1
Suppose you Invest in a Mutual Funds per month on your own , you invest on 15th of every month
in year 2006
• June 15 you invested 5000
• July 15 you invested 6000
• Aug 15 you invested 3000
• Sep 15 you receive 5000 (dividend)
• Oct 15 you invested 4000
• Nov 15 you invested 12000
• Dec 15 you Sell everything and Receive 35000
You can use IRR in this case and calculate your returns , the values you will be -5000 , -6000 ,
-3000 , +5000 , -4000 , +12000 , Calculate the IRR and put it as comments , lets see if you are
correct or not ?
Scenario 2
You can also compare two business ideas using the XIRR , and decide which one is better then
other . In any business concept you have to invest money and you get back some return , but these
returns can be irregular and different amount every time , In that case you can use XIRR and
compare the returns of both business and decide the one which has better XIRR
Note : the formula can give answers in a but different ways on Excel , OpenOffice spreadsheet ,
google docs or Zoho Spread sheet . Use this Spreadsheet to calculate IRR and XIRR for
yourself . The spreadsheet is shared , so please dont make any changes other than "values" and
"dates" .
Comments ? I would love to hear if these concepts are of use to you or can be of any help to you . is
IRR a good way of measuring returns ?
Saturday, August 8
Financial Planning and Stock Market Seminar in Bangalore
We had a Free session on Personal Finance and Stock Market Basics on last Sunday , 2nd Aug .
There were total of 17 participants , I talked about Basics of Investing and Insurance principles
along with a live case study , where I proved why one of the participant was severely underinsured ,
I told them How to calculate the Insurance Requirement .
Another Friend Trilok also talked about Basics of Stock market to get new people learn the basics
terms and get them ready for Stock Markets in case they plan to trade . Some of the important
points I noticed overall are :
• People do not understand basics , but they can understand it very well if they guided
properly
• On an average level there is too much need of good Financial Education
• Most of the people have money but little knowledge to invest it wisely and correctly
I had put the information about the session on this blog and I expected some good number of
registration , but I got just 4 people from my side . I am not sure if people missed it or are not
interested in ruining their Sundays for a personal Finance talk . Let me know .
We are planning to do some more more sessions on weekends , but we really require some things
from people who come . Interest to learn and Some Time :) . If you are interested please Fill this
form to put down your Name . The session will be in JayaNagar 3rd Block , Bangalore . Check out
some pics from last session Below .
Manish giving some knowledge about SIP and its Importance
Me trying to Prove why Endowment Policies are not the Right Answer to Insurance
Trilok Explaining from Basics of Stock market and Trading , check out this Ebook on How a
newcomer should Start in Stock Market .
The wonderful Audience we had
Note : The session will be totally free , you just need to COME :) .
Wednesday, August 5
Why to open a PPF account even if you dont need it right now
"When preparation meets opportunity , Luck happens" . In this article we
will see why one should should open a PPF account even if one does not need it
or have no intention of putting his money in Debt , It may look idiotic , but we
will see why it would make sense . We will also see an example which will help
you understand things . But Manish , I don't know what is PPF account ? you will
say , Click here to Understand what is PPF account .
Imagine a situation , You need to invest your money in some debt product which gives you assured
and good returns , but you don't want it to get locked for long period , the maximum you want is 3-4
yrs of lock in . Is it possible right now is the question you need to ask ? NO!! is the Answer
• If you invest in PPF right now , the money will be locked in for 15 yrs (partial withdrawals
allowed)
• If you invest in NSC , it will be locked for 6 yrs , but the interest would be taxable and hence
your post-tax returns are again very less .
• Fixed Deposits are again not helpful , because there post-tax returns are not attractive
enough . Even if you Choose the best Fixed Deposit , it wont help you .
• Debt funds are again not answer , because again there post-tax returns are less .
So how does opening a PPF account now helps us ?
Well, Definitely it cant help us at this moment , But imagine future , Lets say after 11 or 12 yrs , you
need to invest some money for short term , at that time , you can put money in your PPF account
and it will get matured in next 3-4 yrs and whole maturity amount would be Tax-free and earn you
interest of 8% .
And it costs just Rs 500 per year for account to be active . So If you need the PPF account right now
, Open it now and if you don't need it right now , still Open one right now so that your Lock In
period goes down by 1 every year . Also once in a while when ever you feel that you need your
money to go in your Debt component , just use PPF and put your money into it . Read an article on
Asset Allocation to understand the good mix of Equity and Debt Component.
So here is what I would suggest , Open PPF accounts on your name , your Spouse name , and your
Children name at the interval of every 2-3 yrs , so that after 12-13 yrs , you have each PPF account
maturing in a period gap of 2-3 yrs and you can use it as a investment product which gives 8%
assured tax free returns :) .
Note : PPF returns are subject to change and is fixed by govt every year also .
Please comment to let me know if you think this does make sense to you , Is there any issues
involved with this with i have not covered , your comments are valuable .
Question and Answers , Part 1
You might have noticed that I started "Ask a Question" Section on my blog
where anyone can ask any query to me , I will try my best to answer the
questions , but please don't expect instant reply . I am sharing the answers here
for some questions asked by readers , this will help others to gain more
knowledge about stuff .
Question 1 :
Hi,
i am new learner in derivatives trading !
any good web site to understand in detail , and my very specific question is when to be in Futures
and when to trade in Options !
many thanks,
Umesh
Answer
There is no single website for understanding this . You have to search different sites for different
things . What i would suggest is clear your basics by reading some books and some articles on web .
and then trade your self . Download my ebook :
http://manish.pucsd.googlepages.com/A_Small_Guide_For_Newcomers_In_Stock.pdf and follow it
.
Regarding choosing between Futures and Options , The best answer what excites you ? Futures or
Options ? I like Options , so i trade options (not doing it from some weeks) . Basically Options are
more leveraged products than futures . Options are more difficult than futures . There are different
strategies in Options which can be applied at different times . Dont trade derivatives if you are not
able to trade equities successfully . move gradually from Equites to Derivatives . Dont jump directly
to Derivatives .
Question 2 :
If I have to choose ONLY ONE equity mutual fund for a time horizon of 10 years - which ONLY
ONE fund should I choose ? What about DSP TOP 100 EQUITY FUND ? Is there any better than
this fund ? - RAJIV
Answer
ok , this is tricky . The one i would suggest is "Sundaram Tax Saver" . Now comes the best part . If
you had asked me this question before 5 yrs , The answer would have been "SBI Magnum or HDFC
taxsaver" and answer will keep on changing , There are different cycles in mutual funds life cycle ,
The best mutual fund today may not be the best all life , So the best time frame you should look at
is 3-4 yrs and then evaluate back and shift money in another mutual fund as per the situation .
For now take Sundaram , invest through SIP and maintain your asset allocation . Look at the
comparision i did between SBI and Sundaram here : http://www.jagoinvestor.com/2009/01/95-of-
salaried-people-are-rushing-to.html
DSP top 100 equity is an excellent fund , This should be good enough to invest in , Dont look for
the best mutual fund , there is nothing like that . It depends on your risk profile and other factors if
it suits you or not .
Question 3 :
Me and my wife both are working in MNC's. We both are in the age of 27 and don't have any kid
yet. We both also don't have any dependent. We both are getting cumulative 8 lakhs medical cover
from our company. I read a lot of places that it is good to have your own medical policy. Can you
please suggest that should I buy and medical policy for me ? and if Yes ..what should be th criteria.
- Manu
Answer
8 lack is a good cover . But i think it would be 4 lacks each , not 8 lacks for one person . even 4 lacs
is good for one person . The reason why extra health cover is advised is because
- You can loose job or move to another job and may be "without Health cover" for the gap which is
not a good thing .
- Health cover does not mean "everything you can think of realated to health" , There are many
things which group health cover wont cover, digg out more on that . See what is the most important
thing for you and your wife and if your Company covers that or not . It wont hurt to take a good
Family Folater cover for 4-5 lacs for you poeple , it would be 8-9k per year . Cover your self well..
There is nothing like the best policy , its not "the policy which suits your requirement" , the policy
which is best for me , can not be best for you .
You may also want to look at a term cover for a small amount (20-30 lacs) , i know you people are
not financially dependent , but i am sure it would help if there is loss of income because of some
unfortunate event .
Question 4 :
My question are
1) If I have invested in a ULIP for more than 3 years as of now, is it better to continue on that
ULIP ? I think the commision , other charges etc are negligibly small after three years of policy .
Any amount I invest from now on will be invested in equity markets. Please let me know your
thoughts
2) In case of term insurance policies , money that my dependents get is taxable or not ?( ofcourse if
I die during policy tenure) :-(
3) I read in one of your blog post that it is better to split life insurance into two or three companies
to that it will give us a flexibility to stop one or two later at some point of time. In case of my death
, will my dependents get claims/money from all my policy ?
4) If I have health policy in different company , can i claim the refund from all policy or just one .
Will those be taxable?
- Aby
Answer
Find the answers in line .
1) If I have invested in a ULIP for more than 3 years as of now, is it better to continue
on that ULIP ? I think the commision , other charges etc are negligibly small after three
years of policy . Any amount I invest from now on will be invested in equity markets.
Please let me know your thoughts
For this you need to see what is the current situation of your total fund value . For last
1.5 yrs markets have done very badly , so there would be significant change in fund
value compared to normal years . Other charges are not always negligible after 3 yrs of
policy . I think you can either link your ULIP with your long term goals , or start a SIP
from now onwards .
2) In case of term insurance policies , money that my dependents get is taxable or not ?
( ofcourse if I die during policy tenure) :-(
Its not Taxable , however when they invest that money somewhere and when they start
getting yearly income from that , then that yearly income will be taxable .
3) I read in one of your blog post that it is better to split life insurance into two or three
companies to that it will give us a flexibility to stop one or two later at some point of
time. In case of my death , will my dependents get claims/money from all my policy ?
Yes , your faimly will, get money from all your policy , If you take Insurance of 30 lacs
, 20 lacs and 25 lacs from different insurers, they will get it from everyone , so total will
be 75 lacs . However , you can not use this to your advantage and take crores of
policies, because insurers ask for your previous policies and if they think that your
insurance has crossed the limit which you should have , then they will refuse the
insurance to you .
4) If I have health policy in different company , can i claim the refund from all policy or
just one . Will those be taxable?
No , You can only get the refund upto the expenses occured . So if you have taken
Health insurance from more than 1 insurers , they will share the cost between
themselves in the ratio of sum assured (this is basic rule , there can be some different
rule here and there) .
So if you take Health insurance for 5 lacs and 10 lacs , and your expenses are 3 lacs
which you want to claim , you will get 1 lac from 1st insurer and 2 lacs from 2nd . The
amount is not taxable , because its not something extra you are getting ,its just the same
amount you have spent and getting it back . So for you its 0 profit 0 loss .
Question 5 :
sir.,
thanks for this service.i am working as a agent for mutualfunds.from today onwards there is no
ENTRY LOAD so no commission. yesterdays conclusion from our trade is to request(!) the same
amount from the customers.
Is it possible to receive cash favour directly from clients?
some clients are happy with our service, and some were not at all !!!
- srinivas
Answer
So what if 2.25% entry load is scrapped . Clients are ready to pay for quality advice and good
service . If you advice them well and help them take good decisions for there investments , I am
sure clients wont mind paying you 2.25% commision (even more than that) . You should take this in
positive way .
I hope you are AMFI registered and have good grip on Mutual funds and how to choose best one
which suits your clients needs . I hope you are not just choosing the "top 5' from some rating
website (though its fine sometimes) . Research your clients needs and suggest them good mutual
funds and let them understand why it suits them . Trust is what they should have with you . Once
they trust you and your advice , this IRDA rule of 2.25% thing will make no sense to you and other
agents .
As I said earliar , This may look like a Disaster to you, but its your chance to start all over again and
make things work for you , adapt to changes :) .
Do let me know if you like this section or not .

Please note , that the question and answer are made public only after confirming it with the
requestor , If you want that your question and answer are not shared , thats fine with me .
If you want to ask a question to me , Click here
Monday, August 3
Why people dont like Term Insurance and why they are wrong
"We have no desire to make anybody look like a blithering idiot, but we do love it
when they do. " -- Stephen Colbert . One of reason why most of the people do
not take term Insurance is because "They don't get anything back at the end" . In
this article , I will show you why this is psychological issue. Even if you get your
money back at the end of the tenure , it wont make much difference . In this article
I will prove that the argument that "Term Insurance is waste of money because
you don't get anything back" is amazingly idiotic .
What is the main Issue with People not liking Term Insurance
Why people don't like Term Insurance is the question , The answer is simple, because you don't get
anything if you survive the whole tenure and hence the amount paid as premium is wasted , this is
claimed by millions . Fair enough . The first thing is , these people do not understand or appreciate
the Importance of Life Insurance . Now lets see this situation from a different angle . Assume you
get the money at the end in your Term Insurance . Lets see a case study of a general Family . How
does a family look like .
Manish is 28 yrs old and got recently married (oops!!) . He earn close to 40,000 per month . His
monthly expenses is around Rs 25,000 overall and he saves 15,000 per month (heh) . He also have
his parents dependent on him financially . He is 30 yrs away from his retirement . He calculated his
Insurance Requirement and it was close to 50-60 lacs minimum . Lets take it as 50 lacs for
simplicity for now . Get more of Insurance Articles from Archives section .
Analysis of Case Study
Now is the fun part , his current monthly Expenses are close to 25k, How what will it be his
monthly Expenses when he retires after 30 yrs ? So the average inflation for last 30 yrs was 6.5%
(based on past data) , lets assume it will be 6.5% for next 30 yrs on an average . Then the monthly
expenses after 30 yrs would be 25,000 X (1.065)^30 = 1,65,359 (1.65 lacs) . If he takes a Term
Insurance at the start , his yearly premium per year for 50 lacs cover would be Rs 11802 for 30 yrs
tenure from Aegon Religare . Do you know how you can do your Retirement Planning in 6 steps
?
Read-Error
Which means , he is going to pay total premium of 3.54 lacs in his entire life . How even if he gets
this money back at the end , How much will it benefit him ? How many months can he survive on
this money ? 2 months is the answer !! , With expenses of 1.65 lacs per month , the money he gets
back from term insurance is enough for not more than 2 months , Lets take maximum 3 months .
That's it !!! . Are you confused with Calculations, See this Video presentation by me where I explain
how to do important Calculations in Personal Finance .
So Following are the questions needed to be asked

• Do you want to put your Family at Financial Risk because you are not getting 2 months
worth of expenses back ?
• For a small amount you "don't get" at the end , are you not being childish to Secure your
family.
• Don't you think you are seeing Term Insurance from a wrong attitude ?
• Are you not concentrating on "what you are not getting" rather than "what you are getting" .
We already have "Return of Premium Term Policies", but they are themselves idiotic because they
are again designed to just exploit the weakness of people who feel that term insurance is waste of
money because they dont get their money back . Read this to understand why Plain Term Insurance
is better than "Return of Premium Term Insurance policy" .
Reason why Indians dont like Term Insurance
Reason 1# : Most of the people concentrate on number and explicit data , like the money they are
not getting back or its a waste of premium if nothing happens to them . They fail to look internal
advantage which term Insurance provides
Reason 2# : We are emotional with Money , we are more concentrated with Growing money and
getting money back rather than what value it provides in our life .
Reason 3# : Most of the people think that the probability of dying is much lower than an average
person which is again totally idiotic . We just don't want to visualise a bad situation and hence do
not concentrate on that situation .
Conclusion
In life we don't appreciate things like Health , small moments of happiness , nature , time spend
with our loved ones which are most wonderful and real things in life. Term Insurance is one of the
similar things in personal finance domain . You just need to shift your focus of view from "what you
are losing" to "what you are getting" , once you do this with Term Insurance and your Life , Both
with become wonderful .
Please comment on what do you think about this and do you agree with it . are you victim of such
mindset ?

Continue Reading
Friday, July 31
How Builders are Not keeping their Promises in Real Estate
Deepak Shenoy came up with a very nice article on How Builders are not
keeping there promises while delivering the Residential Properties . He shares
his views on Why it does not make sense to buy Residential Properties
currently at idiotic prices level currently . He also links to another article of this
where he compares Renting Vs Buying a Flat
My take on the Subject
I am not a big Real Estate expert my self , but from Financial Planning point of view I have to say
that Buying Home is an Important decision and we should look forward to it , but never at the cost
of putting our self in a situation which can become disaster for our self . If you earn 50,000 per
month , it does not mean you go next day and buy a Flat where you EMI is 40,000 . Most of the
people do not concentrate on Long term and have a short term view . Buying House needs planning
and consideration of various factors . You need to find Value in the property which you are buying ,
just dont see the value . A property worth 40 lacs may look Cheap , but its worth still be less than its
price . Do you know the Formula to calculate the EMI on home loan ?
Given the uncertainty of Stock Markets in near term and no big improvement in Real - Estate sector
, I am myself still not excited in Buying anything in real-estate (the main reason is that I dont have
much money) .
Mohit Satyanand says
"I wouldn’t put money into real estate unless it fulfilled three conditions—
1. It is a property I would be happy to live in.

2. I could put down at least 25 per cent of the total cost;
3. The EMI is less than half of my monthly savings.
With those conditions, it would be unlikely that I would exit the investment; not finding
a tenant would’t upset me; and with the balance of my surplus income, I could continue
to build a nest egg of other assets. Read full Article "
This view can look like a pessimistic views at first , but in the long run , these things pay off . Don't
take much risk that you are not alive next time to take another is the Funda you should
Remember .
Please comment on what do you think about the Real - estate sector currently in your City .
Also do share what is the most important thing one should look at before buying a Flat ?

Continue Reading
Wednesday, July 29
Register yourself with Jagoinvestor
Readers , Please use this Form to Register yourself with JagoInvestor . In future I will be starting
Full fledged Financial Planning services . I want all my dedicated users to be registered with Me ,
So that they can benefit . Give your 2 min , to fill in the basic information for registering your self .
Also dont forget to take up a small survey on Financial Planning , it will take 57 seconds .

Tuesday, July 28
What is Jagoinvestor
"Money can't buy you Happiness, but lack of it can certainly make you
Unhappy"
We have not come in this world to make Millions !! , We came here to lead a happy
life , To do what we enjoy , make friends, enjoy little things in life and then die
peacefully. Everyone wants to do this in their life , but most of us just never get
there . Why ?
We study , we join companies or start our business , we work , we earn and wait ... then we just
keep earning , earning and earning all our life , We are married , have kids , All our life is gone in
planning for them , managing it . Everyone has to do this and one cant escape from this . But how
many of us do it smartly and without much hard work .
Please take some time to Fill this Survey to let me know what readers think is Fair Fees for
Financial Planning
What Happens Currently ?
In our country , most of the people mess us with there Financial decisions, because of following
reasons .
• Little or No awareness about Finance and Investing related Stuff
• Inability of take our financial decisions (actually any decisions)
• Wrong attitude towards Money
• No ability to judge right or wrong because of our analytical (in)ability .
• Unprofessional way of dealing with Financial Stuff
• Low motivation for spending less than we need .
• No analytical ability to calculate important things on his own .
What is happening from Last many Decades ?
• So called Stock markets experts decides the shares we buy.
• Websites and Magazines decides which Mutual funds we buy.
• Our Uncle or Cousin (who is LIC agent) will decide which policy we will buy.
• Agent who calls us on phone will decide which ULIP suits best for us
• Stock market crashes decides that we also think about Debt component in our portfolio.
Where are we in this scene , Where are we in this decision making process ? Why are we not taking
our decisions ourselves ? Why are we not giving Importance to this "extremelly Important" Part
of our lives , our Nation . I know Money is not important in Life , and it wont help you get want
you want in life , but having good amount of money and good financial life can leave you with
enough time and peace of mind , so that you can look after what you want in life . Having your
Finances in place is Critical .
What is JagoInvestor all About ?
Jagoinvestor is a Movement , a small vision which wants each person to know what he is doing .
To understand how things affect him . It aims at empowering everyone with ability to judge what is
good and what is bad for him . It wants people to understand the critical elements which are
necessary to succeed financial in life , It does not mean , that we are making you millionaires , the
only aim is to take care of what you have in a best way . To achieve your financial goals in the best
possible way .
• You should not be like the Family who lost 50% in a ULIP just because of not knowing the
product .
• You should not be like one of my friend who has taken lot of Insurance without having any
Financial dependents .
• You should not be the one having 50,000 as monthly salary , Parents , wife and 2 kids with
8-9 lacs of insurance (believe me , this is exaggeration) because you think Term Insurance is
waste because it does not provide any return .
• You should not be the one who invests money to double in Stock market because you have
to pay your brother MBA fees next year , and you think you can get a cut from a bull run .
• You should not be the one who invests in LIC endowment policy just because the agent is
your "Uncle" and has good relations with your Father and you cant say "No" to him . (I hate
this one) .
• You should not be the one who is putting most of his money in Fixed deposits from last 24
yrs .
Financial Planning is one of the most important aspect of one's life . Most of us do not
acknowledge this and don't want to work upon it. This part of your life is the one which is invisible
to you , but everything is connected to it . If your Financial life is messy , Other parts will Stink ,
believe me and it would be very late by the time you can fix it . See Why you need a Financial
Planner .
Be a part of Jagoinvestor and take part in improving your Financial decisions .
What do you think about this article , please share your views , what is your idea of "Being a
Informed Investor" ?
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Monday, July 27
ULIP charges restricted to 3% by IRDA
Does God Exist ? I don't know, but IRDA exists !! and hence finally it has acted
as GOD to the investors :) . On 22nd July, IRDA capped the ULIP charges at 3%
. Let us see in this article how this will affect Investors and how will it impact
investors and what will be the implications of this on Investments and Insurance
Sector . The decision will be effective from Oct 1 2009 .
IRDA rules for ULIPS
Gross yield: This is the yield generated by the ULIP before all charges are deducted.
Net yield: This is the yield generated by the ULIP after all charges are deducted.
1. "ULIP charges" here would include allocation charge, administration charge, mortality charge
and all such charges by any other name.
2. For Products whose Maturity is less than 10 years

• "The difference between gross yield and net yield cannot exceed more than 300 basis points"
(100 basis points = 1%) .
• "In this case , fund management charge cannot exceed 150 basis points"
3. For Products whose Maturity is more than 10 years

• "The difference between gross yield and net yield cannot exceed more than 225 basis points"
(100 basis points = 1%) .
• "In this case , fund management charge cannot exceed 125 basis points"
4. The IRDA has made PAN card mandatory for all policies where annual premium is more than
Rs 1 lakh OR there is investment in Capital Markets . IRDA said this norm is to be implemented
with immediate effect and all insurers are to comply not later than August 1.
Look at this Video
What will be the Implications

• Ulip products will see a decline in commission paid to agents. Its very logical , IRDA is
giving nightmares to Agents for some time . First it was abolistion on Entry load from
mutual funds and now its capping the charges on ULIP . Agents are now going to get
commissions which will be very very less compared to what they used to get earlier (like
upto 35-40% in first year) . Bad month for Agents in India .
• Now Agents would really be confused on whether to work hard on Selling Mutual Funds OR
ULIPS ? Both are going to provide them almost same kind of Commissions now ! .
• This move will help in investments in ULIPS , as the hardcore Mutual fund investors can
think of Investing in ULIPS too . But still dont forget to ask him the most important
questions before buying the ULIP .
• Mis-selling will be reduced in ULIPS as the primary motive of "High Commission" is
crushed by IRDA .
• Though ULIPs are still long term Products , I don't recommend common man for short term
investments in ULIP , Investors who think they are smarter than average investor can invest
in ULIPs for short term , considering you know how to manage ULIPS well and reap the
potential of switches (this mainly to churn the portfolio fast and save the short term capital
gains tax) . Read how to use losses to save your tax .
• This Rule does not apply to traditional Policies, so its not a very good news for all
considering Traditional Policies from LIC still dominate the Insurance Market :( .
What will happen to Existing Polices ?
As per IRDA , All existing products that do not meet the requirements of this circular should be
withdrawn or modified by December 31, 2009 . I can only imagine the state of Agents and
Insurance companies which created ULIP mess all these years . IRDA really nailed them hard this
time . Many agents which were getting fat commissions from so many months will be sad on this .
How much will this help Investors in reaping benefits from ULIPS
This is a good move from IRDA , and investors will be benefited , But how much !! ?
Earlier most of the ULIPS charged heavily in First and Second year and then reduced the charges to
NIL or very very less in later years . Because of which the charges were heavily skewed in Initial
Years, but the long term average charges were still in range of 3-5% . Now after this new Rule from
IRDA , Almost all the ULIPS will charge for every financial year (that what i think) . Hence the
long term charges will now be evenly distributed over long term , but still the average charge over
long term wont come down drastically !! .
Read a nice article from Deepak Shenoy on "Tactics used by ULIPS to hide the charges"
Can you Invest in ULIPS now !!
ULIPS for me has changed its status from "Ugly" to "Average" product now . For long term
Investors , ULIPs can now serve as a good product. Charges wise its much better in long term now (
2.25% max) and the best thing is if you need immediate money and want to close the policy , you
will not he hit hard like earlier . Take the policy after Oct 1.
Some Internal Information
Just before writing this Article, I was chatting with Pradeep (name changed), an internal source who
is himself an ULIP agent. See what he has to say
Guest_7FF767C0: attened a sales talk by XXX for their new ulip ... XXX which
guarantees highest nav for the next 10 years !!!!
Guest_7FF767C0: all ptvt. life companies are worried about mandatory PAN for annual
premiums of rs one lac. and above.today smart money(black) is routed through ulip cash
payments on binami names.
Guest_7FF767C0: but sir! IRDA may kindly look at the very very high incentives to the
sales team(policy expences).sebi from aug 1 st declared no entry load for mutual funds
so no early commissions to agents which is only 2.25% where as 40% plus in life!
So according to him , Due to the mandatory PAN for more than 1 lac premium . Lots of black
money is coming through Benami Accounts now. see The Benami Transactions (Prohibition)
Act, 1988 High Net worth Clients do not want to share there investments with Govt to save tax ,
but because of the "mandatory PAN" rule , the money is being diverted through "Benami Accounts"
. This is totally unethical and unprofessional , but this happens at the top ladder, Looks like IRDA
still has some more work on this plate .
Conclusion
This move will help investors and it will check the mis-selling going on for last many years . It will
also help in making Insurance sector more mature in India . IRDA is coming up with solutions now
and Jagoinvestor sees this move as a friendly move which will help in achieving the goals of
"Making each Indian an Informed Investor" . Thanks IRDA .
Readers , what are your views on this Rule by IRDA , How do you think investors will take this ?
And Is it helping you in any way. Please leave your Comments on this .
Tuesday, July 21
6 Steps of doing Retirement Planning by yourself
In this post in will teach how to plan for retirement . We will use simple tools like
Mutual Funds and PPF for building Retirement Corpus . We will also see what are
the factors you should take into account when you plan for retirement . There can
be other ways of doing this and can be very complex with very advanced
calculations . But in this post we will look at it in a very simple way which a
common man can understand .
So you are finally deciding to plan for your Retirement . You need to understand following
steps .
• How much is your Current Yearly Expenses
• How much will be average Inflation figure in coming years
• How much would you need at your Retirement
• Finally coming up with the corpus you would need at the retirement.
• Calculating how much you should save per month.
• Understanding Where to invest it .
We will see all the points and also go through an Example Side by side to understand the process .
Let say we are taking an example of Ajay who is married and has 2 kids below 6 yrs . He has a
monthly salary of Rs 40,000 per month . His age is 32 yrs and he wants to retire at age 60 .
Step 1# : Calculating you Current Yearly Expenses
Take a piece of paper (do it now , as you read this) and make a note of your expenses, things like
Rent , House hold expenses , Children fees etc etc . You should have a rough idea of what is the
minimum amount you require per month for living a good life . You should also try to Save a part of
your Salary every month , Ask your self , Can you live with 90% of your Salary ?
Ajay calculates his expenses.
Rent - Rs 10,000
House hold expenses - Rs 11,000
Medical Expenses : 1,000
Entertainment and outing : Rs 3,000
Total Monthly Expenses : Rs 25,000

Yearly living Expenses : Rs 3,00,000 (12 * 25,000)
Other Expenses like Vacations and Surprise Expenses : Rs 50,000

Total Yearly Expenses : Rs 3,50,000
Step 2# : Understanding how much Inflation would be there in coming years
This is the inflation you expect in coming years till your retirement , I calculated the average
inflation from last 28 yrs (1990-2008) . the CAGR inflation was 7.3% Source . Considering a better
economy in future I expect the inflation over next 20-30 years to be 6-6.5% . Lets take 6.5% . How
ever you can assume your numbers , depends on your understanding .
Step 3# : How much amount would you require in your Retirement .
By this we mean how much money will provide you same standard of living as of today . This will
depend on Current Yearly Expenses , Inflation expected over the years and years left for retirement
.Just like we require Rs 105 to buy something of cost Rs 100 in 1 yr at 5% inflation . The same way
we can cost how much is is needed after X yrs . So formula would be
Retirement yearly Expenses = Current Yearly Expenses * (1 + inflation)^(number of
years left)
Ajay has already calculated his yearly expenses as Rs 3,50,000 . He has 28 more years
at hand . He calculates his retirement yearly expenses .
Retirement Expenses = 3,50,000 * (1+ .065)^28

= 20,40,000 (20.4 lacs approx) .
Now one can tweak this figure depending on weather you want to have a more better lifestyle than
earning years or more simpler life . You can decrease it or increase it to the quantum of your
compromise . You wont have to compromise on your Retirement if you are a Early Investor.
Step 4# : Finally coming up with the corpus you would need at the retirement.
Here you may want to receive the monthly income for whole of your life and preserve the capital
for your Children or any nominee . So you need a corpus which if you put in Bank or invest in some
"guaranteed return fund" , you should get an amount per year which is equal to your Expected
Expenses per year .
So suppose you expect to get a return of 7% per year . Then you need X amount at the
end where 7% of X is = your yearly expenses .
Corpus needed = (Monthly Expenses)/(interest expected )
So in the case of Ajay , the yearly expenses expected was Rs 20,40,000 and return expected is 7% .
so we the amount required for Retirement is 20,40,000 / .07 = 2,91,00,000 (2.91 crores) .
Note : You can also buy an Annuity for a fixed number of years till when you want to receive the
income ( which also means you should have an idea of when will you die , which is not easy ) . So
for example if you want to receive the the monthly Income till you are Age 80 (for 20 yrs) . The
following formula will be used . See this Video or this article on Net Present Value to understand
the calculations and Concept .
PVA = A * [ {(1+r)^n -1} / { r * (1+r)^n } ]
Where
PVA = Present value of Annuity (Amount you need to have at your retirement)
r= Rate of interest you expect to get
n = Number of years you want the Yearly Income .
So at the end of this , you will have the Amount you need for your Retirement .
Do you calculations online just now Here OR download the excel sheet Here
Step 5# : Calculating how much you should save per month
Here comes the interesting part , Here there are two things
• How much Return you expect to earn in long term
• How much you can afford to invest per month
Both are related to each other. If you expect more return , then you need to invest less every month
and if you can afford to invest more every month , you need to generate less returns for your
investments .
So which is the better way ? What should you decide first ? The returns expected or monthly
contribution you can make ? . I would recommend the other way , better we first decide how much
we can invest per month, because that is what we can control better way . We cant control returns !!
. I have this monthly contribution calculator to calculate how much you need to put every month to
generate Rs X after Y years if you expect R returns , please feed these inputs there and get your
numbers , To understand how its calculated you can see this video which explains some important
formula's in Financial Planning .
So here is the process

• You figure out how much you can save
• Then you find out how much return you need to generate .
• Then you decide where to invest to generate that return.
You can also go the other way deciding how much return you can generate and based on that how
much you need to save . But i prefer the first way because then you control things in your hand . but
you can go the other way too .
So our friend Ajay has a saving of Rs 15,000 at the moment (40,000 - 25,000) . And he
thinks that he can easily invest 10,000 per month at least over a long term . So the return
he needs to generate per year CAGR for 28 yrs to generate his retirement corpus of
2,91,000,00 comes out to be 12.25% , see the calculator mentioned above .
So now you got to know how much you need to get per year in returns .
Step 6# : Understanding Where to invest it
This is the last step as per our article , So you got the CAGR return number which you need to
generate over a long term . This number will decide how much risk can you take and where can you
invest depending on your time frame , See below to understand which are the suitable products you
can invest to get your returns .
Understand the ground Rules
• Higher the return expected , higher the risk you need to take
• More the Tenure , Lower the risk
Above 15% : Direct Stocks , Sectoral Mutual Funds , Equity Diversified Mutual Funds
10-15% : Equity Diversified Mutual funds , Balanced Funds
8-10% : Mix of Balanced Funds Debt Funds
Less than 8% : FD's , PPF , Debt Funds , Balanced Funds [ find out which FD is best ]
However , If the tenure is more than 10 yrs , you should always go for Equity Funds . Never go for
FD's or Debt funds if your tenure is long enough , Understand the Chemistry of Equity and Debt
please .
So in our Example of Ajay , he requires a return of 12.3% CAGR in 28 yrs, so for this ,
he can invest in Equity Mutual funds through SIP , he has different ways to achieve this
like Doing a SIP in 3 Equity mutual funds OR combination of PPF (25%) and SIP in
mutual funds (75%) OR Direct Equity (5-10%) + PPF + Some Balanced Funds . You
got to be creative in this :) , there are endless ways of doing it .
Conclusion : Here you go !! , you just did your Retirement Planning :) . You can do your retirement
planning yourself easily , A financial planner will look into more details and will do perfect
planning for you which would be best, But this is pretty much great way you can adopt your self .
Involve yourself in this journey of Financial planning and you will be amazed to find how much
Fun it is .
Please comment on how did you like the post and what do you think can be an additional step
of Retirement Planning .

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Thursday, July 16
Power of Asset Allocation and Portfolio Rebalancing
What is better ? Equity or Equity + Debt . In this article i will show you
how always maintaining your Asset Allocation with Discipline helps you in
long term . We will See examples of Asset Allocation with Portfolio
Rebalancing with Charts and a small Presentation . At the end we will
conclude that Having A small part of Debt in your portfolio is better than
having no debt . Note : Make sure you read this article in one go , not in parts
.
Data Collection and Making the Case Study
I gathered the NAV of SBI magnum Taxgain ELSS fund (click here to see which is the better fund
that SBI Magnum) for last 10 yrs for each quarter . NAV are for 1 Jan 2000 , 1 Apr 2000 and so on
for each quarter (getting them each one by one from moneycontrol was really time consuming) . So
we have 38 NAV values from Jan 1 2000 to July 1 2009 .
Scenario
• Total Capital Invested : 1,00,000
• Debt Return : 8% per/year , 2% per quarter (for simplicity) .
• Equity Return : Calculated for per quarter (if Nav rose from 10 to 12 , return was 20%) .
Now I am comparing Two cases with and Without Asset Allocation and PortFolio Rebalancing .
Case 1 : Money was Invested One time in Equity and then it was left for Growing .
Case 2 : Money was Invested and Principles of Asset Allocation and Rebalacing was also used .
We are trying to Study which one of Case 1 and Case 2 is better . I did a Small Study and calculated
the returns on different values of Asset Allocation like 20:80 , 50:50 and 80:20 etc . Here are the
findings .
Let us first look at the chart with Asset Allocation 80% Equity and 20% Debt , which personally
suits me and almost anyone in below 35 yrs age . (click to enlarge)
Read-Error
The Green Line is growth of investments with Asset allocation and Rebalancing (case 2) , and Blue
line is Growth of investments with no asset allocation (just equity , case 1) . See how After 2
quarters , The Green line always was above Blue Line . Also see that final Value of Investments was
higher in case 2 , than case 1 .
Also see, Magic of SIP , why SIP in mutual funds is best for long term .
The final Value of Investment kept increasing when Equity Allocation was raised from 0 to 70-
80 and then started reducing when further increased it above 80 .
See the Graph Below , This is a small presentation with each slide of separate Equity Allocation
starting at 0% in equity and then increase by 10% every time . So first slide is 0% equity 100% debt
, second slide is 10% equity and 90% debt and so on, it goes up to 100% equity and 0% debt , It
beautifully demonstrates the shift and change in value of Investment caused by Equity Allocation ,
to view it in the best way , just have a look at each slide in one go and it will appear as a small video
;) . Guys , i worked hard on this .
Asset Allocation Effect (make fullscreen if you want)
View more documents from manish.pucsd.

In a time span of 38 quarters (10 yrs approx) , Case 2 consistently outperformed Case 1 . ie. If
you see, In how many quarters Value of Investment was higher in Case 2 compared to Case 1 ,
Case 2 beats case 1 .
Below is the chart which shows In how many quarters Value of Investment was higher in Case 2
than case 1 . i.e for each quarter the case (case 1 or case 2) which has higher value of investment
will get 1 point . You should also look at IV Ratio .
It was found that Case 2 always had higher points than Case 1 and Case 2 points kept increasing
with higher Equity Allocation . The minimum Case 2 had was 19 points , when the asset allocation
was 0% equity and 100% Debt . See the chart Below
Read-Error
Returns Were going up with higher Equity Allocation (around 70-80) and then fell further .
The final value of Investment was increasing for higher Equity Exposure till it was 80:20 , and then
it started Decreasing . See the chart below (click to enlarge)
Read-Error
To go deeper , I calculated some other returns .
Case 1 (Only Equity) returned

• 13.2% CAGR in 9.5 yrs , see this video to learn how to calculate CAGR and other
important formula's
• Value of 1,00,000 bacame 3,24,946 .
Case 2 (Asset Allocation) returned
• 13.1 % with 30:70
• 15.11 % with 50:50
• 15.67 with 70:30
In case you are new to Stock Markets , Download this Ebook on "How a Newcomer should Start
in Stock Markets", check out the Download Page for more .
What Does This Teach us

There are some important Learning's here which We must understand well and have it deep rooted
within us for our entire Life . This will help us in long term . Following are the Learning's
Learning 1# Equity Returns 12-15% over long term .
We can expect better returns from Equity in Long term , Also average return over long term from
Equity is around 12-15% , as we saw in our case . So don't expect returns like 30% or 40% every
year . once in a while you can get it . But if you try harder and harder for it , you tend to take
unneccessary risk and hence screw your self . So better follow a disciplined approach and
peacefully get 12-15% over long term . This does not apply to Traders and whole time participants
in Stock Markets . They can/should/deserve to make more than 25-30% a year from stock markets .
Learning 2# Debt is extremely Important !!
Debt is an Important and vital component of Financial planning and your Investments. Love equity ,
Adore Equity and Worship Equity , but *don't* forget Debt , Debt has eternal powers !! . Equity
Combined with Debt can produce far superior returns over long term. In our examples above , The
best returns we got were for Equity and Debt ratio of 70-30 or 80-20 range .
Learning 3# Have a long term view , It takes time to give results .
People who have recently started investing through SIP , ULIP or Direct Stock Investing need to
understand that it takes time !! . If you are doing right things like Asset Allocation , Portfolio
Rebalancing , Diversification , Investing with Discipline and control over your self in not making
stupid mistakes , you need not worry at all . At the end you are the winner for sure. It will take time
, but things will show up .
You might see some person making 30% this or other year minting money from markets or from
other investments , and this can make you feel that you are left out , but don't feel bad , what you
forget is that the other person is also exposed to extra risk which will kill him someday , while you
will be safe .
Learning 4# Returns is not Everything in Investments (my Favorite)
This is very important and you need to get this into your head . Just like Money is not everything in
life and there are other things like love , health , Nature etc etc . The same way , in your financial
life, you should have peace of mind . For which your investments value variation should not be wild
enough to drive you crazy . You should "aim for" and get "stable and good" returns which meet
your financial goals , thetas it . Anything more than that will be a "treat" for you and should come
to you without compromising your Needs in Life .
Suppose your money invested gives you returns of 30% , -20% , 50% , -40% .... With these kind of
unstable and wild returns , what will happen to your state of mind. It will always be worrying over
it and you will make mistakes in your financial decisions .
On the other hand if you get returns like 12% , -5% , 9% , 20% , -10% etc . It will not bother you
much because there are no wild swings in your Investments value . At the end , b0th will give you
same kind of returns. The average returns would be same , but the former case has higher variance
of returns which "may be" good for your account , but its "not good" for your Mind and soul . You
will also notice in the charts above that with 70:30 equity : debt allocation , in 36 out of 38 quarters
, the investments in case 2 were more than investments in case 1 , which means that 95% it
outperformed .
Learning 5# You should Start Early In Life
Ramit Sethi writes an excellent article on Why NOW is the best time for you to do anything , Be it
early Investing , Travelling , Meeting new people , whatever !! . If you start early , you give enough
time to your investments to grow and work for you . Its also less risky if you start early , because
then the volatility is erased out in many years .
Partha shares a link for a study done on Similar subject at Accretus Solutions , Looks great link to
me :) .
** What do you think about This article , please leave you comment and suggest how did you like
this article and what are your suggestions on making the investments in a much better way .
With this i will end this article , and dedicate this article to all the readers of this blog .I was
working on this article for last 2-3 days , gathering data , doing calculations, creating charts ,
writing this article etc etc . It has come from hard work for some days , but the motivation behind it
is my wonderful readers . Believe me or not , The person who has/will learned most from this
article is ME , Thanks to you all - Manish
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Tuesday, July 14
How much Risk you should Take ?
Are you a High Risk taker ? In this post we will talk about risk-taking in your
Investments . Be it share investing or mutual funds investing or any kind of
investing . Taking low risk is equally disastrous as taking high risk . So in this
article we will discuss how much risk you must take as an investor .
Financial Goals vs Risk you take
First , we have to understand what is Risk-appetite ? As retail investors we don't understand these
important issues of risk-taking . We blindly invest in something without considering if it suits our
risk-appetite or not . We have financial goals in our life which we want to achieve in a defined time
frame like "Buying a Rs 5 lac car in next 4 yrs" OR "Generate 20 lacs for my daughter education in
next 15 yrs", and we figure out how much we should invest every month or year to meet our goals .
Depending on our Greed or Fear , we choose the products to invest. Some choose Mutual funds ,
Some choose Shares directly , where are others may choose PPF or Bank Fixed deposits (Read how
to find out Best Fixed Deposit for you) . So it may happen that we either take risk which does not
suit us . This risk can either be over-risk or under-risk . Both are equally bad for us . You should
read How Equity and Debt provides returns .
Read-Error
Problem with Over-Risk

Taking Risk much more than we can afford or take can lead to a situation where we are not able to
meet our financial objective . This is a very bad situation . We in hope of getting better than
"required" return take unnecessary risk and increase our chances to meet failure . Failure is ok , but
you should be ready for it . Taking higher than "required risk" can lead to this kind of situation .
These issues happen because most of the times investors forget the first step of Financial Planning .
Example
Ajay wants to generate 5 lacs in 5 yrs for his Daughter Education . He can invest around Rs 6,000
per month (See this video presentation to understand how its calculated) . To meet his goal he needs
to get around 12% return annually . There are different ways of achieving this like
• Investing in Balanced funds
• Combining Debt Funds and Equity Funds
• Some Direct Equity + Bank FD's + Mutual Funds
But what if he decides to invest his money in Sectoral Fund like Real Estate or Infrastructure or
invests directly in Stocks without much idea of how things work ? This can either make him Much
more than 5 lacs , may be 10 or 15 lacs OR it can be disastrous and he can loose his money and may
not be able to generate even 3-4 lacs depending on the circumstances . Now this goal was
something very important , He can not take risk for his daughter Education . If it were a car or a
vacation goal , I would have said "ok - go ahead" . But Education is a Need of life . He has to
understand Difference between Needs and Wants . He has to understand where to take more risk
and where to take less .
Problem with Under-Risk
Just like Over-risk , Taking less risk has its own issues . Most of the people who invest in
Endowment Plans or Bank FD for years suffer from this virus . If you take very low risk , you may
not be able to achieve your goals at the first place . Read Why Endowment plans are bad to invest in
Example
Robert wants to generate Rs 1 Crore for his retirement , He has 30 yrs and He can invest around Rs
2,000 for this in Mutual funds with SIP and this should be possible with Patience . He can take
moderate risk , but he thinks that equity markets are too risky and its something he should be away
from . He is a fan for Endowment plans and traditional Bank Deposits , So he invests in these two
instruments . He generates Rs 15 lacs from his Fixed deposits (before tax) and Rs 13-14 Lacs from
Endowments plan with his 1,000 investments in each of them .
So at the end he has total of less than 30 lacs as Retirement Corpus . He has 30% of what he needs
at the end . What are the issues here? He has to Compromise with the life Style and he cant enjoy
his Post-work life as he wanted because of severe financial pressure . Because of fear and
reluctance of taking "required" risk , he has done un-repairable damage to his financial life .
Read-Error
Conclusion
Its very important to take the investments with our risk-capacity , taking high risk can lead to
situation when our returns are less than expected . Because of greed we sometimes take extra risk
and only concentrate on the rosy picture and forget the part which looks bad . Its an Irony , but most
of the people think that somehow there are less chances of bad things happening to them .
The same way , taking too low risk can lead to under performance in returns and hence after you
factor in Inflation and taxes , you may be in a financially fatal situation , you might have lost all
your life , believing that you are gaining (like in the example above) . Hence , You must take risk
which is required for meeting your financial goals and also which you can take if things go wrong .
Taking Over-risk is same as taking Low-risk . The best way to find if a Product Suits your Needs or
Not is to Find the GFactor of that Financial Product .
Q. What do you think about "Required Risk" , How should a investor estimate how much risk one
should take ?

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Monday, July 13
Some Nice links to Read
• Some trading Wisdom
• Myths about NFO's
• Process of Transition

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Posted at 11:36:00 AM 2 comments ShareThis
Sunday, July 12
Presentation for Newcomers in Personal Finance
Below is the presentation which i gave to the new joinees in my company . The presentation is
targeted at people who are totally clueless about Personal Finance and taxation .The Agenda is
Basics , Section 80C , HRA , LTA and Medical Exemptions , Tax Calculations , Tax Slab and
example , Power of Investing Early , Understanding Equity and Debt , Investments Options, What
is Insurance , Insurance Options , 4 most important things .
Presentation for Newcomers in Personal Finance
(Make it Fullscreen if you want)

View more presentations from manish.pucsd.

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Friday, July 10
A Perfect Example of ULIP Misselling
Recently I saw a perfect example of mis-selling of ULIPS . One of my
friends parents gave their money to a close friend who was working for
some Investment firm and assured them of doing great investments on
their behalf . The total money involved was more than 10 Lacs . I don't
know what else he did , but he bought a ULIP from there money and its
the perfect example of mis-selling here . Lets see in detail .
So this agent buys a Canara HSBC ULIP .

• The total premium yearly was around Rs 3 Lacs .
• Premium Allocation charges are 48% in the first year.
• The policy was stopped after 1 yr by the Family .
• The Allocation chosen in the start was 70:30 (Equity : Debt) .
• Charges were not communicated while taking the policy .
• No statement was sent them for next 8-9 months .
So may be they were not aware of important questions they should have asked a ULIP Agent .
Some Points
1. Now 48% goes in Premium Allocation charges , Rest of the money will grow at moderate
return , because it was mix of bear and bull market which the money was invested .
2. Why was it invested in ULIP first of all and that too Rs 3 lacs as premium !! . This is one of
the costliest ULIPS in market and has to track record . Why was family financial needs not
considered before investing ? Why was their risk-appetite not considered ?
3. What kind of agent is this ? He takes advantage of trust and invests in something which
gives him maximum commission . There was no proper communication about charges and
no statements reached them on time .
What is mis-selling here ?
Giving "Wrong-Information" is not a big issue, the bigger issue is not giving "any information" .
One of the reasons why this kind of things happen is lack of accountability on agents side . You take
the product and sign the documents means you are responsible for your decision. While that is true
legally , its totally unacceptable morally .
The only thing the investor can do here is make an issue out of it and tell the Insurance company
that's agent mis-sold the policy to him and did not tell him about the charges . Worst thing is
investors don't even know about the "Free Lookup Period" , which is 15 days from purchase of
policy before which Investor can cancel the policy of they don't like it or change their mind .
UPDATE
This is an update after my friend Rishi , whose case we are discussing commented on this article , I
am putting up some more thoughts in this below . In case he takes some legal action on this matter
.I can think of following things which will be useful and important to quote .
1. As everything was done legally , documentation and signatures taken from investor
etc etc . The one thing which can make your case stronger is "explaination" from HSBC
people that on what grounds "that Ulip" suited your needs . How did they come up that
this ULIP was the best choice for your family , i hope being the "trusted" and "portfolio
managers" they think of your profits and hence they must have figured out why this
ULIP was the best in the industry for you guys .
2. How do HSBC products best for you people (i hope 70-80 products they choose were
HSBC products)
3. per IRDA "it is the moral obligation of the insurer to maintain the ethics and spirit of
business across its workforce" . The mere fact that premiums were stopped after 1 yr
and now your people are not happy with this shows that obviously you people were not
informed well about the cost structure in the start .
Finally this is more of a matter of "Unprofessional Behaviour" than mis-selling per se . I
am not sure how much HSBC will help you , as they generally pass the buck on "agent"
and "investor who invested" , You might have to take this case with IRDA . You must
first talk to Bank , agent etc and then after you are not satisfied with them , you should
go complain at the IRDA ombudsman : http://www.irdaindia.org/ins_ombusman.htm
The ground of plea should be based on monitory + psychological loss" .
You can read here Confession of an Insurance agent in his own words
Please share if you think there is a good way for getting justice on this matter . Your comments are
valuable ? Should this is taken into court ?

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Monday, July 6
How to Start in Stock Markets
This is the 4th and last part of the series on Stock Markets articles Newcomers.
In other parts we discussed some important things which newcomers should
know when they enter Markets. In this article we will see how a new comer in
stock market should start. Go through other 3 parts before this to get maximum
out of this article .
Part1 : Why Stock Markets Attract and Look Easy

Part 2 : Understanding What exactly you want to do in Stock Markets
Part 3 : 8 most Important Rules in Stock Market
"Small babies like Teddy Bears, and Market Bear likes Babies (newcomers) in Stock markets"
There are 5 things a new comer has to do , I will call it CLOPS model of starting in Markets .
• Calm Down
• Learn
• Observe
• Practise
• Start Small
This model of learning is totally obvious and logical and applies to all the areas of life. Stock
Markets are no different . Lets see each of them separately and what they mean in Stock markets .
Calm Down
The first thing a newcomer has to do is calm down and not rush . Just be where you are . Most of
the people come in stock markets and its totally a new place for them and every things looks like a
great "get-quick-rich" opportunity to them and they want to make most of that once-in-a-lifetime
opportunity . They don't know its every-day thing in stock markets. Markets are like a wonderland
for them. Markets are no going anywhere and its more true for the opportunities they provide . So
the first thing is to just calm down and do-not rush to get in, There are other important things you
have to do before you get-rich-quick. most of the mistakes which newcomers do is mainly because
of excitement and getting in without preparation , not because of lack of skill or because of there
abilities . When you calm down first and don't get excited, you are doing an important thing , which
is not jumping in without thinking and making yourself ready for another important things which
are discussed below.
Learn
The next step is to Learn , Learning is an ongoing process which will never stop as far as Stock
markets are concerned ,but before at the starting level you need to learn lots of basic stuff , Read
how Stock markets are structures , what are different indices , what is Nifty and Sensex ? , What are
the factors affecting markets, How do analyse a company , what are important things to consider
while investing . Read books , Read blogs, Read anything you can get on the subject. Some of the
good resources are
Books for Value Investing (Thanks to Rohit Chauhan to provide the names)
• Intelligent investor by Benjamin Graham

• Common Stocks and Uncommon Profits by Phil Fischer
• Warren Buffett Way by Robert Hagstrom
Blogs for Value Investing
• Rohit Chauhan
• Shyam Pabbati
Books for Trading
• The Psychology of Trading by Brett Steenbarger

• Come into my Trading Room by Dr. Alexander Elder
• The Disciplined Trader by Mark Doglas
Blogs for Trading
• Brett Steenbarger Blog

• Sudarshan Sukhani Blog
• Timamo Blog
Observe
After learning, the next thing is to Observe the markets. See markets movement, watch how prices
are behaving on each news or with volumes , see what kind of patterns are developing on charts and
does it behave every time in almost same way. Look at how market behaves in relation with Nifty
PE in this post .
When you observe things , you will develop some understanding on relationship and you can
validate those with what you have learned so far . A good amount of time should be given to this ,
markets have different faces and you need to see all the faces , just one good up move is not enough
, see at least all different kind of moves . Up-move , Down-move , trading in range . All of these in
different time frame .
You can actually start this early and do it side by side your learning . Collect charts for each day for
later reference so that you can see it later . If you know some programming , make a small program
which can download the charts from yahoo customised to your purpose . I have downloaded 15,000
daily and weekly charts for all the Nifty , Midcap stocks and Asian Indices. I can go back to them
and test any of my strategy on those charts . Keep History to learn about the future :) .
Practice
Now come the fun part and very important part , Practicing what you will do in real . So you have
learned things and observed things , now is the time to practice . Before you try out anything in
stock market with real money , just see if you able to make any money with practice or not . I would
recommend just have an excel sheet and put all the transactions there like
- Buy price
- Sell price
- Profit
- Profit percentage
- Time of holding the position
- Average Loss per trade
- Average Profit per trade
- Average profit per trade
These are the statistics you should keep and see how you are progressing each week . Don't
concentrate on each trade too much , better have a weekly target while you are practising . I would
recommend at least 2-3 months of practice . This step is important because when you get into
market to trade , its totally a different thing . Your reactions to markets movement will be too
different than what you had thought . If you jump in markets without practice, you will do lots of
mistakes . Better practice before getting in real . Important thing here is that even with practice
(without money) . It wont help you a lot but will give you good idea of things . The fun part comes
when you start with money , then you truly get idea of your behaviour :) . Anyways this is important
.
Some people think practice is taking all the time and they are loosing all the money, which they
"could" have made . this is a wrong way of seeing things . though it looks like a opportunity loss ,
you are in learning mode and the best part is that you are not "loosing" anything and getting ready
for making money . There is a chapter on Practicing from a book "Enhancing Traders
performance" on this post article by Brett Steenbarger , download it and read, its copyrighted
material so i cant put it directly here .
Start Small
Now after you have learned things , Observed things and Practiced , here comes the last part ,
Starting Small , Start putting money in markets in small quantities , Grow gradually . View your self
as a small baby who has just born , first start moving , then crawl , finally stand up one day and
walk , once you can walk with speed then try Marathon . The same thing applies to Stock market .
But most of the new comers just want to win the marathon and start running fast without
understanding that there body is not ready for marathons . they need to first know how to crawl and
they want to win marathon .
You will fall a lot of times , have losses and make money too . But if you don't start small , one big
loss will wipe you out of markets . In the start it would be difficult for you to control your losses ,
have string of losses , the best way to tackle the situation is to start small and put little money in
markets , so that even a series of bad trades don't hurt you much .
lot of people may go for learning and practicing part , but when they start with real money , they
start too big , and that's because of there over-confidence that are now ready to make money. First
crawl baby, Marathon is long way to go . Make yours legs healthy first, then dream of running .
Conclusion
Each and every newcomer in market should understand that Stock markets are places and from
centuries , people are trying to make money from it consistently , but very few people are successful
, this profession has very less success rate if you compare it with other professions like Medicine ,
Engineering , Computer Science etc etc . There has to be some reason why you need to give time to
it and learn things here . Take it as another professional course like any other and work hard on it . I
think one should seriously give around 2 yrs for learning purpose .
See it as a career , not just another place to get-quick-rich, that doesn't happen in Stock Markets . Its
a gradually getting rich place rather than get-quick-rich place . There is a famous quote in markets
that "There are old traders and bold traders in stock markets , but not both" . that's true
Launch of Jagoinvestor mobile website

Good News
Now you can read all posts of Jagoinvestor from your mobile also , The mobile version of
Jagoinvestor.com is http://jagoinvestormobile.mofuse.mobi .
I have not tested it yet and not sure about the issues involved with it . please try it out and let me
know in comments or mail me about the issues if any . I am sure this will add value to Readers .

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Thursday, July 2
Is filing Tax return mandatory ?
A lot of people are confused about this simple question of when to file
your tax return , In this short article lets see what are the conditions
under which you need to file your tax return . People say that if you
don't have to pay tax , you don't have to file returns which is not true
totally . Lets see the simple rules .
Rule : You have to file your tax returns if your Total Income for
the year exceeds the exemptions limit . That's it !! , This is the
only rule which applies .
Exemption limit can be different for male (1.5 lacs) , female (1.8 lacs) or senior citizen (2.25 lacs) .
So if your Total income for the year exceeds your exemption limit, you have to file tax . Do you
know how to calculate your tax ?
Should I file tax return even if I don't have to pay any tax ?
Dint you read what is said above :) . The only rule is already mentioned above . You don't have to
pay tax . this can happen in two cases .
Case 1 : Income itself is below exemption limit
In this case you don't pay tax and don't file your Returns .
Case 2 : Your Income exceeds your Income , but not taxable income
Though your Income exceeds your Income , but After all the exemptions and deductions
like 80C investments , HRA , Home loan interest exemption etc etc , your taxable
income is below your exemption limit . In this case you dont have to pay tax , BUT !! ,
you have to file tax returns because your income (not taxable income) was above the
exemption limit .
What are the other cases when I have to file the returns ?
There are other cases also when its more than paying tax . lets see those cases
• If you have some form of losses carried forward in subsequent years to write off against
profits in future , in that case its obvious , that you will have to file a return so that you can
give this information .
• If Govt itself gives you notice to file tax return , it may happen that you are cheating this
nation and making black money , then tax department can ask you for details and you will
have to file tax return .
• If you want a Tax refund because of TDS (Tax deducted at Source by your company) . This
happens with people who do part time jobs for some months or with Interns in the company
who are there for 3 months or 6 months and TDS is cut . So in order to get back the amount
you have to file a tax return .
See some videos on Mumbai Terror Attack , they are awesome .
Read more article related to Tax here

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Monday, June 29
Can you live with 90% of your Salary
important question . If you get a salary cut of 10% and you have to live with 90% Read-Error
Answer this Honestly . Don't rush , think about it and then answer this very
of your salary , how will it affect you ? In this article we will see some important
insight on spending habit and psychological issues .
Most of the people do not save anything at the end of the month and the biggest reason is that they
are not left with anything (as they say) . "Supply creates its own demand" , This applies to Personal
spending also . when we have money in our hand we will come up with all the reasons why we have
expenses and why we cant with any money less than that . Answer these following questions .
If you get a salary cut by 10% , will you be able to

- Pay your Rent
- Meet all the household expenses
- Pay your children fees
- Spend on all the important things like Entertainment , eating out , occasional
splurging etc etc .
I can bet that most of you will have answer in YES !! . If people control and prioritize their
spending , It totally possible to live in 90% of salary. Just close your eyes and imagine a situation
that you are now earning just 90% of your regular salary . Small savings can make up large chunk
of investments . If you try to answer the above questions , the answer would be a YES for almost all
of you . There can be some exceptions , but i am talking about majority .
For some people , they may require cutting on totally useless stuff and reducing expenses on
something which can/should be reduced . Some of the examples are
• If you see go out 5-6 times a month , reduce it to 3-4
• If you see 5 movies a month , reduce it to 4
• Anything where you can do with less spending .
Does saving 10% means that you start living a Frugal life
Please understand that Saving money does not mean depriving yourself . The only thing i am saying
is We Indians especially in Metro cities have slowly started going the American Way, ie. Spending
more than what they can earn. From last couple of years , we are using to much of credit cards in
wrong way .
We are a nation which saves but do not invest properly , and now we Indians have started spending
like never before . Spending is good , Spending on useless stuff or stuff we can do without can be
like cancer . It will not hurt you immediately , but kill you some day .
Now after you have realised that we can really live with 90% of our salary , what can we do with it .
SAVE IT !! , what else . I believe (and i can prove) that saving 10% of your salary is only what you
need to do to achieve all your goals in Future , provided you Start Early and Have realistic goals .
A person who is 25 yrs old and earning 40,000 per month if saves 10% will his retirement(60 yrs)
would be having anywhere from 2.3 crores to 6 crores if he earns anywhere from 12%-16% in long
term which is totally acceptable . See how to calculate this in this video .
What to do ?
Next time you get your salary , take 10% out of it and deposit it in some other bank account . Just
try to see if you can do with 90% of your salary . I bet you can do it . Saving 10% of your salary can
have drastic effect on your investments . You can create nice wealth using Equity in long term .
One of the readers Ramjee comment is worth notice . Please see his comment .
That was on the bulls eye. A little bit of decrease will not effect lifestyle much, but has a
lasting impact on your wealth. I have an automated schedule put to transfer 15% of my
salary (a fixed amount every month,which is revised if sal.changes) to another account.
at end of 6months it feels good to see the lump sum which can go in for further
investments. "
What he did is worth appreciation . I hope people learn from him .
Conclusion
We dont save because we think we cant save . Whereas if you try its totally possible . Just to try do
this next month
- When you get your salary , take 10% out of it and deposit it in some other account and try to live
with 90% of your salary , see what all your are missing and if you are facing some difficulty or not .
To see more tips on savings and spending , you can refer to Ramit Sethi's blog .

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Saturday, June 27
Ask a question from Jagoinvestor
You can use this Form to ask me any Financial Query you have . I will try my best to reply to
it .
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Friday, June 26
8 most Important Rules in Stock Market
In this article we will discuss 8 key points which a new comer has to understand . May be you
already have all this in mind and understand them at subconscious level, but lets go through them
and discuss these very important points . This is part 3 of "How a newcomer should start in Stock
Markets" series , Read Part 1 and Part 2 Before reading this . We have some cosmic rules in Stock
Markets which if broken will eventually ruin you someday if not immediately . Lets see them very
briefly.
Don't put all your money in stock markets
Never Ever, put all your money in one go in stock markets. If things go wrong you will be ruined
for ever. If you have 50 Lacs, and you choose to put all your money in markets because "you are
sure that its going to double in 4 months" , You are also saying that "I am ready to get ruined if this
crashes and goes down to 10 lacs.". Most of the people like to see the first picture but don't expect
second one to happen even though probabilistically the second one is more likely. Better look for
"low risk-or-good" returns, rather than "fatal-or-exceptional" returns. A money which you want to
throw in trash can be used for such high risk Investing or trading.
Cut your losses Short
I know telling you this wont make sure you follow this. It takes time to understand this by making
mistakes over and over again and learning from that . But still, "Cutting your losses short" is the
"Rank 1" Rule in Stock Markets, one who can master this single rule can rule markets. When you
start making losses , your emotions come into play and it says to you "Its coming back and once its
back to Rs XXX , I will get out". Don't listen to it . The simple rule is "You were wrong , accept it
and get out and look for something else" and its damn to tough to understand this in start. Mistakes
in Stock markets are fantastic if you learn from them . They are more valuable then the right things
you do in markets.
Getting your priorities Right
This means having clarity about who you are , what you want to do in markets , Read part 2 : "
Understanding What exactly you want to do in Stock Markets" for this .
Do not fight the Trend
We know that markets move in zigzag fashion, up-down-up-down like this and its true. But some
people wire this in mind in such a way that they always try for force market to reverse from its path
and justify that it moves in up down fashion . If markets are going up, in their subconscious mind
they feel like markets will now reverse "because they move in zigzag fashion" and hence it should
now reverse, this belief entices them to invest or trade in opposite direction. The interesting thing is
that people don't understand what encourages them to go against the trend, My one and half years of
trading experience(not very beautiful one) tells me that this is the reason why we do against the
trend. And once we control this, it can change our luck . There is no luck in stock markets ,its your
thinking . "Change your thinking, your luck will change"
Everything is Probabilistic here
"Buy RELIANCE above 255 , Target 273 , Stop loss at 245" . Now our Mr. Newcomer will read
this in newspaper or listen it from the GOD a.k.a "Markets Expert on CNBC" and take the trade,
things will go weird or may go the way predicted . but most of the times things will go wrong . He
will be wondering who is wrong ? Market ? That expert on TV ? His Dog ? Mr Obama ? who ? Will
will blame everyone in the world but not himself ,He will never look inside himself. Everything is
probabilistic here , Out of 100 times , things may work 60-70% (depends) of time and not work rest
of the times . When it does not work, you have to control yourself and accept that its not working
rather than forcing markets to work for you.
Don't listen to Stock Markets Experts on TV
Why do I say this? Markets "Calls" are least important things in Stock markets (i believe) , and you
only get that least important information from TV experts . What you don't get is vital things like
psychology to trade , Money management rules, Discipline to follow every time you take the trade .
Those calls are in isolation , They are not generated by a consistent rule , you can get calls from
here and there and all of them will be kind of random to you . Other problem can be that you don't
know the time frame of the call . If you don't understand all this what I just told , the easy way to
understand is to answer this
• "If listening to TV experts was really worth , Why am I not making money"
• "How many people do you know who make living or earn exceptional returns by
trading what experts tell them"
At last , the point is not that there calls and advice works or not ? They may work , but not for you.
There is lot more than getting calls and acting on them . Another important thing why you should
stay way or listen less to them is because most of their calls are for "forcing you to trade more" ,
which will eventually generate more brokerage and commissions for trading companies , Read this
article from Shyam Pattabi to understand more on this.
Question : Why do experts give more of BUY calls and very less of "SELL" calls My
Answer : When some one "SELLS" , he is out of trap , he is out of stock market , he
pays commission once . But when Someone "BUYS" , he is trapped in markets , He
already paid once and has to pay one more time to get out , so SELL = Commission 1
time and BUY = Commission twice for sure :) , Ohh.. Did I discover something here :)
Have realistic Expectations
One of the important reason for failure in stock markets is unrealistic goals , you see 100% made in
a week , 50% in a year , 10% in a day , and you think like this , If 10% is possible in a day or a
week . than 100% in a year is a child's play OR you think like if I buy this I will sell only after its
tripled . once again I say "We learn from History that we do not learn from History" . Have you
seen what is the best long term returns from stock markets all over the world . That's around 15%-
20% . That's it . I am not saying that you cant get 50% in a year ever , you will get it and everybody
gets it , but sometimes . Over long term you should have expectations of 5-10% more than what
safe instruments return or have a target of 4-5% more than what markets give . So anywhere from
12%-20% is good return to expect from long term . In short term there will be chances where you
get exceptional returns like 50% in a week or 500% in a year . But let them come to you , dint force
them to happen . Unrealistic Expectation force us to meet them by hook or by crook and that when
we do mistakes and take unnecessary risk to achieve them and burn out hands badly .
"Want to understand markets, have a girlfriend and try to understand her psychology,
People who are already in relationship (males) have an edge I think as Markets and
Girls are very much same"
Be ready to Make mistakes and Learn

Some of the best Traders and Investors who are successful today and are multi-millionaires didn't
become one overnight. They Failed miserably in Markets and but never quited . They learned,
learned and learned from there mistakes. Markets like Life give us opportunity to make mistakes
and learn. As I like to say "Making Mistakes in a privilege which unsuccessful people don't get in
life". Making mistakes is Great, if you are ready to learn from them .
Part 4 : A small Guide for newcomers in Stock Markets
Don't forget to comment on which one was your favorite and why ? I am sure we can learn a
lot from individual comments :)

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Thursday, June 25
Ebook on Basics of Technical Analysis
I came up with the first ebook on "Basics of Technical Analysis" . For now I have used the data of
my earlier posts only for this ebook , but it has all the data at one place and hence will be good for
readers who only want to concentrate on Technical Analysis . Download Link
Please let me know how is the Ebook and If you are finding any difficulty in downloading it . Also
feel free to share the ebook with your Family and Friends . No issues .
I hope to come up with another Ebook soon , on "Basics of Financial Planning for New bees" .
As always , Shyam Pattabi came up with an excellent article on his blog where he shares his views
on how mis-selling happens in India and why people fall in trap of "advice" and "calls" from agents
and other financial services companies , And his analogy on he post is excellent . I came up with
similar topic some days back on "Why do you need a Financial Planner" , have a look on that too .

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Tuesday, June 23
How to find out Best Fixed Deposit
I want to invest Rs 1,00,000 in a Fixed Deposit for 2 yrs in a
public Sector Bank . I come in 30.9% Tax bracket .Which is the
best Bank for me which will provide me the maximum return ?
How do you answer this question ? I also want to get all the
information about a Bank in India at a single place , which is the
website I should checkout ? In this short article we will see a very
useful website which gives you all the information on Fixed
Deposits and Banks in India .
How to find out Best Fixed Deposit
Have a look at http://www.way2goals.com/Project2/chooseBank.html . This website givecs

excellent information on Fixed Deposits based on different parameters given by you .
So if you want to invest Rs 1,00,000 for 2 yrs and 3 months in a Public Sector Bank and you belong
to 30.9% Bracket . It will filter out the the list of best Banks for you , which provide best return to
you , It will also tell you what will be your final profit after paying tax and what will be your gain
after factoring in Inflation (based on your expectation of inflation percentage) .
See the following screenshot for the above figures. (click to enlarge)
Read-Error
It gives tells you that the best Fixed

Deposit will be from "State Bank of Patiala" which offers 8% interest . It gives other information
like
• Maturity amount
• Interest Earned
• Interest After Tax
• Gain After Inflation
Currently The information on the website is updated twice a week .
Information about a particular Bank
If you go to http://www.way2goals.com/Project2/interestRatesByBank.html# . You can get all the

basic information about a particular Bank at one place . It will give you information about
• Website of the Bank
• Contact
• Interest Rates information for Different Tenures
Also checkout this link to learn some basic stuff . Way2Goals Software India Pvt Ltd is the
company behind http://www.way2goals.com/ .
Conclusion
This is an excellent tool dedicated to Banking Information especially information on Fixed Deposits
. Way2Goals is one stop destination for any information on Banking Sector , There is scope of
adding lots of things , but I believe it will come with time as any other thing in Life . Great tool !! .
If you come up with tools like these please share it with others here :) .
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Monday, June 22
Understanding What exactly you want to do in Stock Markets
Today we will discuss the important aspect new beginners must understand what they want to do
exactly in stock markets . In this post we will see what are the different types of things they can do .
In this first post , "Why Stock Markets attract and looks Easy we saw the reasons why Stock
Markets attract new people and the issues related to it . In this post lets explore what are the
different options available for you .
So, you are new to stock markets and you have heard lots of people make good money . You jump
in , open a trading account, read some blogs online which claim to have 80-90% success rate and
you jump in to buy some stocks . You make money or loose money , doesn't matter in short run ,
What you are concerned is long term is you are serious , if you are not serious , i would recommend
go somewhere else, if you take stock market as hobby , its a costly hobby i am telling you .
Below is the way how New comers behave in Stock Markets, click on the pic to enlarge .
Lets see some of the most

important things a new comer should ask himself/herself .
Who am I ? A Trader or an Investor ?
This is one of the most important question you have to answer .Are you are Trader or an Investor ?
Investor is someone who buys the stock for long term . Investing it self is a word which means that
you are putting your money in something and you expect it to grow over time . This has to take with
fundamentals , company's potential , long term prospects . Cash flow , profit and losses. See it as
owning the firm , where will u put your money in ? Its has to be something which will grow over
time from its current levels . You are not concerned about its short term movements .
If the company share prices are providing value over its current price , and it has consistent track
record , has good future prospects and many more things like these , you will buy it .
Trader on the other hand is someone who buys and sells the stock for short term . He is not
concerned about long term prospects of a company's much . He is more interested in what stock will
do in short term . His decisions are more based on news , technical analysis , gut feeling and things
like those .
What will i Trade/Invest In ?
Another important question to ask is What you want to trade or Invest in ?
If you are an investor you can choose from Large Cap companies (NIFTY companies) , MIDCAP
companies or very small penny companies . Each of them offer different risk and reward
opportunity . But you have to be clear with what you are going to invest in . Because once you are
clear with it , you can make some strategy for it and follow it , juggling from one to another will
lead to confusion and is not recommended .
If you are Trader , you have to choose from Stocks , ETF's , Futures or Options . Each of them are
different from each other and require specific knowledge about them . Its a critical factor to know
what you are going to trade .
Once you know what you are going to be involved with you have a clear road map and then you can
move forward to next thing .
What will be my Time Frame ?
Another important thing to consider is the time frame for you .
For Investors It can be very long term (10+ yrs) . Medium term (3+ yrs) , Short Term (1+ yrs) . It
depends on your personality , your ability and time to be involved with stock markets . Something
which works for a person with short term view may not work with long term view person . So each
time frame has its own advantage and disadvantage . you just have to choose one and be clear about
it .
For Traders , you again have to choose your time frame and your style of trading . You can be
• Positional Trader whose holds the trades from some weeks to some months
• Swing Trader (few days)
• Day Trader (Buy and Sell on the same day)
You can trade
• Stocks
• ETF's
• Stock Future's
• Index Futures
• Stock Options
• Index Options
Understand that each time frame is different and each will yield different result . Two people with
different view on market and different time frame can both make money .
Example :
You are bearish on market and you say that Markets are going to fall soon . I say that I
am bullish and markets may go up . for next 3-4 days markets move up and I make
money based on my judgement and then markets fall heavily and you can make money
based on your judgement .
So the important thing here is no one is wrong , the only thing is different time frame ,
So before listening to anyone you also have to understand their time frame . Many
analysts on TV channels will give calls like "BUY RELIANCE at 2130 , with target of
2200 , SL 2100" , Don't go and buy RELIANCE next day because you have no idea
about the time frame of the person , what is the analysis behind it and what are the risk
in it . It may work once in a while but its a recipe for disaster for long term .
Conclusion
" A person who wants to do everything eventually cant do anything "
Stock Markets have different kind of things and offer different ways of making money. If you are
not clear on how exactly will you do things , Its a tough game then , the first important step is to
Identify what you want here , just like in Life we must be clear of what we want to do and then be
good at it , learn about it and just consistently improve in it . the same we must do in Stock Markets.


Continue Reading
Friday, June 19
SEBI ends Entry Load on Mutual funds Schemes
Cheers !! .. SEBI now says :
"Investors will not have to pay an entry load for investing in mutual
fund schemes anymore. They will instead pay a commission to their
distributor or advisor directly and the quantum of the upfront
commission would be mutually agreed upon."
More Competition and hence little cheaper for Investors
Now agents will not get commission from Mutual Funds companies which means that now there is
direct competition among Agents , The agents can only ask for more if he really gives good service
to buyers else they have to settle with a low commission which will be decided by customers. This
means now we can bargain with the agent on commission percentage and if he is not ready with
what we offer him/her , We can look for someone else who is better and fits us .
Higher Quality of Service and more transparency in Market
Now agents will have to deliver much better quality of service and be more transparent with
investors as there bread and butter is directly linked with Investors and not Mutual funds companies
.
Lots of agents will now move to sell ULIPS rather than Mutual Funds
This move will also force lots of mutual funds agents to shift their focus on ULIPS and similar
products which have commissions linked with premium paid by customer rather than fees based
model like we now have in case of mutual funds . Means more mis-selling in ULIPS on the cards .
See the following New Video To understand
Update : thanks to income.portfolio for this .
AMC's are allowed to use 1% of redemptions in mutual funds for commision to

agents and all the marketing costs . its the money from exit loads which has to be
utilized in commisions and other marketing costs . Most of the mutual funds have less
than .5% of 1% of exit loads at this point and with this rule of SEBI , it can not go
above 1% in future . also it can be "upto 1%" . So this 1% will be used for every types
of costs incurred by mutual funds .
Now most of the funds will have exit loads only if investors getout in short term like 6
months or 1 yrs. Hopefully it will not be after 1 yr . so its a concern for those who are
short term investors . Its not a matter of concern for long term investors as far as i think
.
Also , Now there is no need for PAN Card for investing in mutual funds upto Rs 50,000
through SIP now , as per SEBI new rules .
I am out for a 2 day weekend Trek to Kumaraparvata , So no article till monday morning . I will
post the 2nd article of "How a newcomer should start in Stock Markets?" Read Part 1 Here .

Continue Reading
Thursday, June 18
User Reviews
Jagoinvestor is one of the simplest blogs that you can find to kick start your
investing.There is such a nice variety of posts that all individuals can get benefits from
it.Manish Chauhan the blogger behind it seems to spend a lot of time making his blog
perfect for his readers.It is no surprise that his blog is so popular.It is a constant
reference for all financial basics, explained in a very light manner.Whether you are a
blogger, an investor,analyst or just someone passing by it is definitely worth spending
some time here. -- Sumayya Shaikh
Jagoinvestor is a great blog on investing. It is extremely rich in content, some of the

posts are written extensively. The interesting part of this blog is most of the queries are
answered from different posts present here itself. And by the way he’s a great cook…so
you can expect a treat J -- Charu Gupta
Jagoinvestor blog is an excellent one stop destination for understanding basics on a

variety of topics in money management and stock markets.The content is presented in a
way that is easy to grasp avoiding the complex lingo that usually scares away
readers.This helps in a big way to get those crucial money matters fixed in one's life
without becoming too dependent on other advisors. -- Saif Shakeel
This is one of the best blogs i have come across which explains the nuances of financial
planning and investing in a way which everyone can understand.Especially the articles
on financial planning, compounding power of money and endowment plans are real eye
openers. This blog really help me avoid many pitfalls and I have educated my friends
also.In a nutshell ,it is a one stop blog for anyone who wants to reap good harvest for
their hard earned money. Keep going Manish !! -- Swathi Kota
This is a great website ! Thanks for all the information. This website has provided a
wealth of information for me and i really appreciate it and look forward to learning
more. Now i know no agents can fool me anymore. Thanks Manish for the great job. --
Anu Lopez , Dubai
Discover tips on saving money, investing smartly, managing your finances and getting
the most for your hard earned money from the Smart Investor blog by Manish Chauhan.
This would be the one website I would suggest to anyone who is new to investing or
just starting up. -- Skandhakumar
It is a must read for the people who want to plan their personal finances using a range
products available in market.You would be wrong if you think it is a stock market blog
.The title 'Smart investor' perfectly suits this blog -- Sandip Naidu
I just happened to see Manish's blog few months ago accidentally while reading other
links in famous TA analyst. Manish brings out very simple but important issues on
personal finance, stock market, insurance, interest rates etc. I am an Accounts Manager
by profession but i never looked in to these aspects in my personal financial planning.
After following his blog regularly i could review my financial planning and advise my
peers. I appreciate Manish's efforts -- Venkateswara Ravi Prasad

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Wednesday, June 17
Subscribe
Why to Subscribe ?
Most of the people come to an awesome site or blog and they read some good stuff and like it that
time thinking they will come back again in future . But its very rare that you will remember all the
websites you came across . Book Marking it will also not help because its you who need to come
back and you may forget and miss all the awesome content a blog has to provide . So you should
subscribe to it to get notified when there are any new contents on your favorite website . Make sure
you do not miss all the future articles . Subscribe now through RSS !! Read what is RSS ?
Please spend 2 min in Registering yourself with Jagoinvestor .
How should you subscribe to Jagoinvestor.com ?

• Email updates
• RSS Reader
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• Google Groups
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Tuesday, June 16
Important Links
Insurance
Bimaworld
Insurance News
Continue Reading
Why Stock Markets Attract and Look Easy
This is going to be an important and useful series of article . Today we will discuss how a new
comer to stock market should start . In these series of article we will discuss following things .
• Why stock markets attract and look easy
• Understanding what you want to do exacty
• What are important things when you are in stock market ?
• How a new comer should start in stock markets ?
Why it Attracts ?
You must have heard lots of stories about people who got millionaire over night or in a short span of
time from stock markets, there are two kind of people who make money from stock markets
- First kind are the people who make money because of luck. They buy some thing , it
goes up and they think it was your skill . Next time they buy something again and
wooo!! .. it makes money again , and now they are the king !! . Then comes one day
when there "best time in the market" is over and they start loosing money , this time its
"bad luck" as they say !! and they keep on trying and trying to prove that they are
knowledgeable . At last they go bust and return from where they came from . Smart
people in this category are those who make money once or twice because of luck and
don't come back , I appreciate their smartness .
- Second kind of people are those who are real game players , they have done their
home work , failed lot of times , learned from their mistakes and worked hard to make
money . They know the rules of stock markets and take it seriously . They are successful
traders or investors .
People hear that lots of people make lots of money in short span of time from stock market and how
easy it is to just open your trading account , choose some stock , buy or sell and magic !!, you make
money . Far from truth !! .
This thinking that "Lots of money can be easily made from stock market without much hard work"
is the main reason why stock markets attract lots of people .
Why it looks easy ?
"BUY OR SELL" , that's all you have to decide ? Either you will Buy some thing or you have to
sell something , One of the renowned trader Larry Williams says this is the reason why most of the
people think that its an easy thing to make money in stock market because they have very less
decisions to make ie. BUY or SELL .
This is a human psychology which tends to believe that anything with less decisions is easy and one
can do it . Everyone thinks "I am different" , "I know all these people where not able to make
money , but i understand things , and I can do it" , this thinking is appreciated . but , untill it
becomes over confidence . its true that you are different and you can do it , but each and every area
has some ground rules and unless you follow it , its almost impossible for you to succeed.
What you must understand ?
You have to understand that you are a newbie and a small player , a new born baby ,who cant even
crawl in world of stock markets, but dreams of running a marathon and that too on one leg ;) . Each
profession needs specialization and experience and Making money from stock markets is no
different , Just like becoming a Doctor, Engineer or anything like that demands extreme study ,
experience , knowedge and other things specific to that profession , stock market also demands that
, those people who want to make money without doing it can not sustain for long and will hurt
themselves very very badly . We will discuss more of this in 4th part of this article "How a new
comer should start in stock markets ?" .
Here are others Parts
Part 2 : Understanding What exactly you want to do in Stock Markets


Continue Reading
Reliance and RNRL , What to do now ?

RNRL wins the court case against Reliance Industries on gas supply issue. Now Reliance
will have to sell the gas to RNRL at a price lower than the government approved price of
$4.2 per mmBtu, it would affect their profit margins .
• RNRL shares gained 24% (heavy volumes)
• RELIANCE shares lost 7.5% (heavy volumes)
What should you do with these two shares ? Lets first see the charts of these shares for 3
months
RNRL
Read-Error
Short Term : BUY for short gain

Long Term : BUY
RELIANCE
Read-Error
Short Term : SELL below 2100 on closing basis

Long Term : BUY on Correction

Continue Reading
Sunday, June 14
Why do you need a Financial Planner ?
In this post , we will discuss why would you require a Financial Planner to do
your Financial Planning . Each and every area has its own dedicated professionals
. Just like we have Doctors , Engineers , Lawyers etc , we have Financial Planners
for Financial Planning . Don't confuse them with Mutual funds agents or
Insurance Advisor ? No !! .
Let us see some Important Points on why we need a Financial Planner ?
They see your Financial situation as whole , not in Parts
One of the major issue with our country is that here each thing is seen separately and not as a whole
thing . An Insurance Advisor will just suggest you a policy without understanding what is your
Insurance Requirement, They will just suggest your Insurance Requirement as 8-10 times of your
Annual Income , which is not so cool way of calculating the Requirement . Mutual Funds advisers
will just pick some Mutual fund for you without understanding your Risk-Appetite and your Future
Goals . They don't take care of your Tax planning , Estate Planning (wills and Legal Documents) ,
your Cash Flow etc etc .
A Financial Planner on the other hand is a Doctor of your Personal Finance , who will very closely
study each aspect of your Financial Life , He will understand your Risk Appetite , Your Future
Goals , your Future Needs and Requirements , your Insurance Requirement , your Investment needs
and finally come up with a Financial Plan and Recommendations which will take care of each
aspects in total .
Financial Planner will Educate you
Financial Planners will make you understand reasoning behind every suggestion he gives you , He
will make sure that you agree and understand everything , so that in future you can take similar
decisions yourself . Has any Mutual funds advisor told you why SIP is better for you Or Why You
should expect great returns in long term from Equity ?
Has Any Insurance Advisor told you What are the important things you should be aware of before
buying a ULIP ? Or why you you should avoid Endowment Polices for Long term wealth
Creation ? I doubt there are many of them giving any genuine information.
Financial Planner wants to make your Financial Life Better
Financial Planner goal is not limited to Insurance planning or Investment Planning . In fact a
Financial Planner is trying to make your overall Financial Life better and paving a smooth financial
path for you , on which you can start walking . Your overall Financial life is made up of different
components Insurance Planning , Investment and Retirement planning , Estate Planning , Tax
Planning etc etc . He will take care of all these things .
Financial Planners are Certified or under Certification and have deep knowledge
How many agents or any kind of Advisor you have seen is competent enough to advise you ? What
is there relevant experience in that field ? Most of them are just under there respective company's
Training .
A Financial Planner should be a CFP or undergoing CFP as his Study . CFP is the highest level of
certification all over the world in field of Financial Planning . You can also look for people who
have deep understanding of Financial Planning and are undergoing the course , As CFP is new in
India , there are many students who are under the learning process and are very good Financial
Advisers ( You can count me if you like ) .
They have good network base
Good Financial planners will have excellent network of Agents and Other professionals who can be
helpful to you . Like for example , If he recommends you to go for a Term Insurance , he may also
recommend you some company's Term Plan and may recommend you to some good and trusted
Agents , This will again be an important thing which you should consider . A Financial Planner may
or may not have share in the Commissions .
What is the general Process Financial Planners Follow ?
The first step they will follow is to get out each information out of you , which will help them to
understand your situation in depth, They will try to capture each aspect of your Financial Life
through a Questionnaire , Its like a Doctor trying to get every information about you to give you a
prescription . Then they will analyse each aspect and come out with the Plan and recommendations .
They will not simply come to you and recommend you some mutual fund or insurance policy
understanding if you need it or not . They will do your Financial planning in the same way as you
would have done yours if you were a Financial planner :) . They can also assist you in future in
monitoring your Financial plan depending on your agreement with the financial planner . Just like
you have your dedicated Family Doctor , see him as your Family Financial Planner .
See 8 steps of Financial Planning
I have enough knowledge about Products and Financial Planning, I constantly Read Financial
Magazines and Blogs and keep updating my knowledge. Why should I hire a Financial
Planner in that case ?
Great !! . If you are doing this , its much appreciated . You have to understand that
Financial planners are dedicated Professionals in that field , They have undergone tough training in
that field and may have much better detailed understanding nitty-grittes of Financial Planning
which you may lack . You may have good knowledge and understanding and you may your self take
care of your Financial life to great extent ,Its you who have to answer how your Financial Life must
be , "Not Bad" or "Excellent and Perfect !!" .
Also it may happen that its your myth that your understanding is very good , you may have good
understanding in one field , but what about other fields , A financial planner may also have good
competence in understanding of Financial markets , Derivatives Markets , Law governing tax etc ,
and these keep on changing and one needs to be updated with the information .
However If you great interest in Personal Finance and already have great understanding and
knowledge, You can enroll for CFP and start a new Career !! , Dont forget to keep in touch with
me !! :)
What about the Cost ?
Everything comes with the cost. Definitely, and if you need Quality , you need to pay quality cost
for it . But don't be horrified by the fees you pay to Financial planners , you have to understand
difference between Price and Value, Just seeing the numbers may make you feel bad, but when you
concentrate on the value it adds to your life, you will be amazed . If you pay Rs X as fees to
Financial Planners, you will save many times of that because of him .
Its like this, If you are sick , you pay for medicine .No questions asked !! . Either pay and save
yourself and be happy OR just live in hope of it getting cured by itself ,, but it will actually get
worse and one day kill you .
But my Financial life looks great to me , I don't see any issues , my insurance cover is fine, my
Investments are great .. ?
Baby, you don't know a lot of things in that case .. Life is waiting for you . There are many people
who think they are totally fine and at last they are diagnosed by Cancer and most of the times its at
the last stage , don't wait so long , get it checked now !!
My Family and Friends are forcing me to see a Financial Planner ? what should I do ?
No ! , You should only see a Financial Planner when you yourself realise that you need it . This is
an issue with our country , Most of the people do not know and do not realise that their Finances
Stink !! , Only when it goes out of control ,. they will realise that time has come , and by then its too
late. What is stopping you to at least get your financial checkup done by a Financial planner , He
will make you realise first that you need it badly and once you agree you can hire him to fix it .
Conclusion
Most of the Indians are totally clueless about Financial planning and only in recent years there has
been some awareness about it . Most of the people try to fix there finances on their own without
accepting that they are not competent enough to do it, they need a professional , Don't you pay to
Doctor or Lawyer or any other Professional , then why not hire a Financial Planner ? Go for it !!
Jago Investor !!
• Note : For people who need my Financial Planning services can mail me
Continue Reading
Friday, June 12
Consumer Complaints and Grievances
What do we do when we face some issue with Banks , Mutual Funds , Credit
Cards , Insurance Company and such things ? The first thing we do is to file a
complain with them for our problems and then we wait for their answer . What if
we are not satisfied with there reply and want more justice .
We can then lodge a complain with their regulators Ombudsman and grievance
cells . Let us see this in more detail .
What is Ombudsman ?
The ombudsman is the internal complaint department for socially responsible organizations
(governments, companies, societies, etc.). The ombudsman has complete access to the
organization's records and personnel, and the knowledge to understand how things work internally,
in order to investigate complaints made against the organization.
So we have Bank Ombudsman , Insurance Company Ombudsman and Mutual funds companies
Ombudsman etc .
When should you Approach Ombudsman ?
You should first contact your Bank , Mutual funds , Insurance company and file a complain with
them , Only after some specified limit of days , when you don't get any answer or satisfactory
answer you can complain with Ombudsman .
What If Obdusman do not reply or take Action ?
All the Ombudsman bodies comes under the purview of Right to Information Act (RTI act of 1995)
. They are legally bound to reply for any complaints made by them ,considering its as per the stated
rules .
Banking Operations and Credit Cards

Regulator : RBI
Local Ombudsman : http://www.apnaloan.com/home-loan-india/Banking-ombudsman-
area.html
Where to Complain : http://www.rbi.org.in/Scripts/bankingombudsman.aspx
Mutual Funds and Stock Market Related
Regulator : SEBI
Where to Complain : http://www.sebi.gov.in/Complaint.html
Track your Complaint Status at : http://www.sebi.gov.in/ComplaintStatus.jsp
Insurance
Regulator : IRDA
Where to Complain : http://www.irdaindia.org/ins_ombusman.htm
For more see : http://www.irdaindia.org/rti_act2005.htm
Note : Ombudsman are the next level of bodies to complain , first try to resolve matter personally
with the Bank or Insurance company which is creating problem for you .
Continue Reading
Dont underestimate Compounding power
announced to his people that whoever cured his daughter can marry the Read-Error
There once was a king whose daughter was very ill. The king
princess and ask for another reward. One young man came and cured
the princess with his family owned secret remedy. The king was so
happy that he anxiously asked the young man what else he wanted
besides marrying the princess. The young man pointed to a chess board
with 64 squares on it and said just put one grain of rice in the first cube
and two in the second, four in the third, and eight in the fourth, and so
on until the 64th square is filled up.
The king laughed and confirmed with him , if he really wanted rice grains and not GOLD !! . The
King did not realise what he agreed to at that particular time . By the time they reach 32nd cube , all
the rice reserve of his Kingdom was exhausted , It was staggering 214 Crores grains itself .. Each of
the subsequant cubes required the King to double up the grains . King had to ask other Kingdoms
for Grains and till he reached 45th cube , Rice Grains of all the kingdoms finished ... Eventually the
king had to handover his entire kingdom to this clever person . Thats Power of Compounding !!
Whats the Moral
There are many people in our country who underestimate power of compounding and benefit of
starting investing early in life . A thousand mile journey starts with a small first step . A huge
fortune is made by starting small .
At first it may look small , but with patience and discipline in investing a sizable corpus can be built
over long time . The secret of building huge corpus is to "Start" and "Keep doing it" .

Continue Reading
Thursday, June 11
Moneyworks4me.com, A Tool for Value Investors
This is a guest post by a fellow blogger Sumayya Shaikh , where she discusses how
MoneyWorks4me.com can be a useful tool for value investing . In this post she will introduce you
will the website and its features .
I believe moneyworks4me.com can be a great tool for hard core value investors who like to do
number engineering with company statistics .
Apna Sapna Money Money
We all dream about living a luxurious life, a nice huge house, good education,
etc. etc. basically a lavish lifestyle. Don’t we? What do we do about it ? Work
hard and earn money! So far so good…but what follows next, i.e. the big
question of what to do with our savings??? This question of “How to safely grow
our hard earned money?” usually leads to a lot of confusion in the first place,
tension in the second place and under utilization in the third place.
So what is the solution? Let me tell you one thing. The main objective here is to
fulfill our basic needs first (adobe, education, decent living, etc.) and then take
care of the luxuries (nice big car or a bike, expensive clothes, a lavish lifestyle
etc.).We have to understand difference between Need and Wants . So we just
don’t want our savings to grow safely but also give us a handsome return. Don’t
we? You should invest your hard earned money in a wise manner. We all know
this, but the question is how? Stock markets are considered to be the riskiest
and highest investment option. Note the word ‘considered’ I did not say it is the
riskiest option. Sounds contrary to the common belief? Yes, you are right. It is
contrary to what you’ve heard till now. The reason why it looks Risky it
Ignorance . To eliminate this risk of ignorance, we should educate ourselves.
Again it’s a big task. Don’t worry, there’s a solution. To make it simple, there is
an easy-to-use web portal – MoneyWorks4me.com.
What is it ?
This website will serve as a platform that enables individuals to be well informed
and take charge of their own investment decisions, thus making them an
independent sensible investor. The approach used in this portal is inspired by
the all-time-famous Value Investment methodology maintaining simplicity.
This website takes care of the issues I mentioned earlier. How? By means of its
EVALUATE tool - it provides distilled and precise information, uniquely colour
coded 10 year financial data showcasing a company’s performance at a glance,
easy to use calculator to arrive at sensible valuations.
It also has a sensible community ready to share its wisdom through Blogs,
Forums and Wiki reports. You also get three wise managers. I’m talking about
managers who’ll manage your Watchlist, Shortlist and Boughtlist and yet give
you all the control. You can do SIPs for stock investments by setting the amount
you want to invest each month in your shortlist manager! You don’t get simple
returns; you get to know the CAGR you earn on your sensible investments. And
this is not all. There’s a lot more. Hey did you realize that you’re getting all this
in one place? Isn’t it convenient?
For those who are new to the world of Value Investing, welcome aboard. Go
through An Easy Interactive Guide prepared especially for the first time stock
investors.
• They can first learn the method through a game and an interactive
module and then
• To Gain Confidence - Build a virtual portfolio of stocks to get confidence
• To Reap the Benefits for a Lifetime - Start with a small budget and
skyrocket on your growth path
Stock Markets have the potential to give the highest returns, because here your
savings don’t just grow, they compound! Those who know the magic of
compounding know what I’m talking about. If you’re not able to comprehend the
importance of compounded growth rates, I recommend you read a bit about it.
Boss, if your dream is same as mine, i.e. to make my money work for me and
grow big and huge, then what are you waiting for? Go ahead and make your
dream come true. Bole to apna sapna money money!!!
For any specific comments , Author can be reached at sumayya40071@gmail.com .

Continue Reading
Wednesday, June 10
Why to avoid investing in NFO's , Beware !!
Read-Error
Here comes a new NFO !!!
In this post we will discuss why one should really be cautious about
NFO's and why in general its better not to invest in an NFO . Have you
heard about NFO's and IPO's hitting the markets while markets are doing
bad ? Why dont we !! ? this is a question we must answer .
The reason why most of the NFO's and IPO's hit the markets when markets do extremely good is to
exploit the emotional buying of investors . Its a common thing that investors tend to get in in rising
markets then falling markets . So when markets are flying high , all kind of NFO's with fancy
names (some good funds and some junk funds) will hit the market claiming how different they are
and how they will be successful .
If you are a new reader , you may like to read some terms and terminologies
Understanding NFO's
No Proven Track Record
Every NFO will come with its own idea and logic, but investing is never easy and you can see true
colors only after few years . They can be success or failure , So why to go for something which can
either fail or succeed , Why not go for some existing fund which is already proven its mettle , which
has given superb returns over long term , has excellent management . These funds have high
probability to continue there performance .
Its like this , would you like to take risk of marrying someone you don't know or
someone who is already a good friend and you know him/her over years .
Cheap NAV of Rs 10
Most NFO's offer comes with NAV of Rs 10 , and the biggest myth of investors is that its a cheap
fund and hence better than a fund with NAV of 20 or 100 . NAV growth is nothing but growth of
investments and it does not matter what NAV is . Rs 10 NAV mutual funds and Rs 100 NAV mutual
fund will grow with same rate if there investment quality is same , there is no reason to invest in
low NAV fund .
Myth of High Dividend from Low NAV Fund
Lot of our "Educated" Agents will tell you that buying low NAV fund will help you in getting more
Dividend (if you choose Dividend option) , because Dividend is declared on number of Units held .
So you will get more units of mutual funds if you invest in low NAV funds , whatever he says is
true , but he himself does not know that Its investors money coming back to him and NAV value
will again go down by that much value . So in real money terms there is no benefit of dividend
option . See difference between growth and Dividend options
Agents will market is very well and try to push the NFO's for Sale
Everyone wants to make money !! , What else can be better for a mutual funds agent than an
NFO !! . Agents get High commission on selling NFO's and hence they will do anything for selling
it . They will spend money aggressively for Marketing as its taken back from Investors only , not
the AMC . Beware !!
Does that mean all NFO's are Bad ?
No , Every existing mutual funds was NFO once upon a time, If you go through the NFO offer
prospectus and you find it interesting and logical enough for you to invest in it , then you can go for
it . But just understand that only a handful of all NFO's become good funds , So out of 1000 mutual
funds , only a few like 20-30 will be extremely outstanding funds , So the decision is yours , Do you
want to take the chance ? Or you want to wait and let it show its true colors before you get into it .
Which is the new hot NFO in the Market ?
Reliance Infrastructure Fund is the new name in the market these days . All the things which I
talked above applied to this too . Before Investing in it , read about it in detail . I will provide my
short view on this .
Reliance Infrastructure Fund is a Sectoral Fund (Infrastructure) . This sector looks attractive over
next few years . The picture would be more clear after the Budget when we exactly know what is
Govt plan in this sector . If its a bad news , then the stocks in these sector will take a hit and
suddenly it can become a reason for suicide for its investors . Why not wait till budget then ;) .
We also read have some good Infrastructure funds in the market with proven record like UTI
Infrastructure Fund and TATA Infrastructure Fund . It depends on you now what you want to do ?
The Fund will also put money in derivatives segment , which can again make the fund more risky
and rewarding . Read more about Reliance Infrastructure Fund NFO details.
Conclusion : Investing in NFO's can be like shooing in dark for retail investors , the better idea for
them is to invest in something which had more probability of performing . NFO's can be extremelly
successful because of there unique idea or investing style , but its too tough to choose them
successfully . Better to avoid them .
Here are my 2 day trek pics , Have a Look . I am putting the best Pic taken by me :)
Before anyone asks , I must tell that its taken by a normal point and shoot camera :) , Its just a result
of Interest and Willingness to take some good pic + Macro Mode :)

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Monday, June 8
"Value Investing" vs "Growing a Tree"
Investments are like small plants , they need some time to grow .
Most of the people make mistake of not giving enough time to
their investments to grow . If you think about how you plant a
tree , and manage it well for years before getting the fruits out of
it . Making investments in shares and mutual funds is the same
way . Lets take each case and see the similarities between them .
Growing Tree
You take a small plant (baby tree), put it in soil and then water it , monitor it , take the weeds out ,
clean the plant and take care of pests which might be destroying your plant .It takes patience for the
plant to grow and become a full grown tree. Then it servers you with the fruits which you deserve
for your hard work and patience .
Imagine a different scenario now , You pick up a plant and put it in soil , 10 days later you go to see
it expecting you will get some fruits out of it . Obviously it cant give you any fruit and you think
that either something is wrong with the plant or soil . You take out the plant and put another plant ,
10 days later you come to see the plant again , nothing happens . you take it out and put another and
another and another and then you realise its not working . Now you think that the culprit is soil ,
you take the same plant out of the soil and put it at anther place which you think has better soil . But
nothing happens , because you are concentrating on wrong things . It will definitely not grow if you
don't give it enough time to settle , its root need to get hold of the soil , adapt to the conditions .
There will be different cycles of weather which will challenge and threaten the plant growth and
you will have to take care of those scenarios . But one thing is sure that you have to give enough
time to it .
Making Investments
When you invest in a share for Long term , the biggest mistake most of the
people do is to not give enough time for it to grow , If it does not move up
soon or as per there expectation , they tend to think that they picked a wrong
share , they sell it and again invest money in some other "better looking"
share . This keeps happening , the prices of the share moves up , then down
and this keep on happening . The volatile movements in share price gives sleep
less nights to the investor and makes them believe that it might go in loss and
hence its a good idea to liquidate it , and finally shareholder sells it and takes
the money out , then again buys some other share . This buying and selling
goes on and he never gives one share enough time to grow . I am not saying
that buying any arbitrary share and keeping it for long term will make you
profits . Picking good fundamentally strong stocks are a separate topic . here
we are discussing about the scenario when assuming the investor has put his
money in good stock , but he just needs to give enough time to let is grow .
Later if the investor sees back and analyses his previously picked stocks , he
will find that most of them has gone up or more than his expected levels . He
then realises that the only thing he missed was to give enough time for his
investments and sit back tight without doing anything .
Case Study
Imagine a person who invested Rs 10,000 in Wipro in year 1999 . What do you
think the stock prices were in next 3 months or 6 months . What if the investor
had sold the shares within a year because of a small loss or some good profit .
In 1 or 3 yrs he might have got excellent returns ,which is fine . But the best
returns comes when you give an excellent stock enough time . What do you
think the stock was worth for in 28-29 yrs .
Rs 10,000 invested in 1979 was worth 200 Crores in next 28-29 yrs . The pick
was good , no doubt . but it was the patience that was rewarded .
What is it difficult for investors to keep patience with there

investments ?
Since our birth , we are taught that life is about winning , getting right , not
making mistakes , being perfect . This has got inside our brains and its just not
acceptable for us to be wrong , we want to achieve success , being right .
When you invest in a share and it goes up in price, the first thing which comes
to every mind is , "I should book it now and take the profit, else it can again
go down and I may go in loss" . Actually in out mind we are saying "I should
be out of this investment , so that I can show others that I made a winning
investment, else I will make a loss and hence a looser" . Have you faced this
situation? , when you buy something at Rs 100 and it goes to Rs 99 . Its so
difficult to sell the share at Rs 1 Loss (that's 1%) . You just want it to come to
Rs 100 back and then sell , so that you are a winner ,and not a looser , but
you only find it drop to Rs 90 and then Rs 80 and so on .. you are just helpless
about it . Investments and Trading is not about Winning , its about making
money and loosing a little in case you are loosing . Stop thinking in terms of
Winning and Loosing !! . Think in terms of Keeping your losses at minimum
and once you are in profits , let it run till you find a reason to sell the share ,
Selling a share just because its in profit is not a wise thing to do , you can
make some profits out of it, but wealth is created by letting your profits run
and run for enough time .
Note : This article from me was also appeared on Valuenotes.com .

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Friday, June 5
Video Presentation on "Investing and Growing Wealth"
Today we will see a video presentation on "Investing and Growing Wealth" . This presentation will
be divided in two parts .
Agenda
- Importance
- Some Good Mutual Funds with Example
- Understanding Inflation and Risk-appetite
- Products Available
- Advantages of SIP and Why it makes Sense for salaried People
- Case Study with SBI Magnum Tax Gain (G) Mutual Fund
- Learnings and Main Points to Remember
Apologies for bad quality of Video . I am trying to find some good software for Linux , Help me !!
:) . I am out on a weekend trek to M M Hills to Naaga Male . So no post till monday now .
Note: I have already posted this presentation earliar on some post .

Value Investing by using Nifty PE
Let us see some analysis of current market conditions . Most of the
people are rushing to buy now for long term . but this may not be a
market to buy for long term . I am myself Bullish now , but for short term
not long term .
I would not be surprised to see markets rise by over 10-15% more over
next 1-2 months till the Budget . But sooner or later I expect
- A nice correction if this is another bull market .

- Bull rally coming to an end in the strong bear market
The simple analysis is with a simple and strong tool called PE ratio. PE ratio tells us how expensive
or cheap is the current underlying . In other words what kind of value does the market provide us ,
irrespective of the price .
Historically Nifty has been considered and shown instances of being oversold in range of 10-13 and
overbought in range of 20-25 . Nifty has had a crash after after getting in the range of 20-25 and
have rallied after touching the range of 10-13 .
OVERBOUGHT MOMENTS in Indian Markets
Read-Error
Click to enlarge , Data for last 10

yrs (Jan 1999 - 31st May 2009)
You will see that whenever nifty crossed 20 , It was time to be cautious . its not exactly the time to
go short sell , but at least book your partial profits and be cautious with further buying for long term
.
Current situation : As I write this, Nifty PE is around 21 . Its not a very good situation to madly
buy for long term . Its a time when euphoria is at high point and it can take markets a little further.
So you can jump in now with short term perspective , not long term !!, because markets may fall in
some weeks or months . Expect it . but dont force it !! .
To get any future Posts , why not Subscribe to Get Posts in Email or RSS Reader
OVERSOLD MOMENTS in Indian Markets
Who all missed the current Rally ? I missed it . there are two reasons , I am a trader not an investor
for long term (at least currently) . So I do not concentrate on it . But you could have not missed it if
you had read this concept earlier and had the guts to go against the so called "experts on CNBC"
who were talking about 5k or 6k for NIFTY some months back .
Read-Error
Click to enlarge , Data for last 10

yrs (Jan 1999 - 31st May 2009)
If you see the chart , you can see that after touching the PE levels of 11-13 , markets have rallied
back as it was too oversold !! . Again , just touching these levels of PE does not signal a BUY , its
only a signal to be cautious and make your mind for long side , and start the accumulation process
without fear . Markets will still make lower levels and experts on CNBC will still cry over economy
conditions and world coming to an end . But market rewards the "risk assumption" , not the actions
on obvious facts . You also have to decide how much money of your portfolio would you like to put
in stock market after considering your risk-appetite .
What can we learn from this PE Concept ?
"We can learn from history that we do not learn from History"
This is true for almost 95% of the long term investors all over the world . They do not learn things
,they do not do any research , they do not go and read blogs or tons of informational sites , they just
want tips from others and make money . the mathematical expectation of that kind of investing is
negative and cant work for long term. Lets develop a simple concept of PE based Investing . here it
is
BUY Signal : Once PE crosses below 13 .

When NIFTY PE reached levels of 13 , start accumulating the stocks and invest your
money in 4-5 installment over some months. Make sure that markets are going up and
down and moving in a range . If PE crosses below 11 , its a must BUY !!
SELL Signal : Once PE crosses above 20 .

Book the profit once NIFTY PE crosses above 20 , Don't book all profits at once . Book
it in parts . PE crossing above 20 does not mean markets has to fall , its only an
indication that markets may be oversold and now "smart people" will starting selling
there shares to mad public . Short sell the shares once PE and Markets start falling down
from PE levels of 20 . If PE crosses above 25 , its a must SELL !!
There have been cases of PE going up to 25-28 levels . That will happen at the peak of strong bull
markets like Jan 2008 . In very strong bull markets you have to understand that PE will cross even
above or below its extreme points . That's the risk part of stock markets from which not even GOD
can save you from !! :) . this is the time when your buying in parts and putting capital which you
can afford to loose will help !! .
Anyone who puts 100% of there money in stock market at once on one single time on a single bet
has a secret affair with financial disaster which he/she himself is not aware of . So dont put all your
money at once . Only put a part of your capital at any point .
Where do you get the PE data for Indices (Nifty and other Indices)
NIFTY data : http://www.nseindia.com/content/indices/ind_histvalues.htm
PE data : http://www.nseindia.com/content/indices/ind_pepbyield.htm
Note :
• I have divided Nifty Value by 100 to make the graph look the way it is . In graphs , so on X
axis if you see 40 , then read it as 4000 for nifty . but exact 40 for PE .
• PE value will be separate for individual stocks as PE ratio for stock can go up or down for
many other reasons . So if you are doing Stock analysis , see its historical PE values and find
some pattern yourself . Innovate !!
I have added sms channel with this blog , subscribe it to get updates on your mobile whenever a
new post
in there or I put some message for you .
Now if this time I don't see any comments , I will suicide and then no posts from now
onwards . please save me ! . and Who is gonna tell me how this now improved blog
looks like ?
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Surveys
Welcome to Our Survey Page
Please spend some time to take surveys which will add value to Jagoinvestor in Knowing things
better . Below are different Surveys , take one whichever you like .
• Hiring a Financial Planner Survey
• Registration with Jagoinvestor Survey
• Ask a Question to Jagoinvestor Survey

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Sunday, May 31
Short Review of few Mutual Funds
I did a short and crisp review of some mutual funds for a
friend . thought of sharing this here.
Franklin India Prima Fund - Dividend
151/208 138/157 61/75 are the ranks for 1 ,3 and 5 year .

Not a great one to cheer about .
Risk Grade: Above Average
Return: Grade Average
Tata Infrastructure Fund-G
Not a very old fund , but a good one . Infrastructure space can be a big hit considering 4-5 yrs time
frame and with blessing of UPA . should be continued . better diversify money in this space with
some other infrastructure mutual fund .
With 25% CAGR returns since launch , its looks good .
Franklin India Flexi Cap Fund - Dividend
Numbers look good , but there are better funds .
Birlasunlife Frontline Equity Fund-Growth
Extremely good fund in portfolio , with strong performance in all the time frame of 1 ,3 ,5 yrs and
30% CAGR return since launch , Better to stop Franklin India Flexi Cap Fund and redirect the
money to this one .
HDFC Equity Fund - Growth
Again a good fund to have in portfolio . Everything is fine .
What would I do If I were at your place .

- Stop Franklin India Prima Fund and
- Stop Franklin India Flexi Cap Fund - Dividend (5k)
- DSPBR Equity or DSP BlackRock top 100 or HDFC Top 200
- Increase your Exposure in Birlasunlife Frontline Equity Fund
- Share your 10k in UTI Infrastructure and Tata Infrastructure
Do you know difference between Divident and Growth options in mutual funds ?
List of 5 star mutual funds from Valueresearchonline .
General Recommendation
• If the investment is for long term wealth creation , dont go for Divident option
• Monitor and review your mutual fund once every 6 months .
• Not sure if you are allocating money in mutual funds after understanding your Risk-appetite
or not . Check that out . No Debt side ?
• Do not have more than 5-6 mutual funds
• Look at other sectoral mutual funds on banking and financial sector with long term view .
look at a video explaining how to choose a mutual fund .
Subscribe to jagoinvestor SMS channel to get updates on your mobile .
Disclaimer : Information taken from valueresearchonline.com and analysis and views are personal .
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Friday, May 29
Most important questions you should ask a ULIP agent
When an agent comes to sell you a ULIP product, you should ask following are the
questions you should ask him . Before doing any thing he should tell you What is a
ULIP . Following are 6 Important questions you should ask an ULIP agent before
buying a policy from him .
1. What are the returns offered by this ULIP ?
As per the rules of IRDA , an agent should only give illustration assuming 6% and 10% returns,
However If he says that in long term its safe to expect more than 10% , It would be fine . But if he
starts claiming that It "will" return 18% , 20% or million % returns , be cautious , He is not the right
agent .
2. What are the Charges in this ULIP ?
He should give you detailed Information on all the charges of ULIP ,the main one called Premium
Allocation Charges . If he tries to hide any Charge from you , I am sure its not because of his
dishonesty and no other reason . Ask him the company brochure mentioning the exact charges .
3. How does it suit my Risk Profile and fit in my requirement ?
Before suggesting you the ULIP , the agent should have asked you all the details about your Cash
flow (salary , Expenses) and your future goals with ULIP investment should address . He should
also try to understand if you can take the risks associated with ULIP . If he does not ask you these
thinks , ask him back why he has not asked you these questions . Get the word out of his throat .
4. How is it better than other ULIPS ?
Ask him what is unique with his ULIPS , make sure he does start all non-sense of Sec 80C benefit ,
high returns and all .. Every ULIP has it . Ask him what are the special features with ULIP and how
do they address your requirement . If he claims that his company ULIP is best and no other ULIP
can match it , ask him for references if any states that . Just a plain claim from agents will not do
.An agent must have enough knowledge to make you understand how to make best use of your
ULIPS .
5. How does it score over Term Insurance + Mutual funds combination ?
ULIPS are combination of Insurance and Investment product , There is no point in taking it, if it
cant perform better than Term Insurance + Mutual funds SIP . Switch benefits in ULIPS are the
main benefit in ULIPS. He must put pressure on that point , If not he is him self not aware of it .
Refrain from taking the policy if he starts claiming that returns from ULIPS will be much higher
than Mutual funds .
6. What was the performance during Market Crash ?
Agents generally try to put up rosy picture and hence refrain from disclosing the funds performance
in bad markets. If the fund has done bad , that is acceptable . Its investor responsibility to take care
of switching and asset allocation . So there is nothing wrong in performing bad in bad markets .
Agents will first try to avoid the confrontation , but finally may tell you that they did bad and
returns are very low . Ask him for exact number in return and try to find out how other ULIPS
performed .
My personal Experiences
I have never come across any ULIP agent who has tried to sell the product in a professional manner
. This has its own reasons like meeting Sales Target pressure or poor training to Agents. Anyways
,its not acceptable and can not be accepted . For so many years , Mis-selling is happening in India .
Conclusion :
Your hard earned money should go in proper investments . There should not be hurry in taking
action , So dont feel shy in asking questions once or twice or thrice , understand the product and its
suitability with your requirement.
No product is good or bad , its only bad or good depending on your requirements . So be informed
Investor and dont fall prey to Idiotic agents .
Dont do mistake done by tons of investors who took ULIPS for 3 years
- To save tax
- To make exceptional returns from Stock markets .
- To make them self believe its a happening product because it looks so complex .
Please share with me if you have taken ULIP for wrong reasons
- Do you think that ULIPS will have any success in future .. I feel yes
Continue Reading
Tuesday, May 26
Difference between Needs and Wants
Read-Error
One of the important aspect of Financial planning is spending money wisely .
What does it mean to spend Wisely ?All the money we spend can be
categorised in two categories of Needs and Wants.Improper handling of
money happens when you spend too much of money on your wants and not
on your needs .
The first aim should be to spend/save money for your needs and then take care of your wants . Once
you prioritise all your expenses/goals in these categories , its much easy for you .
What is the Difference between Need and Want ?
Needs : Need is something which is essential for you irrespective of your financial conditions
These are the things you have to take care first and only then comes other things which you can do
without .
Needs Example
- House Expenses
- Child Education
- Saving money for Retirement
- Medical Expenses
- School/College fees and expenses
- Family Vacations and outings (in limit)
Wants : These are things which you wish to have, but they are not above your Needs . For example
, A Car is a want , when compared to your Child Fees or Education saving . You can live your life
without car , but Child Education is Vital and cant be compromised .
Some people wants can be Need for other and vice versa . Its all depends on personal life style and
attitude .But the main point here is that You have to differentiate between your Needs and Wants at
short to medium time frame and Long term .
Wants Example
- Extra Vacation
- Expensive clothes above your normal requirement
- Expensive Car or any vehicle above your budget .
Note : Understand the point that , Wants are not something which you should avoid , but your
Needs can/should not be compromised because of your Wants .
Why is it Important these days ?
These days almost everyone lives their life in a unplanned manner , especially thier finances are
Unplanned . People spend first and think later/late about it . But money spent once will not come
back .
Once you prioritize things well and have a proper road map on your spending pattern , you can take
care of your Needs first and move towards your Wants .
Let us take a case Study
One of my friend spends his money in pathetic manner . He earns around 30,000 per month and is
already in job for last 2 yrs . He spends a lot of money with his friends on parties on weekend . He
buys branded shoes which he is very fond of . Great ... , He does not understand the value of what
small savings can do.
just before the year end , he asks me how can he save the tax and wants to invest some money .
On further enquiry , I come to know that this person's Parents are dependent on him (though he is
not sending any money at this moment to his home) . So he needs good amount of Insurance , He
has no savings till now . Finally he is not left with any money to even pay insurance premium this
year (2009), not invest any money in some mutual fund .
What is the point ?
This person has spend his money on all the things he wants , and nothing on his needs , which are
essential . He has violated fundamental rules of Financial planning which will affect his very badly
if some thing happens to him .
After you spend and take care of your needs fully , and you are left with surplus , I will myself
encourage you to spend your money on your wants like hell !! . But first comes important things ,
You can live without your Wants , but not without Needs .
Imagine you are going for Golf Games and you are not left with enough money so that you can take
your Family out sometime on vacations .
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- Follow me on twitter
- Please leave your Comments/suggestions/disagreements .
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Thursday, May 21
First Step of Financial Planning : Planning
This post will tell you why Taking action of Investment is second step , the most
important is the first step , planning it well before taking action . I have seen many
people pinging me about there investment plan or decision to take Term Insurance
or Investment plan through mutual funds for next 10 yrs through SIP.
I would like to congratulate them on there decision and action . They are ahead of
most of the people .
“A good plan today is better than a perfect plan tomorrow”
But is it enough ? Is that all ? Is that the initial step everyone should take ? The answer is NO !! . A
lot of people have go to the second level and left the first level , which is Planning .
First Step of Financial Planning
The first step not making investments but planning for everything and then executing it , Why is
planning important ? Most of the time people concentrate too much on action and not planning . If
you take actions without planning things , there will be lack of clarity ,and it will bring doubt in
your mind about investment .
A friend of mine invested in mutual funds through SIP . For 6 months markets did good
and his portfolio was up , then markets crashed and he stopped his payments . I asked
him why is he not continuing his SIP , his answer was markets are going down . But he
also said that he don't need this money any sooner , he is making investments for his
Child Education which is 12 yrs later and his investment is for long term in stock
market .
His decision of starting investments is great , but investing without any planning and knowing
exactly why you are doing it is like driving without knowing were to go . You will eventually go
somewhere , but that may not be your destination .
so what are the steps before the action of Investment
Knowing your Goals : First plan, why are you investing , what is the goal associated with your
investment . Is it Buying Home ? Buying Car ? Vacation after 3 yrs , Retirement , Child marriage ?
etc etc
Knowing your time frame , when you need money : This is very important , because this will
decide a lot of things
- The product you can invest in ?

- The risk you can take ?
- The amount you need to invest per month or year ?
This will make your path very clear , after this you just have to follow it without any doubt in mind
.
Action and monitoring : Now you just have to take action and dont doubt it again and again ,
because you have cleared everything before .
Case Study
Case 1 : Unplanned Investment

Ajay is a regular reader of jagoinvestor and after reading some articles on this blog , he
decides finally that he will invest k per month through SIP .
He starts a SIP with a mutual fund and now he is happy that he has been investing finally . He
invests for 2 yrs and markets have gone up and down and at the end his investments are at same
place where it started . So there is no appreciation in value . He decides to take half the money out
of his investments and uses in buying a car which was his plan from many years . Markets finally
starts recovering , but as usual he realises very late that this is a time to put money in markets (as all
the general public realise this very late) .
He starts his SIP again and now continues this for some years . He periodically takes money out of
his investments on many occasions like for his vacation and his child education .
What is the problem with this approach ?

- No predefined goals and hence no clarity on investment plan - No idea of how investment should
be divided for different investments . - No investment as per risk-appetite and goal's importance
Conclusion : He started investments which was a good idea , but Ajay jumped on the second ladder
, The first step was to first plan for things .
Case 2 : Planning everything
Ajay now knows that he can invest 20k per month , and have to plan how to channelise this
investments . He identifies his goals , and how much he would need for it .
He comes up with following things .
To do your own calculations , do it here

Now he exactly know that for which goal where he has to invest . There will be no distraction in
between by equity markets going up and down or any other factors like those , because in the start
only he has factored in all the possibilities. In short Now he has a clear path and he know how fast
or slow he has to walk on it . At the end , if he keeps on walking on it the way he planned , Success
is guaranteed .
Conclusion
Planning your finances can be boring, but its vital and most crucial part of financial planning , A
person who gives much time planning things , has higher chances of achieving it , Take action is
second step . Planning things in advance reduces doubts about certain things , provides clarity in
financial life and hence reduces a lot of issues .
Question :
How much difference do you think will happen without planning as per your view ?
Continue Reading
Tax Exemption limit may be raised to 1.7-2.0 lacs
Today in morning newspaper , I read that in this budget Tax exemption limit may be raised to 1.75-
2.00 lacs . What will that mean to a common person like us .
It simply means that we will be left with some extra surplus every year .
A male who has taxable salary of 4 lacs per year and has 1.5 lacs as exemption limit , pays around
40,000 as tax . Now , after the exemption limit is raised to 2 lacs (assumption) , there can be 2
scenarios .
Read How to calculate Tax and tax slab for year 2008-2009
Scenario 1 : Exemption limit is raised but tax rates are not . Current tax rate is not
10% for 1.5 - 2.5 lacs
20% for 2.5 - 5 lacs
30% for 5+ lacs
In this case , he will have to pay 35,000 as tax (assuming tax rates for 2008-2009) . This means
a saving of 5,000 on tax from previous year .
Scenario 2 : Exemption limit is raised and tax rates are also adjusted . A common sense guess
would be
10% for 2-3 lacs

20% for 3-5 lacs
30% for 5+ lacs
It must be something like that , this is the minimum we will/should get
In this case , the tax would be 30,000 , and savings would be 10,000 per year.
What can this small amount do ?
So we can save in range of 5,000 or 10,000 or someother amount depending upon the changes .
What can be the value of this for us as investment point of view .
this money can be invested in a mutual fund through SIP monthly for next 30 yrs ,
5000 can make

14 lacs at 12%
29 lacs at 15%
10,000 can make

29lacs at 12%
58 lacs at 15%
Assumption is that the money can be divided in 12 equal installment and can be invested per
month .
What do you think about this ?
Did you check video post for Basic formula's in Personal Finance and How to choose Mutual
funds ?

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Tuesday, May 19
Monthly Contribution Calculator
I have made a calculator which will help you plan your monthly investment requirement for your
different plans .
The first step of financial planning is to determines your goals and and what will be the investments
you will do for it . Then comes action (actually doing them) .
You must be knowing exactly how much should you invest for each of your goal so that you are
able to achieve it .
Example : I have 4 plans

• Buying a Car
• Vacation
• Retirement
• Child Education
Following is the total calculation for each plan .
Do your own Calculations Online Here

Download the Calculator from Here
Note : The monthly contribution will automatically come , you just have to put amount needed ,
interest expected and tenure in years
Did you like the Calculator ?

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Archives
By Category : Find best posts in each Category
Financial Planing
• 8 Steps of Financial Planning
• What makes an Excellent portfolio
• Can you live with 90% of your Salary ?
• What is the first Step of Financial Planning ?
• Why do you Need a Financial Planner ?
• 5 things you must have in your Portfolio
Early Investing
• Early Investor , Smart Investor
• Power of Compounding and Early Investing
• How small Savings can make big corpus
Mutual Funds
• How to choose a Mutual Fund
• How to compare two mutual funds
• Why SIP works well in Long term
• Why to avoid NFO's
• Difference between Growth and Divident Option
• Video Post Explaining "How to choose good Mutual funds"
Insurance
• Important of Life Insurance
• How to calculate Insurance Requirement
• How much does Securing your Family Cost
• Are Private Insurance Companies Safe
• A Presentation on Insurance
• Health Insurance and Its Importance
Taxation
• Tax Treatment of Equity and Debt Mutual Funds
• How to use Losses to Reduce your Taxes
• How to calculate capital Gains and Tax on it
• Tax treatment for Equity , Gold and Debt
• Why to plan your Taxes in the Start of the year
"How to" Tutorials

• How to do Portfolio Rebalancing ?
• How to do your Retirement Planning in 6 Steps ?
• How to Hedge your Portfolio using Derivatives ?
• How to compare two mutual funds ?
• How to calculate Insurance Requirement ?
• How to choose a Mutual Fund
• How to manage ULIPS
• How to Calculate NPV (Net present Value) ?
• How to find best Fixed Deposit for you ?
Investing Wisdom
• Difference between Needs and Wants
• How much Risk you should take ?
• Understanding your Risk Appetite
• Understanding Difference between Price and Value
• Power of Asset Allocation and Portfolio Rebalancing
• Creating Long term Wealth using Equity
Market Product and Knowledge about Concepts

• What is a Mutual Fund ?
• What is PPF and EPF ?
• What is SIP and its Importance
• How Inflation affects you
• What are Gold Mutual Funds ?
• What is CRR and Repo Rate ?
• What are Debt and Liquid Fund ?
• Importance of Contingency Fund
• What is Nifty Beas ?
• Keep in Simple Stupid
• LTA and Medical Reimbursement
• What are RBI Relief Bonds ?
• GFactor , A tools for Evaluation of Product Suitability
• NPS , New Pension Scheme
• What is Super Annuation Benefit and how to check it ?
• Why to Avoid NFO's ?
• How to file Consumer Complaints ?
Stock Market and Technical Analysis

• 5 mistakes of my First Trade in Stock Market
• What is Long Term in Stock Market
• Is Direct Equity for You ?
• Value Investing using Nifty PE
• 8 Important Rules your should never forget in Stock Markets (Full Ebook)
• How a newcomer should start in Stock Market ?
• Ebook on Basics of Technical Analysis
By Date : Find Each post by Year and Month
2009 : | Jan | Feb | Mar | Apr | May | June | July | Aug | Sept | Oct | Nov | Dec
2008 : | Jan | Feb | Mar | Apr | May | June | July | Aug | Sept | Oct | Nov | Dec
Also have a look at :

• Download Page
• Reviews Page
• Surveys
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Monday, May 18
Video post on Basic Formula in Personal Finance
This is a Video post by me , where I have tried to teach some basic formula's for starters who
should know important calculations using which they can calculate important stuff like
Maturity value of Investment when they make SIP payments , or one time payments .
I am getting some questions like "I want to invest 2k per month for 10 yrs in mutual funds , Can i
generate 20 lacs" type of questions . Seems like many readers do not know how to apply and use
simple formula's to calculate these stuff when they calculate how to generate wealth for long term .
Often you might have felt that you have to depend on others for calculations , because you don't
know it themselves .
I have made a video myself where I explain 3 important formula's which everybody should know .
1. Compound Interest
2. Annuity
3. CAGR
Lot of you might have learned this school , but many have forgotten it . So in this video post I have
explained it with examples . I hope that it will help beginners or new readers . I am also giving a
Calculator below the video where you can do your own calculations , If it gives any error , please
go to the link I provide and calculate it there . I will also put presentation here , so that people who
have very low bandwidth can view the presentation at least .
Presentation
Important Calculations In Personal Finance
Embedded Calculator (click here if this gives some error)
Continue Reading
Posted at 7:56:00 PM ShareThis
Saturday, May 16
How different Products can yield different post tax Returns
Read-Error
This post will teach you how to take advantage of different products
tax rules keeping in mind your income tax bracket. Different
products can yield different post-tax returns for people in different
tax bracket . FD's return can be 7.2% post tax for you , but may be
its 5.6% for me :(
Lets take an example to understand this post .
Two of my friends Ajay and Robert asked me what should they

invest in for 2 year . They have Rs 1,00,000 to invest .
I recommended following products to them :
Ajay : Fixed Deposits

Robert : FMP's ( Read what is FMP's )
You must be wondering why did I suggest different products to them ? Both have same risk-apetite ,
Age etc .
The answer lies in there tax bracket . The post tax returns depends on your tax bracket too . Lets see
how .
Ajay Case
Ajay does not earn much , His annual income is less and he falls in 10% bracket .
Tax treatment of FD's interest : Returns are added to your income and then its taxed
as per your tax slab rate .
Now it means that tax on FD's for him would be just 10% . Considering 8% interest.
Interest Received = 16,000
Total Tax paid = 10% of 16,000 = 1,600
Total Return = Rs 14,600
Robert Case
Robert earns well and falls in 30% tax bracket, hence FD will not be best for him , He will have to
pay 30% tax on the Interest for FD .
Tax treatment for FMP's : For Long term capital gains (more than a year) , the returns
from FMP's are either taxed at 20% after Indexation or 10% without Indexation
Assumption : Lets day FMP's provide indicative returns of 9% and lets also assume that they
actually provide that return . then
Investment = Rs 1,00,000
Interest = 18,000
Interest = 10% of 18,000 = 1,800
Returns = 16,200
Note : I have not considered tax after indexation , please do it yourself . read this , Anyways it will
be more than what he is paying without indexation .
Read What is Indexation Benefit ?
Why FMP's were not better for Ajay ?
you might think that Ajay could have gone for FMP's too . The returns are almost same and tax is
also same, But you have to realise that FMP's returns are not guaranteed ,they are just indicative
.Also FMP's carry Default risk , then why to take extra risk , The only advantage he would have got
is .5 or 1% extra returns but at the cost of the risk , which is not worth .
Why FD's were not better for Robert ?
Now this you know , obviously the tax to be paid on it would have been 30% as Robert tax bracket
is 30% and hence he might have paid 30% tax on the returns from FD's
Conclusion
So now you understand that a product can yield different post-tax returns for two people in different
tax bracket . So when you do your investment planning , you must take these small details about tax
, If you choose your investments considering your post-tax returns , you can make much better
decisions , how ever this should come after an investment passes the 4 most important aspects of
investments and GFactor basis .
I have started active blogging on my Technical analysis and options blog , I have suggested to go
long in Satyam , Please read it .
- Go long in Satyam
- Detailed Analysis on Satyam
I came across a very good article called "What the IPL taught me about Investing"

Continue Reading
What is RSS
RSS is a technology using which you can get get notified about the contents of a website or a blog .
So you need not go and check every time a website to find out if there was a new article or any new
content . Once you subscribe to RSS of a website , you get notified automatically about new articles
when they are published . See this Video to understand more
What are different ways of Subscribing to RSS ?
We have a total of on RSS . Increase this by ONE by subscribing through following

ways .
Through Email : You can subscribe to RSS through Email . In this case you will get the posts
emailed in your Inbox Directly and you can read it directly from there. You can unsubscribe from it
anytime you want , So there is no loss !! Subscribe to Jagoinvestor RSS through Email Now
Through RSS Readers : There are many RSS Readers like Yahoo , Google or Bloglines etc ,
where you can read the contents of the blog or website for which you have subscribed . So if you
subscribe to 50 different RSS feeds , they all will appear on your RSS Reader page . It would be
like a customized website for you where the content changes as per the change in some website you
have subscribed to . Subscribe to Jagoinvestor RSS through Readers Now
Go to our Subscribe Page to find out other ways of Subscribing :)
Continue Reading
Wednesday, May 13
What is Super Annuation Benefit and how to check it online ?
This post will explain how to check your
Superannuation Balance if your employer
maintains it with LIC .
I will share with you an important thing today which

one of my friend Subbu has figured out himself .
Credit goes to him.
A lot of employees do not care to check there

Superannuation amount , or they are not even aware
that it exists. Knowing the amount of your
superannuation can be helpful , because then you
know that you have that much saving and hence
when you plan your investments , you can factor in
this information and take better decisions . This
small amount make big chunks of your portfolio .
What is Superannuation Benefit ?
Superannuation is a retirement Benefit by employer . It is a contribution made by employer each

year on your behalf towards the group superannuation policy held by the employer. This is an
important part of creating wealth for your retirement .
Some other points are :
a) Superannuation Fund is a retirement benefit given to employees by the Company.
b) Normally the Company has a link with agencies like LIC Superannuation Fund,
where their contributions are paid.
c) The Company pays 15% of basic wages as superannuation contribution. There is no

contribution from the employee.
d) This contribution is invested by the Fund in various securities as per investment

pattern prescribed.
e) Interest on contributions is credited to the members account. Normally the rate of

interest is equivalent to the PF interest rate. Read what is EPF and PPF ?
f) On attaining the retirement age, the member is eligible to take 25% of the balance
available in his/her account as a tax free benefit.
g) The balance 75% is put in a annuity fund, and the agency (LIC) will pay the member
a monthly/quarterly/periodic annuity returns depending on the option exercised by the
member. This payment received regularly is taxable.
h) In the case of resignation of the employee, the employee has the option to transfer his
amount to the new employer. If the new employer does not have a Superannuation
scheme, then the employee can withdraw the amount in the account, subject to
deduction of tax and approval of IT department, or retain the amount in the Fund, till the
superannuation age.
Source : http://www.citehr.com
What is the SuperAnnuation Amount ?

Read-Error
Interest Earned : This is interest paid by LIC every year on the contribution by employer .
Rules of Superannuation on Maturity

Once the employee completes 3 years of service and works till his/her retirement,
he/she can make use of superannuation balance as a form of pension. He/She can
withdraw 1/3rd of the accumulated balance after retirement and the rest can be availed
as monthly pension till end of life.
Steps for checking Superannuation balance online?
1. Go to licindia.com
2. Register for a user id and password.
3. Login.
4. Click on 'Group Scheme Details' tab.
5. Click on 'member' radio button.
6. Get the group policy number for super annuation from your company's payroll
department and enter '' in the policy number text box and click ok. (Talk to your finance
department for getting the group policy number , this will be unique for all the
employees of a company).
7. It will ask for LIC Id no and Date of Birth fields.
8. To get LIC Id no, call LIC branch with which your employer has a super annuation
account and inform that you are calling from your company and provide your name to
the LIC official. They will give your LIC ID No.
9. Since most companies had not furnished the date of birth details to LIC, enter
'01/07/1960' / '07/01/1960' (forgot the order, try both n check) in the date of birth field.
10. You will get the policy enrolled and you can click on the policy number to view the
details. The details will contain the accumulated balance till the last financial year. It
also shows contribution made by your employer i the current financial year.
Are you able to see Superannuation Balance for yourself ? Were you aware of it ? Please share with
us on comments section . Also please share if you find any discrepancies with the steps .
Note : Some data for this post may be out of date , If one comes to know about it , please let us
know ,so that I can make the changes .
Last post was a video post where I talked personally about "How to choose mutual funds" using
valueresearchonline.com site .
Continue Reading
Monday, May 11
Video Post explaining "How to choose a good mutual Fund"
I am trying out a video post for the first time ,I am sure you all would like it . I have talked about
How to Choose Mutual Funds . Have a look . I have explained how to look for mutual funds and
how to compare them with other . Make sure you choose the full screen button to have a full view .
Do let me know through comments how was it and if you liked it .
People with slow connections please let it buffer first and see in one go instead of see it breaking in
between .
I have explained the same stuff in my previous posts - Steps of choosing a good mutual fund
Also look at : Some important Ratios while comparing Mutual funds

Continue Reading
Saturday, May 9
New Template and Design of Blog
Hi Readers
From last some days I have been making changes to Blog design and make it much better in all
aspects . Now I feel people are happy with this new look . Some readers told me that this look is
great and it looks much cleaner and better than past .
I have done some changes like :
- "Term of the Day" section : I have added a "Term of the Day" section at the top of
the page . Here daily (i will try daily) I will put on term which i will explain in one
paragraph , That will help people to keep updating there knowledge base. I will keep a
page also where all the term of the day will be stored , so that anyone can go back and
read it :) . You can also mail me any topic .
- "Continue Reading" Button after every Post , This will allow readers to quickly go
though posts and read only those which look interesting to them .
- Top Bar : If you see just below the header , you will see a pannel which gives links to
imortant places .
- Dedicated pages for Author , Contact Me Page, see the top pannel .
I am sure this new look will habe better user experience . I am sorry for Horizontal bar issue which
many readers faced for long time . I hope its fixed now :) . Incase of any issues , please Contact me .
Please keep updating me with your suggestions on what else can i change in the blog .
There are some things I want to clear to Readers, about this blog .
This blog is a Personal Finance Blog . It deals with things like Investments , Insurance , Investment
Principles , How to think about your money and things like these . Its not a dedicated Stock market
related blog . Because Stock Investing is part of Investing and its my favorite topic , I try to write
articles on that too . But you have to understand that it will be occasional and not frequent .
If you have already not joined our google group , please join it . That way I will have record of all
readers and can communicate fast incase I need to tell you all something. (please leave a message
telling me who you are and how old reader are you) . On Jagoinvestor google groups , I will
occasionally give some calls too .
I will try to write more about technical analysis and Options and stock investing on my Analysis
Blog (I have changes the name) .
How can you contribute to this blog success ?

At the last of the page , you will see lots of bookmarking sites like delicious , Stumbleupon , Digg
etc . You can bookmark the links there on that site , just click on the link and then most of the things
will be done automatically .
Also , please recommend the blog to other friends of yours .
My main focus will/should be content of the blog and the education I can provide . Looks and feel
are important too , but I want to restrict my focus on that part .
In coming days I expect to do add more creativity on blog and posts , so keep tuned in .
Thanks
Continue Reading
Friday, May 8
Contact Me
Use this form to contact Manish . Your email will be read, and I will try my best to reply to
your questions and concerns .
- Please try not to spam

- Please dont ask for Stupid stock recomendations
- Please have a look at list of all articles to find out if your question can be answered :)
Your Name :
Your Email :
Subject :
Message :
Image (case-sensitive):
Send
Live Chat : You can also talk to Manish Online (depends on availability)
Continue Reading
Thursday, May 7
How to Calculate Net Present Value (NPV) and how to use it
In this post we will talk about How to think and calculate Net Present Value of a transaction
involving Financial Payment , and why its important to understand the concept .
Consider the following Example :
You have to lend Rs 1,00,000 to one of your friends and He is offering you following choices .
Choice 1 : He will pay you Rs 18,000 per year for next 10 yrs .
Choice 2 : He will pay you 13,000 per year for next 15 yrs .
Choice 3 : He will pay you Rs 8,000 per year for whole life .
Which one should you choose ?
Here you have to take a decision of choosing from one of the choices . The logical decision here
will be to go for choice whose Net Present Value is Highest . You have to understand the time value
of money . Rs 10,000 received today is much more valuable than Rs 10,000 received 10 yrs later,
even Rs 15,000 received after 10 yrs .
So you have to see that which choice has the highest worth if you calculate its Value today .
So how do you calculate the Net Present Value in this case , where you have Rs X receivable every
year for n years . Here you also have to consider present rate of returns which you can assume at
8% .
So We have 3 variables
X : Amount received per year

n : Number of years
r : Present rate of return
NPV = X * [(1+r)^n - 1]/[r * (1+r)^n]
Calculating through this formula , we get the NPV of the choices as
1. 120781
2. 111273
3. 100000
Net Present Value of the last choice is simple , how much money do you put in bank today that
will fetch you 8,000 per year forever ? If X is the amount than at 8% interest you get 8,000 , so
8% of X = 8,000
.08 * X = 8,000
X = 8,000 * (1/.08)
X = 1,00,000
If you see the total amount received in all the cases you will realise that the choices with lesser
NPV will give you have higher Total amount .
For Case 1 : NPV = 120781 , Total amount received = 1,80,000

For Case 2 : NPV = 111273 , Total amount received = 1,95,000
For Case 3 : NPV = 100000 , Total amount received = Infinite (The amount is paid forever)
Calculate NPV for your self , see this calculator
But you have to understand that "Total amount received" is not important . What can you do
with the money is more important ? So the real Indicator is Net present Value of Money . You
have to understand the Difference between Price Vs Value . Price is what you pay , Value is
what you get . Value is important not Price .
Real Estate Case
If you go for a home which cost Rs 50 Lacs @9% Interest for 20 yrs . Your EMI will be
around 45,000 per month .
I found this amazing Apna Loan , EMI calculator , Its nice
You will actually pay total of 45,000 * 12 * 20 = Rs 1.08 Crores .
Now you may feel that the cost of house is Rs 50 Lacs ,but the amount outgo is actually 1.08
Crores and may feel bad for this , But this is ridiculous . Because you are not paying 1.08
worth of money in your entire tenure , 1.08 is just a number .
Its worth is still 50 lacs only spread over 20 years and the numbers sum up to 1.08 crores .
If you calculate NPV of the Home loan money which you are paying , its exactly 50 Lacs .
Calculate it with (.75% interest and 240 as tenure , as its a monthly and not yearly) .
Note : There can be other situations also where we need to calculate Net present value with a
different formula , but for this post we are only discussing the examples and scenarios where
you need to pay or receive a fixed amount after every fixed period for some tenure .
You can also look at Video below to learn other aspects of NPV and IRR (I have discussed it in
the post : How to manage ULIPS ?
Conclusion :
You can also use this concept for taking decisions in scenarios where you have different
choices of payments , choose the one which has lowest Net Present Value , like in the example
we took , For the friends its more beneficial to go for the 3rd option . So the moral of the story
is that dont pass this post link to your friends with whom you have financial relations :)
Questions ?
Should Banks state net present Value of the money customers pay as loan , so that people
come to know that they are getting fair value for there money ?
Read interesting note on Home Loan EMI , Read how Home Loan EMI is Calculated ?
Readers , are you getting a horizontal scroll bar when you view this blog ? If its irritating for
many people I will fix it ? It depends on your computer resolution how does it look to you , for
me , it works fine .

Continue Reading
Wednesday, May 6
Trading Call for Markets
On May 4, 09 , I had given a trading call on our jagoinvestor google groups .
hi all
I am giving a trading call in this post . Please understand what I am

saying and take your decision .
Nifty was moving in a trading range from many weeks and finally Nifty
has broke out from 3520 levels and now its a very strong support
point . At the time of writing this , Nifty has already moved up to
2630 and hence now its showing positive momentum on upside .
People can buy Nifty Futures or Options If Nifty comes back to 3550
levels back , That would present a good opportunity to BUY . Please
understand that It does not guarantee that Nifty will go up again ,
but probability favours it and from Risk/reward point of view , its a
good Trade . So be patient and wait for it to come back to 3550
levels . If it comes then BUY , else forget it .
People who dont understand Derivatives can buy or sell Nifty ETF's .
- Dont be greedy and put limited capital , dont sell your home and put
all your money .
- Be Patient and wait for this to happen , If it doesn't happen , leave
it and look for another opportunity .
Manish
Markets did move anywhere on 5th May and on 6th it went up and corrected back to levels of 3630
. From this point it can move any side .
Learn Technical Analysis Basics
Either to 3500-3550 levels OR 3750 levels . Markets will give clear indication about the direction
tomm (May 7) .
Today I updated the trade on the google groups and sent this message .
Update on this Trade
Now Nifty has made a good upmove from 3620 levels (two days earliar
close) and made a high of 3700 levels today and finally came the
profit booking . People who wait patiently are in a good position to
take the trade now .
Look at Nifty
On 5 day charts ,
http://in.finance.yahoo.com/q/ta?s=%5ENSEI&t=1d&l=on&z=l&q=b&pg
=e50,e200&a=v,m26-12-9,ss,r14&c= . you can see that prices didn't break
yesterday's low and found good support to close above that . This is a
health Sign . RSI and Stocastics are in oversold region and hence we
can consider it as a good dip .
Plan to tomorrow
Markets are uncertain , we should have a view but should have the
flexibility of changing our view as and when markets tell us .
- If markets open strong or flat tomm and starts rising , Wait for 15
min and go Long with SL below the day low .
- If markets starts Declining , WAIT again with patience and go Long
only when markets starts rising , When do we say prices have started
Rising ? Ans : When MACD is above 0 .
Momentum is up and its very strong , so it would be wise to avoid

short position . though you can miss a big profit , but the ultimate
aim is "not to loose" , If you dont loose , you are already a winner
in markets .
- People who dont trade regularly or who are new to trading , should
trade very lightly , dont put big money .
- Use SL strictly , markets dont love people who dont put SL in there
trades.
- If trade fails and it goes against you , just get out with small
loss and dont feel bad . It happens . Accept it .
Discipline and Money management is what you need while trading .
Manish
- People can trade Nifty Futures or Nifty Options (Call 3600 or Call 3700) .
- People who dont understand derivatives can trade with Nifty ETF's
Previous Post : How to calculate Capital Gains and What is Indexation ?

Continue Reading
How to Calculate Capital Gains and What is Indexation ?
In this post we will learn How to calculate Capital Gains
or Losses .
A lot of people make mistake in this . If you buy a house in

1995 at Rs 10 lacs and sell it at Rs 20 lacs in 2009 . On
how much profit will you pay the tax ? If your answer is
Rs 10 lacs , you have no idea how to calculate capital
gains . Read ahead to understand .
What is Capital Asset ?
Capital Assets are the properties which can be held by a person . Some examples are Real Estate ,
Shares , Mutual Funds , Gold and Debt Funds . FD's and other fixed returns Instruments are not part
of it .
Taxation
For taxation of Capital Assets , read this : How to use your looses to Reduce Tax
How to Calculate Capital Gains ?
Most of the people think that

Capital Gain = Sell Price - Purchase Price
But , Actually the real formula is

Capital Gain = Sell Price - Indexed Purchase Price
What is Indexation ?
Indexation is a technique to adjust income payments by means of a price Index , in
order to maintain the purchasing power of the public after inflation. We must understand
that prices in general also rises, so the actual prices should not be used while computing
the profits , rather It should be Indexed as per Inflation in the country ,so that people can
get the real value from sale of there assets . Indexation is used in Tax treatment for Debt
, Gold and other asset classes
What is Cost Inflation Index (CII) ?
Year CPI
1981-
100
82
1982-
109
83
1983-
116
84
1984-
125
85
1985-
133
86
1986-
140
87
1987-
150
88
1988-
161
89
1989-
172
90
1990-
182
91
1991-
199
92
1992-
223
93
1993-
244
94
1994-
259
95
1995-
281
96
1996-
305
97
1997-
331
98
1998-
351
99
1999-
389
00
2000-
406
01
2001-
426
02
2002-
447
03
2003-
463
04
2004-
480
05
2005-
497
06
2006-
519
07
2007-
551
08
2008-
582
09
How to Calculate Indexed Purchase Price ?

Indexed Purchase Price = Purchase Price * (CPI for current year / CPI for year of
purchase)
Once you have Indexed Purchase Price , you can subtract it from Sale Price and get your capital
gains .
In some products Long term Capital gains is around 20% without Indexation and 10% with
Indexation . In Equities Long term Capital Gains is exempt from Tax .
Let take an Example

Purchase Price 1000000
Year of Purchase 1995
Sale Price 2500000
Year of Sale 2008
No of Years 13
Purchase CII 281
Sale CII 582
Indexed Purchase Price 2071174
Capital Gain 428826
Tax with Indexation 85765
Tax without Indexation 150000
I hope the above example is clear . Below is the calculator I have created for you to calculate
Capital Gain tax for your self. Just play with different numbers . Just enter the year of Purchase and
Sale and It will figure out the CII (incase it does not, please put CII yourself)
Capital Gains Calculator

I have made a Calculator for you : http://public.sheet.zoho.com/publish/manish.pucsd/temp
Capital Gains Tax with Indexation and Without Indexation
There are some asset classes where you have the choice of using Indexation or not . This is true for
debt funds and FMP's . So the current rate is either 10% with Indexation or 20% without Indexation
for Long term Capital Gains .
For Tax without Indexation , you simply find out normal profit (sale price - cost price) and then
calculate the tax .
So you can calculate tax using both ways and then choose the one which is lower :) .
How to save your Capital Gains Tax ?
For people who are miser and do not like to pay lot of taxes , govt has provided some relief to them
. Govt says that If you dont want to pay tax on your capital gains , you can do following things to
save your taxes .
Invest your Capital Gains in Real Estate : If you invest your Capital Gains in Real
estate within 2 yrs , you will get the the exemption .
Invest in Capital Gain Bonds : There are some specific bonds issued under sec 54EC ,
some of them are NHAI or REC bonds . You have to invest in these bonds within 6
months. Generally the lock in period is around 3+ yrs . interest on NHAI or REC bonds
is around 5-5.5% .
Tax on Capital Gains can be different for different People
Please note that Capital Gains tax can vary from one person to other person depending on which tax
bracket he/she belongs to . It will also depends whether Tax with Indexation or without Indexation
works out to be cheaper for him or not .
Note : For calculation purpose the Financial years are business year from April - Mar , Not Jan -
Dec . If you buy in June 2009 and sell in Jan 2010 , you are in the same year not 2 different years .
Conclusion
So , In this post we learned how you can calculate capital gains and also take advantage of tax
benefits for saving your taxes on capital gains , Your aim should be to understand the process and
learn about it, so that you can take informed decisions in your financial life . No one should take
advantage of your ignorance and also to take quick decisions and make rough calculations when
there is a need. If you know these rules , you can take better decisions
Questions for you

Suppose you are age 30 .
- In June , 2000, You buy 20 lacs Home
- In Aug , 2007, You buy stocks worth 10 Lacs
- In April , 2008 , your sell your house at Rs 30 lacs
- In June 2008 , your stocks have gone down in value are worth Rs 3 lacs now .
What should you do to avoid paying any tax on capital gains made from House ?
In previous post I have discussed "What is NPS , New Pension Scheme" by Govt of India . Read it
Continue Reading
Saturday, May 2
NPS , New Pension Scheme , A detailed Explaination
Today we will be talking about the "New Pension Scheme" Launched by Govt. of India.
What is NPS ?
Its a pension system recently launched by Govt of India from 1st April, 2009.. You can regularly
invest your money in this and get a lump sum at your retirement and a fixed monthly income for the
lifetime . It will work almost the same way as Private Pension Schemes .
Until now the pension schemes was available to Govt employees and employees of Big companies
who has Provident fund facility . Any other person had to go with Private Pension schemes
provided by Insurance Companies . IT as not a govt scheme for common person , With NPS now its
a common person gateway to Pension Schemes .
Read previous post which was a guest post by Nooresh Merani on "How does a day trader looks
like"
Features
- No upper limit of Investment

- Minimum limit of 6,000 per year (Rs 500 per month).
- Annual Fees of .00009% (90 paisa for Rs 10,000) for Manging the fund.
- Tax benefit under sec 80C .
- Any Indian citizen between 18 and 55 years can invest in NPS .
Read other details below .
NPS Bodies
- Regulator : The one who will regulate the NPS System .

- Fund Managers : Who will invest the money
- Point of Presence : Responsible for Sales and Marketing .
- Central Record Keeping Agency : Responsible for all the document Keeping work (Record
Keeper)
Lets see each of them In detail now .
Who will Regulate NPS ?
PFRDA (Pension Fund Regulatory and Development Authority) will monitor and regulate all the
activities under NPS . It checks how your money in invested and makes sure that the fund managers
are following the rules and guidelines . Its just like "SEBI for Stock Market" .
Who are the Fund Managers ?
There will be 6 Fund houses appointed by Government to manage the funds under NPS . You can
choose any one of them to be your Fund Managers . They are :
1. SBI Pension Funds Private Limited.
2. UTI Retirement Solutions Limited.
3. ICICI Prudential Pension Funds Management Company Limited.
4. Religare Pension Fund Limited.
5. IDFC Pension Funds Management Company Limited.
6. Kotak Mahindra Pension Fund Limited.
They will take all the decisions of where the money received under NPS should be invested in the
best possible way considering all the rules and regulations set by PFRDA .
Who are Point of Presence ?
The following entities have been approved by PFRDA for appointment as Points of Presence
(POPs) under the New Pension System for all citizens other than Government employees covered
under NPS .
1. Allahabad Bank
2. Axis Bank Ltd
3. Bajaj Allianz General Insurance Co Ltd
4. Central Bank of India
5. Citibank N.A
6. Computer Age Management Services Private Limited
7. ICICI Bank Ltd
8. IDBI Bank Ltd
9. IL&FS Securities Services Ltd
10. Kotak Mahindra Bank Limited
11. LIC of India
12. Oriental Bank of Commerce
13. Reliance Capital Ltd
14. State Bank of Bikaner & Jaipur
15. State Bank of Hyderabad
16. State Bank of India
17. State Bank of Indore
18. State Bank of Mysore
19. State Bank of Patiala
20. State Bank of Travancore
21. The South Indian Bank Ltd
22. Union Bank of India
23. UTI Asset Management Company Ltd
Who will be the CRA ?
As per the website of PFRDA there is a Contact of negotiation is underway and NSDL is expected
to be appointed as the CRA . there were other bodies too who wanted to be CRA , but the most
suitable of all is CSDL . You can see them as the back office for maintaining records ,
administration and customer service functions .
What are the Steps of Investment ?
1. Visit a point of presence (PoP), fill up the prescribed form with the required documents.
2. Once registered , CRA will send you a Permanent Retirement Account Number (PRAN) .
This will be unique to every person .
3. Select your Amount and Investment Option .
Investment Options and Structure
Structure wise they are very similar to ULIP's or ULPP's from Investment Point of View . You have
different kind of funds options with different exposure to -
- Equity Instruments
- Corporate Debt
- Fixed Income Instruments
- Govt Securities.
Different Options
- Risky option : The higher allocation in this option will be in Equity .

To decrease the risk , Equity Investment is allowed only to invest in Index funds which tracks
Sensex or Nifty . Also the equity exposure is caped at 50% .
- Moderate : IN this options Main exposure would be Corporate debt and Fixed income securities
with some exposure in Equity and Govt securities . It will be moderately risky and rewarding .
- Safe : In this option mainly the investment will be done in Govt securities , and very little will be
invested in Equity .
There will be a Default option , under which the allocation will be decided as per your age, where
Equity Allocation will be high in the start and then it will come down as your age increases . You
can also decide your own asset allocation as per your Risk appetite
Cost
There are different kind of Costs in NPS .
- Fund management charges of .0009% per Annam , which is excellent if compared to ULPP's or
Mutual funds charges .
- Annual Maintenance charges of Rs 350 and Rs 10 per transaction to CRA (soon , it will be Rs 280
per year , Rs 6 for per transaction) .
- Rs 40 for registration with PoP and Rs 20 per transaction with them .
- There are other small costs too , lets leave it for now .
Taxation Issue
Sadly , As per the current law , the amount received at the end from NPS would be taxable , PFRDA
is trying hard with govt to exempt the tax . You will get the 80C benefits on the amount invested in
NPS .
UPDATE May 3 , 2009
"Under following circumstances your account may be closed before attaining retirement age?
- death
- account value reduces to zero
- change in citizenship status.
Thanks to Viral for bringing up this point "
Read NPS FAQ here
Conclusion
As per my views , Its a good initiative from Govt to introduce a Pension Scheme which will give
common people a chance to invest in Pension schemes which is from Govt . One important thing to
understand and note is that Even though its a pension scheme , the returns are not guaranteed . It
can vary drastically depending on your asset allocation and how you choose the fund options .
Other Negative point at this point is that the amount recieved at the end would be taxable which
can have adverse affect on the return potential . But I am sure soon govt will make the final amount
receieved non-taxable .
Currently I dont rate it at par with PPF or EPF . At this point it would be wise to invest money in
this if you have any money left over after your PPF and EPF contribution . Waiting for somemore
time before taking a call on this would be worthwile . Overall NPS passes :)
Question for you
- Are you personally impressed by NPS and will you invest in NPS ?
- What else govt can make changes in NPS to make it attractive to you ?
Previous Post : Nooresh Merani Guest post on How does a Day trader looks like ?

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Profile of a Day Trader

This is a guest Article from a fellow blogger friend and a very
good Technical Analyst , Nooresh Merani . This is an
interesting article where he presents how a profile of a Day
trader looks like . A part of this article was published in May
14th Issue of Money Today Magazine . I hope it would be a
good read for everyone , Even If you are not related to Trading
, you will come to know what is Day trading and how it can be
a full time profession and very rewarding one . Read the article
Below .
THE JOB = Day Trading

Job description: 6 hours a day / 5 days a week which requires hardly any physical activity apart
from grunting or swearing in anger or thumping hands, tables and chairs in happiness.
Desired Profile: The desired candidate should be good at accounts and quick at using the computer
keyboard or mobile keypads. No formal education or age bar.
Company Profile: It’s one of the oldest organizations (BSE is formed in 1875!) which is open to all
candidates provided they have capital to trade with.
Remuneration:
The salary has no upper limit but the candidate has to forego a small amount as brokerage/ taxes on
the transactions.
The above job description seems a dream job!!
The profile of a day trader is not as rosy as it seems as they don’t have a fixed salary, instead they
have to risk a security deposit (trading capital) paid up with the company (exchanges/brokers)
which may be blown off in few hours, days or weeks or years.90% of Traders pay salaries for the
rest 10%.
Trading is one serious business and a highly disciplined profession but, a large section of traders
who don’t have this attitude get thrown out of the system very quickly. A trader learns from the
mistakes, accomplishments through his trading career and by honing his technical and intuitive
skills. Every traders goes through the initial grind (sometimes recurring) of losses, depression, self
-realization and more.
A must Quote for every traders’ desk, “People who learn from their own mistakes are Wise, People
who learn from others mistake are Wise and Lucky and, those who do not learn at all are Traders
(Suckers)”
So, to be successful in trading, the most dynamic profession, where even a richest man can’t afford
an hour’s lunch break (the Gujarati Thali would cost somewhere in Lakhs!!), one needs to learn,
evolve, adapt and be disciplined. Always learn from the past, apply it to the present so that you can
gain in future!!!
A Traders Day!
Pre-Morning:
First thing a trader checks is how Dow Jones, European indices performed overnight and the current
situation of Asian markets. SGX Nifty in Singapore opens up much before India so a trader gets
hint of Nifty opening.
The trader makes modifications to the stock lists and observations made for the day. Technical,
Pivot and data traders are ready with a list whereas system traders rev up their mechanical engines
which generally don’t deliver much.
Trading Hours:
Although every trader has to see the ticker on his computer monitor for prices, but, there is a section
of traders who only rely on ticker reading, which is a study of price & volume fluctuations. For best
results, a combination of intuition, ticker reading and knowledge of technical analysis is a must.
Indian markets are one of the most volatile ones and it’s a common saying out here - Nazar hati
durghatna ghati (Moment you get your eyes off you will meet with an accident). So a trader has to
be attentive and nimble footed to make split-second decisions and follow the personal trading
style/rules.
Post Trading Hours:
This is the best time for the trader to catch up on a snack or freshen after finishing of the
calculations and noting down the open trades or the profits made in the day.
Analysis and Self-Evaluations:
The amateur traders don’t realize that this part of a trader’s life is equally important. Technical
traders go through their charts; mechanical traders test their system to come out with a list of
possible stock trading ideas for the next trading session and evaluate the current positions.
Trading as a profession has the most ups and downs with terribly bad trading sessions and equally
high performance sessions. Every trader needs to keep evaluating, modifying and optimizing their
trading styles to stay in the loop or the market knows a way to kick you out.
Latest Experience with the Screen!
Although I and many of us traders do follow the above plan but human nature is frail and one does
make mistakes. One thing I have realized with experience is if you make a cheap mistake (small
loss) early you would make a killing next time around by not repeating it.
The last mistake I made off late was to pre-empt and anticipate a big down move in 2nd week of
March which didn’t come but luckily got saved because of stop losses and the screen. The next time
around I did the simpler thing of re-acting to the ticker sense.
My one such encounter with markets was on 15 April 2009 when Indian indices outperformed
global indices. Many traders were yet again caught on the wrong side of the trade by watching the
performance of Dow Jones overnight.
The index opened lower and drifted lower. But, ticker did not show signs of weakness and out of
index counters continued to gain strength. What lot many traders missed out was, that Hang Seng
(Hong Kong) was up 600 points on 14th March, the day Indian markets were closed due to a
holiday. Any technical analyst would confirm Hang Seng bears the closest co-relation statistically
with India. So, this simple observation kept my bias bullish though the index was negative to start
with.
The ticker was purely biased towards the mid cap segment in the last few sessions so my focus was
on them. We kept on holding to the previous open positions (namely Crompton, ks oils, guj nre, gtl
infra, ghcl). Also, seeing the momentum, added on to my technical picks Dishman Pharma, Everonn
& Crompton for the day at higher levels then opening which gave awesome moves of 10% + in the
day!!
Sensing that the up move was backed by nervous morning sellers squaring up, we booked out of
previous positions to reduce the risk exposure and raising stoplossess to cost to conserve gains. A
combination of aggressive buying along with disciplined money management did the trick as index
closed 200 points lower the next day.
The learning from above experience was “Respect the Screen & Markets are Supreme”. A Trader
looks for intuitive hints from the screen and doesn’t ask why it’s performing so, but, just follows it
on the path to making money.
Above all would like to end this with few words of wisdom in Gujarati – Market Ni kamai market
ma samai – (Money made in the market, stays in the market). A wise trader makes money and takes
it home regularly!
Happy Trading!
Nooresh Merani , Analyse India
Blog: http://nooreshtech.blogpost.com
Website: www.nooreshtech.co.in
Email: noorrock2002@gmail.com

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Thursday, April 30
What is a COW !! , A truth about Indian Financial Sector
Do you know what is a COW !!!
Keep reading , dont think its not related to Personal Finance , After you
read the paragraph below and read further you will come to know .
This posts talks about the state of knowledge of indian ulip and mutual
funds agents
The Indian Cow
"HE IS THE COW. "The cow is a successful animal. Also he is 4 footed,And because he is female,
he give milks,[ but will do so when he is got child.]He is same like-God, sacred to Hindus and
useful to man.But he has got four legs together.Two are forward and two are afterwards.His whole
body can be utilised for use.More so the milk. Milk comes from 4 taps attached to his basement.[
horses dont have any such attachment.What can it do? Various ghee, butter, cream, curd, why and
the condensed milk and so forth.Also he is useful to cobbler, watermans and mankind generally.His
motion is slow only because he is of lazy species.Also his other motion.. gober] is much useful to
trees, plants as well as for making flat cakes[like Pizza ] , in hand ,and drying in the sun..Cow is
the only animal that extricates his feeding after eating. Then afterwards she chew with his teeth
whom are situated in the inside of the mouth. He is incessantly in the meadows in the grass.His only
attacking and defending organ is the horns,specially so when he is got child.This is done by
knowing his head whereby he causes the weapons to be paralleled to the ground of the earth and
instantly proceed with great velocity forwards.He has got tails also, situated in the backyard, but
not like similar animals.It has hairs on the other end of the other side.This is done to frighten away
the flies which alight on his cohesive body hereupon he gives hit with it.The palms of his feet are
soft unto the touch.So the grasses head is not crushed. At night time have poses by looking down on
the ground and he shouts.His eyes and nose are like his other relatives.This is the cow. "
source : Arun. K. Mukherjee blog
Most of the agents in India who sell Mutual Funds or ULIPS talk in the same way about it . They
know very little about it , only to an extent which can make ignorant people feel that these agents
know a lot . They have no understand ing of How to choose a good mutual fund or How to manage
Ulips effectively
And these agents work for big houses , I have often came across agents who explain me mutual
fund or ULIP in the same way you read "what is COW!" . They dont have communication skills to
sell a product or convince a person who knows something about the product .
If you are slightly informed person , just call an agent and ask him internal questions about the
product . you will see in how much water they are in .
What should be Done !!
There should be strict accountability from agents . Though you can never put all responsibility on
agents for any loss of yours , at least there should be some quantifiable measure for the standard of
there recommendation .
I am not saying that all agents are like this , but majority are . Some of the agents are very nice . like
the one I dealt with while buying for me for the first time .
Apart from this , the biggest responsibility lies with you , you have to be well informed yourself . If
you are your self an idiot , agent has all the right to make you one . So be informed , knowledgeable
and understand what to do . You have to understand how to Find out if a product fits you , (Look
at GFactor )
Question for you :
Do you think that eliminating agents (one who recommend products) will make situation better or
Worse !! .
I think it wont affect a lot in current scenario !! , what do you think ?
I wrote a post on how does a common man think about money , read it
Continue Reading
Wednesday, April 29
A common Man's Dream about Money
Read-Error
How much do you want to earn ? What kind of Financial life
do you want ?
Dont we claim to lot of people that Money is not important to us

in life ? We want happiness , We want time to do things which
we "like" . We are interested in health , happiness and peace of
mind , We want to spend time with our family , play with kids
,take our spouse for a world tour and a lot of similar things .
Average person thinking
Most of the people will claim that money is not the biggest thing in there life , but still we see most
of the people working consistently for 50-60 hrs a week , some work 70 hrs+ . We are free only on
weekends and that too goes in household chores and planning for next week and may be one
evening which one can claim to be the way "they wanted it to be" .
The truth is most the people can achieve there financial goals but are not fully commited towards it .
This may be true because of lack of knowledge or attitude towards this .
We all have desire to achieve our goals in life , and that will happen only when we are financially
independent , No wonder that we will have to work in the starting period of our lives . Every will
have to do that , but better financial management can help in achieving your goals earlier than
average .
So take out some time to work on your personal finance , thats what you are working for whole
your life !! , incase you dont know :)
People Invest and then forget
Most of the people invest or take decisions and then forget about it , they feel that there job is done .
this may be because of the fear of loosing money or coming to know that they made a wrong
decision .
How many times it happened that you took a share , mutual fund or a policy and it didn't work for
you , didn't give you returns as expected and actually made losses . Did you care to find the reason
for making a mistake , did you take any step to confront the situation and take meaures to fix the
mess . Or you just left it to destiny saying "I will just give it some time , it should be fine in 1 yr or
so"
Successful people take hard decisions , they work for there money , they read , they go to websites
to find out things , they take out time to contact people and get information about it .
I took a Term Insurance from SBI (SBI Shield Plan) last year . It was the best plan which suited me
.After some months there was news that term insurance premiums have come down and there is a
new entrant "Aegon Religare " in the market . I calculated back and saw that Reliage premium was
Rs 1,000 cheaper than SBI (for my policy) .
I contacted my Agent and asked him to provide me the numbers (premium) for this year and told
him straight forward that I will surrender the policy this year I I dont get a good deal . Atleast I will
not choose them for my additional Insurance cover .
I don't think many people care to find this out and take the "pain" of doing it all over again for the
sake of small money . remember that its not small money ... Small is Big !!
People make fortunes by investing regularly small chuck of money . So if get a chance to save even
a small bit , do it . It will show in future .
What to do ?
Money can be generated but with discipline , you have to understand this and act on this . Invest
systematically for a long period of time and use well know principles of Asset Allocation and
Portfolio Rebalancing (read what is it) , portfolio rebalancing .
Just like we have lots of data , confusion and noise in Stock market , in the same way we also have
it in personal finance . There are thousands of products claiming to be better than others . There are
mutual funds who claim to give 25% consistently (there are many which have actually given) .
You have to get out of the noise , and understand that you dont need much to make long term wealth
. You just need better than average returns .
Let us see some components required :
- Strong Planning
- Stick to the plan and follow it with Discipline
- you dont need 20% or 30% returns (and don't even look for it) . Just 5-6% above inflation is good
and that's what you should expect .
So plan your finances well in advance , have a path to follow and then just follow it without
deviating in between . Dont get greedy .
Please let me know how do you like this new look for the blog , I am sure many like it , It gives
better look and feel .
Answer me following question
- Do you have any financial plan for future ?

- What kind of returns do you expect from your investments as per your thinking ?
Serious students of Charting and technical analysis can look at my new blog :
http://nsedailycharts.blogspot.com/

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Monday, April 27
Current market condition , positive news from companies
Suddenly the results from companies is coming positive
This post will give my views on stock markets current situation .
Exide Industries net profit rises 9%
Tech Mahindra Q4 net grew 5 pc
Bank of Baroda net profit soars 172% q-o-q, stock up 6%
Triveni Engineering net up 10 pc to Rs 37.77 cr
Indian Bank posts 23.45% rise in net profit at Rs 1245 cr in FY-09

Jaiprakash Associates Q4 net soars 83%
There are some bad news also , but still we didnt see there effect like dip in profits from ICICI bank
and Reliance .
Current view of Stock markets
Markets started there rally from 2550 levels and ran up till 3500 non-stop . Then they lost
momentum and a small correction came upto 3300 . We should not try to find out if this is start of a
new bull run or a bear market rally , I personally feel this is more of a bear market rally (perhaps a
big one) .
Did you read about GFactor , in my earliar posts ?
So better to go with the flow , its not the investors market , its a trader market for now .
Let view this small correction and temporary slow movement in markets as the rest in the upmove .
Also we are near the expiry week . Along with political uncertainty , markets are bound to be
volatile and will not show clear trend for some more days .
With positive news coming from corporate world , the bias is on upside .
Its a BUY if it break previous high of 3520-3530 levels .
Go with the trend .
I came across a houmourous presentation , look at it

Mens Rules
I have discussed about CFP as career option in the last article , read it
CFP , A new career option in FInancial Planning
Read-Error
This post is for people who want to make career in
Financial Planning . I will be talking about CFPCM
Certification here .
What is CFP Certification ?
CFP or Certified Financial Planer Certification

programmes in India are offered mainly by Financial Planning Standards Board India. Its a
certification after doing which you will be a certified to be a Financial Planner and take different
roles in the area of Financial planning .
What is FPSB ?
Its Financial Planning Standards Board India , The board authorised to give CFP certification in
India . FPSB is a Public–Private Enterprise and a Professional Standards Setting body for Financial
Planners in India. FPSB India proactively guides the development and promotion of standards for
Financial Planning professionals to benefit and protect the public in the country.
Who should do CFP ?
Its for people who want to enter the field of Financial Planning , People are interested in the subject
and recognise the huge potential and rewards this area may benefit . There are many other courses
in Finance like CA , CFA , ICWA or MBA (finance) , but they are totally different from CFP . CFP
mainly deals with planning of Finances in area of Investment , Insurance , Taxation . So its more
inclined towards financial planning for individuals .
People who are working professional in other industries and want to switch there career in Financial
planning can also go for CFP , its easy to complete the CFP certification while working .
Is it worth doing CFP , What is the Future of this ?
My take :
India has 1 billion+ population ,where financial awareness is almost non-existent , People here save
money but do not understand how to invest it or take care of it in the best way . They dont even
know the basic steps for Financial planning . Currently there are handful of CFP's in India who are
in great demand . In days to come CFP professional will be the most sought after and highly paid
professional's in area of Finance and overall .
So CFP is the next big thing all over India . That is my personal opinion .
How easy it is to do CFP , Is it too costly ?
How to register : There are many Education Providers (colleges) in India certified by FPSB to offer
the study material , you have to enroll with some EP of your choice and do the course , They may
offer the course through classroom coaching or Distance learning , you have to decide what suits
you.
Giving Exams : The exams are conducted though nseindia.com just like NCFM exams , you have to
register for an exam date , pay the fees and give the exam. thats it !! .
See
CFP Syllabus
CFP Prospectus
Cost : Its not at all costly compared to other courses in same field . There are 6 modules you have to
clear . Following is the Fees structure
FPSB fees : 10,000

exams for 5 module per module : 13000 (2000 for 4 modules and 5k for last module)
EP Fees : 20000 (that is average , Many charge from 10k to 1 lacs)
So In total it should be around 45,000 - 60,000 .
Its one of the best career options in India currently at this cost .
people who want are in Bangalore can go for "MANDAR Learning Acedamy" as there EP .
To get more details , go to http://www.fpsb.co.in/Scripts/RegisterForCFPCertificationProgram.aspx
When do you become a CFP ?
You become CFP only after passing all the CFP module exams and having experience as per CFP
criteria , Its either 3 yrs experience in Financial sector or 6 yrs experience in Non-financial sector .
For details see there site .
Note : The information given on this post if not 100% information , I just gave a brief idea
about CFP . for details you must see fspb site .
See my previos post of GFactor
Conclusion :
CFP is one big thing for India . Indians badly need right financial planning for them and in this
country of 1 billion , CFP's will be the king of future . So if you have interest , time and and some
money , go for it .

- Please leave your name in the comment .
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Friday, April 24
GFactor , A decision making tool for Financial products
This Post will talk about a concept developed by me called GFactor , which is a score system for
any Financial Product . You can input 4 factors and get a score for a product . I am writing a lot for
stock markets and trading from so many days , lets get back to personal finance now for sometime .
I came up with an idea of measurement of a goodness/badness of a product.
I will call it GFactor , ie : Good ness factor .
What is goodnessfactor , Its a rating on a scale of 0-1 . 1 means excellent , 0 means worse . What all
factors do we consider when we design this formula for calculating GFactor .
- Trap Factor (Liquidity)

- RR Factor (Risk/return Factor)
- Complexity Factor
- Need Factor
btw , I have posted some charts on my analysis blog and did some very basic Technical Analysis .
have a look .
Trap Factor
This will be a score based on number of years you are stuck in the product before you can freely get
out , Like in ULIP you are stuck for at least 3-5 yrs , only after the 5th year , you can get out
without any penalties . For term insurance there is no trap factor , you can stop the policy any time .
Trap factor score will be like this
years of Trap and Trap Factor

No Trap : 0
1 yrs - 3 yrs : .2
4-10 years : .5
10-15 years : .75
15+ years : 1
Risk/Return Factor
This will be the factor which will determine the Return Potential considering the risk potential . For
this you have to know what is the money you can expect to get and how is the money you can
expect to loose in the product .
Mode of calculation : (Average Return - Average Risk)/Average Return
example :
For ULIP : Amount you can expect to get = 50%

Amount you can expect to loose = 30%
So RRFactor(ULIP) = (50-30)/50 = .4
For FD : Max positive return over long term = 8%

Average Risk = 0%
RRFactor(FD) = (8-0)/8 = 1
For term Insurance , the return will be the max amount you can get and Risk would be amount you
can loose all , which is total premium over many years.
Complexity Factor
This is a score on the scale of 0-1 which you have to assign for your self . If it looks too
complicated for you give a higher score , ifs you understand it well , assign lower score
For a normal person I would say ULIP is complicated , so we gave give a score of .7 or .8 or 1
,depends on you ,and term insurance is extremely easy to understand , so it will get 0 or .1 , Mutual
funds would be .3 or .4
Need Factor
Its a score given on the fact that how badly you need or require the product and will it be the best
thing for you. One person may need it more than other , so it will be different for different people.
For a person who is in his 26-27 age and just married and has some financial dependents , His score
for term insurance will be around .9 or 1 .
A person who is 45 , for him/her NeedFactor for Health Insurance would be .8 or .9
A person who is Extremely High risk taker and understands equity investing well , his need factor
for NSC or FD would be low , say a score of .2 or .3 .
Now Lets construct the formula
Variables
TF : Trap Factor
RRF : Risk Return Factor
CF = Complexity Factor
NF = Need Factor
GFactor Formula = (NF * RRF) - (CF*TF)
Let us take some examples , below is the chart which calculates GFactor for some products
considering me as a user , Please understand that these numbers are for me , it can change for you .
Read-Error
If GFactor value is more than .7 , you can consider that product as "Excellent for you" .
If its more than .4 , you can consider it as "Good"
If its more than .1 , you can consider it as "Average" or "Can be taken , but as the last choice"
And if its less than .1 , then you must avoid it

.
GFactor Calculator
I have made a calculator for you at : http://sheet.zoho.com/publish/manish.pucsd/gfactor-calculator
GFactor of a Portfolio
GFactor of a Portfolio is average of GFactor of all the products in a Portfolio .
You must be knowing that I personally have following things in my portfolio , Lets see what is the
GFactor for each of them for me .
Term Insurance : 0.95

4 ELSS : 0.43
4-5 shares : 0.35
10 gm of Gold ETF : .72
EPF contribution : 1
3 months of Cash : 1
So average of all the GFactors = (.95 + .43 + .35 + .72 + 1 + 1)/6 = .742
Which is a good Score for a Portfolio , But I can do better than this .
Whats your Portfolio GFactor ?

Conclusion
There are 4 main factors which matter when taking the decision regarding a Financial product , The
above concept is my own thinking and It may not fit everyone criteria , but I am sure it would be
true for most of the people , If you have disagreements , its fine .
We subconsciously understand how there 4 factors affects our decision making process , but the
idea is to put it into formula and get a Score out of it , so that we can compare and know how good
or bad a product can be for us .
I have posted some charts on my analysis blog and did some very basic Technical Analysis . have a
look .
Question
- Can you design a better formula for GFactor which makes more sense that what I have given .
- Do you think GFactor can be useful to general investor to take decisions .
- Please share with me GFactor of your overall Portfolio .
Continue Reading
Wednesday, April 22
The Internal Analysis of Akruti Crash
Numbers and Graphs Speak.
I thought of starting my articles from some Analysis on

Akruti City Crash .
In this article we will learn , how can we before hand get

some idea about events like this and have clear picture of
whats going on .
See my previous posts on Warning about Akruti City : Post 1 , Post 2 , Post 3
- Lets see 2 yrs old chart first
Read-Error
If you see the chart you will see the steep rise in prices in last month , you can also see that its was
not a normal price movement , when compared with previous movements .
For a closer view , lets see 3 months charts
Read-Error
If you see the chart you will see ,that prices moved up crazy and then crashed in two stages .
First Downmove : This happened because of the news that SEBI is excluding it from F&O
segment . (If you dont know F&O , dont worry) .
Second Downmove : Second downmove came near 25-26 Mar , when it was F&O expiry . What
happened ? Lots of positions were built up in F&O and after a sharp upmove , everyone rushed to
get out as fast as they can , at any price . So selling pressure came in and prices tanked 45% .
See High Volumes in the month of March (3rd half of the graph) . Suddenly there was so much
participation . Most of the buying which was happening on this stock was not for long term basis
(delivery basis) .
What is Delivery Basis : delivery buying means , people actually get the stock in there demat
accounts , it simply means its delivered physically to there account , But when you buy in the
morning and sell the stock in evening , then its not delivery basis . you just make profit or loss same
day .
Lets understand an important concept called "Deliverable Percentage" , which simply means ,
percentage of shares out traded shares which are actually delivered . So if its higher , it means that
most of the buying and selling is happening for delivery basis and people want to keep it with them
for some time , When its too low , it means lot of trading (speculation) is going on to catch the pie
in the price movement and hence its not sustainable most probably .
Example :
So , for some XYZ company , if volume is 100 shares and and deliverable % is 50% , it means that
50 shares where delivered and 50 were speculated , which is normal ..
But if its 20% or 10% , then things are fishy , there is no value buying happening and shares are just
exchanging hands from one to another where each one wants to sell it at higher price , also there are
people who want to buy the shares at higher price , because they know that there will be some idiot
who will buy from them at much higher price to continue the madness . And when it ends then what
happens , There are no buyers !! , every one has sold at lower prices and then suddenly the selling
madness comes in and the bunch of people who get out first (at higher prices) make the most money
. And in this pressure everyone is ready to sell at a lower price than someone else .
You can easily imagine that day price movement , see 26th Mar downmove of 45% crash .
So how do we find out that this is happening , Is there some place we can get data from , and the
answers is nseindia.com website , it has all the information on needs to know .
Source : http://nseindia.com/content/equities/eq_scriphistdata.htm
Go here , choose 3rd radio button (Security-wise Price volume & Deliverable position data) , and
choose share name and dates for which you want data . You will get all the data .
You must see "Price" , "Total Traded Quantity" , and "% Dly Qt to Traded Qty" , you will get
good idea at looking it .
But I will not leave you with boring looking numbers . I have taken the AKRUTI data for 3 months
(Feb 1 - Mar 27) and then smoothed it with 5 period moving average for each of them and then
plotted it on graph , so that you can get the picture pretty well . The points do not represent the
actual value , it only shows you the relationship of each other . see the below graph .
Read-Error
If you enlarge the chart , you will see this relationship

Price : Prices picked up and start moving up . (Orange line)
Traded Quantity : You will see how it started moving up wildly and picked up a pick high speed in
March (3rd half portion) (RED line)
Deliverable % : you will notice that it started going down and down , which indicated that even
though Traded quantity is going up and up , the delivery is not happening , which means lots of
speculation , which is an indication of a building of Bubble which can burst anytime .
So whats the learning , If you see Price movement in one direction and see Rising Traded Quantity
and falling Deliverable % , you should suspect the move . It is normal to some extent , but an extra
ordinary move is truly suspectable .
And whats happening now to Akruti ? from last some sessions there is no buyer , only sellers are
there and from the peak price of 2100 levels , its now down to 380 (at the time of writing) . I had
already warned of this long back , dont take it as any success in prediction of stocks :) .
If you see the current Volumes of Akruti , it was 2137 on NSE , where as average volume was at 4.5
lacs !! , Which means that this down move is not supported by volumes , (watch volumes in 2nd
chart , you will see nothing) .
Its just the fear of handful traders who have no idea why they are selling . So we can again expect
some wild moves on upside in future when prices starts picking up .
Conclusion : When you see prices moving in one direction without any great fundamental change
or significant news , You can use the numbers and see there relationship and you will see something
which most of the people have no clue about .
Disclosure : I had learned this technique from Mr. Sunil Saranjame blog , timamo.blogspot.com ,
an excellent market reviewer as per my thinking . So credit goes to him .
Please join jagoinvestor google groups , see the upper right area at the start of the page , I will be
sending instant notifications about the post and we can also share options trades there or some other
stock trades when there is good opportunity . Also who all have not left there comments/suggestions
, please do so on the suggestions/comments post
I also Introduced my self in the last post , see My Introduction

Continue Reading
Tuesday, April 21
My Introduction
From : Robertsganj , Uttar Pradesh (near Varanasi)
Studies from : Varanasi , Pune
Studied : BCom , MCA
Working at : Yahoo India !!
My Dream : To see each Indian take informed Financial

decisions and have ability to judge what is right and wrong for
his Hard Earned Money .
What am I doing currently ?
I am a student of Trading in stock market . I like to trade

options and its the most amazing thing I can imagine in Stock
markets (people who trade options would know this ) .
About Me
A very simple and humble approach towards life . People like

to define me as Humorous , Ever-ready to help , Interesting .
My other interests
• Cooking
• Vedic Mathematics
• Trekking and Nature Hunting
• Vegetable Farming (I have done some my self)
• I like to study Ants and read more and more about them (I have 15 GB of videos) , do you
know about Ant slavery ?
• I like Photography too
Connect with me on
• Orkut
• Facebook
• Twitter
• LinkedIn
• Flickr
My Pics : Here at Flickr

My Friends Writeups for me : Read it on my Personal Blog
Continue Reading
Sunday, April 19
Suggestions/Review and Request
Hi All
Its has been a long journey for me till now . I am constantly writing on personal finance from last 1-
2 yrs and I hope people like my articles . But I have not idea how its impacting people and how
many people are interested in reading them . There has been increase in traffic to this blog but not
as expected . One of the reason can be that people are still not aware of the blog even if they are
interested in the subject .
I want to connect to as many as readers I can . but I see only hand full of readers putting comments
on the articles . There are many who are constant visitors but I am not aware of them and also they
dont put much comments .
I would like to have 2 things from my readers .
1. Put a comment below and Introduce yourself to me in some lines . Let me know where are
you from and Why do your like this blog , How this blog has contributed to your knowledge
and what else do you expect from this blog .
2. Next thing is a request , This blog needs much bigger audience and there are many people
who need to read on the subject , but dont know about this blog . I want your help to spread
the word . I request you to do any of the following thing you if possible for you
- Incase you have a blog/site of yourself , you can put a link back to this site . It will help to get
some new readers .
- You can send all your friends an introduction about this blog and ask them to visit the site stating
what all this blog has to offer .
Let me know If its possible for you to do any of those and if you can be helpful in spreading the
word .
I have started a google groups http://groups.google.com/group/jagoinvestor , please join the group

to become a registered member of the blog , I can use it as a mailing list and also to share stuff with
you people if any . It will also help in tracking the readers and communicate anything to all of you .
Take this small post as a channel to connect , and put all your queries and views as comments
below.
Continue Reading
Friday, April 17
Some good read for the weekend
Some external links for you to read
The God's Ratio in Finance : Shyam Pattabi talks about the one ratio which you should
consider as supreme when investing in stocks for Long term , like your retirement . In his
excellent and simple article , he says that "return-on-capital" is the key ratio you have to
look at to find the winners over long term . Read the article here
Where to Invest in FY10 : I consider him the best , the hidden gem in the
world of stock and sector analysis , Mohit Satyanand , in his recent article in
Outlook Money talks on some Macro Economic Analysis and hence you should
stay away from banking stocks , How Real Estate is going to be in trouble for
some more years and why IT Stocks can be a good picks now . Read the article
here
What is the meaning of Financial Freedom : Scott Young Discusses his

views on what is meaning of Financial Freedom . He talks about simple things
which already understand subconsciously , but still struggle to do . Read the
article here
I wrote a article on 3 M's of successful trading , read it

Also Read : How to make use of Oscillators to make buy or sell decisions
Comments please .
Also let me know if you people like when I out external links like there on the
blog , Sometime I dont have any stuff to write on , he he :)
Continue Reading
Tuesday, April 14
3 M's of Successful Trading
In the last Article , we had seen an Introduction to trading . In
this section we will see what are the 3 M's of Successful Trading Read-Error
as per Dr Alexander Elder .
I will give brief introduction of each of it , Its your responsibility

to take it further and learn it in detail . take this as just a starting
point .
The 3 M's are :
- MIND
- METHOD
- MONEY
MIND
This part of Trading is most important . It deals with Psychology . When one enters Trading
business , he/she has some beliefs about the environment , about markets . They have to understand
the importance of Discipline , How people think , how greed and fear affects investors . There are
sub-parts to this
- Individual psychology of traders : You have to understand how to control Fear and Greed . How
you should take rational decisions and not fall pray to your emotions while trading .
- Mass psychology of the markets : You also have to understand how mass psychology works .
Why most of the people do what they do .
- The rules for maintaining personal discipline : You also have to understand the importance of
Self Discipline , why you must be always consistent with your trading . You must never violate your
rules . because in long run your discipline in one thing which will make you most money , not your
knowledge or your skills .
METHOD
This is the part which deals with your knowledge about market , technical analysis , other tools
which you can use to make Entry and Exit from any trade . This part is percieved to be the most
important aspect and most of the people run after these a lot , but these are the least important part
of your trading . Let us see part of this .
- Technical indicators : These deals with the tools available for making decisions , for example ,
MACD , RSI , Stocastics , OBV and other 200 weird words .
- The best chart patterns : Then you must know different types of patterns , which gives some
idea about future action and how masses are thinking , some examples can be double top , Head and
shoulder pattern etc .
- Developing a trading system : Then finally after you are done with knowledge part , you should
build up your trading system . what is trading system ? Its your rules for buying ,selling , booking
profits and cutting losses .
For learning on some technical tools you can see my series of articles on "How to be a better than
average Investor"
MONEY
Now this part is an amazing one and my favorite :) . What this determines is how will you manage
your money , it decides how much money will put in market at any given time , and how much loss
will you take maximum on any given trade . How much will be your maximum loss on any one
trade, things like that .
Basically this part decides how long can you in the game of trading if things would go wrong . This
part is extremely important . Without proper money management no can can survive for long in
Trading . Lets see some basic and widely accepted views .
- The 2% Rule for individual traders : This rule days that on any given trade your loss should not
exceed 2% of total capital . So if you have Rs 1,00,000 , first time your loss should not be more
than 2,000 . This rule makes sure that even if you make long series of loosing trades , still you are in
the game . Even if you make 10 consecutive loosing trades , your overall loss will be 18.3% ,
Though this will be rare , still you take care of this situation .
- The 6% Rules for every trading account : This rule says that your monthly loss should not cross
more than 6% in a month . Sometimes when you trade it may happen that there is some problem
with your analysis or some issue between you and market which can not be explained , you keep
trying to win , but dont succeed , that time you have a great urge to revenge trade and get your
money back . The best thing at that time is to stop and get some rest , go for vacation and come
back with fresh mind . This rule will make sure that if your chemistry with market doesnt fit , you
stop after loosing 6% of your capital . You can choose your own percentage amount . I would like to
choose 12% for me . it all depends on your risk appetite and stubbornness ;)
You might be interested in my previous money management example
- Essential record keeping for success : This part says that you should always keep all the
information regarding each trade . Buy price , sell price , date of purchase , how many days you
carried , Reason for buy , reason of sell , what you learned from the trade , chart at the time of
buying , charts at the time of selling etc etc .
Why do you do this ? Record keeping makes sure that any day you can go back to your records and
see what kind of mistakes you have done, why some trade failed , why you succeeded in some trade
? you can get lots of information from your records , you need to analyse your performance over
days/months/years .
Its extremely important , after a series of trades when you look back to your records , you may be
able to find out some pattern , some particular aspect or mistake which you do with each loosing
trade and hence can take corrective measures .
So , finally we are done with 3 M's of successful trading . Professor Van Tharp , in this legendary
book "Trade your way to Financial Freedom" talks about how the weightage they would give on
these 3 M's . According to him in Trading the importance factor is like this
Mind : 60%
Money : 30%
Method : 10%
Its totally opposite of what people perceive it to be , general people think that having all market
knowledge and technical analysis is most important . nothing is far from truth , It wont be too
ambitious to say that you can make money in market by simple coin toss if your have sound money
management Techniques and Great control over your self , you need to cut your loosers short
without any emotion and let your profits run till they can by sitting tight and doing nothing .
Conclusion
So finally if you want to start learning Trading , Work hard on your Psychology part and money
management techniques , Technical analysis and other knowledge is important but not vital !! .
Some other article's you might be interested in :
- Options Trading
- Trading , What is it ?
- Swing Trading Presentation by Mr. Sudarshan Sukhani
you might also be interested in simple technical analysis example given by me with charts at my
analysis blog
Continue Reading
A Small tutorial on "How to start Trading "
What does it takes to be successful in Trading ?
We are going to see 2 articles on this subject , this is Part 1 .
In this part I will give introduction to Trading and tell you

what exactly is it and how should you approach it (if you
want to do it) .
Dr. Alexander Elder , explains in his legendary book "Come

in to My Trading Room" , the 3 M's of Successful trading ,
which I will touch upon today and will explain it in my own
way to you . In the second part we will see the 3 M's in my way of explanation .
Let us first see what exactly is the difference between Trading and Investing and then we will go
over the explanation .
Difference between Investing and Trading

Investing means buying a stock of financial instrument for a long period of time,
typically over several years. Assessing good investment opportunities often makes use
of fundamental information, such as earnings, but can also use technical analysis to
detect long-term trends.
Trading means buying and selling stocks or other financial instruments for shorter
periods of time, typically less than a few months. Assessing good trading opportunities
typically makes use of trading systems or chart-based techniques to detect short-term
patterns.
The main advantage of trading over investing is that it provides the ability to make
money regardless of the overall direction of the market or the price of an individual
stock. The general consensus is that You can make more money in bear markets with
Trading than Bull markets . Because bear markets provide steep movements compared
to bull markets .
How Risky and Rewarding is Trading ?
Risk : Trading is considered as one of the most risky business you can ever do . Trading can wipe
out your entire money so fast that you cant even imagine . As per the data , every 19 person out of
20 who does trading eventually looses . So the success ratio is not more than 5% , even out of this
5% , 3-4% just make small money , actually big money is made by 1% of people .
Reward : If done correctly and successfully trading can make you enough money you cant imagine
. Most of the successful traders make more money in a month than people who are considered as
"making good money" make in a year . but this numbers is for highly successful traders .
The other reward for successful trader is Independence . Once successful , you are your own boss ,
can work whenever you want, trade from all corner of the world while travelling .
For people who want to try there skills in trading can try mock trading on moneyvidya.com , Just
buy and sell stocks and see how much money are you able to make in 2-3 months , It will give you
some feel of trading . You can also read past my article on MoneyVidya .
Should you try Trading ?
Well , Just anyone who thinks that trading is a "get rich quick" thing , is doomed to failure , this is
the biggest reason why people fail , they start or see trading with wrong attitude , they want to make
millions (if not billions) in just a month or a year from Trading , They underestimate the Risk part
and over estimate Reward part of Trading and eventually fall pray to Market's anger .
Just because its "BUY" or "SELL" , they think its easy . and they need to read a little bit and
because they are so successful and smart in whatever they are doing currently , they will succeed in
Trading too . The approach Trading in a wrong way with totally unrealistic expectations .
So the main question still is "Is it for you ?"
you have to ask your self this some question ?
- Are you ready to take Great risk of losing money ?

- Do you have time and energy to learn the stuff required to Trading ?
- Do you like Markets , numbers and what ever required for Trading ?
- Some of the thing which "does not matter much" in Trading are :
- Are you highly intelligent person ?

- How successful you have always been in whatever you have done earlier in your life ?
Conclusion :
Understand very well that Trading is a very very risky business and not an easy thing , you have to
learn it just like any other profession like Medicine or Software and it takes time . But , now a days
I would say Trading is much easier compared to earlier days , Now with the online trading and lots
of data available on Internet , there is lot of scope in Trading now .
In the next post we will quickly see 3 M's for successful Trading . here is Part 2
Disclaimer : I am myself a student of Trading and still in my learning Phase , I have lost good
money in Trading and still struggling to break even . But Eventually its going to happen, because I
have not lost the confidence and still on fighting in the battlefield (Markets) .
Continue Reading
Monday, April 13
MoneyVidya.com , A boon for new stock traders
Hi Readers
I can see that a lot of you are interested in Stock Trading . But as this
is your learning phase (mine too) and considering that Stock trading
is not every one's cup of tea . The best thing is to practice the game
of trading for some months and only when you are comfortable with trading and start seeing that
you are making some progress in making money in practice , only then you should get into real
money trading .
I would like to introduce http://www.moneyvidya.com/ Its a stock picking community .
Let me tell you what all things you can do with it .
Predict movement : You can put a BUY or SELL rating for a specific stock and also mention your
reasons for it . Along with it you can also set the target price , target time and Stop loss for the
stock. One of the best thing about it is that you can also mention what is the minimum price where
you want to buy it . this will enable you to pick a stock only at a price which you feel is reasonable
for it . With this feature , you can practice your stock picking skills and also analyse your
performance. One of the todo's for MoneyVidya will be to enrich the site with tools which can give
different type of performance measures .
Polls : Other nice thing is Polls ,you can create a poll and all the registered members will put there
vote , using this feature , you can get a general idea of what majority of people think about a certain
thing , Which can be helpful in your decision making .
Learning : Its a one stop place for learning things about Stock market , Technical Analysis and
other expert subjects . you can see the learning resources at http://www.moneyvidya.com/blog ,
currently , its in the starting phase , after some months you can expect plethora of learning material
on the blog .
Sound Tips : There is a rating system for each member , so depending on there performance , each
one gets a ranking and hence you can follow tips given by the top ranker's . I would recommend ,
not just blindly following any ones tips , but taking the tip and then analysing it yourself and filter it
from your decision maker system .
Go through a MoneyVidya video tour

Area of Improvement
Inbuilt Technical Analysis software : If they can add some inbuilt TA charting software , it would
be a great addition , by TA charting system I mean a charting system where people can view
indicators and also do there analysis like Drawing of Trendlines , Fibonacci retracements etc etc .
Detailed Analysis of Portfolio and rich User Experience : One of the things would be to give lots
of analysis on individual pick and overall portfolio , also they can device a system which can tell
there members what could they have done in there pick to make it better .
For example , If i pick ICICI and it does not meet my target and sells at loss , they can tell me some
thing like
"It was not a good entry , because at the time of my entry the charts should a bearish Engulfing
pattern and the RSI around 55 , so its was not a good time to BUY "
If they can develop a system like this , It would be great . Though these things important , they
should come later .
Derivatives : Currently the site only deals with stock and not derivatives . I hope in future , traders
will also be able to pick BUY and SELL signals on F&O .
Overall , MoneyVidya looks cool !! , and everyone should start using it .
I have written a article on Why should you plan your taxes in the start of the year , read it
FYI, I am one the member of there MoneyVidya Blogger's team , so you may find some of my
articles on there blog too.
Continue Reading
Friday, April 10
Why to Plan your Taxes at the start of the Year
Most of the people take care of there 80C at the end of the year around Jan-Mar .
Ideally it should be at the start of the year . Let us see why its should be done at the
start of the year itself . Following are the 4 most important reasons for Planning your
Taxes in start of the year .
Easy on Pocket : If you plan your taxes at the start of the year , you can then put small amount of
money each month . Otherwise you will have to cough up all the money at the end of the year ,
which can be little difficult on the pocket .
For example :
If you want to invest 60k for this year ... you have two choices , either plan your taxes in advance
and invest 5k per month , or invest 60k at the end .
No Headache last moment : Another important point to consider is the tension and headache you
go at the last moment because of the rush , there is sudden confusion at the end on what to take ,
where to go , where all the money will come from and all those things . planning the taxes in the
start of the year ensures that you do in correctly and without and headache for the last moment .
Correct products : If you plan your taxes in the start of the year , you can do your research well
and plan for products which you actually need and then go for it . I have seen most of the people
taking all kind of wrong products which they don't need , because there is just no time to think
about your requirement , you just have to "invest to save tax" .
Conforms with principle of "Investing Early" : Also when you plan our taxes early you are
putting your investments early, that way you are ahead of most of the other people .
Conclusion
An important aspect of Financial planning is to plan your taxes early . Why procrastinate when you
know you have to do it anyways ... Best of luck .
I have written a series of 4 articles which talks about "Buying Stocks Smartly"
You can read them here : Part 1 , Part 2 , Part 3 , Part 4

Continue Reading
Thursday, April 9
How to use Oscillators to BUY an SELL
Hi
This is 4th part of the "How to be a better than average Investor" series of articles . Today's lesson is
on Oscillators .
What are Oscillators : Oscillators are the indicators which move from overbought to oversold area
, generally from 0 to 100 . when they are nearing 100 it means stocks are overbought and
"expected" to go down now . when they are nearing 0 , it means , stocks are in oversold area and
fresh buying can come and move the stock up .
hey .. wait a min , did you vote on the poll upper right side , I have asked on what all topics do you
want me to write . Please select topics from them , so that you also get to read your favorite thing
some time :) cheers ... go ahead ..
I will discuss just 2 oscillators which Investors can use to make better BUY AND SELL decisions .
Let take a time frame of 6 months and see how indicators gave signals of buy and sell . We will see
2 indicators here RSI and Slow Stocastics (SS) (Read what is RSI and What is Slow Stocastic ) .
Rules
When its overbought , we SELL the share .

When its oversold , we BUY the share .
SS BUY signal = when blue color line crosses down the Red line .
SS SELL signal = when blue color line crosses above the Red line .
RSI BUY signal = when RSI has moved below 30 and starts moving up .
RSI SELL signal = when RSI has moved above 70 and starts falling down .
To make signals more stronger , we will use both the indicators signal and take BUY or SELL only
when both shows same kind of signal .
OVERBOUGHT = when RSI and SS both are overbought

OVERSOLD = when RSI and SS both are oversold .
Note
At any point of time, markets may be in any of 3 state .
- Uptrend
- Downtrend
- Side ways Movement
Understand that these signals work best in range bound market , like we had for last 6 months .
When market were moving in range of 3100-2600 . If markets are in strong Uptrend or Downtrend ,
these indicators will generate many false signals .
Hence , In different markets we have to use different strategies .
Uptrend Market : IN Uptrend , you should avoid selling the stock , when there is small correction
, Indicators can fast move in oversold region , that is the time you should BUY . But not SELL
when prices are in over bought market .
Downtrend Market : In Downtrend , you should avoid Buying the stock , only SELL when the
indicators are in overbought region .
Sideways Market : In this market , you can buy and sell both .
Lets see some examples for last 6 months . This was a Sideways market (but still downward bias
was there , so be careful with BUY , you can take SELL easily) .
DLF Chart
Read-Error
Read-Error
ICICI Chart
RELIANCE CAPITAL
Read-Error
Some Important things to NOTE (very important)
Oscillators should not be used in Isolation alone , You should also confirm it with other things like
Support and resistance to make your BUY or SELL more stronger .
For example : If prices are near the Overbought , but you see that prices have broken the resistance
point , its tells you that you should not BUY . because Oscillators are secondary thing , prices are
primary .
Also , If prices are near support and not breaking it , and oscillator are in over sold area , then its
safe to BUY . Never rely just on Oscillators , they are only helping tools used with other signals .
Lets see one Chart of JaiAss for testing what you have learnt .
Questions for you
- Tell me where are the buying and selling opportunities .

- Tell me where you should have avoided the signals .
- What according to you can help along with these oscillators .
- Can you come up with some other oscillator of your own which can measure some important thing
)
JAIPRAKASH ASSOCIATES CHART

Read-Error
ok , So finally we end the 4th part of this series of articles on Technical Analysis . I hope you have
learnt some things from me .
Earlier Posts
Part 1: What is Fundamental and Technical Analysis and which should be used When
Part 2 : How to use Support and Resistance to BUY and SELL ?
Part 3 : How to use Trendlines to find Support and Resistance ?
Understand that we are not learning how to trade , we are learning some trading tools which can be
used by long term traders to make better Buy and Sell decisions .
Incase you want to trade stocks/futures/options just after learning from these 4 articles , I must tell
you have you have not learned even 1% required for trading . 99% is still there to be learned and
over all knowledge of markets , technical analysis blah blah is just 10% . 90% is Psychology , your
attitude and your Discipline .
Trading is risky and not easy to do for long term .
Leave you comments / thoughts / suggestions / and answers to test question .
hey .. wait a min , did you vote on the poll upper right side , I have asked on what all topics do you
want me to write . Please select topics from them , so that you also get to read your favorite thing
some time :) cheers ...
Manish
Continue Reading
Wednesday, April 8
How Panic BUY OR SELL happens in market !!
Read-Error
cheers .. credit goed to

http://picasaweb.google.com/noorrock2002/TechnicalViewByNooresh#5040708262024007122
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Asset Allocation presentation

I am putting a small presentation prepared by a friend Subbu . This talks about asset allocation at
different stages of life .
Investments At Different Stages Of Life

Incase you have not looked at "How to be a better than average Investor" series articles . You can
look at them
Part 1
Part 2
Part 3
These articles talk about use of Technical Analysis to find support and resistance levels to make
better BUY and SELL decisions . Please share them with others too .
Continue Reading
Monday, April 6
How to use Trendlines to find Support and Resistance
Hi Readers
This is 3rd part of "How to become Better than average investor" Series . Read
Fundamental and Technical Analysis , What and When ? : Part 1

Using Support and Resistance : Part 2 .
Let us today discuss how can we use Trendlines to use Support and resistance levels and make
better Entry or Exits .
What is a TrendLine ?
A trend line is a straight line that connects two or more price points and then extends into the future
to act as a line of support or resistance. In the Uptrend , we join two low prices points and in
Downtrend we join two high prices and extend it further . Next time when prices approach them , it
should probably act as Support or resistance point .
Let us see one example of each of them.
Example of trend line while DOWNTREND
Read-Error
You can see in the chart how Two high prices were joined and the line acted as Strong Resistance in
future , 3 times prices touched it and broke down again , These are good price area where either one
can go Short (sell) , or book there profits . You can see that now prices are again Approaching to
this Resistance line ,so once prices reach this point , it may provide a good opportunity to sell .
What will happen exactly , better not to predict and let market decide .
Understand that we are not saying that prices has to necessarily touch the Resistance line and then
go back down , the trend line only provides Resistance , it may again go back much before touching
it .
Example of trend line UPTREND
Below if the 2 yrs chart of HIND LEVER , Let us try to make a trend line which acts as support .
Read-Error
If you see the chart , i have connected two low prices and extended it in future , you can clearly see
how it acted as support area and prices went back up from there , At the end , you can see how
prices are again approaching this support area , most probably this will again hold and it should be a
good BUY :)
Let us see one more example for Trend lines . This example will show us following things :
- Resistance line using trend line .

- Breakout
- How Resistance once broken became Support
- Resistance line using trendline for shorter time frame .
Let us see a 2 yrs chart of JAIPRAKASH ASSOCIATES
Read-Error
You can see here how i joined two HIGH Points and extended the trendline in future , and how
prices reacted to this Resistance line . Recently Prices broke out of this resistance line and then this
same resistance line acted as Support line and prices bounced back from there .
Also you can see a small trendline , which was made joining the low points . you can see how prices
bounced up as this support line held the prices . So , we have seen some examples of Trend lines
and how they can act as Resistance or Support lines (as per situation) .
Some of the important points to note are :
- Its more of an art to make a trendline , it depends how you make them using HIGH PRICE ,
CLOSE PRICE etc .
- You can make Trendline for any time frame.
- Its not necessary for prices to touch trendlines , you should not expect it .
- Its a wise decision to BUY OR SELL using trendlines . If trade goes in your favor , let your profits
run , if it fails, cut your losses short and accept it . there is no problem with being wrong . even the
best in Industry fail .
- Trendlines will be of no help unless you control your GREED in markets . dont put all your money
in a single trade . Keep adequate cash for bad times .
- Once trendlines are broken , take it seriously , it has happened for a reason :) .
- Make sure that the two points used to make trendline are not very near , there should be some time
gap between them to believe in them .
- More times trendline is touched by the price stronger it becomes , And stronger is the break out
from that trendline .
Test for you :)
Below is a chart , and I have drawn several trendlines in different time frames , I have marked some
points with 1,2,3,4,5 , please tell me what are each of them and comments on each point . please do
it individually . Let me see who comments correctly on each of them . Also tell me if there is any
other trendline which could have been made , but i have left it ?
Read-Error
People who are good with Videos can watch following videos
Please comment on this article , did you like it ? Was it easy to understand ? Is it too difficult to use
Trendlines ?
Conclusion :
So we end this Article here , We saw Importance of Support and Resistance and how to make
trendlines and use them . In the next part (last part) , we will see how we can use some of the
Indicators from technical Analysis to make decision better .
Also , we can see that even by visual inspection we can get some idea about which area is support
and resistance area .
For people interested in learning these things in detail , I would recommend a book "How to make
money trading with Charts" by Ashwini Gujral .
Continue Reading
Even More Interesting Photos

Check out this SlideShare Presentation:
Even More Interesting Photos
View more presentations from ronaldl.

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Friday, April 3
Return of Premium Term Insurance , Is it Worth !!
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Term Insurance is the best form of Insurance , but why not take
"Return of Premium Term Insurance" Policy , which is same as
Term Insurance , but with return of all your premiums back , in
case you do not die :) , Which is better is a common question
now ? Let us do simple maths and analysis our self . If you know
little bit of maths , you can be far better than many by analysing
things your self . So how do we find out which is better ? "Simple
Term Insurance" OR "Return of Premium Term Insurance"
Its too simple to find out . Just try to come up with a plan which beats or does better than "Return of
Premium Term Insurance" , If you can beat it , than Simple Term Insurance is better else its not !!
Let us take an example scenareo ...
ING Vyasa has a "Return of Premium Term Insurance" plan called as "ING TERM LIFE PLUS" ,
click on the "Benefit Illustration" link in the middle of the page and it gives a following example for
regular premium .
Read-Error
Company also provides two types of payements :
a) Mid Term Benefit: On the Life Assured surviving to half the policy
term, the Company will return 40% of the regular premium or 20%
of the single/limited premium, as the case may be, excluding the
extra premiums if any paid by the Policyholder.
b) Maturity Benefit: On the Life Assured surviving to maturity, the

Company will return the total premiums paid without interest,
after deducting the policy mid term benefit and extra premiums if
any paid by the Policyholder
So the numbers look like this :
Age : 35 yrs
Total Duration : 20 yrs
Cover : 12,00,000 (12 Lacs)
Yearly Premium : 10,653
Maturity Amount : 213060 (amount he paid during 20 yrs , 10653 * 20)
Death Benefit : 12 Lacs
Can we achieve the same thing or better with 10,653 per year ?
Lets take a simple Term Insurance + PPF combo
From Religare Aegon , I got that Insurance premium for 35 yrs old for amount of 12 lacs and
duration of 20 yrs is Rs 3721 (after tax) .
So if we pay 3721 out of 10,653 for Insurance , we are left with Rs 6932 (10,653 - 3721) .
If we invest this Rs 6932 per year in PPF for 20 yrs , @8% , we would get 3.4 Lacs . Which beats
ING amount of 2.1 lacs . Now this is the safest way of beating it . No questions behind it !! .
With SIP in mutual funds
For a investor who can invest it in Mutual funds through SIP , assuming a acceptable 12% return , it
would be around 6.9 lacs in 20 yrs .
Now the question is what is the benefit of "Return of Premium Term Insurance Plans" ?
Ans : No benefit , Now a days Insurance companies have realised that people are understanding the
importance of Term Insurance , so the next idea for them was to build something on top of Term
Insurance , give a "feel" to customers that "they don't loose on premiums also" and present a
product which looks "irresistible" to them . But they forget that there is something called as "Maths"
in this world .
Conclusion : So If you have to take Insurance , Just go for plain Term Insurance , Dont go for
Return of Premium Term Insurance , There premiums are too high .. its always better to use extra
money to make other investments :)
That's all for now ...
Comments/doubts/disagreements !!
Question for you : How will you deal with an agent who wants to sell you this product ? Or How
will you even convince your friends who fell in the trap of these products ?
I have posted articles on Technical Analysis which teaches some simple things investors can use to
Buy and Sell stocks , you can read Part 1 and Part 2 . I will soon come up with Part 3 and 4 .
Final Note : The best products in this world are "Simple" . I consider Term Insurance as product of
the Century !! , nothing can beat it !! :) . Do simple maths with idiotic products which comes in
markets , you will know if its worth or not .
Continue Reading
Thursday, April 2
How to use Support and Resistance to Buy or Sell Stocks
This is Part 2 of the How to become a

better than average Investor series , see
Part 1
In the last post we discussed the

importance of Fundamental and
Technical Analysis . Now we will see
one of the most simple , easy and
powerful thing called Support and
Resistance .
This is for people who have no idea

about what is it and have at most heard
about it .
Let us see both of them one by one .
Support : Support for a price is a price area where there are lots of buyers ready to buy the stocks
rather than sellers . At that price point , the general perception is that its a good buy , and lots of
buyers come to buy it . Hence buyers outnumber sellers and there is a higher possibility that prices
will bounce back from that point . This is a point where Buying has less risk .
In other words , at support levels demand is thought to be strong enough to prevent the price from
declining further . Please understand that Support point is not a place from where it will for sure
bounce back , Its only the higher probability that it will bounce back . Also understand that its not
exactly a fixed price which should be considered as Support , generally its a range like 98-100 or
560-570 ..
Which point is Support point : Every Low made by the price can be considered as Support Area .
Let see Example :
Support Example 1 : Below chart is for Jaiprakash Associates (click to enlarge) , It made a low of
Rs 53 (closing price) on 27th Oct 2008 and then bounced up from there . Now Rs 53 is the support
point , Prices went up from that point and after reaching Rs 90 , it again started heading down , You
can clearly see in charts that it reached Rs 53 levels , but could not break down from that point and
again bounced back from there .
It was a very good "BUY" around Rs 53 .Understand that buying around Rs 53 , is only a less-risky
trade , not a "no-risk" trade . Prices can break down from there also .
Read-Error
Support Example 2 : Below is a chart of RPL . Here you can see that
prices made lows of Rs 70 around Dec 1 , 08 . That became a support point , and then prices
reached thought levels around first week of Mar 09 , It bounces back from that point , It was a less
risk trade around Rs 70 .
Read-Error
Resistance : Resistance is just opposite of Support , At this price levels there are more sellers than
buyers and with high probability prices reverses from this point . At this point there are enough
sellers in the market to prevent it from rising further .
Resistance point is the High made by a price . All the high's will act as some kind of resistance
points .
Lets see examples :
Resistance Example 1 : Below is Reliance Charts , You can see that reliance made a high of Rs
1400 around Dec 2008 , After that you can see how it reversed from that point 2 times in Jan and
Feb 2009 . It was a wise decision to sell at those points .
Read-Error
You can also find many examples like this if you investigate yourself . Try to see other charts if you
are interested , you can look at charts at ichart.in or http://www.bazaartrend.com/index.php , find
yourself)
Important Note : When prices are near Support or Resistance levels , you should be more alert . It
does not mean that you just jump onto market and buy or sell , Be patient to see the actual price
reversal , Though you will loose some part , that would be a better trade . Also there are several
other factors which should be considered , but for now lets not touch upon them . lets keep it simple
for readers .
Lets also look at some important points
Break Down : Always remember that when prices dont hold support and break them and fall
further , it tells that buyers are not strong enough and Sellers have taken over them and prices will
make new lows , When support is broken , Sell further .
Example :Below is the chart of RPL , which shows how it broke down its support point and then
made further lows .
Read-Error
Break Out : When prices dont hold resistance points and break them on upside , prices then
indicate that they are going to make new highs . Better to buy at that point .
I have put a post on my analysis blog for Reliance Break out : please see it :
http://manishanalysis.blogspot.com/2009/04/reliance-break-out-target-1800.html
Some Other points to remember :
1. Support and Resistance points are places where you should be more alert and look for other
signals to buy or Sell, just dont buy because prices have reached near support , buy it when it starts
rising and there are positive signals .
2. Support once broken becomes Resistance for next time , and Resistance once broken becomes
Support point for next time , use this knowledge . See :
http://candlestickmania.blogspot.com/2008/07/resistance-becomes-support.html
3. Many times there are false breakout and breakdown , So it will many times happen that you get
out at important levels and miss the large movement , thats fine , you can always enter after getting
out .
4. This is most important point , Everything I talked about in this article can increase your chances
of making more money in trading , but remember that you are dealing in Markets , and if you dont
control your GREED and emotions , your failure is guaranteed . Use strict Stop losses and use
Money management techniques (it means not putting all your money at once , if you have 10 lacs ,
put only 1 lac , dont be greedy enough , else someday you markets will punish you badly , then no
Technical analysis or any thing will help . have good amount of cash with you always ).
All technical Analysis and knowledge are of no help if a person cant control his greed and emotions
in Market . TA and your knowledge will contribute not more than 20% of your success in long run .
This was end of Part 2 of this series , In next port (Part 3) we will see how to find support and
resistance levels using TRENDLINES . wait for it .
Comments please , Its sometimes disheartning to see no comments after I put up a post after some
hard work . I dont want "good post or Great Article kind of comments , but at least share what you
have learned and ask questions , make it little interactive please .
Question for you all :
Question 1 : Do you think this support or resistance thing works , or can you add anything else how
to buy or sell and what things to observe at support and resistance levels , which can make buying
and selling more successful ?
Question 2 : What do you think about Chambal Fertilizrs at this point , see the charts at :
http://www.bazaartrend.com/index.php?symbolname=CHAMBLFERT (click on the upper left
button to make it full screen) . Suggest what should be done at this point of time ?
I came across very nice video , about difference between winning and success , a worth watch . See
it below
Note : All the things discussed here are available on net with great detail . learn more of it yourself .
Continue Reading
Monday, March 30
Fundamental Analysis and Technical Analysis , What and When !!
I am starting a series of articles which will deal with "How

to invest in stocks efficiently" . This post is Part 1 .
There are two important questions which you have to answer

when you want to buy shares ? They are "What to buy" and
"When to buy" ?
You may be familiar with Fundamental Analysis ,

Fundamental Analysis answers the question "What to buy" ?
. It a study of companies Financial statements , cash books ,
markets study to find out the future prospects of a company.
It answers the question "Will this company be a good buy for
long term" ? , "Will it be more valuable than what it is now "
etc etc "
But !! , Even though you have picked up some excellent companies for your long term investments ,
That's not the end of the story . Now the biggest challenge and question you have is "When to buy
it" ?
You should not just go next day and buy the share , that's not the right approach . There can be a
price area where buying is best in terms of risk/reward .
Technical Analysis is the study of charts , price and volume patterns and other indicators derived
from price and volume . Technical Analysis gives us hint on what can happen in future , understand
that it only gives you chances, not a guarantee . So everything should be taken with crossed fingers ,
Decisions taken on basis of TA only increases your risk/reward scenario .
I will give you an example :
Reliance is a very good long term Investment (do your own analysis to find out why, but it is :) ) .
On Feb 1 2009 , Ajay and Robert want to invest Rs 1 lac in Reliance for long term . Both of them
understand that Reliance is truly long term buy . Ajay invests in Reliance on Feb 1 , because share
is going up and he feels its a good time to enter other . He buys the stock at Rs 1360 . After some
days Stock starts falling and reaches around Rs 1,150 . Roberts buys the stock at that time .
see the chart here
Here you can see that Robert has got the stock at 15% lower price , which means his profits will
always be more than Ajay's by that much . What did Robert do ? Robert used simple Technical
Analysis concepts and entered in the stock with better prices , It does not mean it will always
happen , but there are good chances for getting better price .
In the above case of Reliance , there is no significant price difference , but there can be cases ,where
there can be drastic differences , and it would be really worth to use basic Technical Analysis .
Dont be scared , I will tell you some very basic things of technical Analysis in some of next post .
I will talk about
Part 2 : Support , Resistance

Part 3 : Trend Lines
Part 4 : Simple Oscillators to use for short term investments .
Watch out for second part soon .
Please share any real life example which happened with you , May be we all can try to find out
what could have been done to make a better entry or exit from stock .
cheers :)
Continue Reading
Saturday, March 28
Some flaws in Investing by retail Investors
"People who take some pain eventually Gain"
Have you invested in the peak of bull run (Nov Dec 2007 or
Jan 2008) or in middle of this downturn (Mid of 2008) and
now sitting on heavy losses .
In this article we will discuss how and why should we avoid

it . This article mainly covers investors who invest there
money in some share for relatively short term like 6 months
to 2 years , even though its applicable for all kind of
investors .
btw , If you have still not voted for the poll above , please do
it .
Robert bought 100 shares of Jaiprakash Associates around May 2008 , at Rs 300 .His reason
was simple , The stock has fallen "a lot" , "how low can it go? " , " What if I don't buy it and
it goes up again , I will miss the profits" .
Does it sound similar ?
Then stocks moves upto 350 , and he is so furious that why he didnt out more money . within some
days stock comes down to 250 . Now he feels that he probably made a mistake and made
investments at right decision . He was sad that he is now in loss , he says to himself , that he will get
out at cost once it moves up to 300 . Now it comes down to 200 , He is not thinking why didint he
get out at small loss ? He is not ready to get out at 250 , and he is determined to get out . But it
never happens and stock tumbles down to 160 , Now he tries to play a trick with market , and wants
to prove his point that he is also smart .
He triples his shares by buying additional 200 shares by buying the share at 160 and averages his
price to Rs. 207 , He can now get out once shares move to Rs 200 or 210 and he can get out at cost
price or may be he can make some profits also .
But stocks still goes low and reaches low of 45-50 . At the time of writing this article , the price for
the share is around Rs 90 . Probably it will take at least 1-2 yrs for this share to reach Rs 200 levels
and that will happen once overall markets stabilizes .
You can see JAIASS chart here :

http://in.finance.yahoo.com/q/ta?s=JPASSOCIA.NS&t=1y&l=on&z=l&q=l&p=&a=&c=
Does all this sound similar to you ?
What are the wrong decisions Robert made ?
1. Trying to Time the Market : The one reason was that he was trying to find out if share has
made a low . He believes that share has lost a lot of value and will not go further .
Learning : There is an old saying , "Dont catch Falling Knives" , When a share has started its down
move , the chances that it will move more down is more than its going up . The overall mood is bad
. There is no MRP of shares , there is only market value . Prices are governed by emotions and
sentiments , Dont try to get in middle buying them . Rather short sell it or wait more .
2. Patience : The other problem was no patience , Just imagine if this person had more patience ,
What if he waited for stock to go as low as possible and then start its journey upwards and then buy
it . I am not saying , its a right time to buy , but current scenario provide much better risk/reward
ratio .
Learning : Dont go against the trend , if markets are falling like hell . dont mess with it by buying
in between . Have patience , No profits are better than losses I guess . Always try to be with the
trend , A stock has more chances of going in the same direction of the trend rather than counter
trend . On the day Satyam bad news came in , I dont know why people bought shares in between it
was falling , It fell from 170 to 40-50 , But people bought it in between around Rs 120 levels ,
thinking , "How low it can go" . Eventually some people bought it at 20-25 levels and many have
doubled there money in weeks . Patience helps .
3. No Stop loss or Targets set : Often people emotions come in between there trading or investing .
"If only it comes back to Rs XYZ i will get out" , Once it goes up by Rs PQR more , i will get out" .
People invest without knowing there risk capability , They dont invest with some target , once your
shares rises by 20% in 1 month , you may often think , what if it goes up to 50% , then I will miss
out those profits .
They also dont want to take losses , they only want profits , once prices go against them , they are
not ready to get out at small loss . They want there money back. Then prices move a little more
down and then this vicious circle of "If only it comes back to this point , i will get out " continues
Learning : Do you invest to be right or to make money . What is your goal ? I guess its to make
money . So dont feel bad if you are wrong some times , it happens with everyone . The most
important thing is to not let it become so big , that it becomes pain . Have a stop loss , When you
buy something at 300 , say to your self that if it comes down to 250 , i will take Rs 50 loss and
accept I was wrong and move on to find out a new opportunity . And also tell yourself that if it
moves to Rs 500 , I will get out , take my "excellent profit" and then find out some thing else . Dont
be too greedy . It hurts in long term . "just a little more" is a not a good idea .
You can a similar article where i discussed 5 mistaks of my First trade :

http://www.jagoinvestor.com/2008/12/5-mistakes-of-my-first-trade.html
Conclusion : The main idea of investing is to make money , dont try to prove market that you were
correct and no one can make you wrong , keep your emotions at home , If you are wrong , you are
wrong , Just accept it , take small loss and try to find out new opportunity . Dont waste time with
the lossing trade and give all your time and effort in that .
Know some rules and stick to it . Mainly this is applicable to traders whose time horizon is very less
like day or a week , but this also applies to investors . Even if you are investing for long term like
10-20 yrs . Buying a share at low cost can have dramatic affect on your corpus . Just imagine this :
Ajay invests 1 lac in Unitech at Rs 150 just after it fell from 900 levels in Jan 2008 . His investment
after 30 yrs was 66 lacs .
But Robert waited patiently to let this share go as much down it can be and after markets shows
some strength and signs of recovery bought it at Rs 30 , His corpus would be Rs 3 crores .
Just imagine the difference of having some patience and respecting some ground rules of investing .
It pays .. believe me .
Keep coming to the blog as in coming days I will post an article about how a common person can
use basic technical analysis to make his investments more powerful and less risky .
Question for readers : What do you think Robert could have done better ? Or How what are the
other mistakes which i have not mentioned ?
Please post your views/comments/questions . Make it interactive .
I hope you have read my article on : How to use your losses to reduce your taxes
Thats all for now .
If you liked this post , follow me on @jagoinvestor

Continue Reading
Thursday, March 26
Can you beat Warren Buffet ?
May be Yes , May be No !! , but certainly you can invest in a similar way as he does , By making
investment decisions the way warren buffet does , you can make some of the best investments for
long term .
Shyam Pabbati , shares some of Warren Buffet investing Philosophy and principles in his article at
his blog , Read it .
If you are a serious long term investor, Its a must read for you .
I have discussed about Akruti City crash in my previous article , read it
I have also discussed how should you make your investments in current market , read it .
Akruti crashes by 50% , Finally it happened

Akruti crashed by almost 45-50% today . This happened inspite of strong global clues and strong
rally in markets which touched 3100 levels on nifty .
From the levels of 2250 some days back , today its near 900-950 levels .
This crash was due anyways ... Some days back I had warned that there was a Evening Star seen on
this stock charts and It should be seen as a shorting Stock on every rise . read it here :
http://www.jagoinvestor.com/2009/03/akruti-city-plunges-25-in-early-trade.html
Read my previous post how to invest in this market

Evening Star shows you the shift of power from bulls to bears . Markets were near expiry and all
the punters who were holding the stock from the time of strong rise which started , had to clear
there positions and hence a sharp selling was expected . No Surprise that it happened today , As
markets were rising , every short term long holder wanted to clear his positions , this resulted in
panic selling and stock went down so much .
Now it has come to its normal levels and with this strong rally , it has good chance to move up in
coming weeks . Dont over invest incase you want to invest .
You can put 10% of your capital in this and liquidate half position after you are in 20-30% profit . It
can give some quick gains later . Dont be greedy , sell in profit once you are in 50%+ profit .
otherwise one fine day again it will drop heavily and you will be left crying .
Why am I now suggesting to invest in this , last time I said stay away ?
Investing or trading should be done on high probability trades . This stock went up heavily and then
corrected a lot to come back to normal levels now . This is a ideal time to take calculated risks , The
risk/reward of this trade would be worth taking .
It does not mean , you cant loose from here , why not !! , but its worth taking that risk , because
profit potential is very good . Have a logical stop loss and once its hit , get out with loss .. first loss
is the best loss .
Did any one make profits or loss on Akruti ? Share it with other readers , so that everyone comes to
know about it .
Read my previous post how to invest in this market

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Sensex Touches 10000 , Nifty 3100

Markets are rallying for last many days because of global clues . The biggest confusion with
Investors now is to invest or not . This can be the start of new bull run or it can be a bear market
rally which might reverse and there can again be a low made .
My views : Though markets have come long way from 2500-2600 levels , and if you have not
invested at that time (before some weeks) , then you have missed some good rally .
But anyways , markets are roaring even now and there are chances of markets going little more up ,
after which it may again head down and then move sideways for some time or do down again .
If you have to invest for long term now , you must now wait for a dip , and then you can buy your
stocks , with tight stop loss around 2850 levels of Nifty (to make it simple)
If Markets move up : Book profit on some position and keep half shares with stop loss at buy price
.
If Markets go down : Get out at the SL price and take a small loss , then wait for markets to move
down and when there are signs of strength again , then buy fresh , dont forget to participate that
time because of fear . Watch moving averages .
Last Notes : Until there is any fresh bad news from US or world economies , chances of Nifty
going down 2850 looks bleak, but expect surprises always :)
If I had money , one of my choice would be to buy Reliance (on dips now) .
Please share your comments on what else we can do and what are the good stocks to pick this time .
Which one according to you can be next Bull market King .
Read how to reduce your taxes using your Losses here

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Monday, March 23
How to use losses to reduce tax
Are losses good ? Do they have any benefit ?
When you make a loss , do you feel it has nothing to provide or not at
all beneficial .The answer is NO! , losses are bad, but our tax laws
gives us a way to utilize them in such a way that we can reduce our
tax liabilities . Lets see how :) , don't worry , we will start from
scratch and will explain in detail so that everyone can understand .
Let us talk about capital gains in detail today and let us understand
how should we utilize it to minimize our tax liability. Things we will discuss would be stocks ,
mutual funds , Gold , Debt funds , Real Estate etc .
Understanding Terms and Rules
Capital Gains and Loss : Any profit or loss aris from the sale of capital assets is capital gain or
loss . Capital Assets Include Shares , Mutual funds , Real Estate , GOLD etc .
Short Term Capital Loss and Profit : STCL for Equity (shares and mutual funds) is when you sell
them at loss before 1 yr , for Real estate , GOLD its 3 yrs .
Long Term Capital Loss and Profit : LTCG for Equity is when you sell it after 1yr , for Real
estate , GOLD its 3 yrs .
Following is the chart showing the tax treatment and time frame for short term for each asset class.
Click on the chart to enlarge it .
Read-Error
General and Carry forward Rules :

• Short-term capital loss can be set off against any capital gain (Long-term or Short-term)
• Long-term capital loss can be set off only against long-term capital gain.
• A long-term capital loss will have no value in a case where the long-term capital gain is
exempt from tax . For example, In case of shares or mutual funds after 1 yr , LTCG is
exempt from tax , so If you hold a share for more than 1 year and then take a loss , That
LTCL will have no benefit . This loss cannot be set off against any other income.
• A capital loss can be carried forward for next 8 years .
How can you utilize the losses ?
As we know that capital losses can be offset with capital gains , we can utilize this advantage to
reduce the tax liability .
The main idea is to create losses to offset any profits . There may be the cases where there is a
investment on which you are loosing , but still you have not booked the loss , but you can book it
and use this loss to offset a profit on which you may have to pay the tax .
Let us see some examples
Example 1 :
Ajay had invested Rs 5 lac in GOLD in 2005 and currently in 2009 he sold it for Rs 10 Lacs , Now
he made a profit of 5 lacs and it will be considered as a LTCG , as its after 3 yrs . and it will be
taxed at 20% indexed (If you dont know what is indexed , just forget it , dont worry ) . The tax
would be around Rs 1 lacs .
Now Ajay also had invested Rs 10 Lacs in Unitech Shares in Apr 2008 . His investment has come
down to Rs 4 lacs now . But he thinks that it will go up and he wants to keep it and not sell .
Good !! , I appreciate his belief that it will go up again . But what is stopping him from selling it
today and then again buying it next day .
What will happen if he does that ? If he sells his shares and takes a loss of Rs 6 lacs , He now has
made a STCL of Rs 6 lacs and law says that he is allowed to offset it with any STCG or STCL . So
now he can offset his 5 lacs profit with this 6 lacs loss and hence , he can save his tax of that 1 lac
which he had to pay , also he can carry forward a loss of remaining 1 lac which was not offset .
He can again buy his favorite Unitech share the next day . The only loss he will make is the
brokerage charges and any fluctuations which may occur in prices , which will not be much , may
be it has gone down and he can buy them later at better prices .
So the point is to generate the loss by selling a loosing investment and again buying it back in some
days . This will help you cook up the looses which then you can offset with existing profits and
hence reduce your tax liabilities .
Let us also see one more example
Example 2
Robert had invested 5 lacs in mutual funds in early 2008 or end of 2007 and currently has a good
loss of 2.5 lacs (1 yr is still not complete) . This is currently every one state , most of the people
have burnt their fingers and made huge losses .
Now he is sad that he made losses , He also had bought some shares before some months and made
a profit of 50k . Let us also assume that next year his mutual fund will rise to 4 lacs from current 2.5
lacs , which he sells next year .
Now he has 2 choices to make , let us see 2 cases .
Case 1 : He does not book the loss and holds it .
In this case , he will have to pay profit of 15% STCG on his profit of 50k , and next year he will
have his current investment at 4 lacs . When he sells it , it will be a loss of lac which will be LTGL
(because he had hold it for more than 1 yr) .
Case 2 : He books the loss of 2.5 lacs and then again buys it back the same day or next day .
In this case , he has made a STCL of 2.5 lacs (bought at 5 and sold at 2.5) , Now he can offset his
50k profit with this loss . Then he would not have to pay the tax and he can then carry his loss of 2
lacs carry forward .
Next year , he sells his mutual funds for 4 lacs and makes a STCG of 1.5 lacs (because he has re-
bought this mutual fund and 1 yr is still not complete) ..But he can offset this profit of 1.5 lacs with
the carried forward loss of 2 lacs , and still carry another 50k worth of loss forward .
So whats the advantage of case 2 ?
The advantage is that you can save tax on the existing profit and also generate STCL which you can
take forward and save tax on future profits .
There are many people who make losses and dont bother to show it in there returns , if they dont
show it in returns then they will not be able to use it for offsetting purpose in future .Note , The way
i have shown the examples have there own benefit and problems , Its you who have to decide what
you want and how to utilize the tax rules to your advantage .
Its smart use of knowledge , not cheating :)
I wish you have got some knowledge out of this article , please put your
comments/corrections/suggestions so that we can do more discussion .
Also, dont forget to put your vote on the poll at the top of this page .
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Sunday, March 22
Importance of small profits in your Trading
Bill Craft discusses a very important aspect of trading in stock markets . It says that trading success
comes from taking small profits often . There should be small losses , small profits and big winners
. These small profits will take care of small losses and give you over all profits only , and the big
winners will give you more than average profits .
Its totally unrealistic to expect big winners each time you buy some stock , Have a reasonable target
and take the profits . Once in a while a situation will come when you will get exceptional returns on
some trades .
Read this article :

http://marketfn.com/blog/2007/07/i-wish-i-could-always-know-which-stocks.html
Continue Reading
Friday, March 20
Introduction of Saurabh Maheshwari
Hi All
I would like to Introduce Saurabh Maheshwari to you all , Saurabh is a Banker by Profession and he
writes about personal finance, investment planning, debt management, retirement planning . His
blog link is
http://themoneybees.blogspot.com
You can read a very nice article from him on 10 Commandments of personal financial Planning . In
this article he discusses 10 most important point you should follow to manage your personal
finance's to its best .
Below is the article

http://themoneybees.blogspot.com/2009/03/10-commandments-of-personal-financial.html
Saurabh's LinkedIn Profile is here
Thanks
Note : I have updated the Akruti City post once again showing a bearish candlestick chart . Have a
look again at it , Readers , Dont forget to put your vote on my poll at the top .
Continue Reading
Akruti City Plunges 28% , stay away

Post Updated , Read it again if you read it before .
This is a follow up post on Akruti City saga .

While I write this post on Friday Evening 20th Mar 09 , Prices of Akruti City has crashed by 28%
with better than average volumes on NSE , and may even fall more . This is happened because
SEBI banned it from F&O from next month . In my previous post I mentioned that retail investors
must stay away from these kind of companies . The scrip has gained more than 250% from Jan 09 ,
and has doubled in just 5 sessions . this kind of behaviour is unjustified and hence it had become a
dangerous scrip to trade in .
There was a Evening Star Pattern seen today , which is a bearish Signal . This tell that its something
to be cautious of .Though its a signal to sell , but dont just go and sell , wait for the first sign of
confirmation again . Overall markets upmove can again take it high again .
Read-Error
So wait for next downmove to
consider selling incase you have
made your mind to do so . The better
thing would be to stay away .
Read what is Evening Star Pattern
Photo credit goes to

http://timamo.blogspot.com
In my earlier post I had mentioned

about this , Read it here
Though the reasons are not directly

related to company inside news or
anything . the point is simple ,
Whenever it comes down , it will be a heavy move and it has happened . Any one who had invested
1 lac a day before has now worth of Rs 75k. It may go further down or again go up . that's is not the
point .
The Point is Was it a Good investment ? Think :)
Read detailed new about Akruti City's Drop in Prices here
Read Is Direct Equity for you ?
To read some of the best articles of this blog , read this

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Thursday, March 19
Akruti City , Have you gone Mad !!
Double in a week ?
If you are watching Markets , you must have seen the movements of Akruti City . This company is
a Mumbai based Company . The shares of this company is on the roll from last 10 days . In just 1
week it has zoomed from 994 on march 9th to 2145 on Mar 18th , that's roughly a week .
Note : Please vote on the question asked on the upper - left hand side of this blog .
Also see the update on Jaiprakash Associates after todays markets action on my analysys blog ,
click here
So, Now the company market capitalization (13421 Cr) is second highest in Real estate sector , just
next to DLF (29229 Cr) . Its suddenly 3 times more valuable than Unitech !!
see list of real estate companies with market capitalization
My God !! , whats going on !!
90% of the equity is with promotors , and a very small fraction is with retail public , you can
understand that everything going on is just the "kartut" (hindi word) of minority public .
Agreed that anyone who has entered the stocks some days back or 2 days back or 1 day back has
made exceptional profits , But is it a right decision to invest in this as of now for short term gain or
to ride the trend . A big NO!!
For sure some insider trading is going on with company , that's the reason why stocks has gone mad
. Retail Investors must not get very excited with these kind of things , These kind of sharp moves
are not sustainable , to move in a healthy way , the stock must form a base (spend some time in a
range ) and then start its up move slowly and with some corrections in between .
These kind of mad up moves without any pauses and slowdown are nothing but a bomb ready to
explode .
If like someone who just entered the trade 1 week back and made 100% gains , other person can
also loose 60-75% in just 1 week from now onwards . If you put money in this , Its not investing
now , its Gambling !!
Suggestion : please stay away , Dont forget the mantra of "Not loosing money" rather than "Trying
to get fast money" in stock markets . If you are bothered about lost opportunity , I can bet there
more opportunities in market every day than all the combined opportunity in the world in all other
aspects of life . Wait for just 1 day and you will get thousands of opportunities again .
see detailed news on :

http://www.thehindubusinessline.com/2009/03/19/stories/2009031950981000.htm
Note : Please vote on the question asked on the upper - left hand side of this blog .
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Tuesday, March 17
Margin Of Safety Principle
Came across a good article . Just reproducing the work here . This post talks about the Value and
Price difference of some investment .
Margin Of Safety Principle
In his book, The Intelligent Investor, Benjamin Graham describes the concept of margin of safety as
being an essential part of any true investment. He goes on to say that margin of safety is an element
of investing that can be demonstrated quantitatively with sound rationale and from a historical
perspective.
Graham’s definition of margin of safety is essentially the gap between price and value. All else
being equal, the wider the gap between the two, the greater the safety level. Graham also explains
that the margin of safety is important because it can absorb mistakes in assessing the business or the
fair value of the enterprise.
As Graham says, The buyer of bargain issues places particular emphasis on the ability of the
investment to withstand adverse developments. For in most such cases he has no real enthusiasm
about the company’s prospects...If these are bought on a bargain basis, even a moderate decline in
the earning power need not prevent the investment from showing satisfactory results. The margin of
safety will then have served its proper purpose.
From its origin, the calculation of margin of safety was never related to the volatility of the sotck
price of a company. The focus of most value investors has always been based on the intrinsic worth
of the company in question--a bottom-up process that should be done without regard to current
market valuation (which very few analysts are willing to do). Even with a margin of safety, an
investment can still go bad. This is not a failure of the concept of margin of safety principle, as the
concept only provides assurance that the odds are in the investors’ favor that they will not lose
money. However, it is not a guarantee that the investors will not lose money.
There are and have been many adjustments to Benjamin Graham’s margin of safety concept in the
modern era. The way that Benjamin Graham calculated margin of safety years back was very asset-
based, and probably quite different from how analysts today would make the calculation. It is the
inclusion of the concept that is important in one’s assessment of an opportunity, rather than the
actual mechanics and particulars of the safety calculation.
Some value investors use a variety of measures in determining a firm’s safety levels. They are as
keen on asset values as on earnings and cash flow, and may even consider intangible asset values
like brands, reputations and intellectual property. They also use a variety of measures just in case
one of them does not hold up--the objective is never to be caught off guard. Based on these
criterion, these value investors look for several different measures, such as break-up value,
favorable dividend yield, price to cash flow, and discount to future earnings as supporting casts to
Graham’s margin of safety principle.
Buying companies with a margin of safety prevents owning companies with a high burden of proof
to justify their stock valuations. When a stock trades at a high valuation level, the expectations are
so great and often so specific that a slight disappointment or an adverse change in expectations
could be catastrophic. Buying shares with ample safety means buying stocks with the lowest
possible burden.
Value investors also believe that margin of safety should incorporate an investor’s appatite for risk.
The disparity of safety levels among investors is based on the amount of volatility they are willing
to tolerate, the mistakes they are willing to accept, and perhaps the financial pain they are willing to
endure.
The margin of safety principle essentially asks the question: What is supporting the stock price at its
current level? or, Why shouldn’t the stock fall significantly from today’s current price? The Graham
margin of safety is heavily conscious of what can go wrong, and not what the discount is to its fair
value--the safety is thus purely based on the liquidation value of the current assets.
WallStraits uses the concept of margin of safety, with a debt of gratitude to Professor Graham--but
we shift the primary focus from asset valuations to discounted future earnings. Our method is less
tangible today, but more valuable as a predictor of tomorrow. Because our DCF method entails
making several important predictions 10-years into the future, we require a large margin of safety--
perhaps 50% or more. Luckily, in a bear market environment, such as Singapore is currently
experiencing, there are several fine businesses discounted by over 50%.
Upon satisfying the 50% discount to future earnings, WallStraits moves on to evaluate dividend
yields (after tax), payout ratios, cash and debt levels, brand values, sustainable competitive
advantages, management capability and other fundamental aspects of each business being
considered for our portfolio. We place rather equal emphasis on quantitative and qualitative issues.
This differs from Graham’s search for pure quantitative net-nets (a price equal to the firm’s current
assets less all liabilities--placing current value squarely on the value of property, plant and
equipment).
Graham’s most notable student, Warren Buffett, demonstrated how vital it was to consider both the
quantitative asset valuations and the qualitative business assessments to find true value stocks.
Buffett favored the discounted cash flow valuation because it included both the ability of a business
to generate cash flow from tangible assets, as well as the ability to create value from intangible
assets--like brand strength, intelligent management, and consumer monopolies. Buffett made
famous the expression--I’d rather pay a fair price for a good business than a bargain price for a fair
business. WallStraits agrees that the ultimate investment is one undervalued versus its ongoing
ability to produce profits and reward shareholders.
You can use your own logic and creativity to make personal assessments of the qualitative and
quantitative forms for any business you consider for your portfolio--but regardless of your
methodology--don’t forget to always think from the perspective of seeking large margins of safety.
Credit goes to original post here

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Monday, March 16
Is Direct Equity for you ?
it will require some effort , learning and dedication . Also you will have to develop Read-Error
This is one of the questions which everybody wants answer to . You can do it , but
some kind of discipline and change your attitude a bit . We shall first see who all
are into Direct Equity Investing. They are Mutual funds , FII's , Big experienced
Investors with high experience and qualification . These people are 24/7 doing this
job of researching the companies for long term investing . And even these people
do mistakes and even they can predict markets directions always .
So now you can be one of the two kind of people .
1 . Someone who has no interest in the markets and have no desire to learn things on his/her own .
They want to earn better returns than debt , but at the same time without bothering much . Then you
better invest in mutual funds (SIP would be a good idea) .That way you can get returns over long
term and dont have to put much effort (apart from choosing good mutual funds in the start and
monitoring them once in a while in a year , which is not a big deal) .
2. Someone who is ready to take more risk and can also devote some time to do his own study of
stocks (not a big one , but basic atleast) . He has better than average interest in these things and also
enjoys the stuff . If you are one of those than you can put some money directly in shares of
companies after your own research and understanding , it can be any way you are comfortable with
. You should learn some basics of Fundamental Analysis and then apply it . For example i can say ,
that After RPL - Reliance Merger , Reliance will be among the biggest refineries of the world (it
was anyways , but now in better position) , It has lots of exploration projects going on and
company's is in safe and great management (as per the current information) , On the top of it
Company has great valuations , and is available at many years low price and now overall markets
are near its bottom . Just by looking at these facts , you can understand that it would make sense to
BUY Reliance for long term , better accumulate it over the next 6 months , to catch the volatility too
.
Can we go wrong and it may not give us good returns ? Definitely yes , Markets are the place where
you should expect the unexpected . But at this moment that's the best we can do and should do .
Can you do better than Fund managers of mutual funds ?
Some people may answer yes , and may be they are true , But personally I would say at this
moment I can't do better than them . Reasons are as follows :
- They are doing it from last 10 yrs , I might be doing it from last 6 months or 1 yrs (personally i
dont do any ) .
- They are highly expert and qualified people . I learned accounts till my 12th only and it really
sucks for me .
- They have access to internal information and resources to do better research . I don't have it .
So, I may be able to pick a company once in a while which gives 100% in 6 months against there
20% . but over long term , chances of there sustaining in the business is very high . So think long
term . Don't over estimate yourself .
You should understand that i am not trying to tell you cant do it . I am just trying to make sure that
you understand your position in this game and your abilities to do things. I personally like to do
things on which i am good at and transfer the responsibility of other things to experts in that field .
If I want the joy of it anyways , I will take a small portion of my portfolio and will play with direct
equity . That is allowed :)
Why Mutual funds Makes sense for Retail public ?
Mutual funds are the products which are formed on the philosophy that many inexperienced and
uninterested people who have money but no knowledge will pool all the money together and hire a
person who has experience , understand the markets well , and can take better decision . This person
also has all the time dedicated to investing , so that thousands of investors dont have to monitor the
investments and the returns which will be generated will be distributed to investors after paying this
fund manager for services .
So it makes sense you any one like you , who may be a Software engineer , Doctor , businessman or
another person , who has no time for all this investing thing . Its you who have to decide who you
are ?
Dont fell in the trap of high returns , With high returns comes the disaster too .
"Good return with some risk is much better than Exceptional returns with catastrophic losses" .
Comments please .

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Friday, March 13
Investing and Wealth Growth Presentation
Investments And Growing Wealth

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Tuesday, March 10
Best Articles of this blog
Happy Holi to all the Readers , We have completed more than 1 year with total of 135 articles , I
had posted the first article on Dec 6 , 2007 . This blog is appearing constantly on many keyword
searches , It all result my readers and I would like to thanks all of you .
I am putting links of some of the best and most appreciated articles of this blog .
Power of Compounding and Early Investing : This article talks about how early investing helps
by growing money in different stages and how you can generate more by putting less by early
investing . Time is the best friend in investing .
Understanding Life Insurance : This article gives you the insight on how to view Life Insurance
as , It talks about the importance of Life Insurance and How you should approach it .
5 Elements : Every Individual needs at least 5 things in this portfolio, If you have these 5 , your are
90% done . What are these most important things you should have .
Creating Long term Wealth : It gives you insight on how to approach long term Wealth Creation .
You can also see some astonishing facts on Compounding .
Diversification of Portfolio : This article talks about what is Diversification , and how it helps you
, It shows you how it reduces the risk and why its logical for an average investor .
Pillars of Success : This is one of my Favorite , It talks about the components of good portfolio .
Any stable , secure and strong portfolio needs to have some important Characteristics . Read it .
How to do your own Financial Planning : Financial Planning is not a very tough thing . Its logical
step by step procedure which any one can do on its own .
Portfolio Rebalancing : It talks about How portfolio re balancing Helps an investor and saves him
from timing the market. Its easy to do but needs Discipline .
How to choose a Mutual Fund : This post talk about the step by step approach of choosing a
mutual fund for an average Investor .
5 mistakes of my first Trade : This is for people who are into trading in markets . This talks about
my mistakes which I did myself , and talks about how to avoid it and learn from them .
Early Investor , Smart Investor : Even this post talks about the advantages of Investing Early .
Some other good Articles are :
How to Manage ULIPS
What is Long term in Stock Market
Options Trading , My Comments
How small savings can build big Corpus
Summary : I have just put the best article of this blog here , There are many other articles which
are worth reading , go through them one by one after you read these all
Continue Reading
DSP Black Rock Top 100
Lets see a good Equity Diversified mutual fund today , Read-Error

DSP Black Rock Top 100 , is an old fund , Its name
was DSP ML Top 100 earlier , but now its renamed . It
comes from one of the best Mutual funds houses DSP
Black Rock .
The fund has very good record and consistently

outperformed its Benchmark . To get more information
see here
Returns
If you see last 1 years returns its only -35% , which is much better than others who have given close
to -50% return .
1 yrs : -35%
3 years : 1.2%
5 years returns : 15%
Since Inception : 29%
It has consistently outperformed its category average by good difference. Which is one the
evaluating criteria .
Portfolio
Its portfolio is well diversified with high concentration on Large cap companies (50%) , which is
good .
Derivatives usage : There is one point to note in the portfolio is that the fund also uses tries to take
advantage of Futures (derivatives) . This is a smart action , considering Fund manager understand
the risks . Else it can be disaster .
Rating
Its rated as 5 star fund and is places in Low risk High Return Grade by value research online .
Though we should not put lot of focus on ratings , its one of the things to look at .
Conclusion : Overall the fund looks good . We have not done any detailed analysis but see it in a
way which should be done at the minimum level by an average investor . The main thing is not the
product , its the usage and utilization . You can take a normal fund and make most out of it using
SIP and portfolio re balancing .
Please do your own findings and see if the fund fits your risk-appetite and criteria . People who
want to invest money for atleast 3-5 yrs and without putting lot of efforts on monitoring the market ,
can invest there money using SIP in this Fund . Keep the money invested for at least 3-4 yrs , and
keep monitoring the fund performance minimum once every 6 months .
If you want to check one of my favorite scenes from movie "Socha na Tha" , see this
Continue Reading
Monday, March 9
What is long term in Share market ?
How long is long term ?
There are mainly 3 time frame in markets

1. Short term (6 months - 2 yrs)
2. Medium term (2 yrs - 8 yrs)
3. Long Term (8+ yrs)
We are taking about long term investing from point of view of

Investor , which invests in a company on the basis of fundamentals and valuations .
Time Frame is a relative term , Short term for some one can be medium term for some one and long
term for other . similarly if some time duration is long term for you , it can be short term for
someone else .
I have also written a small post on IDBI FORTIS WealthAssurance ULIP , Read it
But here we are talking about an average investor . So lets look at predefined tenures .
from my understanding, any time frame less than 6 months shall be considered as trading Time
frame . Traders are people who like to take advantage of short term price movements based on news
, Charts patterns etc .
One thing you must understand before hand is that Risk and returns are proportional , If you take
high risk , there are chances of high Returns.
Now , lets see different time frames .
Short Term (6 months - 1 yrs) : Any investment made from 1-3 yrs should be considered as short
term .
Risk/Return Potential : VERY HIGH .
Investing for short term : Invest for short term only if you can afford take the risk . Its always
good , not to invest for short term for any goals which are very important . Like for example, if you
are going to have an operation or a marriage after 1yrs , don't put your money in stock markets for
less than a year to gain extraordinary gains . Its for professionals , not for an average investor . do it
if you can afford to risk loosing it .
Low risk Short term investment option : Corrections in a BULL RUN : If there is a BULL Run ,
wait for a correction , It happens many times that there is some correction in stock markets , At that
time you can do some investments for short term like 6 months - 1 yrs . Invest only when markets
start rising again . Have a level in mind where you will take loss if it goes against you . There is no
guarantee of profits ever . If you are in profit after 6 months, take your profits and get out , don't
convert your short term investment in long term one , One who can not be loyal to his plan in
markets will eventually loose it all some day . Same thing can be applied to short selling in
corrections in Bear markets .
Example : In april 2005 , Oct 2005 , June 2006 , there was very good correction , after which it
gave 30-40% returns within 6 months - 1 yrs .
Medium Term (1 yrs - 3 yrs) : Any investment made from 2-8 yrs should be considered as
Medium term .
Risk/Return Potential : HIGH/Medium : Higher the tenure , lesser the risk .

Also it depends on the situation , there is again no guarantee , There can be some time , when there
can be high risk in 3 yrs and some time it can less , but over all it should be less than the short term
investment .
Investing for Medium Term : You should invest for medium term for goals like Car , Vacations ,
etc and some part of portfolio for House , etc (close to 5+ yrs , not 2 yrs) . Choosing well diversified
portfolio and investing in strong fundamentals is extremely important . Good timing is always
important in any time frame . but its difficult to time the market .
Low risk Medium Term Investment Time : After a Bear Market is there for some time around ,
and markets have fallen considerably , you can start accumulating good stocks with good valuations
every month in installment . Don't jump and put all your money at once ,just because you feel ,
"now markets have fallen much" , Markets are supreme and you are no one to "feel" or "tell"
markets movements . Just expect it to come back soon and now start accumulating good shares , or
start a SIP . There is no guarantee of any profits , we are just discussing the low risk opportunities
here .
Read why SIP helps in falling and Volatile markets , Part 1 and Part 2
Example : Current time . This is an excellent time to start accumulating fundamentally good stocks
in installments over next couple of months , especially a big chuck should be invested when there
october lows are breached within some days ,which is expected with high chances .
Long Term (8+ yrs) : Any investment made from 2-8 yrs should be considered as Long term .
Risk/Return Potential : LOW , By Low do not think that we are saying you will get lower return ,
we are talking about CAGR , obviously the CAGR you can expect over long term is lower than the
CAGR which you can expect in short term or medium term , but more important is the risk , the
loss potential , and that is extremely low here , almost Nil i would say , This I am saying on the
basis of past historical data . Loss is possible but chances are very bleak .
Investing for Medium Term : You should invest for Long Term for goals like Retirement , Child
Education , Children Marriage or any financial goal which is to be taken care of after 8+ years , Do
it using SIP .
Low risk Long Term Investment Time : Ideally speaking , you can start doing this any time
without seeing the current situation of market , because over long term it would matter less that
when you entered markets . This does not mean that timing is not important in growth of money ,
obviously , If you enter neat the end of bear market or at some other important time, it would help .
But the point here is that , it would not harm if you start investing for long term at any time frame
assuming that you are diversifying it well across sectors and stocks and also apply some extremely
beneficial techniques like Portfolio rebalancing over this long tenure . Don't get scared by these
words ,they are extremely easy to understand things and can be applied by anyone , and it does not
take much time also , The only thing required from investor is the his share of determination to do
all this .
Read what is Portfolio Diversification and Portfolio Rebalancing
Final Note : What ever i have talked about here are my personal views and my own idea of short
term , medium term and long term . It can differ from people to people with different risk - appetite
. Also understand that deciding your time frame is extremely important to deal with the situation in
markets after investments .
For example , if you decide that you are investing your money for your retirement which is going to
come after 25 yrs , then it would be really easy for you to digest the volatility of markets and to see
it going down while you invest . So know your time frame and invest it smartly at correct time .
Don't try to get smart and get greedy . Markets are the place where Albert Einstein and Issac
Newton also failed and returned to try what there were good at . That does not mean we will also
fail . Don't try to made fast money , in fact try to make smart money .
For new comers in this area, its advisable not to enter through Direct equity , better go though
mutual funds , and please listen to people when they tell you all this, don't get smart , else you will
be ruined like millions others .
I have also written a small post on IDBI FORTIS WealthAssurance ULIP , Read it
My trip to Savandurga on Saturaday was Great , check the pics at flickr here
Continue Reading
IDBI Fortis WealthAssurance

If there is any ULIP i can say is worth for , its WealthAssurance . I saw the product on its site and It
looks good to me .
The policy is very well organised and presented in a simple way . It does not look very complicated
also , Also it has many kinds of features using which you can adjust it to your situation any time .
I guess , the premium allocation charges for this policy is also low compared to other funds.
Who can take this policy ?
Anyone with time horizon of more than 10+ yrs can take this policy , he/she can use this to save for
there child education , marriage or own retirement . Make sure you read the policy documents
before investing your money .
To read more on the policy in detail , read here .
My trip on Saturday was Great , Here are the pics
Manish
Continue Reading
Saturday, March 7
Swing Trading Presentation by Sudarshan Sukhani
Swing Trading
this post is for people who are interested in Stock markets trading , Sudarshan Sukhani has posted
an excellent presentation on Swing Trading here , please go through it and use it incase you want to
do it .
Who should use this presentation for Trading ?
This presentation is only for people , who are already experienced with Trading , no matter they
make Profit or Loss . You must have some level of knowledge and experience before . Especially
for people who are trading and are yet to succeed in Trading (Whether its Stocks , Futures or
Options , it may be currency or Commodities also). I also come in this "overall loss making"
category of traders till now . I am yet to break even and start making some profits in Trading .
Who should not start using this presentation just after seeing this presentation ?
Anyone who is not at all related to trading and just want to start Trading . If you have not done it
before , Just look at it and stay away as of now . You are yet to gain more knowledge and then enter
this world , You yet need to understand what is Money Management , Trading Psychology ,
Technical Analysis etc etc . If you don't listen to me and start using the techniques given in this
presentation , there is extremely high possibility that you loose blow up your account at some point
of time , Just see this presentation , get the feel and save it for future reference .
Continue Reading
Thursday, March 5
RBI Relief Bonds
Some bonds have a special provision that allows the investor to save on tax. These are termed as
Tax-Saving Bonds, and are widely used by individual investors as a tax-saving tool. Examples of
such bonds are:
• Infrastructure Bonds under Section 88 of the Income Tax Act, 1961
• Capital Gains Bonds under Section 54EC of the Income Tax Act, 1961
• RBI Tax Relief Bonds
see other articles on tax here
What Are RBI Relief Bonds?
RBI Relief Bonds are instruments that are issued by the RBI, and currently carry an 8.5 per cent rate
of interest, which was reduced from 9 per cent early this year. The interest is compounded half-
yearly. Maturity period of RBI Bonds is five years, and interest received is tax-free in the hands of
the investor.
INVESTMENT OBJECTIVES
How Suitable Are RBI Relief Bonds For An Increase In My Investment?
RBI Bonds are not very suitable if you are looking for an increase on your investment. Since RBI
Bonds carry interest @ 8.5 per cent, capital appreciation is better in other safe instruments that offer
a higher rate of return. However, if safety is of paramount importance to you, you couldn't ask for a
better deal as this is the safest instrument to invest in. In case of the cumulative option, bonds issued
at a face value of Rs 1,000 are redeemed at Rs 1,516.
Are RBI Relief Bonds Suitable For Regular Income?
Yes, you can opt to receive interest either on a half-yearly basis or on maturity of the instrument,
along with the principal invested. If you opt for the first option, i.e., to receive interest on a half-
yearly basis, you will receive interest every six months from the date of issue of the bond up to 30th
June or 31st December, whichever is earlier. Interest is paid on 1st July and 1st January each year.
To What Extent Do RBI Relief Bonds Protect Me Against Inflation?
RBI bonds do not offer any protection against inflationary pressures. As with other instruments of a
similar nature, this risk has to be borne by the investor.
Can I Borrow Against RBI Relief Bonds?
Yes, you can borrow against RBI Bonds by pledging them as security in a bank.
RISK CONSIDERATIONS
How Assured Can I Be Of Getting My Full Investment Back?
RBI Bonds are issued by the country's central bank, the Reserve Bank Of India. These are among
the safest instruments available for investment, and you can be assured of getting back the full
amount of your investment.
How Assured Is My Income From RBI Relief Bonds?
Your income from RBI bonds is assured. Since the issuing entity is the country's central bank, the
risk on this investment is nil. In case of the half-yearly interest payment option, the rate of return is
8.5 per cent. In case of the Cumulative Scheme, where you receive the total interest at the end of the
tenure of 5 years, the simple interest works out to 10.32 per cent at the end of the tenure.
Are There Any Risks Unique To RBI Relief Bonds?
No, there are no risks associated with your investment in RBI bonds. This is one of the safest
investments you can make. Inflation and fluctuations in interest rates affect investment decisions in
RBI Relief Bonds. An increase in the interest rates result in a decrease in bond prices, and vice-
versa, if you want to sell them in the secondary market.
Are RBI Relief Bonds rated for their credit quality?
No, since the issuing party is the country's central bank-the RBI-these bonds are extremely safe, and
require no commercial ratings.
BUYING, SELLING, AND HOLDING
How Do I Buy RBI Relief Bonds?
Application forms for RBI Bonds are available and accepted at all branches of the Reserve Bank of
India, designated branches of the State Bank of India, and designated branches of nationalised
banks across the country.
What Is The Minimum Investment And The Range Of Investment for RBI Relief Bonds?
The minimum investment on RBI Relief Bonds is Rs 1,000. You can apply in multiples of Rs 1,000
thereafter. There is no prescribed upper limit to your investment in this instrument.
What Is The Duration Of RBI Relief Bonds?
The period of holding of RBI Bonds is five years from the date of issue. The bonds are repayable on
the expiration of 5 years from the date of their issue.
Can RBI Relief Bonds Be Sold In The Secondary Market?

Yes, the bonds can be sold or transferred to another party. If the bonds are in the form of Bond
Ledger Account (BLA), they can be transferred by execution of a Transfer Deed in the prescribed
form. However, transfer shall not be deemed as complete until the name of transferee is registered
as holder of the Bond in the Office of Issue. A new BLA will be opened in the name of the
transferee (whom the bond has been sold to) for the remaining period by closing the BLA of the
transferor (original holder of the bond). The Bond in the form of Promissory Note (PN) will be
transferable by endorsement and delivery.
What Is The Liquidity Of RBI Relief Bonds?
While RBI Bonds cannot be redeemed prematurely and must be held for the entire duration of 5
years, you can always exercise the option of selling RBI Bonds in the secondary market if you so
desire.
How Is The Market Value Of RBI Relief Bonds Determined?
Market value of RBI Relief Bonds is determined on the basis of prevailing (8.5%) interest rates and
market conditions.
What Is The Mode of Holding RBI Relief Bonds?
RBI Relief Bonds can be held at the credit of the holder in an account called BLA or in the form of
PN. The bond can be held in demat form, i.e., a certificate of holding will be issued to the holder of
bonds in the BLA. The bonds in the form of BLA are issued and held with the public debt offices of
the RBI or any branch of a scheduled bank authorised by the RBI. The bonds in the form of PN are
issued only at the offices of RBI. However, bonds issued in one form will not be eligible for
conversion into the other.
TAX IMPLICATIONS
Interest received on RBI Relief Bonds is completely exempt from income tax as per the provisions
of the Income Tax Act, 1961. RBI Relief Bonds are also exempt from Wealth Tax. However, there is
no tax benefit on the amount invested in these bonds.
For more information visit This Site
source : http://in.savings.yahoo.com/rbibond.html

Continue Reading
Magic of SIP , Part 2

Some days back I had talked about SIP and its characteristics using some examples , you can read it
here .
Today we will take that forward and see other important things related to SIP .
So , We have that same last example where 1,00,000 was invested over 2 years using SIP and
without SIP in UNITECH . Can we measure how good our investment is at any point of time . For
that I developed a simple indicator called IV ratio which is very simple , Its just the ratio of Your
total investment divided by its current Value at any given point .
IV ratio = Current Value / Investment
So if your investment = 10k , has current value of 8k , IV ratio = .8 , If current value is 15k , IV
ratio = 1.5
I have plotted a graph of IV ratio in two cases of SIP and NON-SIP . You can clearly see in the
graph that , IV ratio for SIP was always more than non-SIP mode . At first , IV ration was declining
for both mode , which is fine , because of falling markets , but still For SIP it was high , which
means , that you get better returns . then in last part , when markets were volatile , IV ratio for non-
SIP was stable , but for SIP it went up , which means that SIP was giving better returns at this point
.
Read-Error
Finally SIP mode generated worth of around 42k (IV = .42) and Non-SIP gave around 9k ( IV = .09)
Conclusion : IV ratio is a simple tool to measure the performance of your investment . You can also
use it to compare two different Investments mode over a period of time .
Now , let us see some other things in regard to SIP . I have plotted the graph for IV ratio of SIP ,
and the investment value itself scaled down to 1 . Blue line is the actual growth of investment and
RED line is the IV ratio .
Read-Error
Some of the things to Notice here are
1. In the start (till 17-18) Investment was going up , but IV ratio was falling , which indicates
Growth in value mainly because of your Monthly inflow in SIP , that means the markets are falling
and eroding your investment , but the decrease in value is less than your monthly addition which
you make .
2. From 18 payment onwards , you investment and IV ratio both are falling , which means that
markets are falling at very high rate and your monthly contributions are smaller than the decrease in
your portfolio .
3. from 31st payment onwards , you can see that IV ratio and your investment were going up ,
which means volatile and sideways market or small upside correction on up side .
At last , you can see that both the value converge to same value of .42 , which is your IV ratio and
your actual investment value , Because at this point total investment is 1,00,000 .
Conclusion
IV ratio is the measure of how well your investment is doing in a given market , If its higher than
yours friend , you can feel better because your have lost less for your investments . SIP results in
higher IV ratio in markets which are not going up too fast . which means apart from fast moving
markets on upside it makes sense to invest through SIP only . It protects you from volatility ,
develops from discipline , and your are more satisfied mentally .
Continue Reading
Tuesday, March 3
GOLD or SILVER
Precious metals market is on a roll these days !! , GOLD and SILVER are everyones Darling .
GOLD
Gold has given good returns from this year start and finally broke its trading range . Its expected to give good
returns in future too .
SILVER
Silver has outperformed Gold in 2008 and is expected to do so in future too . But I am hestiant with an idea
of buying Silver from some local jeweler . It should be bought from some recognised Bank only as per my
view .
I dont think that its a good idea to buy gold or silver in physical , People who want to do it to invest for
marriage and all is ok , but still its only for Investment and to gain from the price appreciation in these metals
, the best idea would be to go for ETF's . They are easy , secure , more cost-efficient and tax efficient .
Some Notes
Silver ETF's are still to come , currently we only have GOLD ETF's , so
given a choice of investments in precious metals , I would prefer GOLD
ETF to Physical Silver even though Silver is expected to outperform GOLD
in coming future .
Even GOLD has broke out of its trading range and now its expected to go
upto the levels of 1750 per gram , and then upto Rs. 2000 levels as
expected by some analyst in coming times . See :
http://manishanalysis.blogspot.com/2009/02/gold-breaks-out-from-its-trading-range.html
Guys , When it comes to ETF's , Benchmark mutual funds are the leaders ,
that company mainly focuses on ETF's and manage them in a better way .
So there ETF's are recommended . (that does not mean , others are not
good or can outperfom them) .
Continue Reading
Sunday, March 1
SIP Magic , Part 1
Numbers Speak !!
Today we will see some characteristics of SIP (Systematic

investment plans) . this is first part of this article , we will have
part 2 of this aswell where we will discuss other important
things about SIP .
Note : I have posted comments on Reliance-RPL trade failure

and markets update on my analysis blog
Assumption : We are assuming that investments were started

from year 2007 , It has both a part of Bull markets and Bear
market , So i chose that time frame .
Let us first see an example where investment was made in

NIFTY ETF's . There are two friends Ajay and Robert . Both of them want to invest Rs 50,000 in
markets with 2 yrs of time frame in mind . Both of them do not have that much cash in the start .
Robert believes that Markets are in Bull run and hence it has good chances of Capital appreciation .
He does not want to miss this chance and decides to borrow money on loan from friends and family
or personal loan and invest it .
What are his Characteristics at this point . Its just like any normal , average investor , where
investment decisions are based on emotions , without foresight and too narrow . They do not
understand the cycles of market and they do not understand that markets moves up and down in
every time frame .
On the other hand Ajay is an informed investor and does understand cycles of Market , He knows
that markets run from up to down and the bull market which started in 2003-04 has already run a
long way and can turn any time now . He understands that its a better idea at this point to not get
into debt to invest in stock markets . He controls his Greed and will invest only what he has . He
also decided to invest 50,000 in 2 yrs . but a small amount month by money systematically .
Now lets see the capital appreciation which happened for both of them .
Summary :
Robert invest full 50k in the start around Jan 2007 with 2 yrs of time frame .
Ajay also decides to invest the same amount but he breaks it in smaller chunks and wants to do it
using SIP on his own .
Monthly Investment Growth in NIFTY ETF from Jan 07 - Jan 09 for Rs 50000
Read-Error
Lets look at what happened ?
Markets continue to rise and Robert sees his investments grow from 50k to 75k within a year . Ajay
also sees his money grow to 35k , on an investment of 25k . If you see at this point , Robert has
made very great returns on his investment compared to Ajay . But after that see what happened .
Markets started going down and investment of Robert kept coming down with markets and at the
end it was at 35k . With Ajay it was a different case . His investments went up and down both sides
and finally ended at same point at 35k .
What is Drawdown ?
Drawdown is the drop in the value of investments from its High . If 10k investment go up to 15k
and then fall back to 12k . The drawdown is High(15k) - Lowest point after that (12k) = 3k , OR
20% drawdown .
Things to notice
Roberts Portfolio : You can see the behaviour of Roberts investments . It was too volatile . You can
see it going up and down and here and there . I am not saying that it didn't move and made profits ,
It made good profits at one point of time , but Robert must be smart enough and courageous to take
his profits even if markets are going up and there are chances of making more . People who want
"more" and "more" , eventually not even get "what they had" . Have a target and BANG !! , once it
moves at that point , be unemotional and take the profits . Markets is a place where money is flesh
and everyone is Vultures . If you leave it open for a long time , It will be taken by some one of other
.
The other thing is Psychological issue . Because investment moved so high , and then so low ,
Robert must be feeling bad and too conscious . He must be regretting a lot on not taking the profits .
This has bad effects on investment decisions .
Roberts Drawdown : His 50k goes up to 75k (high) and then it moves down to 38k . Draw down
of 41k which is 49.3% , this can have devastating affect mentally , as one sees his investment grow
to 75k and then drop to 38k and finally end at same point 38k after some volatile movement up and
down .
Ajay Portfolio : You can see the consistency of Ajay portfolio . It moved up and up all year whee
markets where rising . and once markets started going down and was volatile , his portfolio was also
volatile , but not very high , Its volatility was very low and finally it was almost at the same point as
in the start of the year . Infact you can see that his portfolio was rising still when Roberts was
declining .
Ajay's Drawdown : This highest Drawdown seen by Ajay portfolio was from high of 39k (20th
payment) to low of 35k , which is just 10.25% drawdown . You can get a feel , How difficult or easy
it must be for Ajay to see this .
The point here is not Who made more money or Lost more? infact you can see that they both were
in loss of 12k on an investment of Rs 50k , But the journey was not same for both of them . While
Robert worked too hard and saw wild swings . Ajay made systematic investment and continuously
saw his money go up only with minor drawdowns , which was easy to handle pshcyologically . This
is true for any investments weather it is Shares , Mutual funds or ULIPS investment s .
Now's let see and example for the same period , weather these two same investors have made
investment in UNITECH . why UNITECH ? I have taken this example because it shows what I
want to show , the power of systematic investment . Here both of them are investing Rs 1,00,000 (1
lac) in Shares of Unitech . Roberts invests 1 lac in the start of Jan 2007 , where as Ajay makes
weekly investment of a fixed amount in such a way that it adds up to Rs 1,00,000 at the end of 2 yrs
.
You can see the behaviour of portfolio for both of them.
Robert
Investment : Rs 1,00,000
Mode : One time investment
Final Value : Rs 9,000
Time frame : 2 yrs
Drawdown : 91% (Rs 1 lac , from high of 1.1 lacs to low of 10k)
Ajay
investment : Rs 1,00,000
Mode : Weekly investment (weekly SIP by self)
Final Value : Rs 42,000
Time frame : 2 yrs
Drawdown : 70% (28k, from high of 40k to low of 12k)
Weekly Investment Growth in UNITECH from Mar 08 - Feb 09 for Rs 1,00,000
Read-Error
Conclusion :
Now the main question ? What is good One time investment or SIP ?
The answer is both are good in different conditions , and it depends on your Risk appetite too .
When you don't have clear indication of trend and are not sure where markets can go , the best idea
is to invest through SIP . That will save you from volatile markets and small down moves too .
SIP will definitely miss out on returns in BULL markets . But it will work best in Volatile markets
and falling markets .
SIP is not a way to avoid losses , its a way of investing, where you feel more disciplined and
average your cost of investment of long term . The examples i have taken were biased because of
the idea i wanted to communicate . Anyone who did one time investment in 2004 would have made
more money than someone with SIP , till 2007 at least because of the rising markets .
You must have seen in first example that Ajay's portfolio was at 35k in the start of 35k , and even at
the end of 2009 , it was at same point even though markets fell from 20,000 levels to 10k levels and
was too volatile ,there comes the power if SIP (the money you pump in fights the falls in markets at
least) .
Part 2 : This is first part of this article , we will have part 2 of this aswell where we will discuss
other issues and things regarding the second example we took (UNITECH)
Request from Readers
If you are on twitter , try to post this article there , so that your friends can read it . I also have a
small complain from my readers . please recommend this blog to your friends and any one you
know and needs it . I feel this blog needs more readership and deserves too . You can help me
promote this blog to others , please pass it on to others . Thanks
Also , why dont you guys and gals leave me messages and comments , please put your comments
with your views on article and your own ideas, I should also get chance to learn from you all , dont
I?
Read continuation Part 2 of this post here
Have a great day .. I have posted comments on Reliance-RPL trade failure and markets update on
my analysis blog
Manish
Continue Reading
Friday, February 27
Are private Insurance companies safe ?
Many people have this concern about taking policies from
Private Insurance companies . Let us try to understand about the
factors which takes care of financial stability and ability to repay
back customers there money . In reality the only things
differentiates one insurance company from other is the service
the provide , there settlement track record .
Want to know why Insurance is Important ? Read this
Solvency Margin
It indicates how solvent a company is, or how prepared it is to meet unforeseen exigencies. It is the
extra capital that an insurance company is required to hold to meet all the claims which arise .
In other words , Solvency margin refers to the excess amount of asset the insurance company has to
maintain over its liabilities. Basically, it is the amount the insurer has to stash away in order to pay
the claims during emergency. IRDA requires the insurance companies to maintain a particular level
of solvency margin for their smooth functioning.
Why is Solvency Margin there ?
Companies have Assets and Liabilities . In some adverse situation , Assets are used to payoff all the
Liabilities . Suppose there is company which has assets of 100 , and liabilities of 100 . In ideal case
it would be able to payback the liabilities . But what if some adverse situation occurs and liability
increases unexpectedly . In that case company will be declared Insolvent (Bankrupt) . This will be a
bad situation which every customer does not want to experience .
Thats the reason , Solvency margin comes into picture , The excess margin maintained by the
company provides that extra cover which may be required in case some thing totally unexpected
happens .
by the way , i am now on twitter , so you can follow me and get updates on twitter .
What is the current Solvency Margin ?
Current Solvency Margin is at 150% for Life Insurance Companies . It means for every Rs 100
insured the Insurer should have 150 with them .
Does it mean customers are totally safe ?
You must have understood Solvency margin till now , but what if some bad event of High
Magnitude happens and then Liabilities of company (the claims they have to settle) crosses there
total assets + extra margin , in that case they will not be able to pay back , but the chances of this
happening is very very small , and generally Solvency margin takes care of it .
Some bad unexpected event like Earthquake or some terrorist attack which kills say 1000's of
people can dramatically increase Insurer's Liability , but in most of the cases its always taken care
by choosing adequate Solvency margin . But there are always that small percentage chances of the
Failure which you have to live with and we cant do anything .
So what does it mean for us common Investors while choosing Insurance Products ?
Solvency Margin has to be maintained by all the Insurance Companies in India whether its Private
or Public sector . All the companies are at same level , Some of them are old , some are new , some
are big and some are small , but its same for all and everything is under IRDA norms and scrutiny.
So decisions based on How safe or unsafe a company is not relevant now . Risk is with every
company and that is equal for all .
So for people who are going to take Term Insurance , the best thing is to go with the cheapest price
and good record of claim settlement . There are many new players in this market who are so new
that we don't have any long track record . like for Religare Aegon (which is my favorite) . So for
term Insurance , just break your cover into 2 parts and take insurance from 2 companies to diversify
the risk further .
Read tips while taking Term Insurance
Summary
This is what many people never knew and they take there decisions based on just trust and how
long company has been in existence . Huh , people trusted Satyam and Lehman Brothers also , so
what !!
Source : https://www.insurancemall.in/ and http://www.irdaindia.org/ .

Jeevan Varsha Analysis
Update : As pointed by Ranjan , there was a mistake in the analysis about the paying term of the
policy , i have corrected it now . Please re-read the analysis .
Now i am on twitter : Follow me at

https://twitter.com/jagoinvestor
If you like the article : Stumble it and Buzz it
Today we will talk about the market product

"Jeevan Varsha" , If you are a regular reader of
this blog, by now you must have gained enough
knowledge on how to evaluate a product like this ,
if not then go ahead and see .
JEEVAN VARSHA
You can see the features in detail here . Mainly

there are 2 things .
Survival Benefits
- 10% of the Sum Assured is payable at the end of
3 years.
- 20% of the Sum Assured is payable at the end of 6 years.
- 30% of the Sum Assured is payable at the end of 9 years
- 40% of the Sum Assured is payable together with Guaranteed Additions, and Loyalty Addition, if
any, at the end of 12 years.
Guaranteed Addition
The policy provides for Guaranteed Addition at the following rates

- Rs. 65 per thousand Sum Assured per year for a policy of 9 years term.
- Rs. 70 per thousand Sum Assured per year for a policy of 12 years term
We will analyse the policy for 12 yrs here . We will talk about two things using an example .
1. Returns from this Policy at the End
2. Can we do better than this policy with same amount of premium [ you know we can ;) ]
Example : Lets take an example of a person 30 yrs , who takes this policy for Rs 5 Lacs and wants
to make yearly payment .
Tenure of Policy : 12 yrs

Tenure of Payments : 9 yrs
Sum Assured (SA) : Rs 5 Lacs
Premium : Rs 78500 (calculated adjusting Mode rebate and High Sum assured Rebate)
Method of calculation of Premium
Total Annual premium for 30 yrs old for 12 yrs policy = 165.30
Mode Rebate of 2%
High Sum Assured rebate of Rs 5 .
So Total premium = (500000/1000)*(165.3 - 5) * .98 = 78547.0 (So i took it approx 78500 .
In Case of Survival , he will get
In 3rd Year : Rs 50,000 (10% of SA)

In 6th Year : Rs 1,00,000 (20%)
In 9th Year : Rs 1,50,000 (30%)
In 12 Year : Rs 6,20,000 [2,00,000 (40%) + 4,20,000 (70 for per 1000 for 12 yrs , 70 * 12 *
5,00,000/1000 ]
Returns from this Policy at the End
Now how do we calculate the returns from this policy for this person. There are two way (Models)
of doing this . One way is that we can just add the amount of money he receives from the policy and
see how much total money he gets at the end of 12th year. The other way is to assume that he is
investing his money (which he gets at 3rd , 6th and 9th) year somewhere , so that he can get it at the
end of 12th year (this way is a better way of calculating) .
First Model : Amount is just added
Total Sum received = 50,000 + 1,00,000 + 1,50,000 + 6,20,000

= 9,20,000
Second Model : Amount received is invested @8% such that he recives it at 12th yr . (for 9 yrs ,
6yrs and 3 yrs)
50,000 after 9 yrs : 99950 [ 50,000 * (1.08)^ 9 ]

1,00,000 after 6 yrs : 158687 [ 1,00,000 * (1.08)^ 6 ]
1,50,000 after 9 yrs : 299850 [ 1,50,000 * (1.08)^ 3 ]
6,20,000 : 6,20,000
Total = 99950 + 158687 + 299850 + 620000

= 11,78,487
We have not consider Loyalty additions and lets us see what are the reasons ?
Bonus's and Loyalty additions are not guaranteed and thats the reason you cant claim it as
entitlements . These components are not backed by the sovereign guarantee that extends
to the sum assured and guaranteed additions components. In the (unlikely) event of
Company going insolvent , you’ll only be entitled to the sum assured, at the time of death
or on maturity, and the guaranteed additions thereon.
This applies to any Insurance company with products giving Loyalty Bonus as one of the
components .
Now lets calculate the CAGR return from this policy , We have to use annuity formula for it for 9
yrs and then simple compound interest formula for 3 yrs . The formula would be
A = [ annuity part for 9 yrs] * [compound interest part 3 yrs ]
A = [ P * [{(1+i)^9 - 1 }/i] * (1+i) ] * (1+i)^3, where
A = Total money he accumulated till now .

P = yearly Premium (78,500)
i = CAGR return which we want to find out .
What have we done here ?
The person we have calculated annuity returns for first 9 yrs (because he is making the payments
for 9 yrs) , then he does not pay anything for 3 yrs , so we have calculated compound interest for
next 3 yrs . It may be a bit complicated to understand i know .
So
For First Model
The value of i which satisfies this equation is 3.3% , Yes you read correct . But this is not a good
way of seeing things , so lets look at Second Model .
>>> (78500 * (1+.033) * ((1+.033)**9 - 1)/.033)*(1+.033)**3

919262
For Second Model
The value of i which satisfies this equation is 6.4% . This is the true representative of returns .
>>> (78500 * (1+.064) * ((1+.064)**9 - 1)/.064)*(1+.064)**3

1175443.4117343538
Which model is more better
So lets take the Second model as the standard model for evaluation , So we conclude that returns
from this policy would be around 6.4% considering
Consumer is smart enough to invest the proceeds again into some debt product using which he can
get 8% returns .
Note that this return is considering there is no Loyalty Additions because they were not assured.
Total payment in 12 yrs was 12 * 79,000 = 9.48 lacs and at the end of 12 yrs he gets
9.2 Lacs (First model , 50k , 1 lacs , 1.5 lacs and 6.2 lacs, not reinvestment)
OR
11.78 Lacs (If proceeds are reinvested)
Some policy lovers would argue i am not considering Insurance and tax benefit part.
Regarding Tax benefit : We will compare this product with PPF , Mutual funds and Term Insurance
and they also have 80C benefit with them , so tax benefit is something common with all , so there is
nothing special with this policy regarding Tax benfits . For Insurance I will cover it in next part
which we will discuss .
Can we do better than this policy with same amount of premium
Let us first understand the Insurance part .
The sum Assured is 5 lacs , so if a person dies before 3 yrs , he gets 5 lacs , if he dies after 3rd yr ,
he will also get the Guaranteed additions . So the maximum a person can get by dying is in 12 yr ,
in that case he will get 9,20,000 (50k , 1 lacs , 1.5 lacs , 2 lacs + 4.2 lacs GA, No loyalty additions
in this case) . So lets be grace ful and say that this person will get 9.2 lacs in case he dies .
The first thing to note here is Insurance cover , I don't know what will happen to the family of this
person if they get 9.2 lacs as Insurance money . If a person has the ability to pay 78,500 per Annam
as premium , a wild guess for his Insurance cover is around 30-35 lacs at least . So the Insurance
cover is not enough
Now lets see , what I recommend for this person who pays 78,500 per year to take care of his
Insurance of 9.2 lacs .
So a person who pays 78,500 per year , can divide his 78,500 yearly payment into two parts , For
insurance and Investment separately . You know what i would suggest , its simple Term Insurance
and Investment in PPF or MF's
Read Importance of Insurance (Term Insurance)

Read about Mutual funds and how to choose them
Let us first take care of his Insurance part , though he is covered of max 9.2 lacs just for 12 yrs , we
are not that uncaring in nature to under-insure him , we understand importance of Insurance and his
Family needs and the tenure of cover should be 25-30 yrs , not just 12 yrs , His Insurance
requirement is around 30-40 lacs and we will provide it anyhow , even if the investments are to be
compromised . So we will try to provide him 35 lacs cover for 30 yrs .
For Defensive Investor
Insurance
Term Insurance of 35 lacs for 30 yrs : Rs 9,600 (Aegon Religare)
Investments
So he is left with 68,900 (78,500 - 9,600) , for his investments . If he invests this in PPF (though
there is limit of 70,000 , lets assume he can do it) . he will get around 14.12 lacs (annuity formula)
at the end of 12th year .
He can then take out 1.73 lacs out of this to fund for his Insurance premium for next 18 yrs left ,
still the amount left would be better than the Jeevan Varsha . The other alternative is to keep the
money in some Fixed Deposit
and keep using the interest
amount to fund Insurance
premium for next 18 yrs . There
can be other ways of doing it , but the main point is that we have done better than Jeevan Varsha in
all respects .
This investor can also use balanced funds for investments .
For Aggressive Investor
Insurance
Term Insurance of 35 lacs for 30 yrs : Rs 9,600 (Aegon Religare)
Investments
He can invest 68,900 yearly (5741 per month) left in Equity Diversified Mutual funds using SIP
every money month in max 3-4 mutual funds .
He should expect to get around 12% compounded returns over 12 yrs , and your money should
grow to 18.5 lacs (12% is again not guaranteed , its not based on Historical returns )
Summary and Notes
We have seen the policy from a broad level and see its main components , we have not seen small
details , because they are not significant enough to change the views anyways . We have seen how
its too complicated and provides returns which are less than what you can easily get in PPF .
Conclusion
Term Insurance + (MF or PPF) is a great combination , its easy to understand .The main this is to
first Insurance your self Sufficiently and then think about investments .
That's what i had to say for the day , don't forget to recommend this blog to others so that they can
also benefit . Also be sure to follow me on twitter here in case you are on twitter .
If you liked the article : Stumble it and Buzz it
Disclaimer : The views on this article are my personal . All the things discussed on this article are
for learning purpose only . This blog will not be responsible for your investment decisions . There
may be some mistakes while calculations , so please do your own calculations for taking any
decisions . thanks
Continue Reading
Tuesday, February 24
Beware of Mis-selling
From many years there has been a lot of

mis-selling happening in some products .
What is Mis-selling ?
Mis-selling means selling a product by giving a wrong picture of a product , it may include .
- Giving Wrong Information

- Giving Unrealistic Information (some times based on previous performance)
- Not giving full information about the product.
- Selling the product with proper information , even if it does not fit customers requirement.
Why is mis-selling happens ?
Mis-selling happens because of following reasons
Low Awareness : Financial awareness is very low in our country ands thats the reason we do not
understand products and how they can fit our requirement , Agents put a picture of a product in such
a way that it looks the best product for us .
Competitive environment and Sales Targets : There is lot of pressure on agents and manager to
show performance and sell products to meet there targets because of which mis-selling happens .
Last minute "Tax Rush" : People in India do not plan there Investments in Advance and hence at
last moment they buy product just to save tax and which does not fit there requirement , and sellers
take advantage of this .
Examples of Mis-sellings
ULIPS :
ULIPS are the classic example for mis-selling in this country , ULIPS are often projected as high
growth , less risky products with "Insurance" in build . Ofter agents promise that ULIPS are risk
free and it wont drop more than x% and return at least 10-15-20% in long run , which is nothing but
marketing gimmick . I have seen at least 100 people who have bought ULIPS and they don't need it
after 3rd year . They do not know why they bought it other than tax saving and when talked about
how much Insurance cover they have , no one had more than 5 lacs .
One of my friend has ULIP for 50 yrs !!! , not sure what he will do !! . One of my friend has
insurance of 1.25 lacs !! , Insurance of 1.25 lacs !! Really , what does that mean ... His/her life cover
is just 1.25 lacs , he earns 5 lacs yearly !! .
Read : who needs ULIPS ?
Mutual Funds
Even mutual funds are mis-sold , that happens when a agent recommends you a mutual fund which
does not fit your requirement . Often agents recommend mutual funds which are too risky for
customers without understanding there risk-appetite .
Read how to choose mutual fund ?
Insurance
One of the worst thing which has happened in India is that Agents never tell customers about Term-
insurance , which is ultimate requirement for Indians , This happens because of penny like
commission agents get on Term policies , thats the reason they often lure customers with products
like ULIPS and Endowment or Money back policies, which do not insure people to the extent they
need it . Agents dont explain the importance of Insurance and only make them feel that they loose
money in Term Insurance and we get lured by it , because we love "not loosing money" more than
"little chances of dying and our families suffering" , this happens because people do not have
enough foresight to look into future and question themselves about what will happen if they die
without giving enough cover to there families .
Read why Life Insurance is so important
So like this Mis-selling happens in many products .
What can we do and should do ?
"Prevention is better than cure" , this saying also applies in Investing , I know of people who took
wrong products and then have to live with it for 10-20- years like Endowment plans . (Read why
Endowment plans are not good)
So the only thing we can do is to educate our self to the level where no one can take advantage of
our ignorance . Once you come to a level , where you understand importance of things in investing
and managing you money , then no one can mis-sell you the products .
One of the recent product which i will categorise in Misold category is "Jeevan astha" , The reason i
will say it was mis-sold is because it tried to put its picture in a very fuzzy way and tried to put
things which were confusing to general public .
Conclusion
Dont Take any product just because it look good or is recommended by someone (not even me) . Do
your research and do some study , it does not take more than 1 hr to search the net and read about it
, or ask some knowledgable person whom you trust about the product . 1 or 2 hrs to study can save
you pain of years , So dont be lazy , when it comes to money no one is yours , its only you who can
save you from mis-selling . So wake up .. Jago Investor :) jago !!
Continue Reading
Insurance Presentation
I have created a small and simple presentation for newbies regarding Life and Health Insurance . It
will help new people to understand the importance of Insurance .
Life And Health Insurance

Continue Reading
Saturday, February 21
Search within You ..
I was watching a seminar video on my laptop today which

was a trading seminar conducted in US , the speaker was an
American . In the middle of the seminar he presented a
small story which was from Hindu Mythology which made
me feel good , I am putting it here word by word after
finding it from net (so that i don't have to type all myself) .
There was once a time when all human beings were gods,
but they so abused their divinity that Brahma, the chief god,
decided to take it away from them and hide it where it could
never be found.
Where to hide their divinity was the question. So Brahma

called a council of the gods to help him decide. "Let's bury
it deep in the earth," said the gods. But Brahma answered,
"No, that will not do because humans will dig into the earth
and find it." Then the gods said, "Let's sink it in the deepest
ocean." But Brahma said, "No, not there, for they will learn
to dive into the ocean and will find it." Then the gods said,
"Let's take it to the top of the highest mountain and hide it there." But once again Brahma replied,
"No, that will not do either, because they will eventually climb every mountain and once again take
up their divinity." Then the gods gave up and said, "We do not know where to hide it, because it
seems that there is no place on earth or in the sea that human beings will not eventually reach."
Brahma thought for a long time and then said, "Here is what we will do. We will hide their divinity
deep in the center of their own being, for humans will never think to look for it there."
All the gods agreed that this was the perfect hiding place, and the deed was done. And since that
time humans have been going up and down the earth, digging, diving, climbing, and exploring--
searching for something already within themselves.
What does this teach us ? In life we have all the power to achieve something we want , we cant get
help from some one , we can get tools , we can get support or for that matter any damn thing , but
what is needed for success lies with us only , So don't hunt for things outside , first know yourself .
Its only you who can change things .
How do i relate this to Investing and Money Management ?
Whatever it takes to grow your money , do better investments or take informed decisions , Its within
you , you just need to explore it , You can read stuff on this blog or anywhere else , but the real
wisdom lies within you , you have to work hard on it .
I know nothing spacial or advanced things , I know things which any one can learn , The only
difference can be my willingness to learn and make the difference and confidence . You can do it to
. Just make sure you have the fire to learn and see within you and have confidence .
Just like a good cook doesn't need great ingredients to make good food , he can make great things
out of simple and basic stuff , the same way , we dont need fancy products for our investments ,
Even if we have basic products we can utilise them well and create wonders , Only the knowledge
and willing to do is required. Its within you , search for it ...
I have put a analysis on Jaiprakash associates for a trading opportunity on my analysis blog , may
be you would like to see ..
Please leave your comments on the blog, on your view and wheather you liked the articles or not .
That way i can know atleast that people like my articles or not .
Manish
Continue Reading
Friday, February 20
LTA and medial Reimbursements
As we are in mid Feb of the year and its tax time , i thought to talk a bit on LTA and Medical
reimbursement benefits .Though many of you might already know about it , let me go over it in
brief for readers who have less knowledge about it .
You have a limit up to which you can claim your spent amount on LTA and medical bills and save
tax on that part . If you dint claim it, for that much amount you will be taxed .
Limit for LTA : 50,000 per year
Limit for Medical Bills : Rs 15,000 per year
So from your total salary , you can save tax on this 65000 if you want , if you dont claim it , you
will have to pay tax on this part .
What is LTA ?
LTA is Leave Travel allowance , is the benefit given to a salaried employee . You can claim travel
expenses from any one journey in a year .
- There is a block of 4 yrs decided by govt ( current block is 2006-2009) . In a block you
can claim LTA any two years . for other 2 yrs you cant claim it , so total 50,000 will be
taxable in those 2 yrs .
- You can carry 1 LTA claim for next block , which you have to claim in the first year of
next block .
- You cant claim LTA 2 times in a year .
- If your LTA is not utilised, it gets added to your salary and you will be taxed on
it.
- LTA covers travel for yourself and your family. Family, in this case, includes
yourself, parents, siblings dependent on you, spouse (even if your spouse is
working) and children.
- The entire cost of the holiday is not covered. Only the travel costs are covered.
So, whether you fly, hop on to a train or take public transport, you will have to
show the ticket to claim your LTA. This means you will need to keep your air, rail
or public transport ticket.
Medical Reimbursement
You can also claim deductions on the medical bills for medicines and doctor visits . You just have to
get the bills and submit a proofs .
The bills can be in the name of you or your dependents .
Final Note : Utilising this benefit just requires you to keep the documents ready . many people do
not claim this benefit because they are too lazy of keep the documents safe . Don't be lazy ...
Continue Reading
Thursday, February 19
What is Risk Apetite ?
Have you heard the word "Risk Apetite" ?
You might have heard this word from your

mutual funds agent , your Ulip agent , your
stock broker , from analysts giving tips or
any other place , we hear the word and then
we feel we understand it . may be you
understand it , But how do you define it ?
One of the reader asked me to include this in

my article and it seemed a good idea to me .
Before writing this article , i had a good
understanding and explanation of "What is
Risk-appetite" ? but instead of using my
words i thought it would be a good idea to
surf the net and try to find some material on
it to help it write article . As expected , each
one was totally correct , but not easy to
understand by common public . So at last i
thought i should write it the way i see it and
feel it . One of simple funda i apply in my
life is "if its complicated , its not worth" , So
let me start this small explaination .
What is Risk appetite ?
Risk appetite is the amount of risk you can

take on your investment . It is the point till
which you feel that you should be in the
game because still in the long run you will be
rewarded finally . Till that point there will
not be enough change in your mental state .
The moment it reaches a point from where
you feel like getting out is the best thing you
can do , That is the point where you accept that you were wrong at the time of investment . thats
your Risk appetite point . Now this is for a situation where you can not decide in advance about
your risk .
Lets see a Psychological aspect of this , When you see your money increase or decrease it has direct
relationship with your emotional state . If your money keeps increasing , you will feel euphoria and
get excited , you will be on top , and when you see it decrease or going down day by day .Our
emotions guide us in our life, and they are very helpful in your financial life (to determine risk) .
Lets see an example :
Ajay and Manish invested 100 in Share A , After some days the value dropper to 90 , at this point
both were calm , and accepted that this happened because of market volatility and its totally normal
. After some more days price went down to 70 . At this point Ajay thinks starts feeling oohh.. and
oucch.. in his stomach . This is the point where his emotional pain increases to a point where he can
no longer stay with this investment . Thats the risk Appetite for Ajay . whereas Manish is not
affected that much , still he can take loss of 20 more , only where prices drop to 50 , he will feel
jitters .
What determines the Risk-appetite ?
Risk Appetite is determined from many factors like Your Expectations , Your current Situations and
your past experiences .
Your Expectations
You risk appetite has to be proportional to your expectation . If you want more you Will have to
take more risk .
In the above example , Ajay will exit the investment and take Rs 30 loss , but what if Shares drop to
60 and then starts moving up and up and finally reaches 130 . Who will make profit . The person
who had more risk-appetite .
Your Current Situations
Your current situations determine your risk appetite , If you are sound financially and can afford to
loose more , you can have high risk appetite and vice versa . A person with a family to support will
have less risk appetite than some one who is is totally independent and has all his salary to spend on
his own .
Your Past Experience
Obviously , what happened in past with you in different situations will determine your future
decisions . People who lost lot of money by investing in Jan 2008 will now have less risk-appetite ,
because next when they invest there money somewhere , they will get panicked easily by a small
drop and hence may get out fast . Where as a person who made great money in 2003-2007 bull
markets will have high risk appetite .
I personally like Equity a lot , the reason may be because i want to make lots of money fast
(expectations) , I can afford to loose some money currently because of less responsibilities (current
situations) , and because i have made some (very small number) of quick profits (past experience) .
What is good ? High or Low Risk Appetite ?
Its a personal thing , There is nothing like good or bad . Its a subjective matter. At last everything
boils down to "You get what you wanted" , It must give you emotional satisfaction and joy .
There are people who are fine with 9% return per Annam and there are people who are not even
satisfied with 20% returns .
What is Risk Factor of a Product ?
Many people do not understand what is there risk appetite , I have friends who invested in Dec 2007
in ELSS funds , and cried a lot after it went down by 50% . The reason was they never understood
the risk factors . I also saw my investments drop to same levels , but my mental state was not
affected because i knew that it was possible with mutual funds and before investing i had accepted
that if it happens , Its fine .
Risk and returns are always proportional . If A gives more returns than B , than A has to be more
risky than B .
Generally people choose a product which matches there return expectation and then compromise
with the risk and then later when there is loss more then there risk appetite , they cry .
The better thing would be to choose some thing which matches your risk-appetite on risk side and
then accept that you deserve the returns provided by the product .
I know people who want more than 12% returns and also dont want to see there investments see any
negative returns ever . they are totally foolish to expect this . This will not happen .
Also i know people who are ready to see there investments dip by 30-40% with happiness but they
only invest in PPF or bank FD's , these people are bigger fool than former one;s , by not utilising
the equity power .
Update : some days back i had said that Gold has break-out from the trading range and can now
move to 1650+ levels . from that day , gold has shown very Sharp move , A sharp move can lead to
some short term correction , which can be used to add more gold or buy some fresh Gold (ETF , if
you want) , for some quick and small gains . see :
http://manishanalysis.blogspot.com/2009/02/gold-breaks-out-from-its-trading-range.html
Manish
Continue Reading
Wednesday, February 18
Brief Therapy
Brett SteenBarger is a famous name in Trading World . He writes about some thing called as Brief
Therapy which is related to psychothrapy .
I am copy pasting his article from his blog . Find some time to read this full article to understand
how you need to change your thinking and physcology to succeed in life . May be you want to
change what your are doing all together .
Brief Therapy – Part One: Therapy For The Mentally Well
Brett N. Steenbarger, Ph.D.
www.brettsteenbarger.com
It is commonly assumed that the role of the psychologist is to help people with their
problems. Lodged in the backs of our minds is the image of the patient on the couch,
talking with a Freudian analyst. In reality, applied psychology has come a long way from its
beginnings as a "talking cure". Indeed, many of the newer approaches, which have been
extensively studied and validated through research, do not emphasize talking at all.
Nonetheless, old assumptions die hard. People assume that you need to have "a problem"
in order to see a psychologist. In fact, insurance companies will not reimburse visits to
psychologists and psychiatrists unless they are provided with a "diagnosis" of the
problems being "treated". Little wonder that the stereotype persists that there's something
wrong with you if you need to see a "shrink".
The reality is that the good psychologist is not a shrink, but instead expands
people's minds and horizons. The goal is not to treat problems, but to make changes.
Psychology is about making changes in life. Sometimes these are changes in
relationships; other times, they are changes in the ways we think, feel, or act. To benefit
from psychology doesn't require that you have a problem. It does require a desire to make
changes.
A group of methods known as brief therapies are extremely promising, because they
accelerate the process of change. I refer to the brief therapies as therapies for the
mentally well. There are individuals who have chronic mental health problems. They are
not the ones for whom brief work is appropriate: lifelong, severe problems often require
ongoing assistance, including medication help. The mentally well, however, are not beset
with such problems. They are simply interested in making changes. Sometimes those
changes are simply to expand their strengths: to become even better at what they do.
A trader who made 2 million dollars last year--and more the year before that--recently
insisted on meeting with me before New Year's Day to identify areas for improvement and
set goals--and a path for meeting those goals--for 2007. His goal was to enhance his
performance, not rid himself of personal demons. That is an excellent use of therapy for
the mentally well.
So how do you know if you can benefit from such brief work? Here's a guide:
Behavior is patterned. How we think, feel, and act have a pattern to them, and that
patterning is what makes us who we are. The sum total of our patterns is our personality.
Sometimes our patterns interfere with our goals in life. They prevent us from being who we
want to be or accomplishing what we want to accomplish.
Perhaps there are times when you say to yourself, "I don't know why I keep [fill in the
blank]. I wish I would stop."
You could fill in the blank with any of the following--and more:
"losing my temper"
"going into slumps"
"winding up in bad relationships"
"overeating"
"beating myself up"
"making stupid trades"
"procrastinating"
"pushing people away"
"worrying"
"choking under pressure"
In each of these situations, we're recognizing that there is some pattern of behavior that is
not fully in our control. The pattern has ossified: it's hardened into a habit. If you can
identify a pattern that is getting in your way, you can benefit from short-term applications of
psychology.
Brief therapy is about changing the patterns that no longer serve us well. The
second step in such therapy for the mentally well is to ask yourself: What is the one
pattern that is most holding me back from my goals, from being who I want to be?
So what's the first step? To know what our goals are. To know who you want to be.
Many people never travel the right path, because they never formulate their destination.
So that's where we'll begin in the next post in this series: Figuring out where you want to
go in life. Then we'll take a look at what might be holding you back.
But first things first. Solving a problem will not give you a goal. Furiously climbing the
ladder of success won't help you if it's leaning against the wrong structure.
Brief therapy doesn't start with problems. It starts with goals--and a vision for the future.
Without such vision, we're walking blind through life. The therapy for the mentally well
begins with the recognition that it's time to open our eyes and develop our vision.
Brief Therapy – Part Two: The Vision and the Goals
In my recent post, I described a set of change techniques that I refer to as

"therapies for the mentally well". These brief, intensive approaches to change are
very different from the traditional talk therapies that come to most people's minds
when they think of psychology. In coming posts, I will be describing some of the
specific methods and how they can be employed in trading situations--and any
other life situations in which performance matters.
I also mentioned in that earlier post, however, that these techniques are not the first
steps in a change process. Rather, it is crucial to establish goals for change: to
know what it is you want to change in the first place.
That is not so easy. We become so engrossed in getting by from day to day, with
responsibilities at work and home, that the big picture of our lives stays in the
background. Year after year we busy ourselves with work and routines, only later in
life to realize that opportunities have passed us by.
So the first question to address in a change process is, "What do you want to
change?" Or, stated otherwise, "How would you like your life to be different?"
The usual responses to this question involve eliminating or reducing some negative
state of affairs: "I want to stop thinking negatively;" "I want to be less anxious"; or
"I want to argue less in my relationship". Even when there is a positive response, it
is often so vague that no one can truly act upon it: "I want to feel better about
myself" or "I want to be a better trader".
The absence of concrete, actionable goals--and a clear vision for the future--is a
main reason we stay submerged in daily minutiae, getting by but not necessarily
getting ahead.
If your life is a canvas and you are the painter, what will the finished work look like?
Will it be a work of art, with a theme and integrity of its own, or will it be a random
assemblage of colors and shapes without meaning or significance? A painter
captures his or her vision on a canvas. What is your vision for your life's canvas?
Here's a useful exercise that might help you answer that question:
Imagine your death. You have died, and on the gravestone is inscribed an epitaph.
What is written on that stone? What does it describe of what you've left behind and
the impact you've had during your life? Imagine very specifically what you would
like that stone to say.
Now imagine that you've received the results of medical tests from your physician.
No doubt about it: you've got five years at most left in your life. There is no possible
cure or remission for your disease. Within five years, your epitaph will have been
written.
What would you do during those five years? Would you make radical changes and
do things very different from what you've been doing, or would you simply continue
on your existing path at perhaps a more urgent pace? What would you need to do
during those five years to earn the epitaph you want at the very end of your life?
If what you would do to earn the epitaph is very different from what you're doing
now, you quite likely are on the wrong path. You'll find your proper goals in the
activities you'd stuff into those remaining five years: those, most likely, would
contain the essence of what you would find meaningful, what you would like to
accomplish, what you would want to leave behind.
Learning the techniques to make life changes is really the easy part. The harder part
is knowing which changes you truly want to make and keeping those topmost of
your mind. Mark Twain once advised people to never let their schooling interfere
with their education. Similarly, it's important to not let life interfere with living.
You don't want to be that person, regretful at the end of life, hurting and having hurt
others. A canvas and a rich array of paints lies in front of you. All that matters is
what you make of that opportunity: to face the end with pride, fulfillment, and the
sense of having made a work of art of the life you'd been given.
Brief Therapy – Part Three: Becoming the Playactor of Your Ideals
I was sitting in a waiting room reading a popular magazine, when I came across an
interesting quote from actor/director Mel Gibson. The interviewer pointed out that many of
the actors in his latest film, Apocalypto, had no acting experience. Was it difficult, the
interviewer asked, to work with them as a director?
Gibson's response was that it wasn't all that hard. To teach someone to act, he insisted,
what you need to do is show them how to breathe the emotions they are trying to portray.
If actors can shift their breathing, Gibson implied, they can enter into the emotional states
demanded by their roles.
To be sure, I haven't agreed with all of Gibson's comments of late, but this one struck me
as particularly perceptive. There are approaches to short-term therapy that purposely
increase a client's anxiety, by confronting patterns of avoidance, resistance to change, and
defensiveness. Under conditions of heightened emotion--particularly anxiety--individuals
gain access to memories, insights, and perspectives that they didn't have when they first
walked in the door. By shifting a person's state of mind and body, the psychologist also
shifts their awareness.
Think about the phenomenon of test anxiety. A student can study hard for a test and know
the material cold. Under conditions of performance anxiety, the student tenses up. Muscle
tension increases, negative thoughts intrude, and breathing becomes more shallow. In
Gibson's terms, the student is literally enacting a panicked mode by adopting the mindset
and physical state of the anxious person. Once the state has shifted, the student no longer
has access to what he or she already knows.
This illustrates that the state we're in either facilitates or blocks access to what we know.
Stated otherwise, what we know is relative to the state we're in. Without realizing it, we
are like actors, altering our breathing, our posture, our movement patterns, and our
thought processes to create a convincing enactment. Actors and actresses, however, shift
their states intentionally to generate their portrayals. When we shift states, it is most often
without our conscious awareness.
I submit that access to our implicit knowledge about markets and trading patterns
is mediated by the states we're in during our decision making. If our bodies are
relatively immobile, our breathing is shallow, and our thoughts are worried, we are hardly
creating the conditions by which we would normally experience ourselves as powerful,
confident, and controlled. We fail because, unwittingly, we enact the role of the ineffective
individual.
What if we tracked the states of mind and body that we're in when we're trading
effectively and then consciously made efforts to access those states through the
trading day? What if we followed Gibson's dictum and enacted the mental and physical
processes associated with success? Quite a while ago, a social psychologist named Kelly
invented a therapy in which he encouraged people to act out their ideals: to play-act the
person they wanted to be. He even had them make up a name, personality, and history of
the role that they were to portray.
What he found was that, as people played out their ideal roles, they began to get positive
feedback. This, in turn, encouraged them to continue the role enactments, which in turn
provided more good feedback. After a while, the roles became more natural: Kelly's clients
internalized the roles that they were playing.
We often think that we have to change ourselves internally (our thoughts and feelings) in
order to change our behavior. But what if we adopted very different behavior and *then*
generated new sets of thoughts, feelings, and experiences? What if, to paraphrase
Nietzsche, we became the play-actors of our ideals--and thereby moved closer to
those ideals?
For those who have developed trading skills, perhaps success is just a matter of finding
the mental, physical, and emotional state in which access to those skills can be
maximized. There is much room for self-experimentation for traders inclined to work on
themselves.
Brief Therapy – Part Four: Programming Our Own Experience
A bit over a week ago, I described short-term applications of psychology as "therapy for
the mentally well". The goal of such work is to make positive changes, not necessarily
eradicate pre-existing deficits. For that reason, the first step in the change process is
having a vision of the changes you wish to make. By linking these positive changes to
distinctive emotional, physical, and cognitive states, we are able to become the play-actors
of our ideals.
Allow me to expand on a metaphor I used in the Psychology of Trading book.

Consciousness is like a radio dial, and we operate on many frequencies. Each spot on the
radio dial is a particular state: a blending of our experience of our bodies and minds. The
test anxious student has a spot on their dial that combines negative thinking, increased
arousal, shallow and rapid breathing, and diminished access to retained information. Other
spots on the dial may combine much more positive thinking, alert concentration, erect
posture, and fuller breathing. When operating at those frequencies, the student has full
access to the information studied and performance on the test is excellent. What we know
and who we are is relative to the frequencies of consciousness at which we're operating.
The problem is not that some of the spots on our personal radio dials are programmed
with negativity. Rather, the problem is that we lack full, intentional control over the
dial itself. We change stations, so to speak, without intending to. What the brief therapies
accomplish is a greater control over selecting our own frequencies: they give us a hand to
turn our dials. The idea, after all, is to become our own trading coach: to develop our own
ability to reach our goals.
What creates the "radio stations" that make up our dial of consciousness? Two things:
repeated experience that becomes habit patterns and powerful emotional experience that
is processed as a trauma. Just as some radio stations on our car radio dials are faint and
others generate a powerful signal, some of our states are weak and some dominate the
dial. The more repeated the experience--and the more powerful the experience--the more
it becomes part of your spectrum of consciousness.
As I emphasized in the Enhancing Trader Performance book, one reason so many traders
fail is that they create repeated, negative emotional experiences for themselves. Indeed,
this is why I included self-help manuals for cognitive and behavioral change techniques as
two chapters within the book. Quite simply, traders can find themselves operating on
frequencies that they don't want to be experiencing: their dials change without their
consent or control. And all it takes to shift our frequencies of consciousness, very often, is
a simple shift in one element of our frequency: a few negative thoughts, a change in our
patterns of posture or breathing, a fleeting emotion. Those become triggers that diminish
our control over our own experience.
While the aforementioned cognitive and behavioral techniques are extremely valuable, it is
also important to be able to program our own new, enhanced spots on our dials of
consciousness. The way to do this is to rehearse positive patterns of thought and
behavior while you are in a distinctive emotional and physical state. This is one of the
quickest and most reliable ways to generate change.
For instance, let's say your desired behavior is to hold onto winning trades longer. You
might mentally rehearse market scenarios of holding onto trades--emphasizing how
excited, happy, and profitable you'll be by achieving this goal--while you are pushing
yourself during a strenuous treadmill exercise. By setting the treadmill at an incline and a
good speed, you will be jogging at a brisk pace and elevating your heart rate. With
repetition, you will begin to associate the goal--and its emotional benefits--with your body's
pumped up state. It will become an increasingly powerful signal on your radio dial. Then,
before trading and during trading breaks, all you have to do is get back on the treadmill.
Triggering your body's shift in state will trigger the desired shift on your dial of
consciousness. You will access the behavior you desire by intentionally triggering the
cues associated with the behavior.
Making changes entails far more than simply engaging in positive thinking or getting
positive images in your head. If you don't change your state of consciousness--and your
ability to shift your own consciousness--you'll be listening to the same programming day
after day. Learning how to shift out of negative states is a huge achievement. Where
dramatic growth occurs, however, is in learning how to create new, positive states: in
becoming the programmers of our own experience.
Source : http://www.brettsteenbarger.com
Continue Reading
Tuesday, February 17
How to manage ULIPS !!
I am finally back from vacation , I feel bad for not writing anything
for these 11 days .. I have written a post on GOLD Breakout here ,
People interested in investing in GOLD may be interested . Let me
talk about IRR and ULIPS today . When we see talk about Ulips ,
people generally see its returns over some years , where as its not
the true indicator for its actual returns , What we need to see is
called IRR .
What are ULIPS ? , read here
What is IRR ?
Actually IRR is not only related to ULIPS , its a general concept . IRR is Internal rate of Return , It
means returns after adjusting all the costs and expenses .IRR alone is not a single thing we should
look at , Its calculated by assuming fixed rate of return like 6 or 10% . The other things to look are
its actual performance too .
What are good ULIPS in markets currently ?

Some weeks back there are was a survey and study by outlook money on best Ulips , Birla Sun
Life’s ClassicLife Premier and Kotak Life's , Long Life Wealth Plus were some top funds
compared on the basis of IRR . this article talks about the best ULIPS in detail , click on this to
read more .
Full article related to ULIPS can be read here
Understand , Choosing a good ULIP is just 5-10% , the main part is how your manage it . how to
take care of the advantages provided by ULIP, If you just want to buy a ULIP and sleep for 10 yrs ,
ULIPS is not for you then . you must buy Mutual funds Instead .
Manging a ULIP is the main part , If you manage a bad ULIP very well , you can earn good returns,
but you can loose money by buying Best Ulip in markets and mismanaging it .
How to manage a ULIP ?
Managing a ULIP over a long term is very simple but not easy . You have to do some simple things
. Always use switch facility when you anticipate the opportunity . When you see markets are very
high and there is lot of euphoria in market , Decrease your Equity allocation and shift it to Debt .
And when you see dull ness in market and everybody is too afraid in markets its the time to shift
your money in Equity .
How to make sure that this is done easily ?
You should find out your Equity : Debt allocation ratio which suits you , which is comfortable for
your risk appetite . Once you choose it . Make sure you maintain it once it goes out of sync . So
suppose you decide that your Equity:Debt ratio will always be 75:25 . and suppose after an year ,
you see that it has changed to 65:35 . You should shift some of your Debt part to Equity and bring it
back to 75:25 .
You can read how Equity Debt rebalancing helps in long term
This way you will make sure that if Equity has gone up (because if good market performance) , you
are shifting some money back to Debt (because now chances to correction is high) and vice versa .
The main advantage of ULIPS is the you can shift between Equity and Debt without any tax
liabilities , If you buy Mutual funds and do it , you will pay tax every time you buy and sell it in
short time frame (1 yrs) . So until you utilize Switch facility well enough in ULIPS , you are not
taking best advantage from your ULIPS .
So as a general rule :
- Increase your Debt allocation once markets are too high and every body is rushing to buy shares
in stock markets .
- Increase your Equity allocation after markets are down a lot and there is lot of fear among
investors (this is a good time to buy cheap stocks).
- Increase your Debt if you are too confused about what will happen .
Final Note :
If you cant invest for more than 10 yrs and cant look after switch facility and cant monitor markets
at broad level , You should stay away from ULIPS, the best thing for you would be to invest in PPF
each year and invest in Equity Diversified Mutual funds through SIP every month and review it at
least once a year .
Please dont buy ULIPS for just tax savings , dont get out of it in 3-5 yrs . there is 3 yrs locking , but
even if you get out in 4th or 5th year , there are heavy penalties you have to pay to get out , which
your agent never tells you , Only after 5th year there are free exits .
ULIPS are not bad products , they are only bad if you dont manage it well and buy them for wrong
reasons .
Continue Reading
Thursday, February 5
Trading !! what is it !! Example of Reliance
Hi all , I am going to Pune for 10 days and will not be posting any article for next 10 days . See you
all after 10 days . Read the post now :
What is Trading ?
I see many people who want to try there hands in trading .
Trading means buying and selling something with a short tenure in mind . Short tenure can be day ,
week or months . You can trade Stocks , Derivatives like Futures or Options or you can try out
Commodities or currencies too .
The sad part is that many people just enter this trading business without much preparation and
knowledge and burn there hands like anything . they continue loosing money every day , week ,
month and cant figure out why they are loosing .
Understand some things :
Trading is a profession , and its highly rewarding in every ways . BUT !! , Trading is one of the
hardest thing one can ever attempt . trading is simple but not easy . It takes years for one to master it
and become successful as a trader .
If you are trying to learn trading and want to do this in your life . I can suggest somethings :
- Start Learning about markets and do it for at least 1 year (not 1 month)
- Learn Technical Analysis and try to do some analysis on your own .
- Read good books and make sure you have read it really well .
Once you have done this . Then you should paper trade for some time ,may be 2 months . After you
have paper traded and can see that you can trade well on paper , then start with small money (you
must be ready to loose this money) ... Do some real trading with this money and see how you
perform .
Trading is a highly rewarding and satisfying profession . You can earn good money and you are
your own boss . Trading can be fun and challenging . But Trading is the most challenging and
highly risky profession one can attempt as i already said .
I have put up a simple Technical Analysis Example for Reliance , It discusses buying or selling
Signal for Reliance in coming days. You can see it here
Why Technical Analysis ?
Technical analysis helps in taking much better decisions for buying and selling . Its a must for short
term traders , however it also helps people who have longer time horizon , With Technical Analysis
you can maek better entries , exits and manage your decisions well .
Some reading Material for people who want to learn technical Analysis is here
1. http://www.investorsintelligence.com/x/why_technical_analysis.html
2. http://www.cmsfx.com/en/forex-education/online-forex-course/chapter-3-technical-
tools/technical-analysis/
3. http://www.informedtrades.com/trades.php?page=freetradingcourses (this is very detailed one)
Thanks
Manish
Continue Reading
Tuesday, February 3
http://manishanalysis.blogspot.com/
http://manishanalysis.blogspot.com/
This is my new blog which i have created to teach what i know . This blog will be used for
- Replying to the queries i will get at manish.pucsd@gmail.com . You can mail me your queries and
i will post an article for my reply .
- Any short term opportunity which arises in stock markets .
- If we can use options in some situations , i will post about it .
Manish
Continue Reading
Keep it simple Stupid !!

Keep it Simple Please
Your investment must be the way you want your life to be . Simple and Easy .
There are many products available in markets , Some are extremely easy to understand and
strongest . While others are complex and on an average not very easy to understand by common
public .
In Life , simple things works best . We all want our lives to be simple and easy , We don't want lots
of complications . In the same way we should use simple products while choosing our investments
.Simple things works in the best manner . There is a tendency of creating complex products because
general public feels , that because they are complex and not easy to understand , they must be
working very differently and in a smart way . This is far from truth .
Easy to understand products like Term Plans , PPF and Mutual funds works brilliantly . You dont
need ULIPS or product like Jeevan Astha and Endowment plans with lots of stupid clauses .
What happens when u choose simple products ?
Your life is easy , you can understand them better , track them better and change it in a much better
way .
Imagine a person A with ULIP or Endowment policy for Insurance needs and B with Term
Insurance .
What are the benefits B enjoys ?
- He understands every things about his products the reason being there is very less to understand .
(If you die , your family gets money , if you don't , you get nothing) .
- He can choose to stop his stop his policy any time he wants (if he does not feel the requirement)
- He can change it to some other policy later in life if he wants .
there are many things like this , where as in ULIPS and Endowment policies , people are stuck with
no mercy if they cant pay premiums some 2-3 yrs in a row . There are too many clauses and
different types of sum assured ,and things like those .
What is the Learning ?
Take easy to understand and simple products which look Plain Vanilla , Complex products have
nothing extra than complexity . Just make sure you understand easy products well and how to use
them well . Your investing life would look much like your investments . Keep them Simple .
Continue Reading
Monday, February 2
Early Investor , Smart Investor
You are 25 , and want to retire at 60 , after 35 yrs . You earn anything more than
10k+ , and can save more than 2k per month for investing if you wish . You might
be earning 30k or 60k or whatever , but i am considering an average urban Indian
who is earning 10k or 12k or anything like that and can save more than 2k per
month .
Now , What would you like to do ?

Choice 1 : Start now and invest total of 8.4 Lacs (8,40,000) distributed in a span of 35 yrs (till your
retirement).
Choice 2 : Or after 15 yrs , when your salary is increased and you have good money , then Invest
72 lacs (72,00,000) , in a span of 20 yrs (start when you are age 40) .
In Choice 1 you will have to invest 2,000 per month for 35 yrs , so you invest total of 2000 * 12 *
35 = 8,40,000 (8.4 lacs)
In Choice 2 : You invest 30,000 per month for 20 yrs , so you invest total of 30000 * 12 * 20 =
72,00,000 (72 Lacs) .
In choice 1 you pay less than 12% of what you pay in choice 2 . I am sure that you must have got a
hint by now that which choice will lead you to generate more money , But it has to have some
assumptions .
Choice 1 : You are investing for 35 yrs . What is the return we should expect in this case , In last 29
yrs of history , Indian Equities have returned 17.5% , So we will expect same return of 17.5% , but i
am expecting it to be much more .
Choice 2 : In this case you are investing for 20 yrs , we can easily expect close to 15% returns in
this case .
Lets reveal the secret and see the numbers now.
Choice 1 : You pay 2000 per month for 35 yrs @17.5% CAGR , total amount at the end : 5.9
Crores
Choice 2 : You pay 30000 per month for 20 yrs @15% CAGR , total amount at the end : 4.5 Crores
The graph below shows how the money increases with each choice (Early start and Late Start , I
spent 2 hrs figuring out how to plot this graph using gnuplot (linux command for plotting graphs ...
man , it took me so much time to just do this)
CLICK ON THE GRAPH TO ENLARGE ...
Read-Error
Now , What is the Learning ?
This article is for people who think they don't earn much money to invest , There are many who
earn 7k , 10k or 15k per month and there are many who earn 30k,40k , 50k per month . People who
earn less often think what can 1k per month do , they fail to see what will happen in long term , they
do not appreciate power of compounding .
Wealth is generated by people who invest smartly and with discipline , not who just earn lots of
money .
Where to invest ?
If you are a regular reader of this blog , then you know the answer , if you don't, then let me tell you
, Its Diversified Equity Mutual funds , take a SIP and invest small sum of money every month , The
more you can contribute in the start , the lesser you need to invest in later years of your life .
For example, If you can invest 4000 per month (instead of 2,000) in the starting years of your career
like 10 yrs , then you can stop investing for rest of 25 yrs and still generate more wealth (around 7
crore) ,considering same interest of return
Is it practical to put 4k for starting 10 years and then leave it for 25 yrs , May be NOT !! .. People
tend to take the money out when they require it and never give compounding any chance to show its
strength . But if people leave it , they will see how amazing and powerful it is .
Why do you believe me and whatever i write here ?
Ans : You never believe me or for that matter any one when it comes to investing and your money ,
you just choose to learn from me and check the authenticity of what i say , you can read what i tell
you and what i write , Ask your self if there is any logic behind anything or not .
When i say expect 17.5% CAGR return in 35 yrs time duration , Its because equity outperforms
every other asset class in long , and it has happened over centuries .
When i say that if you invest X every month @r % return for t years, you will get A amount at the
end , you should go and check using your own calculations to see if the figures are right or not .
For people who are new to Mutual funds and don't how to choose it can read my earlier post :
http://www.jagoinvestor.com/2009/01/what-to-look-for-while-choosing-mutual.html
Be a early Investor , be a smart Investor .
Personal notes
ok ,I am done with my post of the day . I should take my time off now .
Yesterday i went for a Trek to Madhugiri some 40-50 km from Bangalore in Tumkur district ,
interested people can choose to look at some pics i uploaded at
http://www.flickr.com/photos/manish_chauhan/sets/72157613257560390/detail/
btw , there is a group called BMC (Bangalore mountainering Club) which organises these events ,
anyone who is without a group or with a group can come for the events , Just register for the event
and go for the events . See there site for more : http://www.bmcindia.org/
Continue Reading
Saturday, January 31
What to look while you choose a mutual fund :)
One of my readers was confused with the

question "Which mutual fund should he invest
in through SIP ? "
He started an SIP of 1000 in Reliance Regular

Saving mutual fund , suggested by an agent .
How was his investment ? It is a mistake or a
good decision ? This is a common problem
with investors . Let me today give you a
simple way to think and a methodology to
choose mutual funds for your investment
depending upon your requirement . In this
article we will only talk about investment in
Equity Diversified mutual funds for long term
(5+ years) .
For Beginners : Read what are mutual funds
Question : What does the return from

mutual funds tells us ? and how do you
interpret it ?
Ans : Understand that the returns of a mutual fund shows you how did it perform over than period ,
How did it manage his funds and took there investment decisions in good times and bad times . It
means that you should see its performance in good times and bad times .
A simple analogy can be how do you want your wife/husband to be like , One who is really great in
good times and excellent person to be with in Good Times , when everything in life goes great .
Or you want a person who is there with you in good and bad times , supports you in good and bad
times .
When times are good , everyone behaves good and performs well , There is a saying "Don't judge
people by there Sunday appearances" . Look at a bigger Picture .
Looks how a mutual fund performed in good times , in bad times , did it invest according to there
plan , Is there management excellent . It does not matter if they were No 1 or No 2 this year or that
year . But if they were just good in every year , and perform well above there benchmark, and keep
performing over time , Its bound to be become an excellent long term consistent performer .
Question : What about the last 3 yrs returns of a mutual funds ?
Answer: It will give you a good indication , but not an overall picture . If you see 3 yrs return , you
have to understand that out of those 3 yrs , 1st and 2nd years were strong bull markets , where any
dog and cat has also performed very good if not excellent . and in last year they gave very bad
returns . so ultimately they will be in positive returns in 3 yrs . You should also look at there 5 yrs
return and 3 yrs returns . Both in synergy with each other .
When you see Reliance Regular Savings Fund you can see that its 3 yrs returns are 7.82% which is
very good compared to other funds (this fund is Rank 2/135 in the 3 yrs category ) , but when you
see its 1 yrs returns , you can see actual face , the returns are -51% , if you see the rank for 1 yr , its
127/210 .
If you look at its portfolio allocation at

http://www.valueresearchonline.com/funds/portfoliovr.asp?schemecode=2790
you can see that its allocation to mid cap and small cap companies is very high , It can give you
good returns but also it has very high risk . Please understand that i am trying to say that this fund is
good or Bad . No !! . I am trying to tell you what to see , how to interpret.
People get excited by seeing returns of years 2003-2007 , that was in range of 35-50% . Which is
not possible in long term . Now from this point on (2009) , the returns in long term will be in range
of 12-15% (max 20%) . Now its difficult to see this kind of bull run in another medium term (5-7
yrs) . Now you should just expect normal 12-15% kind of returns in long term .
So , whom should you rely on , On mutual funds who launched them selves near 2001-2002 and
gave great returns from there onwards because they them selves dont know how they gave them .
Or shall you choose those mutual funds who have seen all types of markets in India and
continuously gave much better than average returns from long term , They performed in good
market , bad market , quiet market and roaring market .
So the things you should look at mutual funds are :
1. Long term performance , It should figure out in top 10-15 at least over 5 yrs returns .
2. They should have a track record of consistently outperforming its Bench mark (this shows that
they did better than what they were based on and tracking ) .
3. See that its management is good , Don't just buy Any Idiot MF just because it returns 45% last
year , but you have never heard of its parent name . Some long term Great AMC's are DSP , SBI ,
Sundaram , HDFC , KOTAK , PRINCIPAL , HSBC , RELIANCE (In order of my liking) , Make sure
you dont follow this , it is just to give an idea . DSP is one of the best and old AMC in India , dont
look only for Indian names .
4. Once you shortlist some mutual funds , then look for its portfolio allocation , see how it has put
its money for large , Medium and small cap companies . If its concentration is high on Mid and
small cap funds , it means that it has more than average risk , but potential for very great returns
also , choose it if it fits your risk appetite .
For people who just want to take a short route and want to choose some mutual fund based fast , but
with not great accuracy , you can just see the list of mutual funds appearing on 5 yrs returns list or
since inception returns (Should be greater than 3-4 yrs at least) and choose any one of them . This
will make sure that you have not made a bad choice , if not great .
Some links :
To see the rankings of mutual funds and compare them on different parameters
1. Go to http://www.valueresearchonline.com/funds/default.asp
2. In the right side , you can see "Compare Fund" , choose "Open Ended" in the first box and for the
second part choose "Equity Diversified" or "Tax Planning" or any other thing which you want to
compare. and now click on Go.
3. You can now see a list with different parameters like Snapshot , Performance , Portfolio etc etc.
4. Click on Performance and then you can see different parameters like 1 month , 6 months , 1 yr , 3
yr , 5 yrs and ranks . You can sort them by clicking on 5yrs or 5 yrs ranking to see the ranking .
Example . When you click on 5 yrs returns on the top , you can see the ranking either in ascending
or descending form (click once again to see in different order) .
5. In the same way you can choose different parameter also .
This article gave you a general idea on how to choose a mutual fund and interpret different things .
You can also do some advanced analysis the way i discussed in one of my previous article :
http://www.jagoinvestor.com/2009/01/95-of-salaried-people-are-rushing-to.html
Question : Which Mutual funds i will invest in if given a choice ?
Ans : I hate this part for suggesting some mutual funds , but i know people look for it and expect so
let me give some .
Equity Funds :
1. Sundaram BNP Paribas Select Focus Reg

2. DSPBR Equity-D
3. Magnum Contra
4. Sundaram Taxsaver (For TAXSAVING) : see this for more

5. Nifty Beas (Index Fund , take SIP in this) : see this article for more
-------------------------------------------
If this article helps you in anyways , please comment to tell if you liked it and learned anything
important from this . I would be glad to hear from you . If it helped u anyways , this article would
be considered as success.
I write this article on Saturday , 3:00 Pm after a chat with one of my readers . I am now getting
ready for a Trek next morning . Looks like i have written for next 2-3 days of my quota , huff ...
Feeling tired now . (kidding) .
Disclaimer : I think Reliance Regular Savings FIf this helps you in anyway und is a good fund .
But there may be much better choices for long term . I hold no mutual funds other than some tax
saving funds.
Continue Reading
Thursday, January 29
Joint Life Insurance Policies
I got a mail from one of the reader regarding some explanation on Joint Life Insurance policies . His
questions were
1. Joint life Insurance policies are also available in the market! What is the significance of these
policies? Under which circumstance, it should be considered?
Ans : They are generally same as normal Endowment polices , but with fact that in this both
husband and wife are covered . Joint Life Insurance is designed mainly for married couples. So that
when one of them dies , the other person gets the insurance money.
Now it does not make sense to take this if anyone spouse is not working and earning , because
anyways , you will not be financially impacted (Don't think in a way that even if he/she dies you
will at least get some money , that's a wrong reason to take Insurance) .
these policies are again policies which return you your money at the end , This is a fundamental
mistake with any Insurance policy . Insurance products should only cover your risks. Now i will not
advocate to buy this kind of policies .
You can only consider to buy Joint Life Insurance products if they are Term Insurance products
(Joint Term Insurance Policy) . But that too has some limitations .
What if there is Divorce ?
No one will think this , but what if some years down the line , there is divorce , that couple
suddenly become enemies other each other . This can lead to many problems .
2. Lastly, whether it has any edge on two separate individual policies, if we compare?
I dont think Joint Insurance policies have any edge over two separate policies, The counter
argument can be that they are a single policy and easily manageable .But how tough it is to manage
two policies . Idiot people look for products who are afraid of managing the documents and tracking
them . Smart people concentrate on buying smart products and manage it well .
One more problem with Joint products is that you are stuck . What if at the time of taking the policy
both people where earning money (so they required Joint insurance) , but later after 2 yrs one of
them starts working and brings no money home . Now what happens . there is no need to cover the
other person now . You cant just stop other person's share of premium . But two separate term
policies for each of them would have worked brilliantly . You can just stop one policy any time you
want without loss .
Summary :
Understand , You financial life will become just like the products you take .
Take easy and simple things and make your life easy . Don't complicate your life by taking ULIPS
for short term , Endowment polices and things like those .
Continue Reading
Wednesday, January 28
A bit of Reality !!
Some days back , i talked about Why one should avoid products like Jeevan Astha (read here) and
ICICI RGF (read here) .
I had talked how they are not very sensible product for anyone who wants to make some good
returns from there investments (These products are for those who just want there money back , and
no returns) .
Shyam Pattabi writes on his blog , (read here)
How schemes like these which offer guaranteed returns with all kind of complexity does not score
on any thing . People buy them with ignorance and because of there emotions (fear) linked to
money .
I am glad that i was able to do correct analysis at write time and saved my readers in falling in what
i call as "Jeevan trap" going on from many Decades in India .
Continue Reading
The Chemistry of Equity and Debt

Following is a small Table which discusses the Equity and Debt allocation for your Investments .
(Click on the chart to enlarge it). It will tell you how Equity and Debt should be used for long and
short term financial goals .
Read-Error
It has two parameters .
1. Importance of your investment goal (Left Downside)

- Low : Buying an a/c for you car , Going for a vacation .
- Medium : Buying a Car , Saving for a second home
- High : Retirement , Child Education , Family health Related things , Down payment for Home
Loan .
2. Time Duration of your Goal . (Upper Right)

- Short term : 1- 2 years
- Medium Term : 3-7 years
- Long Term : 8+ years
Basic Idea : It is based on the following facts .
- Equity is extremely risky in short term

- Equity is highly rewarding in long run with almost no risk
- Debt is safe always
- Debt eats away your money purchasing power.
So on based of these observation. Your Equity : Debt allocation should be based on both parameters
of Importance and duration of goal , not just one one them
Some Examples
Example 1 : Ajay wants to invest 1,00,000 for his brother Education in next 1 year .
His Action : This is extremely important thing and cant be risked with , also its a short term goal.
Equity should not be used . He should invest in anything giving him pure protection of his money
(even though he does not get high return) . A plain FD for 1 yr will be good enough .
---------------------------------------------------------------------------------------
Example 2 : Robert want to save some money for his house down payment in next 4-5 yrs .
His Action : As this is an important thing with time goal of medium term , His investment should
be mixed in both Equity and Debt . He should invest 35-40% in Equity (SIP in mutual funds) and
rest in Debt products like Tax FD's and Debt funds% .
Alternative : He can also choose to invest his money Balanced mutual Funds (as they have mix of
both Debt and Equity built in)
---------------------------------------------------------------------------------------
Example 3 : Ankit wants to retire in next 25 yrs .
His Action : Now this is a important thing , with a goal tenure of around 25 yrs . There is no reason
why Debt must be involved here at all . The matter that Equity is risky does not apply here its true
for short - medium term , not for Long term like 25 yrs . (probabilistically only , If you are extra
unlucky , what can one do) .
He must invest 50% in some good 3-4 Equity Diversified Mutual funds though SIP route and and he
can invest 50% of his money also in some very good fundamentally strong mid caps and large caps
stocks directly .
Note : Understand that , your definition of "Importance of Goal" and "Duration" depends on your
situation , For me buying a Car is "Not Important" ,whereas for some one with a family of 4 and
requirement of often going places can be "Important" .
Continue Reading
Monday, January 26
What can Repiblic Day teach us about Financial Planning
India gained its Independence in 1947 . At that time India was free , and ready to
grow on its own , with its own decisions . But it was not possible without a set of
guidelines to guide the decision making process . Success comes when you are
disciplined and have a decision making process. On Jan 26 , 1950 our
Constitution came into effect and now we had laws for different things .
We knew exactly what we have to do when thing happens . We had a road map
to follow . From there on we progressed and have came a long way . We can now say that we are
much better than we were at that time and we continue to grow and make better decisions .We need
amendments from time to time and that helps us to change the bad laws and adapt to new situations
.
How do we relate it to Investing ?
We can learn from anything ... really anything . Let us try to map each event discussed above and
relate it to our Investing world .
1. Gaining Independence
When we get a job and start earning on our own , we are full of confidence. we are independent ,
We don't need to ask for money from our parents . Rather we have to support them . We have
responsibilities . There are many goals for us like buying house , car , saving for our retirement ,
Marriage etc etc .
2. Republic day
This is the day when we understand that we need to do our financial planning and have a set of
guidelines to guide our decision making regarding our investments .When we know how exactly we
are going to invest to achieve our goals, we have a clear road map and time duration . We just need
to follow it with discipline.
Example : If a young 25 yrs old want to retire at 55 with 2 crores at the end . He can take two
approaches .
a) He can try to save money here and there , some month he can invest 10k , and some month he
can skip it and down the line , he has a vague idea where is he going and how is he making progress
. This kind of approach often leads to failure, because there is no road map and sometime will come
when you will have no idea whats happening .
b) Second approach can be very easy . You have to make sure that you understand some thing very
well and be clear about somethings. Those are
- Equity outperforms every other asset class in long term .
- Equity in long term has given 15%+ returns and its possible in future too .
- You should have understanding about the power of compound interest.
Now when you are clear crisp about this idea , then you can use a simple compound interest
formula to see , how much you need to invest every month for rest 30 years (55 - 25) , which can
generate 2 crores at 15% annual return .
The formula is
Final_amount = monthly_contribution * (1+rate) * ((1+rate)^months - 1)/rate
where
rate = monthly rate = 15% / 12 = .15/12 = .0125
months = total number of months you will invest = 30 * 12 = 360
Now you can calculate what monthly_contribution fits the values .
The amount comes to little below 3,000 per month .
Which means if you invest 3,000 per month for next 30 years , you can achieve your retirement
target easily without fail . (Invest in Equity Diversified Mutual funds to target 15% returns for long
tenure).
When you do this , you go with a plan (constitution) and dont have to doubt your self and you will
not get lost . Just follow it with discipline without fail.
3. Amendments
Just like amendments are made in Law , because of change in environment and situations . You also
may have to change you plans with market change and new products coming in (this happens rarely
, because fundamental things remain same) .
Summary and Learning
What I want to point out here is that just earning money and being independent in not enough and
cant make you successful with money , Discipline and proper understanding with good planning
will help . So if you are Independent but have not put your constitution in place , do it soon to really
succeed . Make this day as your teacher and learn from it . Dont be afraid of mistakes .
"Success is a ladder where every step is made up of Failure . If you cant fail !! , Winning will not be
easy " .
Manish
Continue Reading
Saturday, January 24
Review of "Jeevan Astha" Collections
Before some days back i had talked about "why a investor should avoid Jeevan Astha Policy"
But looks like Indians have developed unshakable belief and trust in these companies . Let us
see some statistics about the policy .
A report from Economic times (Thursday , 22nd Jan 2009) says
"Collections for the policy which closed on Wednesday is expected to cross Rs

8,000 Crore . Some insiders say that collection could go even higher .
Although the corporation had said that it targeted collections of Rs 25,000
Crore this was seen as a marketing gimmick not a real target .
- A sports person is understood to have put 35 crores .

- A leading Film actor has invested 8 Crores .
- A little known business family has invested 50 Crores.
- Insiders day that over thousand of policies are over 1 crore plus .
The policy has helped to bring LIC's flagging mark ship back on the track and
has enabled several offices in metro centres to achieve there targets for whole
year."
Despite the success the scheme has some limitations . Jeevan Astha is more of
a bond and less of an insurance policy . Although the sum insured is five times
the premium in its first year , the cover declines to 2 times in the second year
. Smaller investor who were not all that savvy in reading the fine prints were
missold the policy promising returns of 10% "
My comments :
Goodwill and trust is the biggest thing, especially in country in India where people are not not much
educated and can not take much informed decisions .
I can imagine SBI failing or running with public money, but not LIC (pun intended) . That's the kind
of faith and trust in India . Which is fatal .
It may make sense for a filmstar or a sportsperson or a big business family to put there money in
this kind of Policy , because there 10 crores will become 20 crores in 10 years (10 crores in 10 years
is the return) , and i am sure even if that is 7% CAGR return , its a good return for them as 10 crores
is a big money . But we have to see it as a small investor point of view and goals.
A small investor who invests 10,000 or 50,000 in it and get double of his money after 10 years . I
am not sure if he is getting any return at all when you consider 6-7% of inflation . He is just getting
his capital back with almost same purchasing power.
I come from a very small town in UP and i am sure that it represents India when you see per capital
income , education level and living standard . And people there are not ready to hear anything other
than LIC policies and FD's of SBI or some other nationalised bank , will a small percentage having
heard of Mutual funds or Ulips even term insurance etc. This is the story of India . When millions of
uninformed and unrealistic investors come together and put there small money together in these
kind of polices , Its bound to generate thousands of Crores of Rupees .
But i am sure of one thing , who ever invested in these kind of policies will get guaranteed returns ,
but i am not sure if he will get guaranteed and benefit for there investments when you take it for 10
yrs period. People investing there money in this policy are going to double there money in 10 years
to buy something which will more than double in price in 10 years .
Fear is an excellent thing to take advantage of , when financial markets are down heavily and thing
are looking bleak in short term , Anything with guaranteed "tag" will act like a magnet to hard
earned money .
I am happy to not invest in anything like this and do not want my money to double in 10 years.
Jago Investor , ab to Jago !!!

Continue Reading
Friday, January 23
New face : Jagoinvestor.com
Hi Readers
I am happy to tell you all that this blog name has changed to http://www.jagoinvestor.com/ .
Please update your bookmarks to this new name. All the old names would still redirect to this site ,
so there is no problem if you dont update .
Thanks for love and support till now , I will try my best to do good job in future .
Manish
The amazing irony about Insurance

Imagine you are 25 years old earning 6
lacs/year , with a family to support
financially. A Term insurance policy with
some cover (may be 25 lacs) will have
premium of 5k per year (for 25 yrs old)
as the premium for this policy.
Almost 99% people need Term Insurance

,But most of the people show good
amount of reluctance, because they see
"wastage of premium" incase nothing
happens to them.
Let us try to see what are the reasons

for this ?
This happens because of some

physcological reasons . Some of the reasons and counter arguments are :
1. People are not ready to accept subconciously that they have equal probability of death like
others , Every one assumes them selves to be little more safe than others .
Counter Argument : A different case , some one tells this person that he has chances of dying
within 20 years somehow explicitley , there are greater chances that his perspective about Term
Insurance will change and he may go for a good amount of cover with this premium , the reason is
that now he sees these [premiums as risk cover fees and not wastage . Now he has convinced
himself that there are good chances that his "death" is possible and his family needs some good
cover, although there has not been any change in his lifestyle or life in gereral , All what matters is
his attitude towards Risk coverage .
2. People do not concentrate on the value provided by Term Insurance and its cheapness , it is
taken for granted .
Counter Argument : I did this very small survey where i asked my friends online . See one of them
below
manish_chn: if your compnay says that it will cover your family for 25 lacs , but will cut your
salary to some %
manish_chn: what will be the max % you are ok with
manish_chn: just the first number which comes to your mind
manish_chn: no calculation
manish_chn: please
rajagopal: hi
rajagopal: never thought abt such things.
rajagopal: prolly 5%?
rajagopal: without any calculations
This shows that a person somehow feels comfortable with 5% of his salary getting cut for just 25
lacs of cover for his family , It means that he can pay the price of 5% of his salary per year for 25
lacs cover.
Some people were even ok with 10% or 7% , on the average it was greater than 5% , where as the
real worth of cost is less than 1% of there salary (everyones salary is more than 6 lacs/year ) . Cost
of 25 lacs cover in market = 5k - 5.5k per year .
2. People pay money from there pocket after getting salary , so it feels that they are giving
money unneccesarily .
Counter Argument : If you make term insurance mandatory for everyone and cut 1% from there
salary (6 lacs salary , and cut 500 per month for insurance premium of 25 lacs) . In this case there
are very high chances that almost everyone will feel that its a good thing . And they will even
appreciate this move (there are always exceptions , but i cant help those people) .
What it shows is that people are lazy , when you do things purposefully ,there are great chances that
they will understand the importance of something .
So , If you give them 100% salary, they might not take the term insurance.
but if you give 99% salary and 1% is cut as insurance premium , many people will tell others how
great there Company is !! (you can also just cut 1% and put it in your pocket and give them 99% ,
some people dont even notice these things)
Summary
Understand that a lot depends upon yours perspective about something . When you see things in a
different way , its meaning and importance chances totally for you .
Continue Reading
Sunday, January 18
ICICI Prudential's RGF , 2 out of 10
posted on 3:32 am in Morning , 18th Jan 2008
ICICI Prudential has introduced Return Guarantee Fund (RGF) (Click on this to read more) in
this troubled times . I can see that whenever these bad times comes for Equity Markets , These
companies cook out these kind of products with some "Guarantee" or "Safe" or "Assured" word in
it and then take advantage of public emotions ...
When Equity markets are down and its the best time to get invested in start investing in Equities for
long term wealth creation , at that same time these Great Institutions come in the scene and play
with public ignorance . They make complicated products and provide totally humiliating returns
with labeling it as "safe products in these troubled times" . They are only safe and nothing else ...
Another product from LIC was Jeevan Astha , which attracted zillions of investors across India who
just invested in that policy mostly without understand the clauses and the complexity of the product
( read : http://finance-and-investing.blogspot.com/2008/12/jeevan-astha-another-idiotic-
product.html )
Just putting "safe" , "assured" and "guaranteed" words with some product does not make a product
Great . If a product is not simple enough to understand, most probably its a disaster . Please stay
away from it .
One of my Friend Fell into trap of this and thought of discussing it with me , Please read the chat
between us to understand more about this product . (please excuse for the spelling mistakes and
format)
Starting from Between ...
shivani@GMAIL: isme 3 saal tak premium dena hai

shivani@GMAIL: lets say 50k each
shivani@GMAIL: so 1lac 50k total
shivani@GMAIL: after 5 yrs we'l get 75k for 50k given
shivani@GMAIL: wen i asked them , wil it be 75k * 3 they said yes
shivani@GMAIL: so it means 150% guaranteed return hai
manish: no
manish: that is not true
shivani@GMAIL: on top of it
manish: They are lying
shivani@GMAIL: let me complete poora

manish: its not for all the 3 years
shivani@GMAIL: they wil invest the money in diversified markets

shivani@GMAIL: in case there is profit on the investment we will get that also..
shivani@GMAIL: thats it
shivani@GMAIL: ab bolo
manish: ya .. so the first thing is that this is not a stand alone product
shivani@GMAIL: not for 3 yr!

manish: RGF is not a product
manish: its a extra plugin kind of thing
shivani@GMAIL: right
manish: which you can use with there other 4 existing ULIP products
shivani@GMAIL: ok
manish: so you can choose any of those ULIPS along with RGF
shivani@GMAIL: ok
manish: now , in ULIPS it s always there that you have to pay for min 3 years
shivani@GMAIL: ok
manish: so the first premium you pay will be in RGF
manish: and there is min return of 50% on RGF fund
manish: I mean the first year fund
manish: all other payments (from 2nd yrs) will be in any one ULIP of your choice
manish: which you will choose at the start
shivani@GMAIL: haa ek cheez aur.. they said they wil provide insurance cover if we want. with a
premium o 130rs on 1 lac sum
manish: yes .. that's true
manish: you can check the numbers with them
shivani@GMAIL: no we will not choose they said.. they wil do it,

shivani@GMAIL: for Ulip
manish: you have to choose the fund in the start .. I am telling what there presentation says (
http://www.authorstream.com/Presentation/ashish2208-122442-rgf-entertainment-ppt-powerpoint/ )
manish: you have to choose one of there 4 existing ULIPS
shivani@GMAIL: ok
manish: apart from the first premium , the returns will depend on there performance
shivani@GMAIL: hmm..
manish: if you choose equity opiton , then that money will be invested in Equity markets
shivani@GMAIL: so they lied when they said it will be 75k * 3??
manish: if you choose debt option , then in safe thigns
manish: yes
manish: that's a lie ....
manish: that can not be the case
manish: mis selling happens
shivani@GMAIL: oh aisa kya

manish: yes
manish: and other thing is
manish: the premiums which you pay
manish: from that allocation charges are also cut
manish: and they are heavy cuts for initial years
manish: almost 15-20%
manish: or more
manish: and they seems to have put all this very differently
manish: Its not that you pay 50k and get 75k at the end of 5 yrs
manish: you will be allocated units , which will of Rs 10 NAV
shivani@GMAIL: i asked that

manish: and it will be of Rs 15.03
shivani@GMAIL: are there any commission charges etc
shivani@GMAIL:they said no
manish: yes
manish: there are no commission charges
manish: :)
manish: there is nothing called "commision charges"
shivani@GMAIL: then? allocation is?

manish: they are very right
manish: but
manish: ther are allocation
manish: charges
manish: :)
manish: allocation charges are not commision charges
manish: I understand that you meant to ask "any charges"
manish: but there is noting called "commision charges" , so they said correct that tehre are not
manish: :)
shivani@GMAIL: ok can u pl explain me this rs10 NAV and rs15.03

manish: commiosn is geraerally taken by middle men
manish: yes .. When you invest 50k for the first year
manish: There may be some allocation charges in the start
manish: because its always the case in ULIP
manish: so from 50k some amount will go
manish: may be 15-20%
manish: then rest money will be invested and you will get units
manish: those units NAV will be 10
manish: then after 5 yrs , there will be some NAV for it
manish: what ever it may be
manish: if its more than 15.03 .. then you get that NAV
manish: else if its less than 15.03 ... like say 12 or 14.5
manish: even then you get min 15.03
manish: so min is 15.03
shivani@GMAIL: hmm ok.

manish: so there is 50% return
manish: on the amount invested
manish: not the money which you giev them
manish: allocation charges are the charges taken by all the ULIPS
manish: some take less , some take very high
manish: in HDFC ULIPS , its total 100% of first year premium
manish: and they are very right in taking those kind of allocatin charegs
manish: becaues they assume that you will be invested for atleast 10+ years
manish: ULIPS are long term products
manish: and if you have time horizon of anywhere less than 10 yrs , ULIPS are not for you
shivani@GMAIL: hmm and they said that the returns are non taxable which is not the case in FD
etc
manish: yes
manish: that's true
manish: you can hear to any person of vetran position in financial markts and you will hear this
shivani@GMAIL: so what happens when i give moiney 2nd n 3rd year?

manish: Sudip badopadhyaya , Reliance MONEY says before 2 days on Zee business , smart
investor program
shivani@GMAIL: how is that taken care of?
manish: "whoever invests in ULIPS for less then 10 yrs , doesn't even understand what he is doing ,
they are fools"
shivani@GMAIL: hehe.. :)
manish: ULIPS are great product
manish: but only for long term
shivani@GMAIL: hmmm
manish: long term is the key
shivani@GMAIL: what happens when i give moiney 2nd n 3rd year?
manish: there are so high charges in the satrt , that only by investing for 10yrs can you get some
meaning ful returns ( i am glad i made correct analysis)
manish: when you give in 2nd and 3rd yrs
manish: then again allocation charges are cut from that
manish: this time its low
manish: for 2nd years will will be around 5%
shivani@GMAIL: hmm
manish: and from 3rd year it may be less than 3-2%
manish: and then amount is invested in your Fund
manish: of your choice
manish: you will be allocated Units again
shivani@GMAIL: hmm.and do i get any untis then?

shivani@GMAIL: oh ok..
manish: obviouslyt
manish: everytime you invest , you get units
shivani@GMAIL: and here its not 15.03 minimum?

manish: so at the start am units is at 10
shivani@GMAIL: oh..
manish: you accumutalte units
manish: I will give you a case
manish: in the start ,am you invest 50k
manish: out of which day 40k goes for investment
manish: units value : 10 ( i am glad i made correct analysis)
manish: so you get 4k units
manish: after 1 yrs
shivani@GMAIL: ok
manish: say your fund does good
manish: and its unit value is now 12.5
manish: you invest 50k in 2nd year
manish: suppose all 50k goes for investment (just for example)
manish: then you again get 4k units
manish: 50k/12.5
manish: total units 8k
manish: for 3rd year suppose fund does much better and now its 15
manish: NAV = 15
manish: you pay 50k
manish: and get 3333 units
manish: 50k/15
manish: total 11.3k
manish: units
manish: now you stop
shivani@GMAIL: hmmm
manish: supose in these two years markets go down and now your NAV is 13.5
manish: so at the end of 5th years
manish: for the initnal 4k units
manish: you will get 15.05
manish: 15.03
manish: and for rest of the units you get the 13.5
manish: and its suppose the NAV was 17 at the end of 5 yrs
manish: tehn you get 17 for all the units
manish: considering the complexity of the product and overall design , and your age profile .. its
totally a no no product from my view
shivani@GMAIL: so i cud actually be in loss if after 3 yrs NAV goes down w.r.t NAV that was
there in 2nd or 3rd year
manish: yes
manish: you can
manish: just invest in MF with SIP and sleep for 5 yrs
shivani@GMAIL: can NAV go down 10?

manish: that's the best advice I can give you
manish: yes .. why not
manish: NAV can go down to 0
manish: what is NAV
manish: ?
shivani@GMAIL: wat!!
shivani@GMAIL: i asked them
shivani@GMAIL: they said no
shivani@GMAIL: it always increases
manish: huh ..
manish: my foot
shivani@GMAIL: net asset value

manish: who is this idiotic person telling you this
shivani@GMAIL: they only told.
shivani@GMAIL: icici prudential ki
manish: it can only go up if all the money is invested in debt products
manish: wait ( i am glad i made correct analysis)
manish: it can only go up if tey invest in debt products
manish: 100% debt
manish: then it will go up always
shivani@GMAIL: hmmm
manish: but incase you want to invest in debt fund only
manish: then why are you going for this
manish: you can simple invest in FD's or Debt mutual funds
manish: you want to invest in this , for some better returns and some "extra thing"
shivani@GMAIL: they said they wil invest..

shivani@GMAIL: we wont interfere etc
manish: you choose at the start
shivani@GMAIL: nahi nahi i am not thinkin of anythin right now
manish: if you want you can swithc between funds in between
shivani@GMAIL: i wanted to know more abt it. so asked u
manish: ok .. from my side : 1 out of 10
manish: may be I am biased
( i am glad i made correct analysis)

shivani@GMAIL: hmm...
manish: but for sure not more than 3/10
shivani@GMAIL: no bu the truths u told me r gud enough for me also to say no
manish: and your money is gettign locked for 5 yrs here
shivani@GMAIL: no
shivani@GMAIL: no
shivani@GMAIL: they said we can withdraw in 4th yr as well
manish: in that case .. you just take UNITECH shares at 30 at current price
manish: you can expect it to be 200+
shivani@GMAIL: if we see that the money retirns are good then

manish: after 5 yrs
shivani@GMAIL: no they said 4th yr too
manish: yes .. you can ... but did they also tell you that in that case you are heavily penalised for
premature exit
shivani@GMAIL: nahi
manish: you are locked for atlest 3 yrs ( i am glad i made correct analysis)
shivani@GMAIL: yes
manish: you can't withdraw before 3 yrs
manish: but in 4th and 5th
shivani@GMAIL: yes]
manish: there are charges
manish: afterr 5th , there are no chanrges
shivani@GMAIL: hmmm...
manish: see .. currenlty the practse in financial markets are like this
manish: Trap peopke
manish: people in products
manish: meet your monthly targets anyhow
manish: whatever it takes
shivani@GMAIL: woow...u really opened my eyes.. cool.. :)

manish: give the customer the documents which has everything written in it in small fonts
manish: which they wiill never bother to read
manish: and now they are lawfully safe
shivani@GMAIL: ill read ur chat again n ask them tomoro in details wat they has to say abt these
things.. :)
manish: understand one more ting
shivani@GMAIL: ya tell
manish: whatever I have talked about is based in my understadning of other ULIPS
manish: I have not read about it in detail
manish: but more or less
manish: things are same everywhere
shivani@GMAIL: hmmm..
manish: so get details about everything from them on this
manish: may be there are small changes here and there
shivani@GMAIL: hmm.. right

shivani@GMAIL: :)
manish: but overall this kind of things are to stay away from
manish: ULIPS are great product , I don't doubt that
manish: but its not for you
manish: Its for long term desciplined investor
manish: if you want to invest in this for your child education fro next 20 yrs
manish: then go for it
manish: I will recommend you this product my self
manish: everythgin is made for some purpose and it should be taken only for that
manish: IF you are just investiung in this for "tax saving" , then my best recommendation would be
don't invest anywher and pay the extra tax
manish: that will be the best thing you can do
manish: understoof
manish: stood
shivani@GMAIL: hmm
shivani@GMAIL: I agree.. :)
manish: Disclaimer : My advice should be taken as reference , I am not responsible for any
descision of yours
shivani@GMAIL: cool.. thanks a lot manish..

shivani@GMAIL: u dnt need to put disclaimer for me..
shivani@GMAIL: not atleast now
shivani@GMAIL: ;)
manish: That's the standard thing to do
manish: I need to act like professionals
shivani@GMAIL: yeah yeah i agree
manish: yeah
shivani@GMAIL: :)
manish: now this chat is going for my next article
UPDATE (28 AN 2009 ) : Shyam Pattabi (writes for HINDU) also shares his similar thoughts on
this product at http://www.shyamscolumn.com/2009/01/guaranteed-return-schemeanyone.html
Note : This is a real chat and not my creation like my earliar post .
Disclaimer : Please note that all views on this article are my personal views and investor should
take there own decision , There may be some facts and figures which may be wrong from my side
and should not be taken as 100% true . It is based on my current knowledge . Thanks
Continue Reading
Friday, January 16
What is Nifty Beas ?
Nifty Beas an Index based ETF (What is ETF) , which tracks Nifty
index . Nifty Beas can be a important part of your portfolio . One unit
equals around 10% value of index , Means if Nifty is around 3000 ,
one unit of Nifty Beas will be around 300 (can be less or more a bit
also , depending on demand and supply)
Some Advantages of Nifty Beas
Simplicity : It is very simple to invest in Nifty Beas , You can buy and sell it easily on stock
exchange from your demat account , treat it just like a share .
Economical : It has no load scheme. The annual expense ratio including management fees is a
maximum of 0.80% of the Daily Average Net Assets, which is one of the lowest for any mutual
fund scheme in India. The costs reduce further to 0.65% .
Liquidity : Any time you want money , you can sell your units in the markets .
No Human Error or Bias : The performance of Nifty BeES is simply the result of performance of
shares in the S&P CNX Nifty Index and demand & supply in the market. There is no Fund manager
bias. Hence there is no chances of Human error .
If you see the returns , it has consistently outperformed Nifty .

Annual Returns
2008 2007 2006 2005 2004
Fund Return -51.28 55.97 41.49 37.75 12.30
Rank In Category 7/22 4/22 10/22 8/20 8/18
Category Average -51.78 49.97 39.13 37.22 10.16
S&P CNX Nifty -51.79 54.77 39.83 36.34 10.68
Sensex -52.45 47.15 46.70 42.33 13.08
What are the disadvantages of ETF ?
As such , there are no disadvantages , but obviously there may be many mutual funds which may
perform better than NIfty Beas , It may be because of good decision or pure luck .
Who do ETF work ?
See this article from Deepak Shenoy to know about this .
My view
Any one who wants to participate in long term growth and with less risk can divert some part of his
cash in Nifty Beas . It scores really high when it comes to convenience and returns over long term .
Its easy to purchase . Just invest some small amount every month with discipline over long term .
Other ETF's
There are many other ETF's you can go for , they are
- ICICI Prudential SPIcE : Tracking NIFTY

- UTI Nifty Index : Tracking NIFTY
- PSU Bank BeES : Tracking Banking Stocks
ETF's are the best way to invest in a sector , you can also go for sectoral funds , but these are ETF's
.
Continue Reading
Tuesday, January 13
A nice article on options trading
http://www.rediff.com/money/2001/jun/29opt4.htm
Continue Reading
Secure Your Family , Risk Management Part 2
Why do we invest ?
Answer : For ourself , for our Family , for there

better future , for our kids , for there better life , for
financial independence , at last the answer comes
down to Our Family .
But , before investing , do we make sure that , do we

secure our family at first place against any risk and
problems which may arise . You can invest in great
things , whatever it is like Mutual funds , ULIPS ,
direct shares , gold , blah blah blah ...
But what if some bad things happens to you and your

family is left behind with no money at present , what
is your wife , kids or your parents meet some
accident and go to hospital . Is that more important
or creating your wealth for future .
What is more important is to first concentrate on "Now" and if everything is taken care of , only
then think about the future . How do you secure your family .
There are two things :
1. Life Insurance for yourself (assuming you are the bread winner)
2. Health Insurance for your entire family , especially if your have old parents , or going to become
old in some years :) .
1. Life Insurance : Read http://finance-and-investing.blogspot.com/2008/06/life-insurance-

revisited-one-of-my-good.html for understanding it better .
2. Health Insurance : Read http://finance-and-investing.blogspot.com/2008/07/health-

insurance-what-is-health-or.html
Let me talk about a case study .
- Robert is in his 30's earning 5,00,000/Annam . He is married and has 2 kids .
Robert needs life insurance of around 50 lacs to secure him Family . also he should take a health
cover of 4-5 lacs each .
He can take a term cover of 50 lacs for 16367 . He can also take Health Insurance of Rs 4 lacs each
for him , his wife and his 2 kids (family floater plan) @Rs 5000 (Check click2insure.in for these
quotes) .
Means , he can take both of these things at 21,000 / year . It comes out to be 4.2% of his yearly
Income.
Now think , can you spend 5% of your yearly salary for safety and coverage of your Family ? I
thing YES !!
Once you do this , you are free of any tension , and now you can use your 95% money to generate
long term wealth for your family and there security . You can effectively use your 95% , only if you
use your 5% for your risk management .
There can be many cases when you dont cover your family and things can go wrong ,like
1. You invest heavily in Mutual funds or ULIP's or what ever and in 2 years you die in an
accident , what will happen then ...
2. You invest your money in ELSS (tax saving mutual funds) for last 2 yrs and have life
insurance also , but suddenly you wife meets an accident and you require 5 lacs for an
operation , but you never took Health Insurance .
Investing your money is important , Covering your risks are Vital !!
Live in the moment , "now" is the truth ... Keep you family happy with covering then and yourself
now .
Some tips :
- Take a life cover ASAP if you have not taken it yet .
- Buy a family floater plan if your family has spouse and kids , for Parents you need to take a
separate individual policy , as parents are not covered in Family floater plans .
- You can also claim tax benefit for this under section 80D .
- Don't feel that life insurance from other companies (other than LIC) are very risky and anything
like that . Insurance sector is now getting mature enough and govt is taking all measures to confirm
that the companies which enter Insurance Industry are from great Business families and conform
with the guidelines . But its true that LIC will always be the safest (100%) .. but 99.999% is also
safe ...
Summary
Its more important to cover your Life risk and family Health risks first before any investments for
future , when you put your money in Insurance and Health Insurance you are already taking steps
for strong invesments for future which is safety of your family , which is of supreme importance .
Dont ignore it ... Take appropriate cover .
Continue Reading
Monday, January 12
Bunch of keys
This weekend my
roommate was little
worried , because he
lost his bunch of keys
, All his keys were in
a bunch together ,
which included his
Office keys , bike
keys , Drawer keys
and house keys ,along
with some other keys
, He lost it
somewhere before 3-
4 days back .
Looks like he is now

regretting why he
never kept all unrelated keys at different places , The reason why he kept it in a bunch was the
"convenience factor" , he can just take that bunch and he will have all keys , he doesn't have to
manage them all . But he never concentrated on the situation when he can loose all the keys
together .
Does this teaches us something regarding our investment decisions ?
I guess yes , Don't do all your investment (keys) in same product (bunch) ... Managing them is
pretty easy because you don't have to take care of different things and there is convenience , One
day some thing bad can happen with that investment , it will be a big risk . Diversify your risk (keep
different keys at different place) by investing your money across different asset classes like Equity ,
Debt , Real Estate , Cash , Gold etc .
If you invest only in Equity , you have chances of great returns , that i agree , But one bad day if
things go wrong (you lost your keys) , the situation can be worse .
Manging your keys well is the key to success .

Continue Reading
Friday, January 9
Game of Trading , Risk Management Part 1
Lets play a game , the name of the game is "Game of Trading" . I am stock market and you are
investor. You have got 2 chances of investing you money , One time i will give you 200% return
and other time i will give you -80% , or in reverse order , so it can either be
200% , -80%
OR
-80% , 200%
You have to decide in advance that how much percentage of your total capital you will invest each
time (invest capital) and how much you will keep safe money (safe capital) , you have to decide for
both the times in the start only .
Lets analyse different cases .
Case A : You choose invest capital as 100% first time and 20% for next chance
Case A.1 : Return was -80% first time and 200% next time .
Read-Error
Case A.2 : Return was 200% first time and -80% next time .
Read-Error
Case B : You choose invest capital as 20% first time and 100% for next chance
Case B.1 : Return was -80% first time and 200% next time .
Read-Error
Case B.2 : Return was 200% first time and -80% next time .
Read-Error
You can see that at last A.1 = B.2 and A.2 = B.1 , so it means that order of your invest capital ratio
does not affect your result , it both the cases it can either become 28 or 252 (depending on the return
order) ...
What should you do ?
100% and 20% choice will always loose in long run , if you play this game over and over again for
long run , Understand that in this game , you can make it "high risk high return" Game or
"Extremely no risk , low return game" ,And your choice of your invest percentage will decide
which game is it .
Characteristic of "High return High risk game" : Its possible to make great money in short term , but
in long run you will loose .
Characteristic of "Low risk , low return game" : You will Not make great return in short term , but
with compounding effect ,you are bound to be a winner in long run .
Let see if we can choose a ratio (invest percentage) can give us some profit irrespective of the return
order .
Lets choose 25% invest capital :
Case A.1 : Return was -80% first time and 200% next time .
Read-Error
Case A.2 : Return was 200% first time and -80% next time .
Read-Error
You can see that in any case your 100 becomes 120 , which is 20% return.
What if you choose 80% invest capital : In that case at last you will have 93.6 (calculate yourself) .
So what should be the best percentage capital to deploy each time in this game .
I tried to make an Equation , with all variables
p = profit times (2 or 200/100)

l = loss times ( -.8 or -80%/100 )
C = Capital at the start
T = Trade factor (.25 means , 25% of the capital will be invested at any time)
We want to find optimum T , given any p and l (assuming that the trade will be done 2 times)
So , If you calculate the total capital after the 2 trades (do the maths) , you will get
Total capital = C (1 + pT) * (1 + lT)
So our original capital is getting multiplied by (1+pT)*(1+lT) , and we have to maximize this
number .
lets say I = (1+pT) * (1+lT)

I = 1 + plT^2 + pT + lT
If we do some differentiation here with respect to T (people who dont know differentiation , just
leave it) , and put dI/dT = 0
2plT + p + l = 0
T = - (p + l) / 2pl
So the best valeuof T is -(p+l)/2pl ..

For our earliar example , p = 2 , l = -.8
we get - (2 - .8)/ (2 * 2 * -.8) = .375
Which means , 37.5% of capital will be invested everytime , and with that our capital will become
122.5 and that is the max you can make without risk .
What if return = 200% and -90% , in that case p = 2 , l = -.9 , so T = 2 - .9 / 2 * 2 * .9 = 1.1/3.6 =

11/36 , means investing capital will be 30.555% always and that will give us max return .
What is the point i am trying to make ?
In any given sitution of making money , there may be a big risk of loosing it , we should always use
these kind of tools and always be safe . Dont try to be very bold in stock markets.
People who make killing in the start often get killed somewhere on the way and people who make
respectable and sufficient money with satisfaction become winner over long term .
Summary
When you do Investment or do trading , you should never put all your capital into it , one bad trade
or investment and you will be ruined forever , better to risk only that much capital which can not
take out of of the game , but just hurts a bit . Take small and risk-less profits if possible , Investing
and trading is all game of probabilities . Use maths and logic to take smart decisions like discussed
in this article .
"There are old investors and there are bold investors , but not both . "
Check out this blog for Risk Management Part 2 .
Manish
Continue Reading
Thursday, January 8
My google search Results
When you search "Jeevan Astha" on google search , which is the first result on the main page , it
should be the most relevant and important website giving information about the product .
To my surprise , its not taking users to LIC page , but to my blog article which tells users why its
bad , I hope users read it and take decisions as per there understanding .
Other searches which surprise me are :
"LIC endowment policy returns" : when you search this on google , it takes you to my article on
"Why Endowment policies are never best and should be avoided".
Some other searches which points this blog as first result are :
- PPF versus Jeevan Astha

- returns from gilt funds
- how to calculate home loan emi
- what are FMP's
- important ratios to look before investing
- ppf or endowment policy
- are fmp's safe in india?
- debt fund vs liquid fund
- what is CRR
- how to create diversified portfolio (4th result)
- term insurance vs endowment policy
I am proud to say that this blog is appearing on the first page and the first result on most of the
"keywords" which must take them to much more better sites or companies main page . but looks
like my article contents are really good and relevant , thanks to all of you to read them and
recommend other and make this possible .
Note :
We have crossed 100 article milestone , and this is my 101th post , I am happy to share how this
blog is doing . For some next articles we will be taking about Risk Management . I am sure i will
make it interesting with lots of numbers and amazing aspects . It would be little biased on stock
investments , but it should apply to anything related to investing . Even if you are not related to
stock markets and investments in Equity , I can assure that it would be very enjoyable .
Thanks
Manish
Continue Reading
Wednesday, January 7
The Straw That Broke the Camel's Back
One of my friend is fond of shares and options trading ,

from a capital of Rs 50,000 , he grew it to Rs 2,00,000 ,
whereas i am almost at the same place from where i had
started because i do some thing called "Risk Management"
... Every time I take a trade or invest in anything . This is
how i go about it .
- Either i dont take the trade

- Or I take the trade , but work on risk management, i
hedge it using PUTS or invest less in that .
Because of these two things I either miss big profits or

make very small profits . managing risk involves cost and that's the cost you have to pay for trying
to be "safe".
Last week we both purchased some thing which gave him 50% return , but gave me just 7-8%
return over my investment . The reason was that i also hedged my position and tried to be "smart" ,
which my friend didn't Acknowledge . There are many incidents like this , because of which i
always lag behind him when it comes to performance , and i am always ahead of him in being safe
which never helped until now .
Jan 7 2008
10:30 AM :
Markets were a bit up and things looked good , He bought Satyam's Calls with almost all of his
capital , He has good intuition of which options may work and which may not , but I tried to
convince him that buying a PUT on a lower strike price will save him in case he is wrong .
But to my expectation , he was "sure" that it would work , He put SL at 175 just to show me
because of the fact that he knew it wont be touched at least today .
11:30-12:00 PM :
Satyam Fiasco news came in and within no time Share was down 30-40% , No surprise that even
SL was not entertained ... because prices never stopped .. everyone was just in a rush ... With in
some time Share plunged to 60-70 , My friends calls were worthless and It doesn't look that it will
now move up from this point . In short He is dead ... He is out of this game now ... He has 20,000
cash and all 1,70,000 or 1,80,000 he had put in calls are not even worth 4,000 - 5,000 .
Price of Satyam 120 PA Jan 29
11:00 AM : Rs 1
2:30 PM : Rs 90
Return : 9,000% in 3 hrs .
What is the point i am trying to make ?
Everybody likes to make big profits and we should but not at the cost of risk of blowing up all our
capital . Its not just related to Share markets or options . It also applies to Debt market , Mutual
funds .
Do everything you can do to minimize or avoid the risk . Its very true that returns comes with risk .
I am not saying "not to take risks" , i am talking about "managing risk" .
"Managing Risk" is the biggest measure you should take if you are in this field .
In some of the next posts we will try to see what are the different kind of "risk management"
techniques and its importance .
Continue Reading
Monday, January 5
Tax Exemptions Rules , Who is included and who is not
Following is a chart showing the list of people for whom you can claim deductions for tax
exemption . For example, if you pay LIC Insurance premium , you can claim if got premium paid
for
• Yourself
• Spouse
• Children
For further details ... see this table ... Click to enlarge it ..
Read-Error
To know about the

tax slab and an example for calculating tax .. see : http://finance-and-
investing.blogspot.com/2008/04/tax-information-for-2008.html
How to choose mutual funds
95% of the salaried people are rushing to invest for tax savings (India) . 5% of smart people have
already done it (like me) .
The biggest rush i know must still be for LIC polices and PPF (because very less people in india
invest in Mutual funds still ..
In my earliar posts in have told which two mutual funds are the best candidate for investing now .
They are SBI Magnum taxgain and Sundaram BNP Paribas Taxsaver
Both of these mutual funds are long term consistent performer and come from very respected and
best AMC's in India. Both of these have always been one of the best in the category .
But time changes , situation changes :) , We can analyse some numbers and see what are the future
prospects for these two mutual funds in comparison to each other . We will see on what basis we
can conclude that . Please read following conversation with my friend . It should give you some
idea about how to choose mutual funds and why one could be possibly is better than other .
Robert : Hey Manish , need some suggestion from you .

Manish : Hi robert , whats up ... how is life these days ? Manish : How is job going on ?
Robert : Nothing yaar , I am just busy with my tax savings , have to submit the documents ASAP ,
so need to invest now , i am thinking of investing in a ELSS , Any suggestions ?
Manish : hmm... See , There are two good funds i think you can invest in , SBI Magnum taxgain
and Sundaram BNP Paribas Taxsaver . These are the 5 star rated funds from
valueresearchonline.com . You can consider those .. But if you only want to invest in one ELSS , i
would say go with Sundaram .
Robert : hmm.. Can you give me how you did this analysis and why are you saying that Sundaram
looks better than SBI at this moment . I thought if a mutual fund has been long term consistent
performer and our time horizon is more than 3-5 years, We can invest in any good funds .
Manish : That is true , I am not saying that SBI is bad and Sundaram is the best , we are trying to
see why Sundaram is a better choice for now . We will see the numbers and some charts , and we
can look that sundaram is doing much better than SBI from quite some time . That gives us good
estimation of which one is good for investing now . So , this requires some long duration talk , i will
have to tell you the details , are you ready ?
Robert : ok
Manish : So , Let me first tell you that Since Inception returns for SBI has been 16.67% , and for
Sundaram its 19.35% , Which is highly respectful .. Let us also look at the following chart of NAV
of both mutual funds for last 3 years.
Green : Sundaram
Red : SBI
Blue : Sensex
Read-Error
Manish : You can see that in last

3 years , Sundaram has outperfomed SBI Magnum and and also was less volatile than SBI , when it
comes to be consistent with Sensex .Also we must see the last one year charts of these two in
isolation .
Read-Error
Manish : You can see that Sundaram has taken over SBI around Jun 2008 and has performed better
than SBI . You must keep in mind that NAV and index values has been rebased to 100, for
comparison purpose only.
Robert : hmm.. that is fine , i understood that , we have some charts which tries to prove the point ,
But there must be other numbers also which favors Sundaram over SBI .
Manish : Yes, let me tell you some things which you can use for comparison purpose .
1. Sharpe Ratio : Generally people judge mutual funds preformance by the returns only , whereas
the better parameter is Return with respect to the risk taken .
The Sharpe Ratio of a fund measures whether the returns that a fund delivered were
commensurate with the kind of volatility it exhibited. This ratio looks at both, returns and
risk, and delivers a single measure that is proportional to the risk adjusted returns.
So , Sharpe ratio is noting but risk adjusted returns , So higher Sharpe Ratio is better . Currently in
Mutual funds industry , Sundaram Tax saver and Canera Rebecco mutual funds have highest Sharpe
ratio of .15 . SBI has 0.0 .
2. Alpha Ratio : This is very important ratio in mutual funds . Alpha is a measure of an
investment's performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or
fund portfolio and compares its risk-adjusted performance to a benchmark index. The excess return
of the investment relative to the return of the benchmark index is its alpha.
Simply stated, alpha is often considered to represent the value that a portfolio manager adds or
subtracts from a fund portfolio's return. A positive alpha of 1 means the fund has outperformed its
benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an
underperformance of 1%. For investors, the more positive an alpha is, the better it is .
Alpha for Sundaram : 3.35

Alpha for SBI Magnum : -1.18 !! (Bad)
3. R-Squared : R-Squared is a statistical measure that represents the percentage of a fund

portfolio's or security's movements that can be explained by movements in a benchmark index.
Higher the R-squared Value , closer the mutual fund to the index , what it means is that it will
behave like Index funds upto that percentage , which means what if a mutual fund has r-sqaure
value of 100 , its nothing but an index fund , then why to buy the mutual fund and pay high
manging fees , A mutual fund should have a balance in R-square it should not be more than 90 and
less than 80 . A mutual fund with less than 80 rsquare shows that they have more tendency to be
volatile and be close to the index benchmark . forbes.com says : Mutual fund investors should avoid
actively managed funds with high R-squared ratios, which are generally criticized by analysts as
being "closet" index funds. In these cases, why pay the higher fees for so-called "professional
management" when you can get the same or better results from an index fund .
R-squared for ,
SBI Magnum : 94
Sundaram : 87
Read more about the ratios at :

http://www.investopedia.com/articles/mutualfund/112002.asp
Robert : Great !! , those ratios are really important parameters while judging the mutual funds .
Btw , i understood these things .. Any thing regarding holdings ?
Manish : Definately , Ratios are important , but we should also look at simple things like its
holdings in different types of companies . See below
Sundaram Portfolio
Market Capitalization % of Portfolio
Giant 56.17
Large 17.10
Mid 24.88
Small 1.85
Tiny --
SBI Magnum
Market Capitalization % of Portfolio
Giant 46.07
Large 21.48
Mid 25.52
Small 6.91
Tiny 0.01
If you compare the investments by Sundaram , it has high concentration in Giant companies and
have avoided investments in Small and Tiny Companies , which helps in avoiding Risk (also returns
can be affected, but more important is managing risk) . Also in future when Markets improve and
starts rising , front line stocks (big companies) will be the first to move up .
Robert : Any other small things to consider ?

Manish : Other things you should see are
Expense Ratio (lower the better) : Sundaram : 2,.24 , SBI : 2.5

Market Turnover
PE Ratio : Lesser is better
PB Ratio : Lesser is better , SBI is better in this
Market Capitalization
There are many others
Robert : That is fine , but i can see that SBI is ranked 1st when you consider 5 yrs return and
Sundaram is 2nd , I saw it on Value research online site .
Manish : True , But did you see its 3yr Rank also ? Its 5th !! and did you see 1yr rank : its 12th for
SBI Where as Sundaram is 2nd in 5 yrs , 1st in 3 yrs and 2nd in 1 yrs return category , which gives
indication that Sundaram is taking over as one of the best funds available over SBI slowly .
Robert : hmm.. that makes sense , Great !! i would really consider these points , this helped a lot .
Manish : My Pleasure !! , But please understand that there is no guarantee that Sundaram will
outperform SBI next year or from now on .. There is just a high possibility for it , because of our
analysis .
Question : Guys (and gals) ... Do you you know who is Robert and Manish : ) Ans : Both are Me ...
:) , I just created this talk to present the article and learning in a different way and to make it
practical and enjoyable .. i hope you all liked it .
Note : Please note that the views and analysis are personal , there may be some error , if someone
finds any please , let me know . I will correct it .. But i am sure there is no mistake or error in data .
Source : valueresearchonline.com and forbes.com

Continue Reading
Wednesday, December 31
Financial Resolutions for 2009
Hi Friends , Happy New Year to all of you .. As this new year is coming , Let us
discuss some things , they are :
1. Financial Resolutions for 2009

2. Outlook of Asset Classes in 2009 and onwards.
Financial Resolutions for 2009
Let us all make sure that we will do better than the previous year and make some changes .
1. Adopt the attitude of Expenses = Salary - Savings instead of Savings = Salary - Expenses
2. Learn more and more about investing to at least up to a level , where i can take my decisions
without any help of others and also be able to help someone else ..
3. Learn all the basic taxation rules and investing rules.
4. Not take decisions whose Risk/reward ratio does not suit me , even if there is no risk in some
investment , its return should at least match your goals .
Person 1 : Person not investing his money in any thing (just putting it in bank) and having a desire
of getting 15% return and risk appetite of same .
Person 2 : Another person investing in Equity for a return of 50% in a year , but he actually requires
and can be fine with 15% return.
Both the people here are wrong and are not doing correct . They must invest in a way which
satisfies both there return/risk ratio .
5. Will not get trapped in useless products just because someone else thinks so , we will do our own
analysis , take suggestions from reliable sources and people with knowledge and only then invest
our hard earned money .
Outlook and suggestions for Asset classes in 2009
Let us see some asset classes and lets have a quick view on it ..
1. Mutual Funds : Situation now is little under control , with downward bias for the first quarter ,
but things should be good by the year end and then we can see a good rally there after . Better to
invest though SIP only .
2. Direct Equity (shares) : Make sure you buy shares only if you have long term view and do not
want to speculate for short term .. You can buy some very good shares now and hold it for next 5-20
yrs , and i am sure they will return fortune . The best time after 2003 is NOW !! . But better buy on
dips ... If you want to invest 100 , make sure you break it in 3-4 parts and invest on dips ... its like
following SIP on our own. Metals (safe) and Real estate (little risky for short term) can be good bet
for long term investments .
3. Real Estate : No comments ... There are still chances of further correction ... But people who do
not want to buy it for investment can still invest if it suits there requirement and budget .
4. Bank FD's : People looking for short term investments like 6 months - 1.5 yrs can put there
money in FD's ... The interest rates offered are good and with inflation coming down , its will be a
fair investment .
5. Derivatives (Futures and Options) : There are many people who are now trying these
instruments , do not understand the risk associated , Please understand very clearly that these are
Atom bombs in Finance field ... You can either kill yourself with it or make a Killing out of it ... If
you want to do it .. better learn about it .. prepare heavily and only then enter .. Else defeat is almost
certain . Some of the biggest financial companies have gone bankrupt over night because of
derivatives .
See :
The use of derivatives can result in large losses due to the use of leverage, or borrowing.
Derivatives allow investors to earn large returns from small movements in the underlying asset's
price. However, investors could lose large amounts if the price of the underlying moves against
them significantly. There have been several instances of massive losses in derivative markets, such
as:
• The need to recapitalize insurer American International Group (AIG) with $85 billion
of debt provided by the US federal government[4]. An AIG subsidiary had lost more
than $18 billion over the preceding three quarters on Credit Default Swaps (CDS) it
had written.[5] It was reported that the recapitalization was necessary because
further losses were foreseeable over the next few quarters.
• The loss of $7.2 Billion by Société Générale in January 2008 through mis-use of
futures contracts.
• The loss of US$6.4 billion in the failed fund Amaranth Advisors, which was long
natural gas in September 2006 when the price plummeted.
• The loss of US$4.6 billion in the failed fund Long-Term Capital Management in 1998.
• The bankruptcy of Orange County, CA in 1994, the largest municipal bankruptcy in
U.S. history. On December 6, 1994, Orange County declared Chapter 9 bankruptcy,
from which it emerged in June 1995. The county lost about $1.6 billion through
derivatives trading. Orange County was neither bankrupt nor insolvent at the time;
however, because of the strategy the county employed it was unable to generate the
cash flows needed to maintain services. Orange County is a good example of what
happens when derivatives are used incorrectly and positions liquidated in an
unplanned manner; had they not liquidated they would not have lost any money as
their positions rebounded.[citation needed] Potentially problematic use of interest-
rate derivatives by US municipalities has continued in recent years. See, for
example:[6]
• The Nick Leeson affair in 1994
Also See : http://en.wikipedia.org/wiki/List_of_trading_losses
Source : Wikipedia
6. Gold : Gold has lost its shine a bit now and can not be considered the best investment you can
make ... Still a small part can be in a portfolio , but not more than 5% .
7. Debt Mutual Funds : People can invest in these debt funds also if there investment horizon is
less than 1 yrs (invest for short term goals) .
8. Insurance : Any one who has still not taken insurance and still finds that he/she needs to take it ..
please take is ASAP . There should not be any delay in taking Life Insurance ever .
Some Notes on :
Inflation : Inflation may go down below 0% in 2009 , because of speedy fall in commodity and
crude prices.
Source : http://www.zeenews.com/nation/2008-12-28/494368news.html
Economy and Job Losses : India may see some affect of job losses and slow down in 2009 ...
Corporate results are expected to be devastating in first and second quarter of 2009 at least ... But
still India is among the top growing economies in world. So we must not concentrate on short term .
India's future is Great and unquestionable .
Summary : 2009 will be a good year , it is an excellent year and we will not do mistakes if we
have done in 2008 and before . we will learn more and use our money in a better way from now
onwards .
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Monday, December 29
Bangalore Investors Club
Hi All
I would like to introduce you all to Bangalore Investors Club. BIC provides financial education
programmes and hosts sessions on various aspects of investing, trading and financial planning.
For more information, please visit http://www.bangaloreinvestorsclub.com
Note : In case you are enrolling yourself for any courses with them , Let them know that you
came to know about them from this blog .
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Jeevan Astha .. Another idiotic product

LIC has introduced another Product called "Jeevan Astha" ...
http://licindia.com/endowment_008_benefits.htm
Let me take one by one each line and do some analysis and raise some questions .
A)Death Benefit:
On death during the first policy year: Basic Sum Assured with Guaranteed Addition.
On death during the policy term after first policy year, excluding last policy year: 1/3rd of Basic
Sum Assured with Guaranteed Addition.
On death during last policy year: 1/3rd of Basic Sum Assured with Guaranteed Addition along with
loyalty addition, if any
Some points here to consider :- Your risk cover will be 6 times of your investment and just 2 times
for rest of the duration + some loyalty addition if any .. So in a nutshell it as good as saying your
Cover is just 2 times of your premium ...
- What does it mean ? you will get double of our initial investments if you die after the first year .
This is the case when you die ...

B)Maturity Benefit:
On maturity, the maturity Sum Assured along with Guaranteed Addition and Loyalty Addition, if
any, shall be payable.
Maturity Sum Assured shall be 1/6th of Basic Sum Assured.
- Means , if your premium is Rs 1,00,000 , then Basic Sum assured is Rs 6,00,000 and hence ,
Maturity Sum Assured is Rs 1,00,000
C)Guaranteed Addition:
The policy provides for Guaranteed Addition at the following rates:
• Rs. 100 per thousand Maturity Sum Assured per year for a policy of 10 years term.
• Rs. 90 per thousand Maturity Sum Assured per year for a policy of 5 years term.
- Means , if your premium is 1,00,000 , then your Guaranteed Addition is Rs 10000 (10 yrs) ...
Means , You will get Rs 1,00,000 as Guaranteed Addition in 10 yrs .. and along with your original
capital , you will get back Rs 2,00,000 back after 10 yrs .
D)Loyalty Addition:
Depending upon the Corporation’s experience the policy will be eligible for Loyalty Addition on
death during the last policy year or on the Life Assured surviving the stipulated date of maturity at
such rate and on such terms as may be declared by the Corporation
This may or may not be there .
Now lets take a real like example ..
Ajay takes a 6 lacs policy over a 10 year term.
Jeevan Aastha Premium = 96,960

Amount he would get if he dies in the first year : 6,00,000
Amount on Maturity : 97000 + (10*10000) = 197000 (loyalty bonus is not assured , so not adding
it)
from what angle do you think this policy makes sense . You are maximum doubling your money in
10 yrs and nothing else . And the best time to die after taking the policy is first year itself .. then you
can get a little benefit (but still at a big cost) .
I don't understand why people complicate things .. LIC plans to collect Rs 25,000 Crores from this
policy , and i am sure they will succeed .. Because there are many people in our country , who don't
understand effects of Inflation , compounding and get confused with all those confusing statements .
Now if you are a regular reader of this blog .. then you should be able to utilize Rs 97,000 to
generate better returns than Jeevan Astha .
Let us do this ...
1. Insurance for cover of 6 lacs , not just for first year but for all 10 years .. Simple : Take a
term Insurance of Rs 6 lacs for 10 yrs , its around Rs 9840 (single premium , SBI life
insurance for a 26 yr old ) ...
2. After this you are left with around 88,000 , which you should invest in Equity Diversified
mutual funds either one time or through SIP for 10 yrs ... Even if we take 10% return . It
would be 2,28,000 .
When it comes to Investing , just Keep it Simple , Stupid (K.I.S.S) ... :)
UPDATE (28 AN 2009 ) : Shyam Pattabi (writes for HINDU) also shares his similar thoughts on
this product at http://www.shyamscolumn.com/2009/01/guaranteed-return-schemeanyone.html
Update (Jan 19 2008) : On NDTV Profit , Monika Halan has given comments that "Jeevan Astha"
should be the last product you should look for and only if you have cash to put nowhere , They have
given "Dont Buy" rating to this product and they also said that this product has lots of hype got
created . Monika Halan is Editor of "Outlook Money" and One of the most mature and best
personal Finance advisor i can think of .
Disclaimer : The above analysis is based on my study and should not be taken as investment advice
or discouragement from advice, use your own analysis to take your decisions . I will not be
responsible for your investment decisions .
Happy Investing
Manish
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Calls Service from Mr. Rajan Bhatia
Hi All
I know there are many Novice and existing traders coming to this blog and they want some kind of
Services which give them calls . Please find the details of call service from Mr Rajan Bhatia , He is
a well know Technical Analyst .
His Blog : http://niftyspotter.blogspot.com
Note : Any one applying for his service , please give my reference to him .
Thanks
Manish Chauhan
His Mail :
Dear friend,
Thank you again for your interest in our service, enclosed please find the details of the same as
given below. We will expect positive confirmation from your end ASAP , so as to allow us to plan
& set up the service ,well in advance of the starting date.
We will be sending a set of trading pattern charts to all subscribers on confirmation only so as to let
them understand how we will under take trades in POSITIONAL OR DAYTRADES and it becomes
easy for all to follow us clearly . We also plan to teach periodically technicals of the markets to all
who will be interested to learn.
With warm wishes
Rajan Bhatia.
SUBSCRIPTION & SERVICE DETAILS
We are a technical team looking for eager and willing traders trading in Nifty futures and
options .. We would like to use our knowledge of technicals & charting skills to give profitable
entry /exit calls of trading.
START DAY OF SERVICE : 26nd December, 2008
SUBSCRIPTION CHARGES : Rs 5000/- per month
Early birds before 25th December – Rs 4250/-(non –refundable)
After the initial one month, we will prefer three months subscription in advance will be appreciated
and advance six month subscribers will get the seventh month free. New subscription will be from
1st of every month.
MODE OF PAYMENT : Cash/ Cheque can be deposited in favor of Mrs Krishna Bhatia,
Account No. 04801000012507, HDFC Bank, Sarita Vihar , New Delhi and confirm by :
Sending E - mail to : bhatiakris@yahoo.com specifying your name and details of cheque / cash
deposited (Bank and Branch) and particulars of your e-mail address , mobile no. and Yahoo
ID.
MODE OF TRADING :
1. The calls will be given on yahoo messenger during market hours. In case of any net failure,
we can be contacted on phone for position clearing etc.
2. We will provide weekly /monthly outlook and will broadcast the trades/calls through yahoo
messenger through the day.
3. We will request here to all of you not to involve us in chat or conversation through the day
so as to allow us undisturbed trading time. Any clarifications etc can be provided through
mail or by chatting at a 7-8 pm on every trading day.
STRATERGIES FOR TRADING :
1. MONEY MANAGEMENT : Minimum Capital required is 2.5 to 3 lacs and using only
30 to 50% of capital any given time unless a clear trend is observed, distributing
between NF & options.
2. TREND TRADING : Identifying a trend with risk / reward ratio and trading with the
trend which normally develops 2 to 3 times a month where we will give positional calls
with suitable Stop Loss and Targets.
3. SHORT TERM TRADING : For intraday with close of position at the end of day'
4. STOCKS : We will be focusing primarily on NIFTY FUTURES /OPTIONS CALLS
ONLY but in sudden and deeper falls select stocks can be picked for delivery in cash
only for quick gains.
5. SUCCESSFUL TRADING requires apt attention and any kind of prompting /noise has
to be avoided based on Emotions / news or any other information. Telephone calls will
not be entertained during market hours (unless there is contact failure and is
important) as it would be very stressful and will divert attention; however, We shall be
giving enough warnings if We foresee any reversal of trade.
6. We will request you here to trade our calls only and not to mix them with other sites
/callers etc. Any such calls not taken from us will have to be settled by you on your
own. .
DISCLAIMER:
This is a proposal for a call service based on technicals and our knowledge of the markets
.Trading in Stock markets is risky and is entirely your decision .We will not be liable or
responsible for any gain or loss that may occur due to trading on these calls. The service
provider may or may not hold positions advised.
Disputes if any will be subject to Delhi jurisdiction.
OUR CONTACT DETAILS.
Tel nos. 09811045568 , 09810049221, 011-41403405.
Yahoo messenger id: bhatiakris

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Exceptional Returns from GILT FUNDS
During the last 5-6 months GILT funds have given returns like Equity funds ... Something around
20-40% in last 5-6 months ... And they are almost safe on downside ... Lets see more on this
Read : 5 mistakes of my first trade
What are GILT Funds ?
A mutual fund that invests in several different types of medium and long-term government
securities in addition to top quality corporate debt.
To have a look at different GILT Funds see :

http://www.moneycontrol.com/india/mutualfunds/gainerloser/17/15/snapshot/dlong/ab
Risks factors
Gilt funds have different kind of risks associated with it .. Once of them is interest rate risk ... There
returns are inversely proportional to the interest
rates and the reason for the exploding returns given by most of these
GILT funds or other Debt funds are the result of "interest risk drop in
last 6 months because of the measures taken by RBI" .
However, there are some negatives too to these funds. Bond yields carry
a higher credit risk than G-Secs and in bad times ratings can go for a
toss. Some retail investors don't understand ratings and are also not
aware of which corporate debt these investments are made in to.
Read about "Why you need Contingency Funds"
In the link
http://www.moneycontrol.com/india/mutualfunds/gainerloser/18/03/snapshot/op1/ab/option/dlong/s
ort/yr1
, If you see the 6 months returns and 1 year returns , they are 41.2%
and 41.8% , Think about what was the return during the 6 months period
before 6 months (Dec 07 - May 08) .. The last 6 months have been
exceptional for our Economy because of drastic decrease in interest
rates in short period of time . This happens rarely .
To get a good idea of actual performance of these funds , you should see
long term returns like 5 yrs returns or Since Inception returns .
Now if you see

http://www.moneycontrol.com/india/mutualfunds/gainerloser/18/09/snapshot/op1/an/option/dlong/s
ort/yr1for annualized returns , No fund has crossed 12% returns CAGR , and most
of the top funds are in range of 7-8% Except the out performers with 10.3
and 12.4% .
http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=1921 Shows the snap

shot of a fund from the list .. you can clearly see that
the risk Grade is HIGH for this fund , because of the risk associated
with interest rates . (try to click on Portfolio part and see risk
return chart) .
The accepted return from these funds are in range of 7-10% , and they
are better for Liquidity and Tax benefit parameters (just 10% for GROWTH
and 14% for DIVIDEND option) .
8 important ratios to look at before buying shares for long term
What you should do now ? Should you invest in Them ?
Don't get fooled by the past returns for these Funds , because now there
is no charm left in these funds now . They were excellent funds before 6
months and those who anticipated the interest rates drop made most of it
. So next time where you anticipate there is going to be fall in
interest rates , then you can consider these funds for your DEBT part of
portfolio ... These are still good funds if you don't believe in Equity
investment in these troubled times, but from my side "Equity Investments
are best as of now " considering your time frame is 4+ years .
Summary
GILT funds are mainly DEBT products , the normal long term returns expected should not be more
than 8-10% on average ... But still short term opportunities exists when drop in interest rates are
expected ...
To read more articles : Go to the blog directory (Click Here)

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Monday, December 22
Importance of Contingency Fund
Contingency fund is the amount of money you keep aside for an unforeseen
Situation like Job Loss , In this Article we will concentrate specifically on
job loss only . It is generally the month you may require for 3-4 months .
Considering you are the sole earner of the family , this is an important thing
you must ponder upon .
Why it makes sense ?
With the global slowdown , there are many cases of unexpected job losses in the field of Finance ,
IT , Manufacturing and many others . You never know when you will be without job .
Lets take two scenario when you loose your job and you either had Contingency funds and you did
not, Let us see what happens in these two cases .
Case 1 : You do not have contingency Funds : Put yourself in this Situation , Close your eyes and
try to think about this situation , How do you feel ?
Your Family depends on you , all your family expenses are met with you salary , now you loose
your job !! What if you don't find another job soon ? In this situation you have a heavy pressure on
you to anyhow find a new job as soon as possible , You need a JOB !! and not a "good" or
"appropriate" or "Dream" JOB . If you find a job , but you don't like it or wanted to do it .. still you
will have to take it because of the pressure of "finding a JOB because of others depending on you"
...
You compromise on Salary , Company and your wishes . Why does this happen ? This happens
because you cant wait , because you don't have the to survive of another 1-2-3 months. You know
that you can wait a little more and find a good job suitable for you , but you cant wait .
Case 2 : You have Sufficient Contingency Funds : This case is just the opposite of what we
discussed above . When you have sufficient CF , you have a relief in mind that you have sufficient
time to find a good job without compromising your family needs. You dont feel the pressure to get
the job ASAP . Though you have to find a good job soon , its not necessary that you take any shitty
job which comes your way ...
See this Video too ...
Where to have Contingency funds ?
As per the name , it can be seen that this amount is required at the time of unforeseen situation
which can happen anytime ,so it must be parked at some liquid avenue like Bank account or Liquid
funds . If you are keeping 4 months of funds as CF , then you can keep 1 month money in Cash and
rest 3 months money in Liquid funds .
Summary : Contingency Funds are the part of Risk management . And risk management is
something no one should avoid. People realise its importance only when they plan for it and get
trapped in a situation which demands Contingency funds . Plan for it .
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Saturday, December 20
8 keys ratios to look at before buying a share
If you are a first time visitor of this blog , please go to BLOG LIBRARY (Click Here) , to find out
the previous articles sorted by there category , thanks
This is a time when long term investing should be done . If you have spare cash for long term ,
Equity is for you . But how do you do it ? How do you choose them ? What are the important things
you should look at while buying shares for long term ?
There are some key things we will have a look at today , These are the key ratios discussed in book
Profitable Investment in Shares , by S.S Grewal and Navjot Grewal .
But , before reading them understand that they are ratios which good indication of share prospects
and are not guarantee about share price rise in long term , Share markets always run on Emotions
and perspective which can change anytime ... Also periodic review is necceassary , Just buying
today and looking after 10 years is not the idea .. Buying is always the first step , Periodic review is
the next .
8 Ratios to look before buying a share

1. Ploughback and reserves
After deduction of all expenses, including taxes, the net profits of a company are split into two parts
-- dividends and ploughback.
Dividend is that portion of a company's profits which is distributed to its shareholders, whereas
ploughback is the portion that the company retains and gets added to its reserves.
The figures for ploughback and reserves of any company can be obtained by a cursory glance at its
balance sheet and profit and loss account.
Ploughback is important because it not only increases the reserves of a company but also provides
the company with funds required for its growth and expansion. All growth companies maintain a
high level of ploughback. So if you are looking for a growth company to invest in, you should
examine its ploughback figures.
Companies that have no intention of expanding are unlikely to plough back a large portion of their
profits.
Reserves constitute the accumulated retained profits of a company. It is important to compare the
size of a company's reserves with the size of its equity capital. This will indicate whether the
company is in a position to issue bonus shares.
As a rule-of-thumb, a company whose reserves are double that of its equity capital should be in a
position to make a liberal bonus issue.
Retained profits also belong to the shareholders. This is why reserves are often referred to as
shareholders' funds. Therefore, any addition to the reserves of a company will normally lead to a
corresponding an increase in the price of your shares.
The higher the reserves, the greater will be the value of your shareholding. Retained profits
(ploughback) may not come to you in the form of cash, but they benefit you by pushing up the price
of your shares.
2. Book value per share
You will come across this term very often in investment discussions. Book value per share indicates
what each share of a company is worth according to the company's books of accounts.
The company's books of account maintain a record of what the company owns (assets), and what it
owes to its creditors (liabilities). If you subtract the total liabilities of a company from its total
assets, then what is left belongs to the shareholders, called the shareholders' funds.
If you divide shareholders' funds by the total number of equity shares issued by the company, the
figure that you get will be the book value per share.
Book Value per share = Shareholders' funds / Total number of equity shares issued
The figure for shareholders' funds can also be obtained by adding the equity capital and reserves of
the company.
Book value is a historical record based on the original prices at which assets of the company were
originally purchased. It doesn't reflect the current market value of the company's assets.
Therefore, book value per share has limited usage as a tool for evaluating the market value or price
of a company's shares. It can, at best, give you a rough idea of what a company's shares should at
least be worth.
The market prices of shares are generally much higher than what their book values indicate.
Therefore, if you come across a share whose market price is around its book value, the chances are
that it is under-priced. This is one way in which the book value per share ratio can prove useful to
you while assessing whether a particular share is over- or under-priced.
3. Earnings per share (EPS)
EPS is a well-known and widely used investment ratio. It is calculated as:
Earnings Per Share (EPS) = Profit After Tax / Total number of equity shares issued
This ratio gives the earnings of a company on a per share basis. In order to get a clear idea of what
this ratio signifies, let us assume that you possess 100 shares with a face value of Rs 10 each in
XYZ Ltd. Suppose the earnings per share of XYZ Ltd. is Rs 6 per share and the dividend declared
by it is 20 per cent, or Rs 2 per share. This means that each share of XYZ Ltd. earns Rs 6 every
year, even though you receive only Rs 2 out of it as dividend.
The remaining amount, Rs 4 per share, constitutes the ploughback or retained earnings. If you had
bought these shares at par, it would mean a 60 per cent return on your investment, out of which you
would receive 20 per cent as dividend and 40 per cent would be the ploughback. This ploughback of
40 per cent would benefit you by pushing up the market price of your shares. Ideally speaking, your
shares should appreciate by 40 per cent from Rs 10 to Rs 14 per share.
This illustration serves to drive home a basic investment lesson. You should evaluate your
investment returns not on the basis of the dividend you receive, but on the basis of the earnings per
share. Earnings per share is the true indicator of the returns on your share investments.
Suppose you had bought shares in XYZ Ltd at double their face value, i.e. at Rs 20 per share. Then
an EPS of Rs 6 per share would mean a 30 per cent return on your investment, of which 10 per cent
(Rs 2 per share) is dividend, and 20 per cent (Rs 4 per share) the ploughback.
Under ideal conditions, ploughback should push up the price of your shares by 20 per cent, i.e. from
Rs 20 to 24 per share. Therefore, irrespective of what price you buy a particular company's shares at
its EPS will provide you with an invaluable tool for calculating the returns on your investment.
4. Price earnings ratio (P/E)
The price earnings ratio (P/E) expresses the relationship between the market price of a company's
share and its earnings per share:
Price/Earnings Ratio (P/E) = Price of the share / Earnings per share
This ratio indicates the extent to which earnings of a share are covered by its price. If P/E is 5, it
means that the price of a share is 5 times its earnings. In other words, the company's EPS remaining
constant, it will take you approximately five years through dividends plus capital appreciation to
recover the cost of buying the share. The lower the P/E, lesser the time it will take for you to
recover your investment.
P/E ratio is a reflection of the market's opinion of the earnings capacity and future business
prospects of a company. Companies which enjoy the confidence of investors and have a higher
market standing usually command high P/E ratios.
For example, blue chip companies often have P/E ratios that are as high as 20 to 60. However, most
other companies in India have P/E ratios ranging between 5 and 20.
On the face of it, it would seem that companies with low P/E ratios would offer the most attractive
investment opportunities. This is not always true. Companies with high current earnings but dim
future prospects often have low P/E ratios.
Obviously such companies are not good investments, notwithstanding their P/E ratios. As an
investor your primary concern is with the future prospects of a company and not so much with its
present performance. This is the main reason why companies with low current earnings but bright
future prospects usually command high P/E ratios.
To a great extent, the present price of a share, discounts, i.e. anticipates, its future earnings.
All this may seem very perplexing to you because it leaves the basic question unanswered: How
does one use the P/E ratio for making sound investment decisions?
The answer lies in utilising the P/E ratio in conjunction with your assessment of the future earnings
and growth prospects of a company. You have to judge the extent to which its P/E ratio reflects the
company's future prospects.
If it is low compared to the future prospects of a company, then the company's shares are good for
investment. Therefore, even if you come across a company with a high P/E ratio of 25 or 30 don't
summarily reject it because even this level of P/E ratio may actually be low if the company is
poised for meteoric future growth. On the other hand, a low P/E ratio of 4 or 5 may actually be high
if your assessment of the company's future indicates sharply declining sales and large losses.
5. Dividend and yield
There are many investors who buy shares with the objective of earning a regular income from their
investment. Their primary concern is with the amount that a company gives as dividends -- capital
appreciation being only a secondary consideration. For such investors, dividends obviously play a
crucial role in their investment calculations.
It is illogical to draw a distinction between capital appreciation and dividends. Money is money -- it
doesn't really matter whether it comes from capital appreciation or from dividends.
A wise investor is primarily concerned with the total returns on his investment -- he doesn't really
care whether these returns come from capital appreciation or dividends, or through varying
combinations of both. In fact, investors in high tax brackets prefer to get most of their returns
through long-term capital appreciation because of tax considerations.
Companies that give high dividends not only have a poor growth record but often also poor future
growth prospects. If a company distributes the bulk of its earnings in the form of dividends, there
will not be enough ploughback for financing future growth.
On the other hand, high growth companies generally have a poor dividend record. This is because
such companies use only a relatively small proportion of their earnings to pay dividends. In the long
run, however, high growth companies not only offer steep capital appreciation but also end up
paying higher dividends.
On the whole, therefore, you are likely to get much higher total returns on your investment if you
invest for capital appreciation rather than for dividends. In short, it all boils down to whether you
are prepared to sacrifice a part of your immediate dividend income in the expectation of greater
capital appreciation and higher dividends in the years to come and the whole issue is basically a
trade-off between capital appreciation and income.
Investors are not really interested in dividends but in the relationship that dividends bear to the
market price of the company's shares. This relationship is best expressed by the ratio called yield or
dividend yield:
Yield = (Dividend per share / market price per share) x 100
Yield indicates the percentage of return that you can expect by way of dividends on your investment
made at the prevailing market price. The concept of yield is best clarified by the following
illustration.
Let us suppose you have invested Rs 2,000 in buying 100 shares of XYZ Ltd at Rs 20 per share
with a face value of Rs 10 each.
If XYZ announces a dividend of 20 per cent (Rs 2 per share), then you stand to get a total dividend
of Rs 200. Since you bought these shares at Rs 20 per share, the yield on your investment is 10 per
cent (Yield = 2/20 x 100). Thus, while the dividend was 20 per cent; but your yield is actually 10
per cent.
The concept of yield is of far greater practical utility than dividends. It gives you an idea of what
you are earning through dividends on the current market price of your shares.
Average yield figures in India usually vary around 2 per cent of the market value of the shares. If
you have a share portfolio consisting of shares belonging to a large number of both high-growth and
high-dividend companies, then on an average your dividend in-come is likely to be around 2 per
cent of the total market value of your portfolio.
6. Return on Capital Employed (ROCE), and
7. Return on Net Worth (RONW)
While analysing a company, the most important thing you would like to know is whether the
company is efficiently using the capital (shareholders' funds plus borrowed funds) entrusted to it.
While valuing the efficiency and worth of companies, we need to know the return that a company is
able to earn on its capital, namely its equity plus debt. A company that earns a higher return on the
capital it employs is more valuable than one which earns a lower return on its capital. The tools for
measuring these returns are:
1. Return on Capital Employed (ROCE), and
2. Return on Net Worth (RONW).
Return on Capital Employed and Return on Net Worth (shareholders funds) are valuable financial
ratios for evaluating a company's efficiency and the quality of its management. The figures for these
ratios are commonly available in business magazines, annual reports and economic newspapers and
financial Web sites.
Return on capital employed
Return on capital employed (ROCE) is best defined as operating profit divided by capital employed
(net worth plus debt).
The figure for operating profit is arrived at after adding back taxes paid, depreciation, extraordinary
one-time expenses, and deducting extraordinary one-time income and other income (income not
earned through mainline operations), to the net profit figure.
The operating profit of a company is a better indicator of the profits earned by it than is the net
profit.
ROCE thus reflects the overall earnings performance and operational efficiency of a company's
business. It is an important basic ratio that permits an investor to make inter-company comparisons.
Return on net worth
Return on net worth (RONW) is defined as net profit divided by net worth. It is a basic ratio that
tells a shareholder what he is getting out of his investment in the company.
ROCE is a better measure to get an idea of the overall profitability of the company's operations,
while RONW is a better measure for judging the returns that a shareholder gets on his investment.
The use of both these ratios will give you a broad picture of a company's efficiency, financial
viability and its ability to earn returns on shareholders' funds and capital employed.
8. PEG ratio
PEG is an important and widely used ratio for forming an estimate of the intrinsic value of a share.
It tells you whether the share that you are interested in buying or selling is under-priced, fully priced
or over-priced.
For this you need to link the P/E ratio discussed earlier to the future growth rate of the company.
This is based on the assumption that the higher the expected growth rate of the company, the higher
will be the P/E ratio that the company's share commands in the market.
The reverse is equally true. The P/E ratio cannot be viewed in isolation. It has to be viewed in the
context of the company's future growth rate. The PEG is calculated by dividing the P/E by the
forecasted growth rate in the EPS (earnings per share) of the company.
As a broad rule of the thumb, a PEG value below 0.5 indicates a very attractive buying opportunity,
whereas a selling opportunity emerges when the PEG crosses 1.5, or even 2 for that matter.
The catch here is to accurately calculate the future growth rate of earnings (EPS) of the company.
Wide and intensive reading of investment and business news and analysis, combined with
experience will certainly help you to make more accurate forecasts of company earnings.
Source : Rediff.com
Continue Reading
Friday, December 19
Blog Directory (Updated)
Dear Readers
This is my 90th article , and I should thank you all who appreciated this blog and came back to read
my articles. I just wanted to thank people and let you all know that i will keep adding articles on
investing and how to make smart decisions for investments. Google-analytics tells me that this blog
has crossed 10000+ visits ,which is a great achievement for this blog, and credit for this goes to you
all .
Below is the map giving details of the Readers of this Blog .. The maximum readers are from India ,
US , European and Asian Countries . Thanks to all of you to make this happen .
Today i am just reproducing all the articles and categorising them so that new readers find it easy to
understand about it.
Request : People leave your comments after reading articles, it helps me in improving and write
better article next time. In case of any doubts and question , feel free to mail me on
manish.pucsd@gmail.com
Also , i have started posting more articles on Stock Markets and Trading . I hope that's some thing
people want and like .
How can you search something you want to read on this blog ? You can see a search box on the top
, you can search things on this blog using it
You can also Follow this Blog , See at the right hand side the link to follow the blog .. Let the world
know what you are reading :)
How do i know in future that you published an article ? On the below right hand side (very below)
there is a Email subscription link , you can subscribe your email id , you will mail when i publish a
new article or change any existing one .
Categories for articles

For Beginners
Why Managing your money is Important and why to take pain in doing it
Terms and Terminologies in Investing World
Why small saving matter
How tax is calculated (2008)
How tax is calculated for different things
Common mistakes in Investing
All about Provident Fund
Inflation, How it eats your money slowly
How to evaluate your returns
Some investing Equations to make you understand some basic things
3 most important Formula's you must always know about
How to calculate Life Insurance Cover
Price Vs Value
Analysis of Comments regarding Endowment Policies
Tips for Disasters
CRR and Repo Rate
Investing Presentation
Know your RBI
Some tips while Taking Insurance
Liquid , Equity and Debt Funds
Basic Info on Stock Market
6 must follow rules of Investing
Super Star Articles (You can't afford to miss these at any cost , these are some very high level
articles , but easy to understand)
Portfolio Diversification
Portfolio Rebalancing
Creating Wealth
Power of compounding
Life Insurance , How to go about it
Why small saving matters
Why Endowment Policies are never Best
5 mistakes of my First Trade
Risk Management of Portfolio using Derivatives
Pillers of Success
5 Elements
Different Products and knowledge about them
What is a mutual fund
Myths about Mutual Funds
Advantages and Disadvantages of Mutual Funds
Mutual funds categories
Difference between Growth and Dividend option in mutual fund
Life Insurance 2 (Read it after reading the First Part)
Why to invest in GOLD and How
What is SIP (Systematic Investment plans)
Some Calculators to calculate growth of your money
What is a ULIP , and who needs them
REMF (Real Estate Mutual Funds)
What is Health Insurance and why its so important
What are Options (Stock market related , F&O category)
What are ETF's (Exchange Traded Funds)
What are FMP's (Fixed Maturity Plans)

What are GOLD Funds
All eggs in Single basket
Religare Aegon Life Insurance
Some products I know and recommend
Returns with Options Trading
My Advice on Options Trading
Averaging technique by Jesse Livermore
Things people generally don't know about
All tax saving funds are not same, Read why
What people loose by not knowing things
The Real Face of FMP's
Why avoiding bad decisions is better than taking good ones
Things you didn't knew in investing world
Magic of partial Profit booking
Kenyisian Beauty contest
Some things to Download
Some other links
Some recommendations
Continue Reading
Some Basic Information on Trading and Investing
What is an Index ?
NIFTY and SENSEX are the Index , they are the indicator of how Markets are performing . An
Index is created for measuring a particular section of stocks . When the Index goes up or down ,
they represent the group of Stocks they comprise of . So if an Index is up you can say with high
probability that most of the stocks under them have done well .
What is Nifty and Sensex ?
There are many Stock Exchanges in INDIA , BSE (Bombay Stock Exchange) and NSE (National
Stock Exchange) are most famous and biggest of all and with maximum business happening there .
Nifty : Nifty is the Index of NSE . Nifty has 50 biggest companies of India representing the
companies from almost all of the sectors , Each stock has there own weightages. Like Reliance ,
Infosys have High Weightage and Ranbaxy has less .
Sensex : Sensex is a Index of BSE , It is comprised of 30 shares .
What are different Indices on Exchanges ?
There are different kind of Indices on Stock Exchanges like for NIFTY .
NIFTY : Basket of all the sectors , Represents all the whole Economy CNX IT : For IT stocks CNX
100 : Top 100 Stocks CNX MIDCAP : For Midcap Stocks BANK NIFTY : For Banks
Each Index represents a sector or a group , if you track a Index you can understand how the sector is
performing overall .
What is difference between a Trader and Investor ?
Trader : A Trader is a person who tries to earn profit from small movements in price , there time
horizon is very small like 1 day or a week or some weeks . For example , A trader will buy
something @100 and will sell it at 105 and make a profit of 5 . He will try to take advantage of
volatility . His main tools will be Charts , News , sector outlook for short term etc. He will not
concentrate much on Company fundamentals , Long term sector outlook .
Investor : A Investor is someone who tries to invest money for long term . Long term can be
anything from 1 year to 10-15-20 years . Investor is more concerned about the fundamentals for the
companies , its growth and factors like those which are going to drive the share price in long term
not short term ... Investor is not concerned about the short term volatility . There focus is long term .
How to Begin Trading ?
Trading is one of the toughest things to master . Its a better idea to first learn and read about Trading
for some months , Watch the markets for some months and try to paper-trade first . paper trade
means just trading on paper and seeing how you perform . Read about Technical Analysis also . Try
to gather more and more info on Trading . Read good Books and Learn as much as you can .
Knowledge and your intelligence has very less contribution in your success as Trader . The main
things are Money Management , Discipline , Control over GREED And FEAR , and Risk
Management .
Once you are very confident you can start , Start with very small Cash and take big bets only when
you have made some progress to cheer about .
Have a plan and targets for your Trading . Take Trading seriously as your business and not as hobby
, else with high probability you will Fail .
How to Begin Investing ?
Read How to analyse stocks and Read books . Have a long term horizon and don't be afraid of your
share coming down ...
Should you be a trader or an Investor or nothing ?
It depends on your personality , the time you want to give in this and your goals . IF you find fun
with dealing in markets in short term basis , Be a trader.
If you can devote time to markets in daily or weekly basis , then you can be an Investor .
If you are not interested in Either , just don't be anything .. Do what you are doing right now :)
It was a fast written post , I hope thing are clear .

Continue Reading
Tuesday, December 16
Jesse Livermore's Averaging Up Technique
Following is a Guest article (just like Guest lectures :) ) from Mr. Arun Prashanth for this
Blog . This article is regarding Trading in Stock markets .
Jesse Livermore's Averaging Up Technique
An effective method to limit your losses and let your profits run...
Jesse Livermore is considered to be one of the Greatest Speculators of All-time if not the best.
Starting at an early age of 15, Livermore went on to shock the Street with his extraordinary plunges
and was once called the “Boy Plunger”. In this post I will explain in detail a strategy he used to cut
his losses effectively and let his profits run. The following technique works best for Swing trading
and Position trading but it doesn't mean it cant be used for other types of trading.
Averaging down is one of the worst things which can be done in trading. Why would you want to
add to a position which is losing? Its blind gambling from that point on. Your just hoping for the
prices to come up when in reality your losing and the markets are telling straight on your face that
your wrong. In trading, when the markets tell you that your wrong, it is best to accept it and cut
your losses as soon as possible and get out immediately. We can never know for sure if the stock
will come back. Averaging down maybe a good idea in Value Investing but it is never good while
your trading. Remember “Never turn your trade into an Investment”.
Now let me come back to the topic in discussion. Averaging up is the same as Averaging down but
the only difference is that your doing it in the other direction. And you know your right every time
you add to your position. Confirming the fact that you are correct gives you confidence and helps
you catch the full trend or at least the major part of it which makes the big money . As Jesse
Livermore said
"And right here let me say one thing: After spending many years in Wall Street and after making
and losing millions of dollars I want to tell you this: It never was my thinking that made the big
money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on
the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've
known many men who were right at exactly the right time, and began buying and selling stocks
when prices were at the very level which should show the greatest profit. And their experience
invariably matched mine - that is, they made no real money out of it. Men who can both be right
and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock
operator has firmly grasped this that he can make big money. It is literally true that millions come
easier to a trader after he knows how to trade than hundreds did in the days of his ignorance."
( From Jesse Livermore's book “How to trade stock”)
You could have bought Unitech @ 25 and had ample opportunities to increase your position as you
see in this chart.
You could have easily split the money you have planned to use in that position and could have
added as the stock went up. And you got the clear signal that you are right and so your more
confident and also more secure. Even if the stock hadn't reacted as you had planned you would have
lost only a marginal amount in comparison to the big amount you would have lost if you had bought
outright. This technique particularly effective in Swing trading and Position trading, but I don't
think it would as as effective in Day trading.
The Averaging Down technique is much more important for the psychological aspect of sitting
through the whole trend. Because your adding to your profits, so your not troubled of any losses
when you are trading. Even if your wrong half the times in catching the trend you can still make
large sums of money because the times when you get the trend right you will be making lots of
money.
Let us see another example where we get our predictions wrong. This time it is the Nifty Index.
As you see we think the trend upwards will continue but it doesn't and breaks down and thus we
don't lose as much money as we would have if we had put our full money on it outright.
The above technique is most useful if you are a Swing or a Position trader who follows the trend but
you can always integrate it into your system and see if it works well for you. If you are interested in
learning more about Jesse Livermore you can read his book “How to trade in stocks”. The book is
quite small and he gives detail about his style and also shows us how he made and lost millions. It is
a lovely read which I would recommend to you. Hope you enjoyed reading this post and found it
useful. Please feel free to comment and ask any questions which you would like answered. And I'd
love it if you could just reply about whether you found this post useful. It will serve as a great
inspiration. Regards from Erode, Tamil Nadu.
For Finance and Investing Blog by,
Arun Prashanth
arun_think@hotmail.com
Add me on MSN or Yahoo Messenger. I'd love to talk to others and learn more on Trading. I too am
a beginner and we could join and trade better :) !
Continue Reading
Sunday, December 14
5 mistakes of my First Trade
Inspired by the name of 3rd novel by ChetanBhagat ,

i thought of writing this article where i wanted to
discuss some mistakes (big one) which i made during
my first trade in stock markets , though i realised
very late that i made so many mistakes in that trade .
Its worth discussing how i could have avoided those

mistakes and others can learn from that .
MISTAKE 1 : Buying on Recomendation without

doing your own research .
27th Nov 2007 : I got my trading account opened

and i was thrilled to trade and make lots of money ...
i saw a orkut community recommendation on GTC
India "Buy" Recommendation and how it can reach from current price of 600 to 2000 in some some
months , there were all the good reasons discussed there .It looked like a "cant-miss" trade . i
bought 10 shares @560 .
Mistake : Buying only on recommendation and not analysing it well , over relying on
others recommendation , buying a company which i do not understand enough .
What is the right thing : Never buy just on recommendation, Do your own study and analysis .
When you buy on others recommendation , you will don't take responsibility on your own if there is
any loss , which is dangerous in markets . Hear others but listen to your self . See other things like
markets trend , sector view , global markets , future prospects . Once you are fully confident that its
a correct trade and you feel comfortable with it ... go for it .
MISTAKE 2 : Being too GREEDY !!
After 3 days : Just after i bought the shares It went up from 560 to 800 in 3-4 days ... i thought that
its moving as expected and bought 10 more shares at 800 . Within another week , it went up more to
950 , and i was flying ... i bought 10 more shares @955 again , to reach the target of 1500+ . My
average buy price was now 772 .
I was feeling little bad for not buying 30 shares directly @560 in the start .
Mistake : GREED !! , This is a very common and very big mistake , so big that it will
be among the top mistakes investor and traders do . Buying more quantity was not a
wrong thing .. it was the intention behind it .
There is nothing wrong in increasing the position once it moves to your target, but it has to be
backed up with strong reasons and study . It should be a trade with high probability of success. In
my case it was not . It was just a recommendation from someone in orkut community , there was a 2
line explanation for why it will go up .
What is the right thing : There was no need to buy more shares that point in time .. i should have
just sit back and watch .
Stock market is just like our life , You need to have satisfaction in your life and stock markets , If
you want more and more and more , you might not get anything , in fact you can loose . You put
everything you have on the trade like i did .. Because of GREED i invested more than i could afford
to loose . I took unwanted and unaffordable risk , because I only saw profits and never the potential
losses.
MISTAKE 3 : No profit booking
Next 1 week : The prices were not moving now ... it was going up a bit then coming down again
and was stuck in a range of 900-1000 . It went up to 990 once . For a time being there was doubt in
my mind if it will not move up to 2000 and will return back to my buy price levels .
Mistake : No profit booking . There was a sharp rise in shares price from 550 to 900 in
just 2-3 weeks and that is rare . it doesn't happen to every stock ... It was an excellent
return , but i did not book the profits . Reason : GREED again
Read why partial profit booking is so important
What is the right thing : The better thing to do was to book profits , at least partial ... Situations
changes in markets, I never checked back the news regarding the company after i bought the shares
and i was never updated about it . Every time you get some good profits , its a wise idea to at least
book some partial profits out of it (Unless you have strong reasons to hold it for long) .
Mistake : No profit booking . There was a sharp rise in shares price from 550 to 900 in just 2-3
weeks and that is rare . it doesn't happen to every stock ... It was an excellent return , but i did not
book the profits . Reason : GREED again
MISTAKE 4 : Having a Big Ego , Not accepting that you can be wrong .
Next week : Prices now started coming down ... It came to 900 first , i was scared , and i said to
myself , i will book profits once it goes back to 950+ . It never did .
Then it came back to 800 and i regreted for not booking profit at 900 , i said to myself , i will book
it for sure when it comes to 850 . It never did .
Then it went up a bit again and went up to 850 , i forgot my promise and allowed GREED to take
over my promise . It went down again after that and now it was neat my average buy price ... this
was the time was feeling myself a big fool (i was) for not booking Great profits . And not booking it
at 0% profit-loss seemed foolish .. we trade for profits .. if i had to take 0% profit .. why did i trade
at all ...
Mistake : EGO !! .
Fear of loosing part of profits . then Fear of not making any profits , then fear of loosing
some money . Fear Fear Fear !!
What is the right thing :
"When your boat starts sinking , you don't pray , just Jump "
Once you are doubtful , surrender to markets wish ... See what markets is showing you . Not what
you wanted to see ... Markets are supreme and no one can be above markets ... Leave you Ego at
your home when you go in front of Markets .. markets tell you whats going to happen , Not vice
versa ...
Accept that you are wrong and made a mistake and move on .
MISTAKE 5 : Impatience , Not understanding that markets will take there time
After that : Then the prices started falling and went to 600 (my original buy price) and now i was
in loss . i was proved wrong . but i was not accepting it and just trying to prove myself right by
holding it and just hoping it to come back ... it never did .
Finally it went down and down and down and i was just seeing it everyday in a hope that it returns
back to a level where i can be happy to sell it ... it never did . It went up to 300 and i sold in
frustration .
I saw it go down to 250 and then saw it bounce back to 500 again . I was again feeling cheated by
market of not giving me right opportunity to exit .
Mistake : Impatience !! and Fear !! and not cutting my losses short .
I exited at a very bad time , i exited at almost the lowest price of that time .
There was an opportunity for me to exit at small loss . But taking a loss hurts Ego and it
did . Not cutting my loss early was the result of not defining my loss early enough . I
should have had thought of it earlier itself and just a trigger needed to be pulled when i
reached that level of loss , without emotions ..
Fear overtook common sense ... Fear overtook logic .
What is the right thing :
I should have defined my Target and Losses before taking the trade ...I should have been realistic
and logical .
I should have waited little more time , and then exit at a better price ... I should have consulted
someone who is better than me (even a street dog could have given a better advice than me myself) .
Current price of GTC INDIA : Rs 55

Conclusion and Summary
My first trade was not at all planned and "no plan" is "a plan to fail" .
Fear , Greed , Emotions , Ego , Impatience : these are the elements of Failure in Stock markets
..Manage them well and you can do better . These things are still not the most important elements of
success in stock markets , they are Money management and Risk management . I will write on it
later sometime ..
Continue Reading
I am Back
Hi Friends ...
Sorry for not posting anything for so long .. i am back from vacations now and will start posting
soon ...
For the meanwhile , try reading an excellent article here
In the next post , I will talk about my first trading experience and how i made all the classical
mistakes ... i will try to explain them and talk about them .. that should help new traders to avoid the
mistake ...
Continue Reading
Friday, November 28
Dear Readers , there will be no post for next 2 weeks as i will be on vacations . See you all after
Dec 15th . :)
Mumbai Attacks
Last 2 days have been very disappointing . I am not talking about Markets or anything , its Mumbai
Terror attack . What has been happening in Mumbai is very disappointing.
Terrorists who are doing this are highly motivated and highly trained , they have been really
brainwashed very deeply . They are pakistanis who are trying to look and make them appear as
Indian Muslims . Here is a phone talk between India TV and these terrorists .
Terrorist 1 : http://ishare.rediff.com/filevideo-Terrorist-calling-himself-Sahadullah-spe-id-
519886.php
Terrorist 2 : http://ishare.rediff.com/filevideo-2nd-Terrorist-speaks-from-Nariman-house-id-
519881.php
They were not Indians : http://ishare.rediff.com/filevideo-Terrorists-speaks-id-519878.php
I hope everything turn out to be good and whole of India and world live happily again .
Continue Reading
Wednesday, November 26
Options trading , My advice and some comments
Looks like people are very much interested in

learning about Derivatives . Let me try to put basic
things about Derivatives .
Read a basic about Derivatives (Options , in this

case)
Read how you can Hedge your portfolio using PUT

options
Let me first talk Good things about Options
If there is anything in world which can make you

instant rich , its Options !!! , What is instant Rich here !! , Instant can indicate anytime from 10 days
to 5-10 yrs . It depends on you how much risk you want to take . Options can deliver returns which
you can never imagine . You can get returns in a day equivalent to what you get in 8 yrs in Fixed
Deposit !! 10% return in a week is what i call a realistic average return in long term after risk
management .
Just to give an example , if you start with 15,000 and take 10% profit each week , you can generate
1 Crore in 1 years (compounded basis) .
How to Trade options ?
To Just like people trade in Stocks, shares , they can trade in Options .. buy them at a cost and
selling it later at some profit or Loss . The main difference in options trading and Stock trading is
that Options trading also has time limit attached to it . That's makes them more dangerous . There
are some selected shares which have options for them. Almost all the well know stocks have there
options . Nifty index also has an option for it .
Almost 85-90% options trading happens in NIFTY options ... Each stock options have lot size , like
NIFTY lot size is 50 . So if the price for NIFTY 2600 CA is 90 , 1 lot will cost you 4500 . and
suppose the price reaches to 200 , you can sell it and get 10000 , 5500 of profit - brokerage charges .
Some other very good stocks for options trading are RELIANCE , ICICIBANK , CHAMBAL
FERTILIZER , JAIPRAKASH ASSOCIATES and many more .
Some Expreiances I can remember
I have often seen a option rise anywhere from 2 times - 50 times .
Just 2 days before NIFTY made the lowest of 2250 in OCT , NIFTY was at 3000 , and i bought
NIFTY 3000 PA at 60 (NIFTY was at 3000 and 3 days left to expiry) .Within 5 min , it went up to
90 and started coming back down .. i sold it at 88 and took good profit of 40% ...
Just after i sold it market starting going down and it went up to 200 .
Next day market tanked heavily and the price was now 500 .
Next to Next day market again tanked heavily and option price was now 750.
Something i bought at 60 was at 750 after 2 days and i sold it at 88 . Anyways .. i made good profit
and i was happy (Its a white lie , you know that)
This is a little extreme case , but in general options can give close to 50% - 200% return in short
duration . Scenario is very different at the starting of month and at the end of month because of
Options expiry . At the time of options expiry , the change in price is significant because of the time
value and uncertainty .
How Risky Options Are ?
If you don't fear anything in World , better you fear Options .. it can wipe you out with in days ... Its
a Money eating machine . You can loose all your money if you are not focused or dont have
knowledge or good money management .
If you are trying hard to loose money and you are not successful , try options .. Warren Buffet calls
Derivatives as "Weapons of mass destruction" , I agree with him , but i also differ on the fact that
options have the power to make you super rich if you can use it effectively and with intelligence
and without GREED .
Advice
If you want to try options trading , first Learn about it heavily .. read books , read stuff .. watch it
for 1-2 months .. see the behaviour and once you are confident that you can make some money ..
enter with small money (because you are going to loose) ... Don't feel back after loosing money ,
think of it like "Guru-Dakshina" ... everyone has to give it in the start , you are no exception. Now
go back .. again read some more books , Do some virtual trading , and once you are confident again
start with small money (which you can afford to loose) .. and start doing the trading slowly step by
step ... Don't put all your money in one go .. else you will cry later .
Disclosure
I have been trading options from last 6 months and still i am in loss and way far than break even ..
Please don't take it as my advice to trade option , its just for informational and sharing purpose ..
You are your self responsible for your losses .
"I thought Women are complicated and tough to handle , then I met Options" :)
Continue Reading
Monday, November 24
Returns with options trading
what kind of markets have these been .. a slight news of hope is causing stocks to rally to so much
amount which they used to rally in a year .
As i write this Citigroup Corp shares have risen 68% in just 1.5 hrs of trading . 68% in a day !!
That's a kind of return which mutual funds are really jealous of . Last month when there was some
bad news about UNITECH , it plunged by 50% in a day only to recover back 40% the next day ..
Last quarter DLF lost 33% in 2 days on the news of US FDA banning its drugs in US . and then it
again came back to its normal levels .
When DLF lost for 2 days , I had seen DLF PUT options went up 50 times in 36 hrs ...and on the
third day when it was up again by 20% , then its CALL options went up by another 5 times . means
if you got everything correct and bought call and put options at right time , you could have made 5
Crores ($1 million) with 4 lacs of money ($8000) . that's 25000% return in 60 hrs . there is an
assumption that you bought things at right time which is almost impossible ... but with little luck
and study at least 1000% was possible for sure ...
I thought of buying DLF puts after it fell for 1st day , but because of fear , i didn't buy it .. and it
went up by 800% next day ( i remember it correct , it went up from Rs 4-5 to Rs 40) , that's 800-
900% return in 2 hrs .
I am sure Citigroup option traders would either have made a killing or killed themselves . :)
Anyways , options are extremely dangerous products , its not advisable to get into them unless you
are sure what you are doing ..
Read the basics of what are options

Continue Reading
Friday, November 21
I see that many people come to my blog from some technical analysis blogs , I have recently started
using Technical analysis for my trading decisions , i must appreciate that Technical Analysis is a
great way of making trading decisions .
To understand the basic things in Technical Analysis , read this small tutorial , source :
Investopedia.com
Also , for getting Intraday charts , the best place for retail investors is yahoo Finance Site (India)
The chart is for Nifty Intraday , you can use different indicators for yourself . By default i have put
RSI and Slow Stochastic . To read more on this , Investopedia has excellent .
Nifty for Monday
Markets have reversed its position from Negative teritory to Positive and gained more than 450
points . It should now retrace to the levels of 2800-2900 next week . Any rate cuts and good news
from US may trigger the positive mood . But the main trend is still negative and any rise in markets
must be used for profit booking and going short again (with good SL) .
Happy technically trading.
Continue Reading
Thursday, November 20
In this market people are facing dilemma whether to invest in tax saving funds or not ? There are lot
of tax mutual funds which will appear on the list if you search for best funds . So the best thing is to
hear the experts in the field .
Valueresearchonline.com are the most trusted and pioneer in Mutual funds information collection
and advice . As per there website , they have rated funds in different categories with 5 star ratings .
ELSS (Tax mutual funds)
1. Magnum Taxgain
2. Sundaram BNP Paribas Taxsaver
EQUITY DIVERSIFIED
1. DWS Investment Opportunity

2. Kotak Opportunities
DEBT Oriented
1. UTI Mahila Unit Scheme

2. Birla Sun Life Asset Allocation Conservative
Source : Valueresearchonline
Some article related to this
http://finance-and-investing.blogspot.com/2008/08/all-eggs-in-single-basket-people-say.html
http://finance-and-investing.blogspot.com/2008/02/all-tax-saving-mutual-funds-are-
not_9196.html
Continue Reading
Tuesday, November 18
Investment Idea for Non-Indians
Hi Readers
This post is solely for non-Indian readers for this blog . It will talk about why and where should you
invest currently . Global Equity Markets are facing heat of global crisis . US , UK and Japan have
entered in recession and it will last longer than people expect it to last .
India , China and other Asian countries are also facing the heat but not as much as US and European
countries . Also they are facing crisis not because of there local issues , but because of some
exposure to US and European markets . Long term growth story of India and China cant be denied .
They are still expected to grow by at least 6-7% (conservative figure) for another 10-15 years
minimum .
Let us see some of the points which makes India a very attractive place for investment .
Equity Markets : Indian Equity Markets are almost 60-65% down and may go even down in
coming months. Once the crisis is over and markets start recovering .. there will be explosive
growth and long term investors will reap great returns.
Real Estate : Real Estate Sector is also very promising for long term in India , but currently prices
have corrected to some extent and are set to correct more in coming months .
How to invest ?
I am sure that there must be mutual funds in your countries which invest in Emerging Economies .
You can invest in those to get benefits for Equity Markets .
For Real Estate , If you have sufficient funds , you can invest in Real estate in India (as per the
guidelines on RBI) .
I am not suggesting that you only invest in Emerging Asian countries , the point is that, this is a
golden opportunity to diversify your investments across geographical location .
Read more Stuff
Must follow 6 rules of Investing : http://finance-and-investing.blogspot.com/2008/11/six-must-

follow-rules-to-investing.html
5 Elements : http://finance-and-investing.blogspot.com/2008/10/5-elements.html
Portfolio Rebalancing : http://finance-and-investing.blogspot.com/2008/07/portfolio-

rebalancing-today-i-am-going.html
Continue Reading
Friday, November 14
The Real face of FMP's
People who have invested in FMP's should read this ... other should also .
What is FMP : Read here
FMP's are considered as equivalent of FD's , with better return , but
its not exactly true ... They are also risky and "lehman borthers"
equivalent in India .. They are investing in sub-prime home loans in
india in the same way like Lehman did in US .
Read a good report here : http://www.shyamscolumn.com/2008/11/know-your-fixed-maturity-plan.html
Another article from Outlook money can be read here :
http://money.outlookindia.com/article.aspx?sid=10&cid=57&articleid=7873
Note : This is just to show that people should not underestimate the
risk involved with something ... FMP rarely are considered as risky
things .. that does not mean , they can never collapse ..
Read about Equity , Debt and Liquid Funds
What is CRR and Repo Rate
Continue Reading
Thursday, November 13
Six MUST FOLLOW Rules to Investing
This is a nice article by Charles Delvalle , i am just reproducing his work on this blog.
Have you ever been on a losing streak and felt like there was no way for you to make money in the
markets? I think we all feel that way from time to time. It’s natural. After all, our emotions are never
static.
The worst part is that when we’re in that mindset, we can actually create a self-fulfilling cycle.
Maybe we’re trying too hard. Maybe we get sucked into a variety of different indicators that we
never followed before. Or perhaps we get into one trade hoping that it’ll make up for all the losers
we just had.
Nine times out of ten, it never works out though. The end result is that you lose more and more
money. But it doesn’t have to be that way. So here are six simple rules for you to follow that will
help you manage your emotions better and become a better investor.
Rule #1: Hope to make more money, fear to lose more. In the book Reminiscences of a Stock
Operator, this was one of the most important lessons that trader Jesse Livermore learned in his time
as a trader.
When he got into a position and it started losing money, he realized that he had to get out of it
quickly (cut your losses). So what he’d do was to fear that he’d lose more money and get out of the
trade. On the other hand, if the trade was going his way, he would hope to make even more (let your
winners ride).
Rule #2: Stick to Your System, NO MATTER WHAT. This is a tricky rule to stick to, even for
experienced traders. But the truth is this: If you have a system that you know for a fact works, then
don’t stray from it. You will only end up losing money.
Why do investors stray? Sometimes it’s the feeling of invincibility they get after they’ve won a few
trades in a row. Other times it’s simply because they are desperate to hit a winning investment.
Whatever the reason, when you stray from your system, you stray from what you know works.
Ignoring what you know is never a good way to make money.
Rule #3: Don’t become attached to your money. Sounds easy, right? You’d be shocked how hard
it is to actually implement. Too many people put money in the stock market that shouldn’t be there.
If this is your retirement, or tax money, or money you owe to somebody, DON’T USE IT IN THE
STOCK MARKET! Only use money that you can afford to lose.
Rule #4: Don’t play catch up. If you’ve hit some losses in the stock market, the last thing you
should do is ‘double up’ and hope to hit a winning trade. What if you don’t win? You will lose twice
as much and be in even more pain.
Listen, losses are a part of the game. Every investor in the world loses money from time to time, but
if you’re system works (rule #2) then stick to it and you should end up back in the green in no time.
Rule #5: Don’t overanalyze things. I can’t tell you how many times I open up the Wall Street
Journal and see an article that goes completely opposite to what I believe to be true about a
particular sector or investment. Does that mean I listen to them? In all honesty, I look at the
argument and see if it has merit. If it doesn’t, that’s it. I stick to what I believe to be true unless
something drastically changes.
In my trading arsenal, I have a few indicators I look at and then have certain beliefs about the
market and sector based on a few people I trust and what I know of the market. Everything else is
just static. It’s only there to agitate you.
Rule # 6: Listen to yourself. One thing I’ve learned is that as you trade, you find out new things
about yourself. You find out what your true fears are (fear of success, maybe?), you find out your
weaknesses (maybe not following your system to a T), and you find your strengths (maybe you
make money best in certain sectors). As an investor, you need to pay attention to all of these things.
That way if a certain emotion is cropping up and threatening to lead you in the wrong direction, you
could quickly stop it and move on.
If you can stick to these six rules, you’ll be able to have a much better grasp of your emotions while
you trade.
Continue Reading
What are Debt funds and Liquid Funds
We will talk about Equity , Debt and Liquid Funds . We will also discuss dividend distribution tax is
treated for all these funds.
First understand what is DDT (dividend distribution tax)
Dividend received from a mutual fund is tax free , but only at receivers hand . But mutual funds
have to pay a tax on that dividend to Govt before giving it to us . So actually the tax is paid by
mutual fund on behalf of us . This tax is called DDT .
Now lets go ahead and see different types on Funds .
Equity Funds
They are the funds that invest more than 65% of their corpus in equity shares of companies. The
dividend distributed by such funds is exempt from the dividend distribution tax. So all the dividend
which is declared comes to the unit holders , you get 100% of dividends. But don't think that this is
some extra income .. it is just a part of your own money , after you get the dividend , NAV comes
down by that much . This is difference between growth and dividend funds . You you actually got
some money back , nothing else.
Dividends are are totally tax free and not even DDT is applied to it .
Why to invest : You should invest in Equity mutual funds when you want to invest for long term
and when you can take risk . Understand that these funds invest primarily in Equity , so there is
more risk , but if you are investing for long term and want capital appreciation to happen , these are
the funds for you .
Debt Funds
These funds invest in medium-to-long term debt securities like government bonds and corporate
bonds/debentures. The dividend from these Funds are subject to 12.5% Dividend distribution tax .
The fund is also liable to pay a surcharge and a cess of 10% and 3%, respectively, on the tax. The
effective tax rate comes to 14.16%.
Why to invest : They are debt products and offer good liquidity also . If you want to invest some
money for safe returns and for short term goal , then Debt funds are something you can look at .
Liquid Funds
These invest in short-term debt securities (which have a duration of less than a year) like
commercial papers, certificates of deposit and call money. The income distributed by such funds is
subject to an income distribution tax of 25%. The fund is also liable to pay a surcharge and cess of
10% and 3%, respectively, on the tax. The effective tax rate for liquid and money market funds is
28.32%.
Why to invest : The main reason for investing in Liquid funds should be Liquidity factor , these
funds are most liquid and least volatile .. So if you need to have liquidity in your portfolio , always
invest some money in Liquid funds , any extra money lying in your Saving Account above your 1
month requirement should be in Liquid fund .
Conclusion :
There are different type of funds and they all have different purpose , you should see which one
suits you and accordingly invest in that . Dividend received from mutual funds are not any extra
money like Stock dividend. It is your own money .
Comments please .
Read what is Repo rate and CRR

Read what are different tax treatment on different products
Continue Reading
Some tips while taking Term Insurance
We will today discuss some of the best practices and
must do things while taking a Term Insurance.
Click here to read what is Term Insurance and its

Importance
1. Take a policy just before your Birthday .
Term Insurance premium depends on your Age . So if

possible try to avoid taking the policy just after your
Birth date . What i mean by this is that try taking it
before you turn +1 year in age . If your Date of birth is
10/11/1983 , and you take the policy on or before 10/11/2008 , you will be considered of age 24 .
But if you do a delay of 2 days ... and you take a policy on 12/11/2008 . You will be considered 25
yrs old and hence your premium will increase by 4-5% .
Note : It does not mean that if your birthday just passed by and now you want to take Insurance ,
then you should wait for another year . thats not what i am saying :)
For a male with DOB on 10/11/1983 (24 yrs old), the premium for Rs 50,00,000 cover with tenure
of 25 yrs , is 10157 , if the policy is taken on 09/11/2008 (just 1 day before the birthday) . Where as
if he takes the policy on 12/11/2008 , the premium will shoot up to 10647 (Rs 490 more) .. though
490 is a small amount , but if we can avoid it by taking the policy little early .. always try to do it .
Even a small amount like 490 saved over 25 yrs in a PPF would give 45,000 and in mutual fund
with 12% return will give 77,000 .
Note : The gist of the point is that try to see this small point while taking the Term insurance , it
does not mean that you wait for 8-9 months just to take the policy before a birthday .
2. Try to diversify your Policy
If possible try to diversify your policy amount over different Insurance companies . If you want to
take an Insurance of 50,00,000 , it would be better if you take 2 polices , rather than 1 single policy .
How it helps ?
- If you hold a single policy and the company does not honour the claim , dependents wont get
anything , but if there are 2 parts , then there are less chances that both the companies with not
honour the policy .
- If your liabilities come down or you have less dependents after a couple of years and ultimately
you need to bring down your Life insurance cover , you can simply stop one of the policies and
continue the other one .
- It helps in diversifying the risks involved with the Insurance company.
3. Buy a policy early in life and for longer Tenure .

Its always recommended to buy a Term Insurance early in life and for maximum tenure possible . In
your early life you are more healthy and hence your premium will be lowest . Also by taking
insurance for a large tenure you are making sure that you are covered for a large period , but the
premium will be marginally more .
For example : For a cover of 50,00,000
You can see here that you have to pay marginally more for an extra cover of 5 yrs . So for example ,
a person with age 25 will pay 14,000 more than the 30 yrs old , but he will be insured for 5
additional years . So it always pays in long term .
Also taking a 30 years term insurance once will be very cost efficient than taking a 20 yrs term
insurance now and then taking a term insurance of 10 additional years after 20 yrs . Because after
20 yrs , the premium you will pay for that 10 yrs tenure term insurance will depend on your Age
that time and health that time .
Note : Premiums are from Aegon Religare Life Insurance .

Continue Reading
Tuesday, November 11
Weird Markets
Whats going on ?
Can you answer this simple but important question ?
Companies announce good results , there shares falls . GDP estimates are downgraded , markets
move up . Textile and Real estate sectors are planning to cut jobs heavily and are under immense
pressure , there shares move up .
Markets are moving in different direction of what they should move . Why is it happening ?
Markets have become gambling place these days . Rather than moving the expected way , its
moving differently and with high volatility now ..
6:00 PM , 11 Nov : Yesterday people were talking of a start of new bull market , but today markets
went down by 6.66% and now the trend is confirmed as Down again .
General motors is almost bankrupt , No sector looks good currently . Markets around the world
have not yet seen there lowest point .
Read-Error Nifty can now touch 1800 . We can
be back to the levels of year 2002 .
Is it a good news ?
For people who never entered Stock markets, it is a great news .

But people who invested in Mutual funds (like me) .. they will feel the heat of this .
People who invested in mutual funds and Equities heavily and cant take a further big loss , please
hedge it using Put options . Read :
http://finance-and-investing.blogspot.com/2008/09/risk-management-of-portfolio-using.html
Lets see whats in the store next !!

Continue Reading
Monday, November 10
Know your RBI
What is RBI ? How does it help us ? What kind of measures does RBI take to indirectly or directly
help us ?
Non-Indian Countries : This presentation is holds true for all the Central banks of any country . like
for FED for US .
See this presentation to understand more .

This Presentation is RBI property and i am reproducing it .
Note : For best view , see it in Full screen mode .

RBI
View SlideShare document or Upload your own. (tags: policy monitory)
Download link : http://manish.pucsd.googlepages.com/Know_your_RBI.pdf

Continue Reading
Friday, November 7
Today Let me ask some questions to you which you can answer to see how much you understand
things in investing . This small quiz will help you and me know where you belong to . How much
have you learned ?
Request : I request you to give answers of the questions as a comment back to this article . I will
announce the winners after some days . Also please mention your reasoning about the answer .
Information : I have started a chatbox on this blog , please see the right hand side to see it , you
can post your questions or queries to it and i would try to answer them as soon as i see them .
Q1. Ajay and Priya are married and both of them earn 40,000 each . They earn total of 80,000
and there monthly expenses are around 20000-30000 per month . In case they have to opt for a
Insurance plan . which one they should go for ?
a) Term Insurance
b) Endowment or Money back plans
c) ULIPS
d) No Need to take Insurance
Choose one option among these and give the reason .
Q2. Ajay lends 1,00,000 to Manish on following conditions.
- He will get 7,000 per year for next 30 years.

- He will receive whole 1,00,000 back after 30 years.
What is the best way Manish to utilize this money and make some profits for him too if possible .
No options here , you should give a detailed description of step he should take .
Q3. Your friend wants to enter magic world of Stock markets. He/She is determined and very
confident that he/she can make huge profits . What will be 3 things you would say to him/her .
For an example : the first thing i would say to him/her is "Don't concentrate much on making profits
, rather concentrate on avoiding losses" .
What are the 3 things you would say to him/her .
Q4. There are two strategies of investing in Stocks of blue chip companies in Stock markets.
Time Frame : 2-3 months
Strategy 1 : Can give profits upto 50% , or loss upto 50% with equal profits. (Assume the
stock is very volatile)
Strategy 2 : Can give profits upto 10% , or loss upto 10% with equal profits.
(Assume the stock is very less volatile)
Which Strategy will you choose ? You are free to make your assumption .
Note : Please answer these question to help yourself and see if you actually deal with these
situation . What kind of thinking you have? What kind of advice can you give to someone ? And
more than that , to learn .
I will review all the answers and reply them . Also i would choose the best answer in some days .
Continue Reading
Investing Presentation for Newbies
This was a small presentation from my side to people who need some basic information in Investing
, mutual funds , Tax saving etc .
Investing Basics
View SlideShare presentation or Upload your own. (tags: investing finance)
Download link : http://manish.pucsd.googlepages.com/finance.ppt
Read about :
CRR and REPO Rate

5 Elements
Continue Reading
Monday, November 3
Follow up on the Comment
I would like to thank Mr Bhargav , to comment over my article http://finance-and-
investing.blogspot.com/2008/10/why-endowment-policy-are-never-best_08.html (Comment 11) and
raise some questions , which gives us an opportunity to look over it once again and i hope for the
final time , I hope after this article i don't write more on Endowment policy more .
Dear Readers , If you have any doubts or anything is unclear to you regarding anything , or you
disagree on any topic , part of topic or any comment, feel free to comment on it and let everybody
know about the confusion , it will help us to be interactive and clear doubts in an easy way .
Note : Please subscribe to email updates on the right hand side to get future updates in your mail
box .
For now , lets go Ahead
Comment from Mr Bhargav

I don’t know how you get the maturity figure of 23 L.
If you go for plan no 14 and consider the bonus amount of 48 /1000(which lic has declared
for prev fin year and FAB of 500/1000 S.A. it comes to
10 L + 1440000 + 500000= nearly 30 L which is nothing but a very good return and amount
is tax free as well.
No doubt that term + PPF as you have pointed out is a good bet but in no circumstances term
+ mF is good ,many financial planner are fooling just to increase the selling of SIP’s and
ULIP of their fav companies and they are no way secure, current market condition are the
best eg. However it is always a gr8 thing to diversify your saving and distribute your money
toward risk free and high return instrument.
The good thing of PPF is only 15 years lock in and partial withdrawal.
And if you talk of longer horizon End are one of the best to generate good return the only
worst thing is you end up paying heavily if you surrender in between.
I have commented back to Mr. Bhargav , lets see the reply once again here in little detail and
with extra comments .
This was my comment back to him :
The example which i gave in my article was from one of my friends who took some policy 5-6 yrs
ago.
Lets leave that example aside and take your example (

http://lifeinsureinfo.blogspot.com/2008/07/endowment-with-profitplan-no-14.html ) and discuss it .
Tenure : 25 yrs
yearly premium = 38820
Maturity benefit = 30 lacs
Some questions for you .

1. Please let me and and readers know why do you consider this plan returns are good ?
I calculated the returns of this policy and it came out to be 6.25% CAGR . Is that a good return ?
2. Is the Cover provided by this Plan (Rs 10 lacs) enough for a average person .
I assume the person who pays an yearly premium of Rs 38820/year , must be earning 4-5 lacs year
,DO you think 2 times him yearly income is enough for this person's family for whole life ?
3. You feel that Term + MF is risky (may be they are) , in that case what do you think about
Term + PPF ?
If this 30 yr old person take a term insurance of 30 lacs for 25 yrs , the cheapest premium i can see
are around 7,000 , He can invest 38820 in a year in this way .
Term (7,000) + PPF (31820)
In that case , from start to end , he will be covered for 30 lacs and at the end he will get 30 lacs.
Annuity Formula : (31820 * 1.08 * (1.08)**25 )/.08 = 2941899.4900399372 (Almost 30 lacs)
Even if he dies within 5 yrs , he will get 30 lacs , but in the plan 14 , he wont , Dont you think life is
uncertain and anything can happen anytime , so better idea is to consider worst case.
4. Why do you feel that Term + MF is not a good idea? Dont you expect Indian markets to
return even 12% in next 25 yrs ?
I believe it will return 15% + at least ...
Dont you agree or trust Historical data for Equity returns ? (India and Global)
Do you know any year Y , where Y+25 yrs returns have been less than 12% ?
I beleive 12% returns in Equity in next 25 yrs is an understatement . It should be more than 14-15%
. i know its not guaranteed and not 100% sure, but what shoulnt we trust 99.99% probability ?
5. As per my assumption in question 2 , where i assumed the annual income of a person as 4-5
lacs , what do you expect his/her monthly expenses to be ?
I believe at least 20k , 30 yr person will be married and will have kids probably , if not now than
after some years . At least then his/her monthly income will shoot up to 25k per month , which
means 3 lacs/year .
If we expect inflation to be 7% per Annum and do a simple calculation , we can see that his future
expenses after 25 yrs would be
3 lacs * (1+.07)^ 25 = 16.28229 lacs/year
Which means that the money he gets out from his Policy will be good enough for his next 2 years
(just monthly expenses) .
Is he saving for 25 yrs of his life just to live 2 yrs of good retirement ?
Mr. Bhargav , Please share your comments on all these questions asked ? May be we have missed
some point you were trying to put.
Disclaimer : All the figures are just to give an idea about the situation and should not be taken as
the words on Rock . Things can change according to situations .
Summary and Conclusion
In life , people make mistakes all life , they may feel something is good and there may be others
who make them feel this because of there ignorance , unability to have an insight about something .
In India , same thing has happened in Insurance Sector . People are never told what is Insurance ?
Whats is its importance ? How to calculate it ? All there life Insurance is seen as investment product
in India , our parents , Grand parents and other relatives have done this all over there life and they
will not understand why its bad , because 90% of India does it . 90% people doing it does not make
it correct . What can be done if there was "Mass fooling" done in our country .
Its never late if we young generation understand and try to see things logically . Endowment
policies always remind me of this saying "Common sense is not common" . In India thats very true
when it comes to Endowment Policy .
Again , this is my attempt to create awareness on this issue , if people still disagree and want to go
there way, its there wish , i have done my job and may be i should call "Social Responsibility" .
Continue Reading
Thursday, October 30
Keynesian Beauty Contest
How do market price of a share is determined ? how do prices move ? Where should a price of
share reach ?
1. The price which an individual thinks it deserves

2. The average price of all the investors in the market thinks it deserves .
Which among 1 and 2 ?
The actual answer is not among 1 and 2 , to read further read an excellent article here :
http://en.wikipedia.org/wiki/Keynesian_beauty_contest
Other article on what happens in a crowd can be read here :

http://en.wikipedia.org/wiki/Crowd_psychology
These 2 articles must give some insight about how the Physcology on which markets work .
Note : Please subscribe to email updates on the right hand side to get future updates in your
emails .
Continue Reading
CRR and Repo Rate, how they Help !!

Today we will see what is CRR rate and Repo rate and how they help in combating Inflation and
other monitory issues of Economy
You might know what is CRR or REPO RATE , but may not know what is there significance and
how they Help . Read whole article to understand .
Dear Readers : Please subscribe to email updates (on the right hand side) to get the article
updates by mails , this would help you to know when articles are published next time .
What is CRR Rate ?
CRR is simple , Cash Reserve Ratio ! . It is the the ratio of deposits which banks have to keep with
RBI . When you deposit Rs 100 to your bank , bank gets Rs 100 and now can use this money to
lend others , but they have to put some part of it with RBI , if CRR is 8% , they will have to deposit
8 with RBI and they are left with Rs 92 .
So when CRR is decreased , Banks are left with more money to lend and when its increased they
are left with less , even though 1% decrease in CRR leaves bank with 93 instead of 92 , this Rs 1 is
big enough thing .
What is Repo Rate ?
When you take loan from some bank you pay interest for that , in the same way , these banks also
take short term loans from RBI , and the interest RBI charges from them is called Repo rate . So if
repo rate is 9% , and some bank takes loan of Rs 100 from RBI , they will pay interest at the rate of
9% .
How is Repo Rate linked to the interest we pay for loans from Bank ?
Simple , Banks need to charge more interest than they are paying , so if repo rate is 8% , they will
charge more than 8% for loans which they give , If Repo rate comes down , banks may also
consider the interest rate they charge us .
Thats the reason why with this latest Repo rate cut , people are talking about home loans rates
coming down , so what will happen is that Bank need to pay less interest for the loan they take from
RBI , now because they are paying less , they may think of charging us less on the interest for the
loans which we have taken from them .
What is Money Creation ?
How do money gets created ? When A gives 100 to B , Rs 100 is created for B , then when he gives
this to C , 100 is again created for C , this way money creation happens for different people from
that same 100 .
How does CRR help ?
Suppose CRR is 8% you had 100 , which you deposit to bank , now bank will Deposit 8 to RBI and
lend this 92 to some one , This 92 will be another money which is created for someone , now this 92
will exchange hands and then come back to bank somehow , out of this 92 again bank will deposit
7.36 to RBI and then lend the rest of it to someone ... and it goes on like this .
The money creation from this 100 is :
100 + 92 + 84.64 ... (100 + 100*.92 + 100*.92*.92 + 100 *.92 * .92 * .92 ...)
= 100 *( 1+ .92^1 + .92^2 + .92^3 ...)
= 100 * (1/(1-.92)) (because 1 + x + x^2 + x^3 ... infinite times = 1/(1-x) for x<1) 08 ="1250"
class="blsp-spelling-error" id="SPELLING_ERROR_19">CRR(C) = M/C
It means that this 100 actually generates 1250 in the economy indirectly. What will happen if CRR
is increased by 1% , from 8% to 9% . though it may looks like that this is a small change and it
would affect a lot . lets see what happens now
How much money will 100 create now ?
Ans = 100/.09 = 1111 (approx)
So the same money is now generating 1111 instead of 1250 , that's 139 less or 11.12% less money
in the market .
How does Repo Rate and CRR help to ease Inflation ?
Repo Rate : When repo rate is increased , the banks can have to pay higher interest to govt and
they also charge higher interest from common public which gets discouraged to take more credit
from banks , because of which there is less supply of money in system and there is less Liquidity ?
CRR : Its easy , if CRR is increased , banks have to deposit more money in with the bank and it
results in less money creation in economy , and hence people have less money to buy things and
they will think twice before paying higher price for something .
So in short Repo Rate and CRR are two tools which RBI uses to control the liquidity in country and
as Inflation is linked to liquidity , it can be controlled to a great extent .
Some other articles
What are the 5 most important things for your Portfolio : 5 Elements
What are the most important characteristics for your portfolio : Pillars or success
Continue Reading
Wednesday, October 29
Read this chat conversation with one of my old classmate in Graduation .
Manish : So where are you going to invest you money this year ?
XYZ : May be PPF or Bank FD
Manish : But do you think they would give you good returns ? also they would be locked for a long
time , dont you need that money in near future ?
XYZ : Not exactly! , actually i can leave that money invested for more than 5 yrs , or may be 7-8
yrs too ..
XYZ : also , But i would like to invest some money in mutual funds ... around 20k , May be i need
some money to send to my brother for his MBA coaching ....
Manish : hmm.. But i think you should do exactly reverse . Invest this 20k in FD and Rest money in
Mutual funds + PPF or only mutual funds .
XYZ : No no , i cant !! , i have already lost 50% in mutual funds this time , i cant take risk now , i
am fine with less return but a secure one ...
Manish : hmm... i told you dont put all money in lump sum . you never heard !! .
XYZ : I invested because i trusted you , I thought you know more than me , but it fell so much ...
you gave wrong advice at wrong time.
Manish : Dont you think it was your desire for high returns which made this happen ? Equity are
risky ? i told you this too !! .
XYZ : Whatever ...
Manish : ok .. np ... Consider what i said ... goodnigfht ... :)
XYZ : night
What is the problem of these people ?
First they need high returns , then they cant wait for long term to get that kind of return . They just
hear that equity are risky but don't believe it ,they will make you feel that you are responsible for
the crash . They just don't take responsibility for what they did !!
What I actually told her ?
I told her that its ok to invest at these high levels but don't invest in Tax saving mutual funds as they
will be locked for 3 years, also invest less and that too through SIP (What is SIP) , so that it can eat
up the volatility and insure less losses if things go wrong .
But the only things on her mind was:
- It will save her tax

- Will give superb returns like it did during 2002-2007 (these are the people who dont read "Equity
investments are risky and passed performance is not guarantee for future performance")
- If she does SIP and markets goes up and up , she will be buying less units.
This is a classic example of "Overestimating Returns and Underestimating Risk"
How should you do your tax planning for the year ?
First thing , if you have not done your tax savings yet, its a bad thing . It should be done at the start
of the year itself , at least planned .
If you need money for short term goal , don't invest in Shares or mutual funds !! Put it in some
assured investment instruments like FD.
"Return of investment" is more important than "Returns from investments" .
If you have money which you can invest for long term , invest in Shares or Mutual funds (but only
for long term). As per your risk taking capability choose combination of Debt and Equity and invest
for the long term ...
Why Equity ?
Do you know that most of the stocks have beaten down so much that they have come down below
than the price they deserve , There value has exceeded there price (Read about Value Vs Price) .
Unitech : One of the largest and most respected Real Estate companies has fallen down to levels
which are unimaginable !! from 532 to 40-50 .
Tata Motors : Nano will be manufactured in some months , every thing looks so good , but people
just sold it because of Singur tension (It was fine to sell it , but now its oversold) .
there are countless examples like this in current market . Things will go fine , but with patience .
Continue Reading
Saturday, October 25
5 Elements
This article will talk about 5 things every portfolio must have and we will see
that it should be good for almost every type of investor . We will try to judge it
over the important parameters discussed in my one of the earlier Article : Pillars
of Success
Read my best Articles
The Five most important and must have things each and every portfolio must have are :
1. Life Insurance
Each and every person who has financial dependents must have a good Life cover through Term
Insurance. This must be taken at an early stage of life for the longest term possible.
For India :
- Aegon Religare Life Insurance

- SBI Life Insurance
- Max New York Life Insurance
- LIC (Jeevan Amulya)
For Other countries :
Please search for your respective countries and find out which term insurance is the best one.
Read an excellent article on Term Insurance and its Importance

Read an article on how to calculate your Insurance Requirement
2. Health Insurance
This is extremely important now a days, because of rising health-care expenses. A Family must be
covered with a Family Floater plan for a good amount (Rs 5 lacs/$10,000) depending on your
budget .
Read in detail about Health Insurance
3. PPF
Each and every portfolio much have debt exposure and PPF (for India) is an excellent investment
product for anyone, backed by government , its 100% safe and one of the most efficient and tax
efficient products available , with post-tax returns of 8% , its a must have in each portfolio .
Click here to Read more about PPF and EPF
4. SIP in Mutual Funds (for long term)
For long term investments, its hard to beat this . For long term investments Equity must be the route
and for systematic and disciplined investing , SIP is the best way to channelize your money .
Considering the undebatable growth for Indian economy , no can afford to miss Equities for long
term investments.
Read All about SIP

How to create Long term Wealth
5. Contingent Fund (Cash + Liquid Funds)
Each and every portfolio must have good amount of cash and liquidity to meet unforeseen and
emergency expenses. Other wise you will have to liquidate and break you investment products
which may attract penalites and may not give you enough cash at the time of requirement which can
create problem .
Better to have money equivalent to 3-4 months of expenses in contingent fund . You can also put 1-
2 months expenses as Cash and rest into Liquid funds which may also provide you some returns .
Analysis
Understand that these 5 things are a list of things one would have for sure , but its not an exhaustive
list . Depending on your profile and requirements you should have other products as well. but i
would say this will solve 90% of the problem . Let looks how a portfolio consisting of this 5 things
passes on 4 parameters called Pillars of Success ?
1. Capital Appreciation : ****
With SIP in mutual funds and PPF , the capital appreciation should happen to a great extent , PPF
would provide stability and assurity or returns , where as Equity will gives exceptional returns .
2. Liquidity : *****
We have already covered that Contingent fund should be able to provide good Liquidity.
3. Risk Management : *****
Term Insurance and Health Insurance will take good care . SIP will take care of the market
volatility. some other techniques like Hedging using Derivatives and being well informed will
manage extra level of risk .
4. Goal Oriented : *****
Each and every product is for a specific and important goal , as described above .
For Non-Indian Readers
Hi all , the article is specifically with Indian context , but article is helpful for each of you , please
find the similar products in your country .
Conclusion
Each and every portfolio can be different and should match the requirement of the investor , But
these 5 things are such that it can be for any kind of investor . Just like we have master key for any
kind of lock , we have these products for any kind of investor .
Read my best Articles

Continue Reading
Friday, October 24
Is this a Bear market ? i asked to myself and realised its not !!!
Bear market is small remark for this market . Bear market is not so dangerous , the kind of volatility
or brutality this market is showing , it should be called as some thing like "Anaconda market" or
"Dinosour Market" ...
There was a time when stocks were up or down by 20% ,30% , 50% in a year . Today Unitech went
down by 50% in 1 trading day . Now bear market is a small thing to handle thsi kind of fall . this is
certainely a deadlier market situation . Some of the falls which are worth noting are :
from Dec -> Oct End (24th)

UNITECH : 522 -> 29
IFCI : 113 -> 16
JAIPRAKASH ASSOCIATES : 500- > 58
TATA STEEL : 925 -> 175
DLF : 1176 -> 200
I am sure there more stocks to note , but i choose these .
What is the point ?
Just to tell people that this bear market is far different than earlier bear markets . Analysts all over
the world are saying this is a kind of market they have never seen . read this article
This is a great time to make money out of options trading , at least straddling should give safe
returns in these high volatility time . Read what are options ?
Disclaimer : I have myself not made any absolute profits till now with options trading
Is this for Indian Investors ?
No , it is true for anyone across world .. things are same for every country (US , Europe ,India or
any other) .
Tips for Disaster
1. If a stock is in limelight and rises a lot and keep rising in front of your eyes , jump into it
and buy them .
2. If you have small losses , try to be emotional and never accept that your decision was wrong
.
3. Sell as soon as you start making profits and keep the stock with you which start loosing.
4. Treat a stock like your relative , be emotional with it .
5. Don't see other factors like Economic , political and global situation , say to yourself that
they don't matter.
6. Try to beat the market and think yourself as supreme.
7. Put 100% of your money in trade at a time .
8. Put tight Stop losses when markets are volatile .
This article teaches you how to loose your money in stock markets.
Disclaimer : There is no Guarantee that your will loose money using this steps . Take these as
recommendation only .
Continue Reading
Saturday, October 18
Features of an excellent portfolio
What makes an Health Portfolio ? . There are some good traits of portfolio
which makes it better than others . A good and strong portfolio has some strong
elements or parameters which it must meet . These are the Pillars for a strong
Portfolio or Investments.
Important Elements are :

1. Capital Appreciation
2. Liquidity
3. Risk Management
4. Goal Oriented
Lets take each of these points one by one :
Capital Appreciation
This is one of the biggest reason to invest. Isn't it very obvious? Yes , it is . But the main point is not
just its growth in numbers but its real worth . We are talking about Post-tax and post inflation
returns .
The real return of Plain Fixed Deposits in these high inflation days are negligible when you factor
out Inflation and tax (Click Here to Read WHY) . The best investment must be robust and good
enough to provide appreciation in real worth over long period of time . Real Estate and Equity
(Long term) can generate good returns .
Read a good article on Building Wealth , Click Here
Liquidity
Another important aspect of a good portfolio is that its provide enough liquidity , so that in case of
need , you can get the money .
What is Liquidity ? Liquidity is how fast and easily asset can be sold and you can get cash . For
example Mutual funds and Shares are highly Liquid , If you have them and want to sell, you can get
the money soon . Where as Real estate is not a Liquid asset . So if you need urgent cash , you might
not find right price and or buyer.
Every portfolio must have some element of Liquidity, as per the requirement of the investor.
Risk Management
Every portfolio or investment must be to some level insured or have element of risk management
What do we mean by this? A good investor is one who sees beyond what an average investor cant
see. Average investors concentrate very well on Profits , How good an investment can be , High
returns etc. An exceptional investor goes beyond that and takes care of Worst case Scenarios and
situations which may cause damage. He is the real investor .
Some of the steps to be taken are :
- Adequate Insurance to be taken .

- Proper monitoring of performance of investment.
- Getting out early in a bad investment and accepting that you made a wrong decisions.
- keep your self updated with news ,laws , things which can affect you investments .
Risk management is not buying some product for managing risk but being aware of things and
taking right and logical decisions.
Read how to protect your Shares and Mutual Funds , Click Here
Goal Oriented
"A good investment is one which has a purpose"

Each and every investment should be done because of a strong reason . I see people who take
Insurance policies to save tax at the last rush hour of the year !!! . Better loose the tax benefit and
don't take that policy . That kind of investment is nothing more than a waste or burden. On the top
of it these people don't even need insurance !!!
When someone asks you the reason for making a investment , you should know why you did it ?
Some of the bad or idiotic reasons for doing investments are :
- I can save tax by that

- My friend did it and recommended me
- Everyone is doing it .. why shouldn't I ?
Every time you take a decision ask yourself some questions like :
- Do i really need it at this point of time ?

- Can i afford it ?
- Do i understand it well ? Can i protect myself if people make me fool ?
- What is the purpose or goal of this investment ?
If you get satisfactory answers go for it else take an expert advice.
Sample Portfolio Analysis.
Sample Portfolio 1
Robert is a married person earning 40,000 per month. He is the sole Earner of the family and and
has 2 kids . He is not a risk taker and his portfolio looks like
- 50,000 invested in NSC (opened before 3 years)

- An endowment policy with 10 lacs cover and 40,000 premium for 30 yrs , with maturity benefits.
- 1,40,000 in a Tax saving mutual funds (investment 70k for 2 years for tax saving)
- Home (Rs 30,00,000)
- Cash : 20,000
- Car : worth 5,00,000
- Jewelery worth 80,000
Lets rate his portfolio on all the parameters on the scale of 5 stars
Capital Appreciation : ** (A small portion in Equity , and

that too for a wrong reason of just tax saving , Saving
through Endowment policy is another wrong decision , the
returns are too less )
Liquidity : * (None of the assets are Liquid and Cash

available is not enough to meet emergency requirement)
Risk Management : * (No Risk management , What if he

dies after 10 days , What if he meets an accident , What if
suddenly he requires 1,00,000 , what if he looses his Job)
Goal Oriented : * (The reasons for investment in most of the things looks like they are for Tax
saving , or some one suggested )
Sample Portfolio 2
Ajay is married and has 2 kids and parents who are all dependent on him , He earns 40,000 per
month .
- Long term investments in Tax saving Mutual Funds (Rs 4,000 per month)
- Term Insurance of Rs 80,00,000 (80 Lacs)
- Health Insurance of each member up to 3,00,000 - 4,00,000 (Family Floater Policy)
- Yearly Contribution to PPF (Rs 50,000)
- Invested 1,00,000 in Liquid Funds
- Home loan taken by him and his Wife Jointly (Along with Home Loan Insurance)
- 30,000 invested in Gold ETF and some good shares.
- Rs 25,000 Cash
Lets rate his portfolio on all the parameters on the scale of 5 stars
Capital Appreciation : **** (Appropriate investment in Equity with long term view , and some
money in Debt)
Liquidity : ***** (Has good amount of money in Liquid funds , Cash and Gold ETF , which have
good liquidity and can provide him Money quickly in case of requirement)
Risk Management : **** (In case of any type of Eventuality, He is properly covered. He is
protected well against Death , Health Issues , Home related issue , Emergency issues)
Goal Oriented : ***** (Most of the investments have strong and valid reasons . Like Term
Insurance is required for Financial Cover , Mutual funds investment was for Long term Wealth
Creation , PPF investment for Wealth Creation with Debt Route and safe investment , Joint Home
Loan with wife for Tax benefits , Health Cover for Tax benefits and cover against Health Issues ,
Gold Investment in ETF because of Diversification and Liquidity , Cash for instant requirement ,
Liquid funds investment for Liquidity along with some returns)
Note : Both the portfolio's are created just for the illustration .
Summary
Each and every person portfolio should be strong on all the areas , it should pass all the criteria to
some extent . A portfolio should pass all the parameters for different requirements . If you have a
portfolio ask yourself all these questions :
- Is it good enough to provide stable and good returns over long term . Is capital appreciation
happening in Value or just numbers are growing , but post-tax and post-inflation returns are
negligible .
- If i require instant money within 2 hrs , 2 days or 5 days , Is my portfolio smart enough to provide
me .
- Is my portfolio good enough to provide protection to me and my family against calamities or any
unexpected events . Do i review my Portfolio in regular basis to cut out the losers .
- Is my portfolio a result of my Needs and requirements or Greed , Ignorance and Hearsay and
emotional Buying ? If that's the case , take action !!!
Some I would be happy to read your comments !!!

Continue Reading
Sub prime crisis

Who is the culprit of this Mess ?
Most of the people have lost there years of savings and investments in this crash in stock markets ,
One of the biggest reasons for this financial crisis is the Sub Prime Crisis in US .
What is it ?
A detailed article worth sharing is : http://www.shyamscolumn.com/2008/10/cost-of-financial-

ingenuity700-billion.html
Another Link : http://www.slideshare.net/guesta9d12e/subprime-primer-277484/ (see this in full

screen) .
Continue Reading
Thursday, October 16
A reply to one mail
This post is most probably the one on which i didnt worked hard . This is just an email reply
from my side to one of my friend who queried me regarding his Endowment Policy package
which an agent has created for him .
The policy looks like this ... 15 small polices of 1,00,000 each which will mature one by one
every year after 27 years and will act as yearly pension in his old age
His mail :
>>>
On Wed, Oct 15, 2008 at 9:37 AM, ajay patel wrote:
15 policies of Rs. 1 Lakh each, starting from sept 2007, first policy matures in 2034 and others
follow every year from there on.
Cover of 15 Lakh is for life time. There is an extra Rs 500,000 accidental insurance along with it till
the age of 70(2053) (if the world exists till that time).
Annual premium of Rs. 42,000 till 2034, a total amount of 3,400,000 will be received from maturity
of these policies.
Say after ten years, I see myself earning around 2.5-3 lacs per month. with one child (if i get
married :))
My Reply :
OK
now lets see some of the facts for you to ponder .
Starting from 2007 you are paying 42,000 each year till 2034 (for 27 years) . You will receive
money starting from 2034 - till 2049 (15 years , each policy matures) .
Points to note :
- You are paying 42,000 and then its locked for 27 years
- You are getting maturity value of each policy per year , just like a annual income(around 2.25
Lacs/year ie : 34/15 , which is not taxable (you keep all the money).
- You are getting Tax exemptions under sec 80C for this.
I think these are the points you have to agree , because they are not opinion , they are facts .
Some of the flaw or issues with this plan are following , which you never considered at the time of
taking this .
- The premium you are paying each year equals to your current monthly salary , also you said that
you see your self earning 2.5-3.0 lacs (6 times , your current) per year just after 10 years from now .
i am not sure what kind of figures will it be after 27 years . At that time , the money which you get
from the policy should not last even 2 months . Considering your expenses currently at 25,000 per
month (considering you are married and have children) . the same expenses will rise to 1.2 lacs
assuming 6% inflation (also remember that the expenses will keep rising each year ie : 1.66 , 1.77 ,
1.9 ... 4.2 lacs , whereas the money you get each year will be around constant 2.25 lacs only , this
may look unimaginable , but ask your father to grandfather about the monthly expenditure of family
before 25 years , i am sure it should be 5% of current, people always forget inflation).
- The insurance provided by this policy is so less that you are highly under insured . What can your
loved one do with 15 lacs today ? Will it be sufficient to replace you ? If you consider time after 10
years (when you think you will earn 2.5-3 lacs / month , will the insurance money be sufficient to
cover the dependents ? When you will be of age 60+ , the insurance amount is able to meet not
more than 9-10 months expenses .
Having this policy is as good as not having it . The issue is not that Can there be policy better than
this? ,The main problem is what kind of value is this giving to you . Is the benefit provided by this
policy after 27-42 years is much less than than the pain you are getting by paying hefty premium
now .
With the same money (42,000) , let me see what can i plan for you with same money .
Lets first take a most conservative way (which is undebatabely safe).
You take an insurance of 50,00,000 (50 lacs) for 30 years and pay a premium of just 10.5k per year .
You are left with 32k per year which you put in
1. PPF account
In PPF the money 32k @8% will become 2,55,000 in 27 years and you will get this money every
year (total 38 lacs till end) , till age 66 ( In Endowment policy it was 2.25 lacs)
2. In MF considering 12% return
32k invested will become 6.83 lacs in 27 years , so you invest every year 32k and get 6.83 lacs just
after 27 years of payment . so it can provide a regular income of 6.23 lacs after 27 years for
continuous 15 years till you are 66 .
3. In Mutual funds considering 15% return
The amount would be 13.93 Lacs , every payment of 32,000 will become 13.93 lacs.
Question: How realistic are these mutual funds returns ?

Answer : Over the history no asset has returned more than equity over long term . India Equity
markets have returned 17.5% CAGR annually (since inception) . 15% is a very realistic return
considering the money is invested for long term like 15+ years . Equity investments risk are
inversely proportional to tenure of investments .
After 30 years you will not even need Insurance , because this money will be available every year .
and i am assuming that you will earn enough till than that you don't need insurance .
Some other things to ponder are :
Investing in your Endowment policy does not give you any flexibility of stopping or missing your
premiums . In case of PPF or mutual Funds , you can be very flexible and stop for 2 years if you
want money to be utilized some where else .
The plan which i told you has everything which you had in that endowment policy , even more than
that . its like Buying Nokia 2600 @20,000 when you have iPhone available at same price , you just
didn't knew where you can get it :) . Ok , i know that was pathetic analogy , but i need some
platform to show that i can think .
So better stop those policy and take the loss of premiums which you paid , anyways you are not
going to be affected now , and life will be normal as it was .
I have done nothing extraordinary here , but some calculation based on some common sense , which
is not common .
disagreements are welcome .
- manish
- Show quoted text -
--
Manish Chauhan
Bangalore
http://finance-and-investing.blogspot.com/
Lets understand some basic things here . No matter what people tell you or design things for you ,
Always calculate and apply the simple formula's which will give you certain numbers, which can be
used as benchmarks by you .
Some must know formula's : http://finance-and-investing.blogspot.com/2008/09/3-most-important-

formulas-you-should.html
Please post your comments .

Continue Reading
Monday, October 13
An ideal portfolio for Someone in this market
What should be the ideal portfolio for someone in this market for long term ?
As far as i think , A good portfolio now will contain stocks which are beaten down because of panic
selling , but still they are fundamentally sound .
My Recommended portfolio would be:
For Safe Investor (assuming time horizon of 3+ years)
- Infosys
- Tata Motors
- ICICI Bank
- DLF
- Reliance Communications
For Risky Investor (assuming time horizon of 5+ years)
- ICICI Bank
- Jaiprakash Associates
- Chambal Fertilizers
- DLF
- Praj Industries
People who want to trust someone more experienced and more knowledgeable should read
Sudarshan Sukhani recommendation at http://tt-wealth.blogspot.com/2008/10/portfolio-for-
safety.html
Sudarshan Sukhani is a well know and respected Technical Analyst of India and often talks on
CNBC .
To get a better view on markets read my earlier article : http://finance-and-

investing.blogspot.com/2008/10/current-situation-of-stock-market.html
- Manish
Continue Reading
Thursday, October 9
Term of the Day Archives
This page contains all the "Term of the Day" posted on this blog earliar .
1. Short Selling
Short Selling : Short Selling refers selling of shares without owning them . If you short
sell a stock , you first sell them at higher price and later you buy them (cover them)
back at lower price .Lot of times you feel that markets will go down , at that time you
short sell a stock . People who deal in Derivatives can either Sell the Futures or Buy
PUT options . Short Selling can offer tremendous returns in short frame , because bear
markets are markets fall with much speed and momentum compared to rising market .
Read more
2. Derivatives
Derivatives : Derivatives are contracts whose value depend on value of some other
thing. Examples are Futures and Options . Value of Stock is independent , But value of
Futures or Options depend on the movement of Stock . Derivatives are dangerous
Instrument and not recommended for Starters . In India People are attracted towards
Derivatives because of its Return potential , but they underestimate its Risk potential
and its ability to paralyse investor or trader financially , Better to learn first and then
enter in Derivatives. Read more
3. P/E Ratio
P/E Ratio : P/E ratio is a reflection of the market's opinion of the earnings capacity and
future business prospects of a company. Companies which enjoy the confidence of
investors and have a higher market standing usually command high P/E ratios. This
ratio indicates the extent to which earnings of a share are covered by its price. If P/E is
5, it means that the price of a share is 5 times its earnings. In other words, the company's
EPS remaining constant, it will take you approximately five years through dividends
plus capital appreciation to recover the cost of buying the share. The lower the P/E,
lesser the time it will take for you to recover your investment. Its one of the most
imortant Ratios you can look at .
Price/Earnings Ratio (P/E) = Price of the share / Earnings per share
4. ETF
ETF : ETFs are a basket of securities which tracks an underlying and are traded on a
recognised stock exchange. Examples are Nifty Beas (this tracks Nifty) and Gold ETF's
(this tracks Gold prices) . Read More
Soon there will be Silver ETF's in India .
5. FMP
FMP : FMP's are close ended mutual funds , similar to FD's but much more tax efficient
and with marginally superior returns , but they have there own risks . The returns
offered by FMP's is indicative and not guaranteed. They come from 1 month maturity to
1 yrs maturity . In year 2008 , FMP have done very badly because of defaults . Read
here for more
6. Technical Analysis
Technical Analysis : A method of evaluating securities by analyzing statistics generated
by market activity, such as past prices and volume. Technical analysts do not attempt to
measure a security's intrinsic value, but instead use charts and other tools to identify
patterns that can suggest future activity. It is generally used by people who want to take
advantage of short term price movement. Technical Analysis can make you a better than
average Investor
7 . Demat Account
Demat Account : Demat account is an account where shares are stored electronically .
Just like Bank account deposits money , Demat account deposits your shares . Now a
days , you cant hold shares in physical form , every share has to be in physical form . A
person can only hold a single Demat account (trading account is different) .
8. Trading Account
Trading Account : Trading Account is an account through which you can buy and sell
things on stock market . Dont confuse it with Demat account , Demat account is just a
place of storage . Trading account is a platform which provides you a service of buying
and selling things . You can have multiple trading accounts , which will all be connected
with your single demat account .
9. Futures
Futures : Futures are the contract which gives you a right to buy or sell a specified
commodity of standardized quality at a certain date in the future, at a market determined
price . For Example, If you buy Reliance Futures for June series, you will get a right to
buy specific number of Reliance shares at a fixed price on last Thursday of June . The
future date is called the delivery date or final settlement date . Read more
10. NAV
NAV : NAV is a price of a mutual fund unit . You can see it just like a share price of
company . Mutual funds invest the money in market and its tracked by NAV , if
investments goes up , NAV goes up and vice versa . Generally NAV value starts with Rs
10 .
There is a myth among investors that low NAV mutual funds are better than high NAV
mutual funds, which is totally wrong .
11.
Continue Reading
Price Vs Value
A Rose can be of more value than a Dress to your Wife or
Girlfriend on Valentines Day . Even though that Rose was very less
in Price compared to a Dress.
Today we will discuss things about investment products from a

different perspective . Value and Price
Price : Price is the amount of money needed to purchase something .

Value : Value is the worth or Importance of something .
An Example
We pay Rs 8/Kg (20 cents/Kg) for Salt as part of our Groceries , Will we stop using it if its price
rises to Rs 100/Kg or even Rs 400/Kg . May be not !!! Why ? Because the Value of Salt even then
will be Very high , compared to the price we pay for it . Considering that , its a very cheap product .
As a personal Example , I recently bought a second hand mobile (Nokia 6610) to keep at my home
as a land line just for Rs 800 (worth 8,500 at time of buying, excellent condition) . The price i paid
for it was much much less than the value it would provide to me. So i consider it as one of the best
investments made till date.
By cheap i mean its Value/Price is very high .
Cheapness (P) = Value provided by P / Price we pay for P .
The same way there can be things for which we pay high amount , they don't have high value for us
.
Please understand that it depends on individual where something is of great value or not . For
example for me , an expensive Mobile set with 134 different things costing Rs 10,000 is low in
value and high in price . I dont buy things like that , but a digital Camera worth 12K a value buy for
me (because of my interest in Photography)
So, in short we can say "Price is What we pay actually , and Value is what are ready to Pay"
We understand this in our daily Life, but we forget this simple rule when it comes to money and
investing . Most of the time we invest in things which we should not because of this basic rule , but
we are carried away by emotions or simple stupidity .
Let us now see Some of the products which are really High Value , Low price
Term Insurance : Term Insurance is one of the best example for this .
"How much are you ready to pay as yearly premium for Rs 50,00,000 Cover for 25 yrs tenure?" .
This is a question i ask a lot of my friends in there 20-30's . And i am amazed to see that even with a
miser mind they tell me at least twice the amount what it really costs . Everyone said 2k/month or
min Rs 20,000/year . The actual cost is not more than 13-14k , in fact the best price is 10,112 for 30
yrs tenure from AEGON RELIGARE Life Insurance (Click Here to read more on this).
This clearly shows that it cost way less than the expectations of people and what people are ready to
pay for it . The value offered by Term Insurance is more than what it costs.
Endowment Policies : I am not sure if its my hatred for Endowment Policies or they really deserve
my criticism every time, Or may be there are both the reasons. We pay so heavy price for
Endowment polices and the value provided by them is almost nothing . Its a product designed for
Wealth Creation , but wait ... not for investor but for the Insurance company . (Click here to read
more on Badness of Endowment Policies)
The other products i would rate in category of Cheap and Expensive are :
Cheap
- Term Insurance
- SIP investments in Equity Mutual Funds
- PPF
- Good Stocks in low markets (Like current markets , Buy Reliance , Infosys and Jaiprakash
Associates for Rs 1,00,000 each today and your retirement planning is probably Done !!! , if you
are around 25 and retiring at 60) - A interest free loan given to a close or a very good friend. (even if
you don't get any thing interest , you get some emotional satisfaction or valuable relationship which
is more important) .
Expensive
- Endowment Policies
- Bank FD (at the time of High inflation)
- NSC
- Most of the stocks in High Markets ( not true for all stocks but most of them) - A high interest loan
given to someone whom you don't trust much . (Even if you get good interest , there is risk of
loosing money)
Every time you invest your money its important to understand the price of it and value of it . If you
find that its cost is less than what you are ready to pay , consider it cheap and go for it and not in the
other case . Price and Value depends on Situation , time , age and other factor , dont forget it .
Stock Market Investments
Most of the successful investors become one because they invest in stocks which are trading at price
lower than they deserve, which market eventually finds out later . Currently In this markets
Reliance is trading at 1400 (Oct 11 , 2008) , the it was trading at 2300 before a month , and has lost
almost 40-50% in a month . Considering it is going to start its OIL exploration and other things, its
a good stock to own and at an excellent price . Its price is less and its value . Which makes it a good
investment regardless of what is going to happen next month or next quarter . Sooner or Later it will
turn out to be a good investment and reward its investors . Same is with Jaiprakash Associates ,
ICICI Bank , DLF , Ranbaxy and other similar blue chip stocks .
Summary
When you analyse some product , stock , mutual fund , Home (Real estate) or anything for
investment matter or even for general shopping , always consider value and price for it .
Disclaimer : Any stock discussed on this article is not a recommendation . Please analyse it your
self and then invest. It can also result in losses.
Continue Reading
Wednesday, October 8
Current Situation of Stock Market
Bloodbath in Stock Market
As i write this article on Oct 9 , 2008 , Sensex is below 11000 (10850) ... Most of the Mutual fund
investments returns (since peak of Dec 2007 - Jan 2008) must be down by 40-50% (lump sum
investment) and 25-35% (if SIP) . Looks like
Sensex is heading towards it original value of 6000 or 7000 which will
bring losses to 60+%.
Though most of the investors know in theory what to do in these situation ,most of them will still
not buy , Now the physiological investing problem happens , For long term investors its the best
time to invest, but no one will take the plunge
after burning there hands so badly .
Do Indian Markets have many reasons to Decline further ?
Remember , the global markets are looking bad , not Indian . Indian markets are just following US
and European markets because they are the "Big Boss" .
The US markets and European markets are the culprit for the global slowdown. The sub-prime
crisis related issues will have deep impact on US and global investment banking firms . India or
other Asian countries are just bearing the pain along with global stock markets.
Yes we are in Bear markets , in fact every country stock markets are , but the bearishness of markets
are exaggerated because oh high oil and US sub-prime crisis and subsequent Bank Failures .
India is not short of its local good news like
- Nuclear deal
- Stable growth of more than 8% p.a
- Inflation now coming down from its high (and as Oil comes down , the inflation will come down
further )
- Strong Corporate Earning and Many companies on the verge of setting global standards (Reliance
starting its oil production soon , etc etc)
Once things are in control (should be soon , but no one can be sure),
another bull market should be more exciting than the last one . Prices
will move like rockets and people who will benefit most will be one who will do
investments in these down markets .
Is it the right time for investments ?
This questions was answered by many pundits when Sensex was around 15,000-16,000 . Some said
YES , some said NO . People who did investments must be thinking why they did it and people who
did not must be happy for not investing that time . The scenario could have been exactly opposite if
markets would have gone up .
So what do you do now ?
The best idea is to invest a part of the money now , If the markets go down from here , You still
have another part of your money in hand which you can invest later and again invest more if it goes
down further. It will ensure that your average cost is not very high , and a decent run in markets will
result in profits . If markets go up after you buy some mutual funds or shares , you at least are in
profit and not LOSS . which is a privilege now a days in Market . Once there is a good confidence
that markets are stable and wont fall further , you can then do rest of your investments
Remember , Don't try to make profits in stock markets , just try to avoid losses and make sure that
you preserve your capital. if you can do that much , profits will be at your feet .
As Warren Buffet said "We need to take very less correct decisions in Life , as far as we make sure
that we don't take many wrong ones"
Continue Reading
Why Endowment policy must be avoided

Today we are going to see why Endowment policies should be avoided in any portfolio and how
other things are much better than Endowment policy with the same cost .
The assumption is that you understand what are Endowment policies and What are Term Insurance
Plans , if you dont know click here to read about it
A look at the Endowment Policy

An Endowment policy would look like this for a 25 yrs old
Tenure : 30 yrs
Yearly premium : 31,000
Sum Assured : 10 Lacs
Maturity amount : 23.1 Lacs lacs ( this you get when you survive full tenure , It includes
the sum insured + Bonus accrued)
This data is from website of an Insurance company .
Q . How much money to be paid every year? How much will the person get in case of Death or
Survival ? What are the Risk factors ?
Ans :
Tenure : 30 yrs
Money outgo : Yearly 31,000/yr
Money received In case of Death : 10,00,000
Money received In case of Survival : 23,100,000
Risk : Virtually no risk (The only risk is when the Insurance company goes bankrupt)
What is the interest earned on this investment ? 31,000 per year for 30 years becomes
23,10,000 .
Annuity formula is :
Maturity value = Amount paid per year * [ {(1+r)^n - 1}/r ] * (1+r)
Here n = 30 years
and r = rate of interest earned
Putting all these values
23,10,000 = 31,000 * [{(1+r)^30 -1}/r] * (1+r)
The value of r which satisfies this equation is 5.4 . Which means that the interest earned by the
investment in Endowment policy is mere 5.4% , which is truly pathetic by any standard in India at
least . There is no investment product known which is known to pay so badly .
The reason why people feel that endowment policy are so good is that they also get insurance cover
( which is virtually useless because its so less that it does not even cover the financial dependents to
even a fraction of what they need in reality)
So can we mix Insurance + investments product which can be better than supremely better than
Endowment policies and still cost the same( or even less) .
Now let us see that by spending same amount (30,000 , 1,000- less than the endowment policy)
every year for 30 yrs , can one achieve better than this .
1. For Safe Investor (Let us first see a almost 100% safe way to do this)
Term Insurance of 30 Lacs for 30 yrs : 6k

Investment of 24k in PPF for 30 yrs : 30 Lacs (this is assured returns , as its invested in govt backed
PPF , which gives 8% post tax return)
Amount invested = 30,000 per year for 30 years (same as Endowment policy)
Amount received on death : 30 Lacs + investments done in PPF
Amount received without Death : 30 Lacs (investments)
2. For Aggressive Investor ( A person who can take more risk that the former one)
Term Insurance of 70 Lacs for 30 yrs : 14,157

Investment of 17,843 ( 30000 - 14157) in ELSS for 30 yrs assuming 15% CAGR : 92 Lacs
Amount received on death : 80 Lacs + investments done in ELSS

Amount received without Death : 92 Lacs (investments)
Equity investments for long term are almost risk free.
So , we can see here than in any case term insurance + MF is supremely better than Endowment
policies .
Solution for People who have taken fresh policies
People who have already taken fresh policies and have not completed 3 yrs should just forget there
payments and stop there premium payments. The profits of switching from Endowment to "Term +
MF" will be far greater than the loss from leaving Endowment policies .
Solution for People who have completed more than 3 yrs
Either convert your policies to Paid-up or just surrender your polices and take the Surrender value
(take your call on what you are comfortable with)
Solution for people near the Maturity
You have almost paid most of the installment , so better stick with it , but don't forget to insure
yourself to a respectable cover through term insurance
Summary
Endowment policies according to me are totally incorrect and worst product i have ever seen
(ULIPS are not far behind) . It is structured and presented in such a way that investors are attracted
to it . Agents present them in such a fancy way and give judgements which make these policies look
like must have products.
Disclaimer : The exact figures can differ , this is just a demonstration of how Endowment policies can not be better
than Term Insurance + MF combo . All the Insurance premium are for Aegon Religare Life Insurance and Mutual funds
payments are considered monthly (amount/12) .
All the view on this article are personal, some people may disagree with it which is totally acceptable .
Continue Reading
Monday, October 6
New hope for Indian Insurance Industry
Aegon Religare Life Insurance
This is a new Player in Indian Insurance Market . This company seems to have clear understanding
about the Insurance Market and what India needs exactly , there main focus is on Term Insurance
and that makes it respectable in my opinion , its not like other companies concentrating on
Endowment and Money Back plans and tag them as Great Insurance products , which is nothing but
Saving and investment products with a pinch of Insurance .
Website : http://www.aegonreligare.com (To understand what is Life insurance terms Click here )
About the Company
AEGON : Aegon is one of the largest life insurance and pension groups with market in over 20
countries (Americas , Europe and Asia) with 40 million customers . It has more than 160 yrs of
experience.
RELIGARE : Religare is one of India’s leading integrated financial services groups . They have
1550 locations spread across over 460 cities and towns in India .
Products Offered by the Company
AEGON RELIGARE Life Insurance has excellent products as far as Term Insurance is concerned .
They also have ULIP plans .
In Term Insurance they have the minimum rates for Term Insurance plans . They have 3 different
plans .
1. Level Term Plan (Premium Calculator) : In this cover remains same through out the Tenure.
Calculator
Premium for amount Rs 50,00,000 (50 Lacs) for 30 years .
Male/Female (25 yrs) : 9,000 per year

2. Increasing Term Plan (Premium Calculator) : Cover increases by 5% every year.

Male/Female (30 yrs) : 19650 per year
3. Decreasing Term Plan (Premium Calculator) : Cover decreases by 5% per year (Tenure = 20
years max)

One can choose the plan as per there requirement . The best part is that there rates are very very low
. This Term insurance is worth a consideration .
Click here to understand why you need Term Insurance and not Endowment or Money Back Plans .
Continue Reading
Sunday, October 5
Need Information on what you would like to read
Dear Readers
I have written a lot of articles on things which i know , understand and want to share and now i am
little confused about what to write ?
I would like to know what people would like to Read ? So i request you all to let me know what you
want to read . Send me your queries and may be i would like to come up with some article on that
topic .
This is a request not only for Indian Readers but from every reader, i can see that there are lot of
international readers from all across the globe .
Please send mail at manish.pucsd@gmail.com and ask questions on anything related to finance and
investing in general . Also you can send me a topic on which you want to read something . I will try
my best and write something soon .
Just to give an idea one of the reader from USA has mailed me to write something on "Investment
opportunities for Non-indians inside India" . I would soon write something on that and post it
soon.
Another Reader has asked me to write on "Home Loan Repayments" .
I would be very happy to write on these topics and soon post something . Please mail me your
queries or anything you would like to read (even though its very basic thing) . If you dont want to
mail me you can leave a comment here and let me know what you want .
This is will help me serve my readers in a better way and will make this blog more interactive .
Thanks
Manish Chauhan
Continue Reading
Monday, September 29
The amazing truth of partial Profit booking
This article is going to talk about Read-Error

importance of partial profit booking
. The scope of this articles are only
risky investments where we have
risk of loss . Its not related to Debt
products where we are sure of
returns . Partial profit booking is
relevant if you invest in Shares ,
mutual funds or derivative products
.
What is the main goal of

investments in Equity ?
When we ask this question, most of

the people would get it correct,
Answer is Capital appreciation or fast growth of money . But most of the investors concentrate so
hard on maximizing profits that they underestimate risks and that's the main reason for most of the
losses they make. The biggest goal while doing Equity investments has to be "Capital Preservation"
and only then you must think about any profits . So the main concentration must be on "Capital
Preservation" . If you dont concentrate on capital preservation , it can erode because of continous
losses and then you will have to try for profits just to get back to level you started .
Suppose by taking a lot of risk you can either earn 60% or loose 60% . If you get profits , its great .
But if you loose 60% , then you will have to earn 150% ,just to get back to your starting Capital .
Whereas if you take a less risky route where you just earn 10% or 15% , your money will grow
slowly and steadily , it will soon increase due to compounding effect .
We are investors , we are not god , we cant predict markets move accurately . We can only avoid
bad moves and take decisions which can help us minimize our risk and losses . We will soon see
how Partial booking of profits can is so important while doing investments .
What is partial booking of Profits ?
When we invest our money and if we get some profit and then we are not sure what can happen
next, we book a part of it to minimize our risk . The main idea here is that if we gain some profits ,
we should book some part of it to make sure that we already got that profit in hand and not just in
mind.
For Example
Ajay invested 1,00,000 in shares , which grew by 20% in 6 months . Now he is not sure what can
happen , Markets are uncertain and now there might be 40% profit or 40% loss (just for example) .
He has 3 options here
1. If he does not book partial profits
His investments grew to 1,20,000 and now he can get profit or loss of 40% . let us see the range of
his return.
in case of 40% profit , he will get 1,20,000 * (1 +.4) = 1,92,000

In case of 40% loss , he will get 1,20,000 * (1 - .4) = 72,000
Total investment : 1,00,000
Returns : In range of -28% to +92%
2. If he books partial profits
Here we assume that he books his 50% profits . His investments grew to 1,20,000 and books profit
of 10,000 , he get backs 60,000 back and rest 60,000 is still invested . Let us now see the range
in case of 40% profit , he will get 60,000 * (1 +.4) = 96,000

In case of 40% loss , he will get 60,000 * (1 - .4) = 36,000
As he has got back 60,000 back earliar , the actual range will be
if 40% profit : 1,56,000

if 40% loss : 96,000
Total investment : 1,00,000

Returns : -4% to +56% .
So there is choice between -28% to +96% or -4% to 56% . The good idea will always be the second
option . Because the second option is more close to giving positive returns . It saves us from risk . It
make sure that even though less , we get positive returns .
To understand more on why avoiding bad decisions is better than making good ones , Click here
Let us see another example
Just before the NSG waiver meeting , Robert invested 35,000 in options , he was very sure that
markets would rise . Just after news came about NSG waiver, markets were suddenly up and He
was in 12k profit overnight . This was a positive news for market and he wanted to remain invested
. He was very sure that market would rise further for next few days and his money would grow to
60-70k . People who are familiar to option trading will know that 30k can become 60k or 90k in a
single day.
Robert was so confident that he did not book partial profits .Next day there was Lehman Brothers
Collapse and it was a great shock to world. From next day markets fell and his investments fell by
90% in 2-3 days . His money grew from 35,000 to 47,000 and then fell to 8,000 in 3 days . Now he
was in 27,000 loss .
What if he would have booked partial profits ?
If he would have booked 50% profits . It means he invested 35k which grew to 47k and he takes out
50% of his investments , He should have taken out 23k and left 24k invested . In that case even if
markets feel by 80% , His 24k would become 5k . Remember here , that he has already booked half
of his profits and his exposure has reduced by 50% , which will help him in minimizing losses.
Total investments = 35,000

Final value = 23k (booked earliar) + 5k = 28,000
Loss : 7,000
Summary
Markets are uncertain and volatile . If we get profits anytime, make sure that they are partly booked
, By doing that , you make sure that you have actually got some profit materialised and reduced
your exposure to investments after it has gone up . If your investments start falling again , you will
suffer some loss , but that loss can be compensated by the profits you have already booked . By
partially booking profits you reduce you risk for huge losses , at the same time you also cut your
chances of making large profits, which is fine . concentrate on cutting and avoiding losses and risk
and not making profits . Profits will automatically come once you know how to manage your risk .
Continue Reading
Wednesday, September 24
How to hedge your Portfolio using Derivatives
Risk Management of Portfolio Read-Error

using Derivatives
This article is surely for you if you

invest in Equities (Direct shares or
Equity Mutual funds) . Many
people might have seen there
investments go down to anywhere
between 20-50% , if they invested
in Indian Stock markets around Dec
2007 or Jan 2008 , and they might
be wondering if it will go more
down in value .
Just like we know take life Insurance to cover the risk of Life , Home insurance or car insurance to
cover the risk if anything goes wrong , Can we also take Portfolio insurance ?
What does insuring the portfolio means ?
What does insurance means ? It means securing something from some event which can cause loss
or damage . We ensure our Lives , our homes , our Car . What happens when nothing happens to our
lives , Home or Car . We pay a small price for it and that is a kind of fees , which we pay for the
security .
In the same way , we can also insure our portfolio , We can make sure that our loss is limited, The
loss is always limited. If you are one of those who invested in Equity mutual funds or Shares during
2007 or Jan 2008 , And you are sitting on a loss of 30-60% , you will understand this very well .
Any one who invested Rs 1,00,000 in stocks or mutual funds has loss of anything from 30,000 to
60,000 (depending on his investments) . Just wonder if they could insure there portfolio and make
sure that there loss can not go beyond a certain limit . That would be wonderful . We are going to
discuss this today .
How to insure your portfolio ?
There is no specific product or service for this , you have to manage it using Options (Derivative
Products). ( Read it in Detail)
I assume that you now understand what are Options and how do they work , what are call and put
options and what is expiry date , in case you have not read about it , please read it at above links (try
first link to get basic info).
If you have invested in Mutual Funds
Ajay has invested Rs 2,00,000 In Equity mutual funds in Aug 2008 , Nifty is around 4,200 . He has
invested his money for 4 months and would like to withdraw his investments in Jan 2009 . He is a
smart investor and knows that markets can crash and there is no limit to how much down it can go ,
So he decides to minimize his risk . For this he has bought Nifty 4200 PA DEC-2008 trading at 200
, for which he spent Rs 10,000 (Rs 200 * 50 lot size.)
Now lets see 3 different cases and what happens to his portfolio
1. Markets boom and goes up to 5,000 : Nifty has gone up by 20%
I am assuming that his investments followed and his Rs 2,00,000 has grown to 2,50,000
Value of his Nifty PUTS : 0
Profit from investments : 50,000

Loss in Puts : 10,000
Total Profit : 50,000 - 10,000 = Rs 40,000
2. Markets Crash by 25% and nifty goes down to 3,100 .
His investments follow and now its value is around 1,40,000 , but his PUTS will be valued at 1,100
(4200-3100) . So its value at the end would be 1,100 * 50 = 55,000.
Loss in investments : 60,000

Profit in PUTS = 45,000 (55,000 - 10,000 investment)
Loss = Rs 15,000
Here you can see that Out of his loss of 60,000 , 45,000 is covered from PUTS .
3. Nothing happens and markets are still at 4,200 .
His investments will be almost same , and his PUTS will expire with value 0 .
Profit from investments : 0

Loss from Options : 10,000
Total loss : Rs 10,000
In all the 3 cases , we should note that in all the cases his Losses are minimized .
Let us also take an example of Shares .
Ajay bought 300 shares of Reliance @2,000 on 1st Jun 2008 . He wants to sell these shares around
Dec 2008 .
He senses that markets are uncertain , So he buys 4 lots of RELIANCE 2,000 PUTS DEC 2008
@100 . one lot of Reliance options has 75 shares , that's the reason he buys 4 lots , so that he has
total 300 shares control .
What does it mean ? It means that on Dec 2008 , he has the right to see 300 shares of reliance
@2,000 and for this right he has paid Rs 100 for each shares .
The maximum loss for him is now Rs 100 per share .

Let us see the 3 cases .
1. Shares price has gone up to 2,500 .
Profit in shares = 500 * 300 = 1,50,000

Loss in Puts = 100 * 300 = 30,000
Total profit : 1,20,000
2. Shares price remain same at 2,000
Profit in shares : 0
Loss in Puts : 100 * 300 = Rs 30,000
Total Loss = 30,000
3. Shares price go down to 1,500
Loss in shares = 500 * 300 = 1,50,000

Profit in Puts = 500 * 300 = 1,50,000 - (30,000 investments)
Total Loss = 30,000
Again , we can see that in any case his loss is capped by 30,000 (5% of his investments of 6,00,000)
So options can be used to hedge or security .
This is a good Youtube video to understand : http://www.youtube.com/watch?v=4z5QClUFcuk
Summary
So the main idea of options is to use them to minimize the losses . If there is loss in investments ,
the puts will end up in profit and we will have very less loss or may be we can get some profits only
. The same way , if people do short selling they can use calls to minimize there losses.
So if you have invested in Shares or mutual funds and want to minimize your losses , use options or
Futures as Hedging tools .
Life Insurance : http://finance-and-investing.blogspot.com/2008/06/life-insurance-revisited-one-of-

my-good.html
How to Create Wealth for Retirement : http://finance-and-investing.blogspot.com/2008/08/creating-

weatlh-we-are-going-to-discuss.html
Continue Reading
Tuesday, September 16
What are Gold Mutual Funds
Gold Funds
What are the alternatives to invest in GOLD other than

physical Gold and GOLD ETF ?
What are Gold Mutual Funds ?
Gold Funds are mutual funds which invests in stocks of

companies engaged in gold mining & production . They
do not buy gold directly but invests in stocks of
companies engaged in gold mining and production world
over.
When gold prices rise, the profitability of gold

companies tends to increase more than
proportionately, thereby providing long-term capital
appreciation as stocks of gold companies have the potential to outperform gold prices by a
significant margin over the long run.
Even they these are Gold funds , they can invest some part in Platinum and Silver.
According to the DSPML website, DSPML World Gold Fund has invested over 80 per cent in gold
followed by platinum (9 per cent) and silver (5.10 per cent). As per the December 2007 portfolio,
Australia based Newcrest Mining is the top holding of the fund accounting for 8.4 per cent of the
fund's assets, followed by Barrick Gold (7.50 per cent), Kinross Gold (5.50 per cent) and Lihir Gold
(5.20 per cent).
Why to invest in These Gold Funds?
Investors can benefit from the global demand for gold by investing in the precious metal and in
companies involved in its production. In times when Equity markets are uncertain , Gold can be a
good hedge. After Equity markets crash of Jan 2008 , Gold Mutual funds were the best performers
in any Mutual Funds category.
Also, this fund has an edge over GOLD ETF's (What are GOLD ETF's) as the portfolio of
gold equities is actively managed as against the passive management in Gold ETFs.
Taxation and Returns
From the taxation point of view, These fund will not enjoy the tax benefits that equity funds
are eligible for. Long term gains would be taxable at 10% and short term gains would be
taxable as per slab rates applicable to the investor.
Most of the Gold mining companies will be outside India and hence these funds would
eventually be invested in dollar denominated assets, any currency fluctuation would
directly affect your rupee return. For example, the US dollar has depreciated by over 8% in
the last 3-4 months against the rupee. Such appreciation of the rupee directly eats into a
dollar return and investors should be aware of the currency risk that they undertake when
they invest in this fund.
What are Gold Funds Available (In India)
- DSPML World Gold Fund (Click here to see Details)

- AIG World Gold Fund (Click here to see Details)
Read Why to invest in GOLD and What is the Best way

Read How to Calculate your Life Insurance ?
Read Creating Wealth for retirement
OR
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How to calculate Insurance Requirement
Today i will discuss about the calculation of Insurance

Amount one needs . Though there is nothing great in that ,
but most of the people miss on this part and according to
studies , more than 80% of people in India are under
insured , which means the amount there nominees will get
will not be able to cover them against the financial crisis.
In case you have not read my previous articles on Life

insurance, please read them
How much should be the Insurance cover ?
you will hear that it must be 6-7 times of Gross yearly

income which is good enough estimate. but it does not
consider other things like Debts or living style . It may be
true for you but not for other . Some people may have
simple lifestyle , whereas some other can have expensive
lifestyle . So lets answer this question in another way .
This is pretty easy to answer , The Insurance amount much be enough to pay off
- All the debts

- Should be able to provide monthly income which is good enough to cover family expenses
- Any future needs for future .
Example :
Ajay is 30 yrs old and earns 40,000 per/month . He is married and has 2 kids . There monthly
expenditure is 20,000 per month .
His debts and future expenses .(total : 47 lacs)
- home loan of 24 lacs (remaining)

- Car loan of 3 lacs.
- His children studies expenses. (20 lacs , in future)
His investments are (total 8 Lacs)
- 5,00,000 in Fixed Deposits

- 3,00,000 in Mutual funds
He has 47,00,000 worth of Debts and expenses in future and monthly expenses of 20,000 ,
considering inflation @5% , which will also increase every year.
His Insurance money should be able to pay for both of these .
We have to Answer that how much money will provide 20,000 per/month (post-tax) or 2,40,000 per
year.
Considering 15-20% tax , The family should get 3,00,000, so that after paying tax they are able to
get 2,40,000 per year . So how much money will give them 3,00,000 per year .
Fixed Deposits pay around 9-9.5% per year . Which means 3,00,000 X 100 / 9.5 = 32,00,000
(approx) .
So if they have this much amount in Bank which pays interest of 9.5% yearly , they will receive
around 3,00,000 per year as interest and after paying taxes , they will be left with 2,40,000 , which
can meet there monthly expenses .
Also the insurance amount should have 47 lacs extra , which will be used to pay there debt and
future expenses .
So total = 32,00,000 + 47,00,000 = 77,00,000
As he has 8,00,000 worth of investments also , His Insurance needs comes down to 77,00,000 -
8,00,000 = 69,00,000 (let make it 70,00,000)
This is the minimum amount for the insurance needs.
It should also be considered that the expenses will rise and some emergency may also happen . So
insurance can be increased by 10-15% . But for the moment we will not do it . Its in fact not
necessary in this case because the money for future expenses can be invested and which will grow .
Tracing Back
So we arrive at the figure of 70,00,000 . Now lets go back again and see that in case there is sudden
death of the family head (earning member) , how this money helps the Family .
They receive 70,00,000 , Out of which they pay 24,00,000 of home loan
Money left = 70,00,000 - 24,00,000 = 46,00,000
They put 32,00,000 in bank or Monthly income plans , which will provide them with monthly
income of 20,000 per month (post-tax) .
Money left = 46,00,000 - 32,00,000 = 14,00,000
Now this 14,00,000 can be invested in Debt or Mutual funds which will grow to become at least
20,00,000 in some years (considering its needs after 10 yrs at least) .
At the end of 10 yrs , when family needs this 20 lacs for there children education , they can use it .
And for any emergency needs they have another 8,00,000 in investments .
So in general All the requirements of Family is taken care of . If insurance amount is less than
70,00,000 they will have to compromise at one place or the other.
How much will the Insurance cost him per year ?
As i write this Article , i can see on http://www.click2insure.in/ that for a 30 yrs old non smoking
male for 25 yrs of cover , the minimum premium per year for 70,00,000 Term Insurance is Rs
21,000 per year (taxes extra).
The premium is just 4.4% of this yearly income . Just imagine how cheap term insurance for total
peace of mind for rest of the life.
So whats the final formula ?
Insurance cover = A + B + C - D
where
A is Money which can give you monthly income = Monthly expenses * 12 * 100/(interest rate
which bank gives in a year , example 9.5%)
B = Future Debts or Expenses.
C = Some money for contingency or emergency .
D = Your investments or Assets (excluding HOME)
If you are under insured , please take extra insurance and cover your family , Please read my ear liar
articles on Term Insurance to understand more .
I would be happy to read your comments.

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Sunday, September 7
Blog Library
Dear Readers
This is my 43rd article , and I should thank you all who appreciated this blog and came back to read
my articles. I just wanted to thank people and let you all know that i will keep adding articles on
investing and how to make smart decisions for investments. Google-analytics tells me that this blog
has crossed 2000+ visits ,which is a great achievement for this blog, and credit for this goes to you.
Today i am just reproducing all the articles and categorising them so that new readers find it easy to
understand about it.
Request : people leave your comments after reading articles, it helps me in improving and write
better article next time. Incase of any doubts and question , feel free to mail me on
manish.pucsd@gmail.com
How can you search something you want to read on this blog ? You can see a seach box on the top ,
you can search things on this blog using it
How do i know in future that you published an article ? On the below right hand side (very below)
there is a Email subscription link , you can subscribe your email id , you will mail when i publish a
new article or change any existing one .
Categories for articles
For Beginners
Why Managing your money is Important and why to take pain in doing it
Terms and Terminologies in Investing World
Why small saving matter
How tax is calculated (2008)
How tax is calculated for different things
Common mistakes in Investing
All about Provident Fund
Inflation, How it eats your money slowly
How to evaluate your returns
Some investing Equations to make you understand some basic things
3 most important Formula's you must always know about

How to calculate Life Insurance Cover
Super Star Articles (You can't afford to miss these at any cost , these are some very high level
articles , but easy to understand)
Portfolio Diversification
Portfolio Rebalancing
Creating Wealth
Power of compounding
Why small saving matters
Risk Management of Portfolio using Derivatives
Different Products and knowledge about them
What is a mutual fund
Myths about Mutual Funds
Mutual funds categories
Difference between Growth and Dividend option in mutual fund
Life Insurance 1 , Must read
Life Insurance 2 (Read it after reading the First Part)
Why to invest in GOLD and How
What is SIP (Systematic Investment plans)
Some Calculators to calculate growth of your money
What is a ULIP , and who needs them
What is Health Insurance and why its so important
What are Options (Stock market related , F&O category)
What are ETF's (Exchange Traded Funds)
What are FMP's (Fixed Maturity Plans)

What are GOLD Funds
All eggs in Single basket
Some products I know and recommend
Things people generally don't know about
All tax saving funds are not same, Read why
What people loose by not knowing things
Why avoiding bad decisions is better than taking good ones
Things you didn't knew in investing world
Magic of partial Profit booking
Some things to Download
Some other links
Some recommendations
Continue Reading
Thursday, September 4
Some of the best products i know about
1. Term Insurance
One of the best products in Term insurance markets i know is SBI life Insurance Shield Plan
Before taking any Insurance into consideration , we should give importance to
- Premium amount you pay : Premiums are among the cheapest in market
- Claim settlement Rate : Next only to LIC
There Shield plan is designed very nicely , have a look at it and you will love it .
2. UTI Gold ETF's
If you want to invest in GOLD , try this ETF , search GOLDSHARE or UTGOLD (if you are on
ICICIDIRECT) .
3. Mutual Funds (see details of these mutual funds at http://www.valueresearchonline.com/)
ELSS
- SBI magnum tax shield
- Principal Tax saving
Equity Diversified Mutual Funds
- DSPML Equity
- HDFC top 200
- Magnum Contra
Balanced Funds
- HDFC Prudence
- DSP Balanced
- UTI Mahila Unit Scheme
Debt or Liquid Funds
- Kotak Flexi
- Birla Sun Life Income
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Tuesday, September 2
3 most Important formula's you should know
1. Compound Interest
This formula is often used to calculate the returns some investment has given . The main concept in
compound interest is that interest gets accumulated with the total principal amount and that interest
again earns interest over the years. Which makes it very powerful .
Formula : A = P * (1+r/t)^(nt)
Where
P = principal amount (initial investment)

r = annual interest rate (as a decimal)
n = number of times the interest is compounded per year
t = number of years
A = amount after time t
Example 1 :
Investment = Rs 10,000
return = 9%
investment period = 8 years
Total amount = 10000(1+.09)^8 = 19925.63
Example 2 :
Sensex returned 17.3% return over 29yrs since its inception in 1979 . What would be worth of Rs
10,000 invested that time .
A = 10,000 * (1+.173)^29 = 1022450.64 (10 lacs)
You can see that a small amount has actually grown to 100 times .
Compound interest Calculator : http://math.about.com/library/blcompoundinterest.htm
2. CAGR
This tool is very important because it helps in comparing two differnt returns from two investments
, you can calculate how much an investment has returned per year on compounded basis , Its just
the opposite of Compound interest

Formula : CAGR = (A/P)1/n - 1
where:
A = Final amount
P = amount invested
n = Number of years
CAGR can be a great tool to compare two different investments and there returns .
Example :
A. 10,000 invested in a XYZ mutual fund for 2 yrs became 20,000
B. 50,000 invested in GOLD for 7 years became 4,00,000
Which investment has given more returns ?
Here the main doubt is that how to calculate which one is better .. the amount , tenure is different .
So in this case we calculate and see CAGR , one with more CAGR will be good .
A) CAGR = 41.42 %
B) CAGR = 34.59 %
So , investment in A is better than B.
Which
CAGR calculator : http://www.moneychimp.com/calculator/discount_rate_calculator.htm

3. Annuity
This formula is very very important one , in our daily life we come across many situation where we
do a fixed payment at the fixed interval , and we want to calculate the returns , but we dont know
how to do it .. Example can be
- Monthly payments in Mutual funds through SIP
- Yearly payment in a PPF .
Or any investment at a fixed inteval over some years. In that case we calculate the Final value using
formula called Annuity .
Formula : A = P * [{(1+i)^n - 1 }/i] * (1+i) (if payment are being made at the start)
(it will be P * [{(1+i)^n - 1 }/i] if payments are made at the end of the year)
Where :
A = final amount
P = installment each time
n = total number of installments
i = interest rate for that tenure (example if yearly return is 24% , but payments are made monthly
then i = 24/12 = 2%)
Example 1 :
Robert invests 10,000 each month in a mutual fund for 10 years and the annual return was 18% ,
what will be his final corpus ?
Here as payments are monthly , total payment will be 10 * 12 = 120

so n = 120 and i = 1.5 % (18/12)
A = 10,000 * [{(1+ .015)^120 - 1}/.015 ] * (1+ .015) => 40,39.241 (40 lacs)
Example 2 :
Vikas is planning his retirement , and planning to invest 5,000 per month in a Mutual fund for 20
yrs where he expects a return of 15% , then take out all the amount after 20 yrs and then put it in a
FD for 15 yrs which gives him 9.5% return .
Here , we there are two parts
A. He makes monthly payment for 20 yrs (here we have to apply annuity)
B. then he takes the money out after 20 yrs and then put it in FD for 15 yrs (as this is one time
payment , here we will apply compound interest)
A)
n = 240 and i = 1.25% (as the payment are monthly)
His money after 20 years = [5,000 * (1 + .0125)^240 - 1) / .0125] * ( 1.0125) = 75,80,000 (75 lacs)
Now he invests this money into a FD for 15 yrs at 9.5% .
B) Final amount = 75,80,000 * (1.095)^15 = 2,95,00,000 (2.95 crores OR 29.5 millions)
So his final corpus will be 2.95 crores .
Calculator : http://www.moneychimp.com/calculator/annuity_calculator.htm
Note : You can also find some calculators at http://finance-and-
investing.blogspot.com/2008/05/calculators.html
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Thursday, August 28
Creating Wealth for Long Term through Equity
Creating Weatlh
We are going to discuss today, how a huge wealth can be created by in vesting with discipline over
long period of time . We often think that investing a small sum of money will not be able to
generate huge Wealth and we need to invest huge amount of money . Its obviously true that more
money will create more wealth , but we are going to see today that we underestimate small savings
and how small investments over a long period of time can generate fortunes.
How much wealth you can create, if you earn around $1000 /month (Rs 40,000 per month) and can
invest 10% of that amount every month for next 30-35 yrs . I am assuming you are a 25 yrs old and
retiring at the age of 60 (though i want to retire at 40) . Total dependents are 3-4 . And monthly
expenditure is Rs 25,000 ($600/month) .
What kind of wealth can this person create ?
Can he invest Rs 5000 ($125) in a diversified Equity Mutual fund per month till his retirement. I
hope the answer can be YES
As we said that he is investing in Equities , What kind of return should we expect ? 5% , 20% or
50% , but Wait ... Equities are risky , it can be negative also !!! . that's very true ... but People may
not know that Equities are extremely risky in short term, but its almost not at all risky in long term ,
and if the long term = 35 yrs , then forget it , you can get some great returns. Risk in Equities are
inversely proportional to the investment tenure. Well that's a different topic to talk about (And i will
post an article on that soon , keeping an eye !!!) . Just for the data , Indian Stock markets have given
return of 17%+ CAGR return in 28 years , from 1979 (inception) to 2007 . We are talking about
Sensex.
So, to be safe we can easily consider 15% CAGR return in Long term (remember LONG TERM).
Coming to the point , It may happen that during initial years ,our investor may face difficulty
investing this much money considering , he may have other important things to take of and later he
may have more responsibilities. But during is career life , his salary will also rise and then 5000 will
be a small percentage of his salary . So assuming he can do the investment we are proposing , what
kind of retirement corpus he can build? Guesses ?
I am sure most of the people will be thinking the following way:
He invested 5000 * 12 in a year , which is 60,000 , and then he does it for 35 yrs , so he invests total
of 60,000 * 35 = Rs 21,00,00 0 (21 lacs) . And he will get some return of 15% every year. if we take
15% of this 21 lacs , it will be around 3,00,00 , so total corpus = 24,000 and also as this is
compounded , his interest will also keep growing at 15% , so it will be more than 24,00,000 , so lets
take it 50,00,000 . Fine ...
Ok , let take 70,00,000 (70 lacs) to be safe. This is a calculation done not exactly by the proper
annuity formula, but a workaround , which a general person can think of.
How much does he generate with this strategy

You can also look at my another article on Early investing and power of Compounding to get an
idea about early investing and how compounding is a great tool. But keep going ahead if you are
enjoying this article.
So the question is What will be his corpus , can it be anywhere near to 70,00,000 . The answer is
that his actual Wealth will be way beyond this amount. After doing the actual calculation i can see
that it will come around 7.43 Crores (Rs 74 million) . But how is it possible , such a big amount !!! .
That's because of compounding power . The interest earns interest and that again earns interest and
this keeps on going. Initially the interest earned is very small , but as the time passes , the amount
keeps growing and the interest also grows at an unbelievable amount. Can you believe that this
investor will earn more than 1.04 Crores only in interest in his 35th year (last year) , more than 4
times the money he actually invested whole his life. That's all possible because of systematic and
consistent investing with out fail and because of Power of compounding.
Thats the reason why one of the greatest Scientist Albert Einstein said "Compound interest is the
8th wonder of the World".
So it that all we are going to talk about today , NO !!! We have more to talk on this topic .
Why does this investor takes pain of investing that 5,000/month all this life. What if he invests just
10 yrs and leaves that money to grow for another 25 yrs. What if this is his plan till retirement.
The sudden thing which will come to your mind is that he invests for 35 yrs and created wealth of
7.43 crores , What if he just invests for 10 yrs .. it should be 10/35 * 7.43 crores = 2.12 Crores . Is
that true ?
Will it actually be 2.12 Crores only. The answer is NO !!! . Then the question is how significantly
different will his Wealth be in this case. The Answer is 5.88 Crores. Yes it will not be significantly
less but just 21% less . So Just by not investing for 71% tenure he actually gets 21% less money ,
thats not a bad deal !!!
But wait , What if he wants that same 7.43 crores at the end , and still wants to invest for 10 yrs. the
obvious way out is to invest more than his regular 5,000 per month . The question now is HOW
MUCH MORE !!!
The answer is Rs 1420 more . Instead of 5,000 , he should invest Rs 6,420 per month for 10 yrs and
then leave the money to grow for rest of 25 yrs. And he can generate wealth of Rs 7.43 Crores.
What we can learn from this
So there is a learning here and a very important thing to note , that more pain we take in the start ,
the better it is . In the initial years of career , its possible for people to invest more , as they have
less responsibilities to handle and less dependents. So it may be feasible for them to invest heavily
in the initial phase of there career, which will benefit them for long term . Now see this person .
Instead of investing 5,000 for whole of 35 yrs , If he chooses to take a little more pain in the initial
10 yrs and manages to invest Rs 1,420 more per month , then he can save investing for 25 yrs of his
life and still can generate same Money.
One great question now !!!
What if our investor is ready to invest his 50% salary (20,000) per month for starting 2 yrs and then
let it grow for rest 33 yrs. He is ready to heavily invest first 2 yrs of his career and do some
sacrifices like not spending too much , no vacation , no fancy spending and all.
Can he still beat the target !!
Will he be able to generate the same Wealth for himself like in earlier examples !!
So here you go !!! , He will not only achieve the target , but exceed it . His Wealth will be 9.24
Crores (Rs. 92.4 million) at the end of 35 yrs. I know that's an Eye-opener . So now you know that
the best time to invest was 5, 10 or 20 yrs ago , but if you missed it , don't worry :) . there is another
golden chance and that's NOW !!! .
please let me know what you feel about this article , that helps me to refine and write better articles
.Thanks , Happy Investing
Note: The formula used for calculation is called Annuity.
http://en.wikipedia.org/wiki/Annuity_(finance_theory) See formula under "Annuity Due" on this
wiki page
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Tuesday, August 26
All eggs in a Single basket
People say its always a wise thing to Diversify your investments. Its gives you better security and
better returns . It minimizes your risk and if one part of your portfolio is doing bad , it will not
affect others and you will benefit from other side.
That is true, But then there are some things to note here .
Ask any investor who Started investing in Equities around 2002 and then sold his holdings at the
end of 2007 . If he sold it just by luck its great , but if he managed to take this decision based on his
study on markets and hard work . Then its worth appreciating.
Diversification is very good, but only when you don't have much time to track whats happening in
things which you have invested in. Its a trade off between return and the time you can contribute
tracking your investments.
What if you can watch your investments closely and take decisions based on any move in markets
or investing world. In that case Diversification is not that important.
One of the greatest investors of all time Warren Buffet also says that Too much diversification is
needs only when investors doesn't know what he is doing. If you are cautious and well aware of
things which affect your investments , then too much diversification is not required. Because you
will take actions fast as an when required.
People who can not give time for there investments on daily or even weekly basis need better
diversification. Read http://finance-and-investing.blogspot.com/2008/04/what-is-diversified-
portfolio-and-how.html
to read more on diversification of portfolio .
Warren Buffet says that he likes to put his eggs in a single basket and watches it closely .
Lets take a Case study.
Ajay and Manish want to invest 1,00,000 each for 1 yr. During this period returns from different
things were
Equities : 25% (for a year , but there were ups and downs in Equities market for whole year)
Gold : 20%
Debt : 9%
Real Estate : -10%
These were returns after an year , so before making investment both of them did not knew that what
will be returns.
Ajay do not have time to track his investments, but Manish has , so Ajay diversifies his investment
like this/
Equities : 50,000
Debt : 10,000
Gold : 10,000
Real Estate : 30,000
His portfolio after 1 yr looked like after getting respective returns
Equities : 62,500
Debt : 10,900
Gold : 12,000
Real Estate : 27,000
Total : 112,400 , which comes to 12.4% before tax.
On the other hand Manish do not diversify , because he has much time to track things closely, He
does some study and understands that Real estate has short term bear market as there is lot of supply
and interest rates are also going up which will affect demand and hence prices. He Invests most of
his money in Equities and some money in Debt and Gold.
His portfolio looks like :
Equities : 80,000
Gold : 15,000
Debt : 5,000
His portfolio after 1 yr:
Equities : 1,15,000 (He sold his equities when he sensed that markets may fall in near term
and then again bought at low levels, because of his good timings he earned more than 40%
return)
Gold : 18,000
Debt : 5,450
His total = 1,38,450

Return = 38.45%
Though this is hypothetical example, it shows that Because Manish kept a close eye on this
investment , he does not need very highly diversified portfolio. He can have more concentration on
something which he can closely track .
Diversification in portfolio is to minimize risk and to get benefit of all the form of investment.
But risk can also be minimized by keeping a close eye on your investments, So the investor can
choose more risky products and hence also increase there chances or earning higher returns.
What is FMP (Fixed Maturity Plans)
FMPs, are the equivalent of a fixed deposit in a bank, with a little difference. The FMP's returns are
only indicated and not 'guaranteed', Since the fund house knows the interest rate that it will earn on
its investments, it can provide 'indicative returns' to investors.FMPs are debt schemes, where the
corpus is invested in fixed-income securities.
Where do FMP's invest ?
FMPs usually invest in certificate of deposits (CDs), commercial papers (CPs), money market
instruments, corporate bonds and sometimes even in bank fixed deposits. Depending on the tenure
of the FMP, the fund manager invests in a combination of the above-mentioned instruments of
similar maturity. Say if the FMP is for a year, then the fund manager invests in paper maturing in
one year.
The expense ratio, generally varies from 0.25 to 1 per cent.
Tenure of FMPs'
The tenure can be of different maturities, from one month to three years. They are closed-ended in
nature, which means that once the NFO (new fund offer) closes, the scheme cannot accept any
further investment.
These FMP NFOs are generally open for 2 to 3 days and are marketed to corporates and well-
heeled, high net-worth individuals. Nevertheless, the minimum investment is usually Rs 5,000 and
so a retail investor can comfortably invest too.
Actual return Vs Indicated Return
The actual return can vary slightly, if at all, from the indicated return. Against that, a bank fixed
deposit exactly prints the amount which is due to you on maturity on the FD receipt. However,
FMPs do earn better returns than fixed deposits of similar tenure.
Have a look at the list of closed ended FMP's , and there returns :
http://www.personalfn.com/research-it/mutual-funds/fundarena/SchTypNat.asp
Tax Implication
Dividend : Tax-free in the hands of the individual investor.
Investment in growth option of the FMP for less than a year : The gains are added to the
investor's income and taxed at the investor's slab rate.
Investment in the growth option of the FMP for over a year : Either 10% capital gains tax
without indexation or 20% with indexation.
What is indexation benefit?

The finance minister has been generous enough to recognise that inflation erodes the real value of
any investment. So every year, he comes out with an inflation index based on the prevailing rate of
inflation. The cost of investment is indexed by multiplying the index of the year of maturity and
divided by the inflation index prevailing on the year of investment. If you have arrived at an
indexed cost, then the long-term capital gain is taxed at 22.44 per cent and if you do not opt for the
indexed cost, then the tax is 11.22 per cent.
To understand more on indexation, Read this
Conclusion
FMP's are investment options for sure if you want to park your money for short term. They are
more tax efficient and give better post-tax returns. Though returns are not 100% guaranteed , they
are almost risk free (remember almost) .
If they really give better than returns then FD's and practically as safe as FD's why don't
people invest in these ?
Ans : No awareness among people and they less risk taking attitude
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Some Equity Recommendations for 2008
Equity Investments
We know Share markets are at there all time lows from 21000 in last 1 yr and incase some one
wants to do Equity investments for long term (5+ yrs) , This is one of the best time. Markets are not
yet out of bear market , but we cant be very sure about anything , markets can go more down , but if
the investment horizon is more than 5 yrs , Investing in equities is a good Idea.
Which companies to invest into ?
This is the question whole world tries to solve and there is no right question , there can be just
analysis and faith . It can still turn out to be bad investment , but there is very less chance for it .
Large Cap :
These are companies which have come down a lot because of the market crash but still have a lot of
value on it .
- Infosys
- DLF
Mid and Small Cap :
Kavveri Telecom (CMP 109) :

Telecom is a space that is buzzing at the moment. Kaveri Telecom is a supplier to all major telecom
giants in the country. It supplies radio frequency, RF, products like filters, couplers, isolators,
repeaters and connectors.
The company has bagged orders for RF products and antennas from Reliance Infocomm, Alcatel
and World Space Corporation, which have to be completed during the next quarter.
http://money.rediff.com/money/jsp/company.jsp?companyCode=15140047
Facor alloys (CMP 10.2) : Recommended from Money Today . Good prospects in future.
Coromandal Fertilizers (CMP 170.75) : This is Infosys of Fertilizers Industry . Recommended at

one of the investors camp from Angel Broking.
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Tuesday, August 19
Introduction to ETF's , what are ETF ?
What are ETFs?
ETFs are a basket of securities that are listed and traded on a recognised stock exchange. Simply
put, they are mutual funds, whose units can be bought and sold on the stock exchange.
Given that an ETF is traded on the stock exchange, its price may not necessarily be the same as the
NAV of the underlying portfolio. In other words, an ETF could have an NAV distinct from its
market price. The reason being that the market price is usually driven by the demand and supply of
units. Hence there is a distinct possibility of an ETFs units trading at a premium or discount to its
NAV.
For Example Nifty BeES , whose underlying is NSE , may not have same price as its underlying ,
For example if Nifty is 4500 , it may be possible that The ETF's value is 4600 or 4400 , depending
on the sentiments and expectations.
GOLD ETF's
We also have gold ETF's , which tracks gold prices , Gold ETF's are one of the best form of Gold
Investments. To know more about it read : http://finance-and-investing.blogspot.com/2008/04/gold-
as-investment.html
ETF's in India
Nifty BeES : Tracking NSE

Quantum Index Fund : Tracking NSE
ICICI SPIcE Fund : Tracking BSE
Bank BeES : Tracking CNX Bank Index
Advantages of ETFs
1. ETFs tend to be more cost-effective vis-a-vis comparable mutual funds. The expense ratio of a
passively managed ETF (tracking a benchmark index) would normally be in the range of 0.50%-
1.00%; for an index fund, it can be as high as 1.50%. And for mutual funds the entry load is 2.25% .
2. ETF's can be bought and sold anytime during the market hours , unlike the Mutual funds NAV at
the end of the Day.
3. Given ETFs are traded on the stock exchange, and can be bought/sold on a real time basis; they
tend to have low tracking error (deviation of ETF's performance from that of the underlying index)
as compared to index funds.
Disadvantages of ETF
1. Investors need to have a demat and a trading account, with a SEBI registered stockbroker, for
investing in ETFs.
Continue Reading
Tuesday, July 29
Cost of Ignorance
There are two kind of losses
1. Loss of money because of wrong decisions
2. Loss of potential profit because of lack of knowledge or having wrong information (i like to
call it loss)
I personally feel and realised most of the losses happen to people because of the second point .
Today after so much of progress, India Personal Finances still has some very immature
characteristics . Indians have one of the highest saving rates in World, but we fail to invest our hard
money in the best way.
What happened because of lack of knowledge
- Every insurance agent told that insurance is important, but not the best product for a person which
suits him/her . They made Insurance policy synonymous with an Investment product to our average
Indian. They packaged those Money back and Endowment policies as must have products for any
married person with family .
- People love numbers , they love to get back 30 lacs back by investing just 10 lacs in a 20 years .
They were never told about inflation , about decreasing purchasing power of money . Hence they
can figure out that 30 lacs after 20 years is less than today's 10 lacs , so actually they are getting
cheated (yes, i like to call that cheated)
- Ask people what is an ETF , FMP , STP or REMF ? Its like asking people what is LIC in 1957-58
or asking some one what is Mutual funds in early 90's . These are important financial products of
future, but people are not able to get benefited because of no knowledge.
- People who invest for long term (5-10+ years) still invest in FD's and bonds , i dont say that its
wrong , but they do it because they don't know that equity is best for long term , they know there is
risk but don't know that it almost no risk if they are investing in Equity for 10+ years.
When it comes to personal finance , people are almost clue less ... Every one wants high
returns but without any risk of loss. Everyone has heard about mutual funds giving 40-50%
CAGR in 2005-06-07 , but not even few know how what role did there excellent management
and stock picks played to generate those returns.
Let me tell you what happens when you dont know a lot of things . See some of Real life
examples :
- One of my classmate has taken ULIP , she pays 25000 per year as premium ... She didn't knew
that there are high allocation charges of 18-20% in initial years... She didn't knew that she can
switch her investments in other safe options in ULIP if markets are down ... On the top of that she is
given an Insurance of 1.25 lacs (i am not sure how it helps with her insurance needs) ...
- One of my friend took LIC policy and pays 60000 per Annam as premium , he heard that it will
save him tax ... he did a great job in choosing the policy , returns are good ... Insurance is fine .. but
when asked if he has any financial dependents , he was clueless... i am not sure why the hell he took
insurance at all then ...
- One of my friend had put 100% of his investments (around 1.4 lacs) in Equity (80% shares and
rest in mutual funds in early 2007 ... when i asked on what basis he has invested all his money in
Equity .. he said he needed good returns because this money will be used for his brother education
in another 2 yrs ... i told him that they are risky and more than his risk appetite ... he ignored it,
saying that his money is almost grown by 70% already and gave him decent returns which he
expected .... then came Jan 2008 crash and now his total investments are worth 80,000-90,000, he
had invested in small -cap companies which gives nightmares to even great investment guru's ...
- lot of my friends have invested in Mutual funds in lump sum in Dec 2007 or Jan 2008 and didn't
take SIP instead of my telling them several time that SIP is the the systematic approach and will
bring down there average cost ... and returns in volatile markets...
All of them have 30-40% loss at the moment , but all those who invested through SIP have loss of
around 10-12% only ... .
- I know many who earn good money, have good risk appetite and long term financial goals to meet
... but they invest in what? NSC and Money back policy of insurance schemes ... Any one who is
out of his/her mind and is totally insane will invest in NSC or KVP in today time ...
They take money back Insurance policy of 3 lacs or 5 lacs for 25 yrs or 30 yrs ... i wonder how will
that 5 lacs help them in 2035 when average monthly expenses of a medium class family will be
around 1 lacs/month ... they pay hefty premium of 30k , 40k or 50k in today's time to get back the
kind of money back after 30 yrs which will just pay there 1 yrs expenses ... They do it because they
cant see not getting money at the end if they survive for all the money they have paid ... they stay
away from Term insurance because they don't get any thing in the last .. so what if for 20 lacs
insurance for 25 yrs they just have to pay 4200 total every year ... they don't get anything at last .. so
better not to take term insurance .. its not giving anything ... that's what they feel ...
Whats the solution ?
It takes Rs 30 to buy "Outlook Money" and Rs 20 for "Money Today" (or read online :
http://moneytoday.digitaltoday.in/index.php?latn=1 ) and 5-6 hrs to read all of it .
Just Rs 100 and some hrs per month can help anyone save thousands or lacs (depending on there
investments) , but it takes discipline and regularity
Continue Reading
Thursday, July 24
How to do PORTFOLIO REBALANCING
Today I am going to talk about some thing which is one of the extremely important tool for risk
management and also something which is encouraged if you want stable returns from your
investments.We are going to talk about the investments in Equity and Debt.
How Rebalancing the portfolio will help in
Risk Management
Stability
Maximize returns
Understand the pros and cons of Equity and Debt
EQUITY
Pros : High returns , Low risk in Long term , High Liquidity
Cons : Risky , not suitable for short term investment
DEBT
Pros : Stable and assured returns , Good investment for short term goals
Cons : Low returns
Equity + Debt : When we combine Equity and Debt , returns are better than Debt but less than
Equity , but at the same time risk is also minimized compared to Equity and Debt , and when we
apply technique of Portfolio Rebalancing ,both risk and returns are well managed.
What is Portfolio Rebalancing ?
The first step to understand is that each person must divide his investments into Equity and Debt in
some ratio , it can be 40:60 , 50:50 , 60: 40 , 75:25 or any ratio , The ratio depends on a persons risk
taking capability and return expectation . For an example let take the ratio to 60:40 , portfolio
rebalancing is nothing but rebalancing your portfolio in same ratio , in case they got changed after
some months or years , as you wish . Preferably the good time is every 6 months or 1 yr , but not 15
days or 1 month.
Why Do we do it ?
You have to understand that each person should concentrate on both returns and risk .
Case 1 : Equity:Debt goes up .

Action : Decrease the Equity part and shift it to Debt so that Equity:Debt is same as earlier.
Reason : As our Equity has gone up , we could loose a lot of it if some thing bad happens , we shift
the excess part to Debt so that it is safe and grows at least.
Case 2: Equity:Debt Goes Down.

Action : Decrease the Debt part and shift it to Equity , so that Equity:Debt is same as earlier.
Reason: As out Equity part has decreased, we make sure that it is increased so that we don't loose
out on any opportunity.
Limitations Lets also talk about the limitations of this strategy, once your equity exposure has gone
up , if you rebalance and bring down your Equity Exposure , you will loose out on the profits if
Equity provides great returns after that , or if your Equity exposure as gone down and you bring up
your exposure from Equity and if Equity does bad , then you will loose more.
Understanding the Game of Equity and Debt
But , we already said in the start that our primary concern is managing risk and profit is secondary .
Let us understand that markets are unexpected and they can go in any direction , so better be safe
than sorry . Many people are confused that if there equity has done very well then shall they book
profits and get out with money and wait for markets to come down so that they can reinvest.
Portfolio rebalancing is the same thing but a little different name and methodology , so once you get
good profit in something which was risky you transfer some part to non-risk Debt.
When we say Equity we mean shares or mutual funds which are related to Stock markets , which
tend to go up and down , if it goes up , there are high chances that it will come down and when it
comes down, its highly probable that it will move up again . Lets us now see the most interesting
part : Examples
Ajay has Rs 1,00,000 to invest and he want to invest it for 5 yrs and the 5 yrs returns are 30% ,
-35% , 40% , 60% and -30% .
Lets look at his money and its growth in 3 different mode

- Only Equity
- Only Debt
- Equity + Debt in some ratio (without Portfolio Rebalancing)
(click on this image to see in large resolution)
We can see here that Debt performed better than Equity , because of the uncertain movement in
returns , also the Equity+Debt performed better than Equity but not Debt .
Let us now see the performance of Equity + Debt (with portfolio rebalance)
So now , every time our Equity and Debt ratio changes , we will rebalance it .
Ratio = 30:70
Investment = 1,00,000
Equity = 30,000
Debt = 70,000
At the end of 1st year (Equity return = 30% , and debt = 9%) :
Equity = 30,000 * (1.3) = 39,000
Debt = 70,000 * (1.09) = 76,300
Total Capital = 39,000 + 76,300 = 1,15,300
Read-Error
Now we will rebalance the portfolio
Equity = 30% of 115300 = 34590

Debt = 70% of 115300 = 80710
Now This is our new Equity and Debt investment
At the end of 2nd year (Equity return = -35% , and debt = 9%) :
Equity = 34590 * (1-.35) = 22484
Debt = 80710 * (1.09) = 87974
Total Capital = 22484 + 87974 = 110457
Now we will rebalance the portfolio
Equity = 30% of 110457 = 33137

Debt = 70% of 110457 = 77320
In this way we keep rebalancing the portfolio and lets see its performance for 5 yrs
(click on this image to see in large resolution)
Here , you can see that The column (E+D with PR) is the our main column which shows the
performance with portfolio rebalancing. Here we have example for two ratio's 30:70 and 70:30 , we
can clearly see that at the end of every year the final corpus for rebalanced portfolio was always
greater than the non-balanced portfolio for both the ratio .
For ratio 30:70

Read-Error
Year 1 : 115300 vs 115300
Year 2 : 110457 vs 108517
Year 3 : 130671 vs 126142
Year 4 : 162424 vs 155595
Year 5 : 158039 vs 147452
For the 70:30 ratio also we can see that rebalanced portfolio outperformed the non-balanced
portfolio.
Also you can see that for most of the years re-balanced portfolio outperformed "Only Equity" and
"Only Debt" except 1st year and 4th year . 1st yr is very easy to understand why it happened and for
4th year , the returns were positive again after 3rd year and we made more profit in "Only Equity"
portfolio because of high concentration on Equity side , but you can see that in 5th year , when there
was a negative return of -35% , then the "Only Equity" fell heavily , but the rebalanced Portfolio
fell very little because we have rebalanced it already and dropped our Equity Exposure to be safe.
Conclusion
So at last the question is what is the ultimate conclusion of all this talk.
Each person has his own Equity and Debt diversification , if the person is high risk taker his Equity
component will be high else it will be less , every time your Equity and Debt component changes
you have to see that it matches your risk profile, if it does not you bring it back to your level . By
bringing Equity exposure from high levels to your level , you are managing the risk you can take
and by increasing the Equity exposure to your level back (in case it went down) , you are making
sure that you don't miss out the chance.
Other reason is that Debt always increases, Every time your money goes up in Equity from your
comfort level , you take that money which is earned by risk and shifting it to a safe place which will
rise for sure though with less speed. Equity is linked with Stock Market and they tend to go up and
down always and you don't know when will it happen . So better manage that risk by Portfolio
Rebalancing.
Please comment of this article to let me know how you feel about this article , Feel free to comment
on anything which you feel is wrong .
Also , the example taken for this article was self made and does not represent any real life situation ,
but for sure its possible and similar scenarios have happened in our Stock Markets
Continue Reading
Tuesday, July 22
Importance of Health Insurance
Health Insurance
What is Health or Medical Insurance ?
The term health insurance is generally used to describe a form of insurance that pays for medical
expenses. It is sometimes used more broadly to include insurance covering disability or long-term
nursing or custodial care needs.
To understand it in simple words , you pay some amount of premium every year to a company and
if some thing happens to you like an accident or if you have to through an operation or a surgery ,
they will pay for it provided , its covered under the Health Insurance.
Why do I need a Health Insurance ? I am a healthy Person , what if nothing happens to me , it

will be total waste of money !!!
This is the most common thing you can hear from a person who wants to avoid Health Insurance,
but its one of the most important part of any ones portfolio or plans. People concentrate on the fact
that what if nothing happens to them , but they fail to imagine the situation when some thing can
happen .
Body is a complex thing , and no one knows what can happen in future,Even things like accidents is
not in your hand , you can take try to avoid it , but what about others , what if some car hits you ?
What if accidentally fell from some place ? It can happen and it happens , and when you have to
pay hefty bill for the treatment , you will realise that its a good idea to get covered by paying a
small premium every year.
Consider this :
In Mumbai , businessman Manas Kumar rushed his wife Anita , 38, to hospital in January this year
because she complained of breathlessness and shooting pain in the chest. Sure enough, it was a
heart attack and Anita had to get an angioplasty done.
The cost of the procedure and stay at Hospital: Rs 1.5 lakh.
But he didn't have to shell out a single coin as he and his wife were covered under The Health
Insurance with limit up to 4 lacs.
Why is Health Insurance more important now compared to earlier days ?
Yes , Health care cost has increased many fold in last 20-30 yrs , Also now more and more younger
people are complaining of Heart and other diseases which were seen in older people earlier.
Because of high stress jobs , bad eating habits and other similar problems , more and more cars in
the city , pollution etc , the chances of getting some disease meeting with an accident etc have
increased compared to earlier days.
More about Health Insurance
- You get a good coverage for diseases and surgeries, so most probably you will be covered for most
of the things.
- You have to pay the premium which you can plan ahead and manage it , else if some thing
unexpected happens , your finance gets in problem and impact your plans
- You get tax deduction under section 80D up to Rs 15,000 (Rs 20,000 for senior citizens)
- You can also go for group insurance , its a ideal thing for a family with spouse , parents , kids ...
With group Insurance every one is covered and you pay less premium , also its more advantageous
because there are many things which are covered in group insurance and not single person health
insurance.
- Make you buy a good cover which suits you , do good research and then choose the product.
Source : Money Today
Some Links :
Advantage Group Insurance :

http://moneytoday.digitaltoday.in/index.php?option=com_content&task=view&id=3623&issueid=4
5
Before you buy your policy :
5
Protect your Health :
5
What cover should you take? :
5
Continue Reading
Friday, July 18
Some Investing Equations
Early Start , Small Investment = Late Start , More Investment
Term Insurance + Mutual Fund Investing > Money back insurance plans
Small investment * High Patience > Big investment * Low Patience (For stock market)
Risk of Loss = Investment / Patience
Probability of your investments to Grow = Knowledge + Patience + Tenure

Continue Reading
Sunday, July 13
Most common Mistakes in Investing world
1. Take inadequate or wrong Life Insurance

This is my favorite, because it is the mistake done by majority of people , Most of the people are
highly under insured. By default, a person must be at least covered for 10-15 times his annual
expenses. So a person who has a yearly expenses of Rs 2.4 lacs (20000 per month) , must have a
cover of around 25-35 lacs at least. But they have insurance like peanuts , 2 lacs , 5 lacs , or 10 lacs.
The biggest reason for this is that they take wrong type of insurance. Most of the people need Term
Insurance , but they end up with Money Back plans.
to read more at :
- http://finance-and-investing.blogspot.com/2008/06/life-insurance-revisited-one-of-my-good.html
- http://finance-and-investing.blogspot.com/2008/02/life-insurancehow-to-go-about-it.html
2. No Diversification in Investments
Most of the people don't pay good attention at diversification. They are either in Debt or Equity.
They must understand that they have to diversify along different types on investments to minimize
risks and also to boost up there returns.
Some people have only FD's, PPF's or NSC in there portfolio, then there are people who hold only
Shares or mutual funds. While the former misses on the returns , the later on is exposed to high risk.
Combining both of them can decrease risk , increase stability of returns.
To read more :
- http://finance-and-investing.blogspot.com/2008/04/what-is-diversified-portfolio-and-how.html -
http://finance-and-investing.blogspot.com/2008/04/gold-as-investment.html
3. Tax investment because of Last month rush and not Financial Planning
Most of the people rush for tax saving only in the month of Feb-March, when they get a letter from
company saying that they need to submit proofs of investments under section 80C , and that's the
reason why people end up taking wrong products, just because they don't have time to plan there
investments. The best thing is to start planning for tax saving right at the start of financial year.
4. Starting Late
This is another big mistake people do , they do not start investing at the right time . A lot of time
people actually can save some money but they feel that its not worth to save a small amount , they
think that when they will be in condition of saving enough per month , that would be the right time
to start, which is far from truth.
Consider this:
Ajay Started his career at 22. He has worked for 8 yrs and now he is 30 yr old , He wants retire at
60 , and can invest for another 30 yrs. He want to generate 4 crores for his retirement. He has 3
choices
1. 6000 every month for next 30 yrs.

2. Invest 10,000 every month for next 7 yrs and then leave it to grow for another 23 yrs.
3. Invest 20,000 per month for 3 yrs and leave it for 27 yrs.
Guess which choice will give him maximum money , The one where he is investing more for less
years !!! . Yes .. The corpus generated is as follows:
1. 4.2 crores
2. 4.59 crores
3. 5.11 crores
So the idea is , start early and invest more ... remember:
Start Early ,Invest less = Start Late , Invest a Lot
Btw ,Had Ajay invested 4,000 per month right from the time when he was 22 , and invest for next 8
yrs and waited for that money to grow till retirement, He can generate more than 6.5 CRORES !!!
That's better than all the 3 choices :)
Also see this example :
Considering return of 15% per Annum from Diversified Equity Mutual fund , If you invest 10,000
per month for 10 yrs and then leave it to grow for 20 yrs , your investments worth will be 4.5 crores
, But before that if you also invested 5,000 for 5 yrs and then 10,000 for 10 yrs , your money will be
7.5 crores.
To read more on related stuff , see :
- http://finance-and-investing.blogspot.com/2008/01/power-of-compounding-and-early.html
- http://finance-and-investing.blogspot.com/2008/06/small-is-big-one-of-my-very-good-friend.html
Continue Reading
Thursday, June 26
How small investment make up fortune !!
Small is Big !!!
After seeing the right hand side

photo , you might think that
what is this Ant photo doing in
this article. Its just to give an
idea about how powerful small
things can become.
In tribal villages of Cameroon ,

when termites become danger
for homes made of Wood, all
their stored food stock
(Millet's) and growing crops,
They bring 500-1000 Red fire
ants , which defeats around
more than 10 million termites
with there power , strategy and unity. because Small is Big !!! . Lets go ahead with our story of the
day after getting a hint on whats in the store for today.
One of my very good friend works in a finance company and earns around Rs 20,000 a month. Just
graduated from college and found a decent job in Delhi , He lives a great life, movies with friends ,
eating out , smoking and boozing , Great Life ... as he calls it.
He can give good competition to any smoker and occasional drinker. Eating out with friends is his
hobby it seems. 2 jeans are must in every quarter because he can not see himself out of fashion!! .
His mobile bill comes more than 2000 because phone is the only way to keep in touch with 10-15
"old" and "true" friends.
He never saved anything until I bombarded him with my lectures on "why he must start investing
for his future" . With great effort he started investing 1500 per month in a Mutual fund i told about.
When i asked him what are his future goals, he said
* Retirement corpus of more than a crore when he is 60

* 40-50 lacs to open a restaurant
* 6-7 Lacs for a vacation in Europe after 10 years with his wife.
He was expecting a big laughter from my side and a disagreement that he was doing nothing but
making unachievable dreams with a salary of Rs 20,000 per month, and a situation where he is
finding saving 1500 per month a tough task.
To his surprise i told him that its not at all a difficult task considering he is ready to take some tough
decisions which will be good for him from every angle.
He thought that my advice and plan for him will be tough , complex , full of jargon's . He thought
he will have to spare a day for understanding what i am going to suggest.
And here was my plan for him:
Quit Smoking and Drinking and cut your eating out and movies by Half, Limit the number of
calls and duration of calls and make sure that he cuts the bills by 50% at least. IS THAT
ALL !!! ?
I said YES , that is all he has to do and he has to do this systematically , with discipline for years.
Because Small is Big !!!
Small things matter most , many things become our regular expenses which we can avoid and
should avoid, and if saved and invested they can take care of our future financial goals.
Retirement : His retirement can be taken care by just investing the money which will be saved by
quiting smoking. He spends more than Rs 60-70 per day or Rs 2000/month . If he invests this
money in a Equity Diversified mutual fund through SIP per month , He can generate a corpus of
- 1.5 crores in 30 years considering a return of 15% CAGR

OR
- 2.9 crores in 30 years considering a return of 18% CAGR
OR
- 3 crores in 35 years considering a return of 15% CAGR
OR
- 7 crores in 35 years considering a return of 18% CAGR
Equities in long run gives excellent returns and 15-18% return can be expected from equities if the
time horizon is 30-35 yrs , especially from Indian Markets.
Plan for Restaurant : His plan for opening a restaurant can easily be achieved by investing the
money he can save by not drinking. He drinks once or twice a week and spends somewhere close to
300-400 a week on drinking.. Lets consider Rs 1000 for a month.
- Rs 1000 invested per month for 30 yrs at 15% return can generate a corpus of 70 Lacs.
For Vacation : He can also save around 1000 from is unnecessary telephone bills and 800-1000
from eating out and invest that money. Considering it around 2000 per month.
- Investment of Rs 2000 per month can generate 5.5 lacs in 10 yrs @15% CAGR
OR
around 7 lacs @18% CAGR.
I would be happy to read your comments or disagreement on any topic. Please leave a comment.
Disclaimer : all the investments are considered to be in Equities for very long term. And equities
have a track record of providing similar returns in long term. Like Sensex gave return of more than
17% CAGR in its 29 yrs. Equities outperform all the other asset class in long term.
Continue Reading
Tuesday, June 24
Importance of Life Insurance in India
One of my good friend had a small argument with me, that she would not invest
in Term Plan of Insurance, because she will not get any "returns" out of it. I believe investing in a
term plan looked a very unprofitable thing to her as she never gets back the money she paid as
"premiums" , if she survives.
Endowment plans looked nice to her, because they provide money if you are dead and even if you
survive. You get back money as the prize for not dying !!!.
With respect to Term insurance , she understood the fact that her family will get the money from
insurance company in case of her death, but she was concentrating on the fact that she would not
get back anything if she survives. What is the return in that case? Nothing !!! , and looked like some
one is fooling you with a product called "Term Insurance" , where you are "investing" premiums to
get nothing at the end.
Let me now tell why this happens and some give you some insight on this matter.
I have already talked earlier in my last post "Life Insurance and how to go about it" , about Term
Insurance . Let me now take more deep dive into it and talk about the reasoning part.
I will first talk about fundamentals of Insurance and then talk about Endowment Policies and why
are they popular, and what people don't realise about them. and how Term insurance is the right
thing for most of the people.
Basics of Life Insurance
What happens in a average family : There is someone who earns and his family comprises of
wife , kids , parents . if not all there is a subset of these family members. The head of the family
earns and his family lives happily. All the expenses are met from the earnings of this main member ,
most of the time the husband. Now consider this person dies in an accident or for that matter
because of any event. What happens? What happens to his family members other than the
psychological trauma . If they don't have money to take care for them selves ,either some one from
family have to take up the job and start working which may not be possible for them, or They have
to decrease their standard of life to maintain the expenses . They are now totally unsecured from
future's point of view. In short they are totally messed up , which should not have happened. I gave
this detailed explanation for the circumstances because i wanted you to understand how bad can
happen and proper measures must be taken care for this.
What is the Solution?
Adequate Coverage !!! , this cant be compromised... You must have a backup plan which can give
your family the same kind of income which confirms that they are not short of money in case the
main earner is gone. If there are some debts like Home Loan , or any other tasks which need money
apart from regular income , the cover must be good enough to cover that too..
For example : Robert has a family expenses of 25,000 per month and there is a Home loan of Rs 25
lacs to be paid within 10 yrs. He is 27 yrs old. He has a wife , 2 kids and parents. All of them are
dependent on him financially. He has investments of 5 lacs. Now in this case. In case he dies , who
will take care of Home loan, how will provide them enough money to live life comfortably. They
need 25k * 12 = 3 lacs per year. which they can get per month if they have 35-40 Lacs of money . If
they put this in bank , they will get Rs 25,000 per month as interest which they can use. Considering
inflation it will not be enough after some years , but lets leave it now for this example. Add home
loan of 25 lacs to this 40 lacs and what we come to know is that this family must be covered with
minimum Rs 65 lacs . Rs 75-80 Lacs is a decent cover for this family. Now if he takes a cover of 80
lacs for his family, from that day he can happily live all his life without any tension , thinking what
will happen if he is not there. He will be attain peace of mind , and not be worried for it. He must
get a lot of internal peace because his Family is protected with a good enough cover to take care for
them . And this is what you get in "return" from Insurance. No monitory return can give you more
satisfaction than peace of mind.
So before doing anything else , his first step is to give adequate cover to his family and that's the
most important responsibility for him as a Husband , Father , Son . He must understand that this is
not an investment for monitory benefit later in his life , but its for his family happiness and future.
One point to remember and not forget is that this is the minimum cover required for family and
anything less than this will be taking risk with family future.
Endowment or Money back Policies
Lets discuss the problems with these plans with respect to the above example.
High Premium : For an 80 lacs cover for say 30 yrs , the premium payable will be At least 2-2.5
lacs/year (this is a conservative figure) . So now premium so high is not possible for anyone like
Robert, so what they do? They go with a kind of cover for which they can pay premium easily , can
then they take cover for 5 lacs , 10 lacs or maximum 20 lacs. And guess who suffers in case of his
death : HIS LOVED ONE's .
It might also happen that they are compromising on a lot of small things which are important at that
moment in time , like buying a bike for son , which they cant buy because of the insurance they
have to premium, or some vacation they could have gone to with family , but compromise on that
because of premium.
Money back at the end of the maturity is like a penny after so many years :
This is some thing most of the people overlook. They just see the numbers , 5 lacs 10 lacs or 20 lacs
. And at the time of taking Insurance it looks good figure to them , because they see numbers , they
dont see its value after many years, They don't consider Inflation into account . In case of above
example , if Robert takes a cover of 15 lacs by money back policy , what happens if he survives the
tenure. He gets 15 lacs at the end , Great Money after 30 yrs . Isn't !!!
Lets see how great this money is? His monthly expenses will grow from 25,000 per month to 1.5
lacs per month (considering inflation of 6%) . Now this money will help him survive for not more
than 10 months ... For so many years he pays high premium each year, just to get back money to
cover his 10 months monthly expenses. ? What the hell !!!
Under Insurance : Because of the fact that people want money back on survival and because of
high premium , people end up taking policy for which they have to pay premium under there budget
, which means less cover.
Without realising the fact that they are highly under insured , the reason for this is that they see
Insurance as investment product and not a protection cover for there family. When they die , there
family get the money from Insurance company , but most of the time its not enough for them and it
erodes very soon.
Term Insurance Policies
Lets discuss the features of Term Policies with respect to above example.
Cheap Premium : The premium is very low for Term insurance Policies. For above example . The
yearly premium for Rs 75 lacs cover for 25 yrs is just Rs 20,000 yearly or just 1,600 per month !!! .
This is in any way affordable for most of the people. Its providing the fundamental requirement of
Good cover and low premium and if you think of returns , Good cover and low premium can
themselves be seen as good enough return. You family protection at low cost is the return you get.
Opportunity to invest rest of the money in High return Investments :
With term Insurance you save a lot of money in premium and now you can invest this money as per
your wish in high return instruments , anyways in Endowment policies you put money for long term
and you get it after so long time. So you can now always put your saved money in things which are
long term investment products and return great returns.
One of those things is Equity Diversified Mutual funds and Direct Equity (depending on persons
ability and interest). In long term Equity Diversified gives fabulous returns (15-20 yrs) and the risk
is minimised because of long term. And if you consider India growth story , it looks great in long
term , hence Equities for long term is the most obvious choice . They will give you return of 15%+
CAGR. (15-20 yrs)
Also it will be flexible , you can not invest for a year or two , if you want to use the money for your
family vacation or some important event.
Conclusion :
Insurance is not an investment product , its a Protection instrument for your Family or any one
your want to cover. There are other products for your investments .
Let your finances be the way you want your life to be , SIMPLE !!!
Don't mix Insurance and Investments. There are products like ULIPS(What are ULIPS) and
Endowment or Money Back policies which never excited me. They complicate things , confuse
people.
They can be good if you understand how to make most out of it, but it require knowledge and
expertise. They offer some flexibilities , but still they are not worth it .
Read more on Term Insurance at my Old article
Disclaimer: All the opinions are personal and shall be taken as knowledge sharing and not as
encouragement.
Continue Reading
Monday, June 16
Basic Introduction to Options (derivatives)
What is an Option?
Option is a contract which gives buyer the right , but not the obligation to buy or sell an underlying
asset at a specific price on or before a certain date. An option has an Expiry date , when its
automatically exercised if it has any intrinsic value left . When you buy an option you have to pay
some premium at the time of buying it.
You can buy or sell Options just like you buy or sell Shares. They are traded in real time. An option
value depends on some underling, which can be a stock or an index or even interest rate, The scope
of this article is restricted to Stock options or index options. An example of index option is Nifty
option , so its underlying is Nifty.
You must know that its a kind of Derivative : Derivatives are any instrument whose value are
derived from some other thing, there value depends on some other thing , like In case of options in
stock market , there value depend on either a stock or an index. Futures are also a kind of
Derivatives, The minimum money required for trade in Futures are much more than Options. You
can trade in options with as little as 2,000 or 3,000 (depending on the option you are trading in).
Types of option: CALL and PUT
CALL option gives you the right to BUY something anytime before expiry at a predetermined price.
The value of the CALL option increases as the Price of the underlying thing increases. The reason
for this is because you can still buy it at the fixed price and the difference is your profit.
PUT option gives you the right to SELL something anytime before expiry at a predetermined price.
The value of PUT option increases as the price of the underlying Decreases. The reason is that you
still have the right to SELL it at fixed price and difference will be your profit.
SOME OPTION TERMS
Exercising an Option : To exercise an Option means to Buy(CALL) or Sell(PUT) the stock on the
expiry date if they are European style else Buy or sell anytime on or before Expiry if they are
American Style.
Expiry Date : The date on which an option will expire and then it will be exercised automatically if
it has any intrinsic value left.
Option Style : Options are of two styles , American style (It can be exercised any time before or on
expiry date) and European Style (exercised on expiry only).
STRIKE Price : Strike rate is Stated Price for which the underlying stock can be purchased or sold
on expiry date.
SPOT Price : The current price of the underlying at a particular time.
LOT : Options are traded in lot size , you can buy 1 lot , 2 lot or any number of lots , and a lot has a
particular number of shares in a single lot , Like Nifty options have lot size of 50.
Premium : Every option has some premium which users have to pay when they purchase an Option
. So for a CALL option, the premium increases when its underlying price increase and decreases
when its underlying price decreased and just opposite of PUT option.
How does an OPTION look like?
Example : CHAFER 90 CE 1.95 , EXPIRY 26th June
CHAFER is the symbol for a stock called CHAMBAL FERTILIZERS , so its a Stock option. The
expiry date of this option is 26th June (current year). 90 CE means its a CALL (C) option ,which is
European Style (E , can be exercised on expiry date only) and the Strike rate is 90 , means that you
have right to buy 1 lot (3450 shares , it depends on the option how many shares a lot has) of
chambal fertilizers shares at Rs 90 on the date of expiry if you want.
What are the Profit and Losses you can make?
The Losses are always limited to the extent of premium you pay (in worst case you do not exercise
the option and you let your premium go) , On the other hand the profits are theoretically unlimited ,
because the option price can keeps increasing when underlying increases or decreases depending on
the type of option.
What is time value and option value ?
The Premium you pay for the option has two components
- Time Value
- Intrinsic value
Premium = Time value + Intrinsic Value
Intrinsic value is the true worth of the option (premium) and Time value is the value which is there
because of the time left for the expiry , because as the Expiry time comes near the risk of loosing
the money is high. So time value keeps decreasing as the expiry comes closer. There fore you will
see that even if STRIKE price is closer to SPOT price , the option price will be very high if the
expiry is after many days .
For CALL option price moves towards 0 if SPOT is less then STRIKE price and expiry comes
closer .
For PUT option price moves towards 0 id SPOT is higher than STRIKE and expiry comes closer.
How does it works

You can either sell it at the profit or still hold it.
Case 2: If market does not fall as per your expectation and still is at 4400 before 10 days of expiry
and the current price of premium is suppose 10 , you can sell it at loss , because you don't want it to
become 0 . Suppose you didn't sell it and market really closed above 4300 on expiry date , then you
loose whole your premium (as SPOT < style="font-weight: bold;">Options used for Hedging
Example 1:
Suppose you buy CHAFER 90 CE EXPIRY 26th June , at a premium of 1.95 (you will have to pay
Rs 1.95 * 3450 to buy this option) , and the SPOT is 78 , means currently price of Chambal
fertilizer share is Rs. 78 , now the price of option will follow the price of the share price. If price
increases to say 85 , then the option may increase to 4.5 (depending on demand and supply) , and at
this point you can sell the option and earn a profit of 4.5-1.95 = 2.55 Per share , profit of 130% .
Now suppose on 26th June (Expiry day) , the price of Chambal Fertilizer is Rs 100 , then the option
will be exercised and who ever has the option at that time will receive the profit of Rs 10 (total 10 *
3450) and the option will not be exercised if the SPOT (current price) of share is below 90 , because
then he will make loss if exercised. (Remember , its not your obligation to exercises the option (you
exercise if its in profit , or you loose your premium)
When do you buy Options
Example 1 :
Suppose Infosys is at 2000 today (1st June) and you are optimistic that its price will go further go
up 10% or 15% (2200 or 2300) . so you buy a CALL option of Infosys which is going to Expire in
approx 1 month , say INFOSYS 2200 CE 10.5 26th June is available and lot size is 1000 , so you
pay 1000 * 10.5 = Rs 10,500 for this option.
Now option price will move the same way as the price of Infosys share. At the end of the Expiry
date if Price of Infosys share will be more than the 2200 then the option will be called "In the
Money" as it will be in profit when exercised Else it will be out of money. So suppose Price of
Infosys share is 2280 at the end of Expiry then you exercise the option and get 1000 * 80 = Rs
80,000 , you can also sell the option anytime before Expiry date if you want to make profit and
convinced that the option price has reached at a good point.
Example 2:
You think that Economy is not doing well and markets as whole will fall because of high inflation
news and political issues (or for any reason) , Suppose Nifty is at 4600 and you believe that it will
fall to 4300 in 2-3 months , Suppose current date is 1st June then you can buy NIFTY PE 4300
AUG , assume premium is Rs 15.
Case 1: If markets fall badly and reaches 4500 in 1 month and the premium increase to 330 . You
can either sell it at the profit or still hold it.
Case 2: If market does not fall as per your expectation and still is at 4400 before 10 days of expiry
and the current price of premium is suppose 10 , you can sell it at loss , because you don't want it to
become 0 . Suppose you didn't sell it and market really closed above 4300 on expiry date , then you
loose whole your premium (as SPOT < style="font-weight: bold;">Options used for Hedging
The main use of Options is for hedging , So if you have bought some 1000 shares of company ABC
at Rs 20 , and think that price may fall to 15 in one month ,you can ABC PE 20 or 19 , and pay a
small premium , Now you are covered for the loss you will make on shares , because you have right
to sell the shares at 20 or 19 (depends on the price you bought the options at).
Some other important points
- Options are very risky and very rewarding , it can give returns of even 100% or 200% in day , or
can give negative returns of 50% or 80% in a day.
- Options are very volatile , so its a good idea to be patient with options.
- Buying Options near its Expiry dates are highly risky , because if they go in wrong direction they
don't have time to come back.
- Its not a good idea to buy a option with strike price very far from the SPOT price unless there is
some good reason for it . Options with more gap between between STRIKE and SPOT have less
premium , but very risky (and can be very rewarding too).
- Its not a good idea to put a Stop loss for your option very near to the current price , because its
highly probable that it will come to Stop loss point and then again bounce back because of there
high volatility.
- Its a good idea to set a target to book profits and get out , rather than trying to get maximum out
of option . If you don't exit at a good point , the chances are that value will again bounce back to
normal price and you will miss a chance. (I sold Chambal Fertilizer CALL 90 option when it price
went up to 6.5 though 8-9 looked achievable target next day , but i thought its a great return and
didn't miss the chance of booking 250% return in 2 days , Buy price was 1.95).
Continue Reading
Sunday, June 15
How to evaluate Returns returns from Investments
Which return is better return, 40% or 30% ?
There is no doubt that 40% is more better return. But is it a right way to judge the return just by
seeing the number. we ignore another important factor called as "RISK" involved. In most of the
cases, people really don't consider evaluating the return in relation to RISK taken to earn that kind
of return.
Which is better?
1. 30% with High risk

2. 20% with moderate risk
In this case , 2nd is better than 1st , as the Return per unit of risk is better than the 1st case.
(considering High risk is 3 units , and moderate is 2 and Low is 1 .
So the actual measure of return should be, Return per unit of risk
REAL RETURN = ABSOLUTE RETURN / RISK TAKEN
There are many balanced mutual funds which have given little less return than diversified equity
funds , and hence can be called as much better investment tolls because there was much lower risk
involved with them , in case there was any fall in markets , these mutual funds would have fallen
less than equity funds. Many mutual funds advertise there products only on the basis of returns and
don't care to tell investors that there is high risk involved with the products.
I you are given 2000 for climbing a tree and 5000 for jumping from one building terrace to another ,
the first choice is much better. In that case you don't go for the second option just looking at 5000.
If today all banks start giving 12-15% assured return on Bank deposits, Equities investments will
fall to great extent , because bank deposits will have much better returns considering the risk
involved.
Continue Reading
Thursday, June 12
Tax Treatment of Equity , Gold and Debt
Tax Treatment
Equity Mutual Funds and Shares
Short Term Capital Gain : If you sell it before 1 yr , the profit is

called STCG and taxed at 15% (revised in 2008-09 budget) ,So if
you make profit of 10,000 on shares or Equity mutual funds , you
pay 1,500 as tax.
Long term Capital Gain : No tax
Other Points
- Dividend income from any kind of mutual funds are not taxable.
Profit from Sale of House or Land
Long term Capital Gain : If you sell it after 3 years , its Long term Capital gain. and its taxed at
20% on profit.
Your profit = Sale Price - (Cost price after adjusting indexation , as per the cost inflation index)
Long term capital gain tax can be saved by investing the capital gains in some other residential
property or in bonds of the Nabard, National Highway Authority of India, Rural Electrification
Corporation of India or SIDBI redeemable after a period of three years.
Long term capital loss can also be set off against any Long Term Capital Gain in next 8yrs.
Short term Capital Gain : If you sell it before 3 yrs, its considered as STCG and added to your
income and taxed accordingly.
Short term capital gains can set off against any LTCG or STCG within 8 yrs.
Other Points
- Capital Gains from Agricultural Lands are not taxable.

- A person holding more than one residential property would be liable to Wealth Tax on the market
value of the second property.
Profit from Jewellery
Short term Capital Gain : 20% tax on the profit if sold before 3 yrs (1 yr in case of GOLD ETF) .
Long term Capital gain : 30% tax on profit if sold after 3 yrs ( 1 yr in case of GOLD ETF)
Don't know what is GOLD ETF ? Read this article , CLICK HERE
Profit from Fixed Deopsits , PPF , NSC
Fixed Deposit : Interest Earned added to the income and taxed accordingly.
PPF : Interest earned not taxable
NSC : Interest earned taxable

Continue Reading
Things you didn't knew
There are many things we hear and believe , but they are little different in reality, which helps if we
know.
- Do you know that When you take an SIP for 6 months or 1 years or for any period , the first
installment (which you make by cheque) is not counted for inside the tenure of your SIP. So if you
take a SIP for 6 months , you make 6 payments other than your initial payment with cheque , so
total is 7 payments.
- The short term capital gain period is 1 yr , means 365 days , but it does not work exactly that way ,
its 12th month other than your buying month. Means if you buy shares or MF on 12th May , 2008
and sell on 13th May , 209 it is still short term capital gain , to call it long term capital gain , it must
see it after 12 months after May , 2008 (your month of buy) . which means you shall sell it on or
after 1st June 2009.
- Suicide is also covered in Life Insurance after 1 yr of policy (atleast its there in my policy with
SBI Life Insurance).
- ULIPS : The deductions availed under sec 80C is taken back if you surrender your ULIP before 5
yrs. If you surrender your policy in 4th or 5th year , then all hte premium paid till date will be added
to your salary for that current year and you will have to pay tax on that too. ULIPS just put
restriction on paying of premium fr the first 3 yrs, but offer tax benefit under 80C if you hold it for
minimum 5 yrs.
- If you repay your housing loan by taking another loan , you can continue to claim tax benefit on
the interest amount paid for new loan under sec 24.
- Tax deduction is available for the prepayment charges paid for the home loan .
- If you face any problem or defecieny in service from banks, you can complain at
www.bankingombudsman.rbi.org.in same as https://reservebank.org.in/BO/compltindex.htm
- Dividend distribution tax is levied on the Dividend which you recieve , and it also affects the fall
in NAV . So NAV falls not just to the extent of the dividend declared , but also by the tax which
mutual fund company pays to govt (12.5% on dividend + 2.5% surcharge also , under sec 115-O )
Continue Reading
Monday, June 2
Some links for Investment and Finance
Some nice Links
General Investing and Finance Knowledge
http://money.rediff.com/money/jsp/markets_home.jsp : This is an excellent place to go and see

overall market overview and to build your portfolio for tracking purpose , excellent User interface
...
http://moneytoday.digitaltoday.in/ : Money Today magazine online and other nice articles
Mutual Fund
http://www.personalfn.com/research-it/mutual-funds/fundarena/CompareFund.asp : Nice place to

get mutual funds info on any criteria
Tax
http://finance-and-investing.blogspot.com/2008/06/tax-treatment-equit-mutual-funds-and.html :
Article written by me
Shares
http://www.equitymaster.com/stockquotes/mkt-stats/ : Nice place to get info on list of shares with

returns on specific criteria , sector specific
http://wealth.moneycontrol.com/showstory.php?id=3231 : A good article on stock market investing.
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:support_and_resistance A
great place to understand what is Resistence and Support (for people who understand stock market
and trading).
Insurance
http://click2insure.in/ : This is a website which gives all the insurance related information. You can
go here and fill in your criteria for any insurance you need like Home , Life , Car Insurance etc ...
You can compare different providers policy and buy them online ...
Fixed maturity plans (FMP) :

http://mutualfundcorner.blogspot.com/2008/08/fmp-or-fd-analysis.html
Some good Blogs
http://www.ranjanblog.com/
http://aimoney.blogspot.com/
http://rasoni.blogspot.com/
Continue Reading
Friday, May 30
Finally many people like me have chance to take take plunge in the rising and booming Real estate
sector , Any one who does not have Crores and Lacs to invest in flats , plots etc , to earn the capital
appreciation will to be able to invest even small amounts like 5,000 or 10,000.
What are Real Estate Mutual Funds ?
They are simple close ended mutual funds which will invest in Real-estate , as simple as that ... The
lock in period will be 3 yrs. These REMF will invest in properties and they will be owners of those
properties , they will also rent out these properties and pass on the rents to the investors as dividend.
And when the mutual fund matures , it sells its holdings and pay us the returns.
REMF's will be listed on Stock Exchanges and they will be traded just like shares.
How do they work exactly ?
Lets take simple example :
You invest Rs 20,000 in some ABC REMF and one unit costs Rs 10 at the start , so you get 2000
units. many people like you will also invest and Suppose the total money they get from investors in
10 crores. Now they invest this money as per the laws defined for them. Suppose they receive 50
lacs as rental income from their investments in a year and the total investments has grown to 12
crores (because of rise in value of properties and other factors).
From this 50 lacs they will distribute dividend and you will recieve your share for 2000 units and
the unit value will be around Rs 12.
Rules and Restrictions for REMF's
- They will have to invest atleast 35% in completed projects , ready flats , shops , houses etc.
- At least 75% should be invested in real estate and related Securities.
- They can partner with real estate developers and invest maximum of 15% in the project (not in
company).
- The NAV will be published on daily basis.
- Most probably they will be in category of debt funds. Tax treatment not clear at the moment.
- Further caps will be imposed on the fund on investments in a single city,

project or securities issued by associate companies and sponsors. Funds are not allowed to invest in
assets owned by the sponsor or the asset management company or any of its associates during the
last five years the aforesaid entities hold tenancy or lease rights.
- The cities for investment by real estate mutual funds would include 35 cities in million-plus urban
agglomerates and 27 under the million-plus category as per the Census 2001
They are still to be launched , keep a watch !!!
Continue Reading
Tuesday, May 27
ULIPS , Who need them , who don't !!!
What are ULIPS ?
ULIPS are investment cum insurance products , You take an insurance worth XYZ amount and then
you pay some premium every year . Out of your premiums some amount is cut as administrative
expenses (Premium allocation) and out of rest the mortality charges are cut for your insurance and
the rest is invested in market linked things.
Some points to note here are :
1. You decide the tenure of your Insurance and the insurance amount , depending on which
mortality charges are cut from your premium you pay.
2. The Premium allocation charges are very high in initial years (especially 1st year) and then
reduces in later years. That's the reason one should be invested in ULIP for long period to get
maximum benefit.
3. The money actually invested is invested as per your directions ... ULIPS have different plans with
different risk-return profile. One plan may have allocation of 80-20 to equity and debt , some other
can have 50-50 and some can have 20-80 and like this.
4. The investor can switch between the investment style as and when he wants (max 4 free switches
in most of the cases , there after some nominal fees).
5. ULIPS have sec 80C benefit, minimum of 3 premiums has to be paid.
6. ULIPS must be considered for long term investment products, so that the high cost in initial years
are averaged out over longer period.
Advantages
- The switching over different styles is not costly , you are not charged when you switch , which
make them flexible.
- ULIPS are innovative products and suits people who want long term wealth creation with some
insurance too..
Disadvantages
- They are not good product for people who require high cover and can pay less cover, because
premium depends on the cover. Higher the cover , higher the premium. So these people must take
term insurance for there life insurance.
- For people investing only for tax benefit must avoid them as they will prove to be costly in short
term because of there high allocation charges.
ULIPS have become very popular in last some years as agents have put there life and souls in
advertising them and making people believe that they are wonderful product. Every product is
wonderful for some or the other. If you can take good risk , need less insurance and closely want to
monitor markets and economy so that you can switch your investments from one plan to other ,
ULIPS are great for you ... else they are not..
Evaluate yourself and dive ;)
Continue Reading
Monday, May 26
Some Calculators
1. Corpus Calculator
What it Does : This Calculator will give let you calculate, how much money you can build up by
investing a fixed amount every year for certain years and then leaving that grown amount for
another some years.
Example : If i invest Rs 50,000 per year for 10 continous years in something which gives a return
of 20% annually and then leave that grown money for another 10 years at return 15% , How much it
will grow upto ?
Investment every year of

for years
at interest/pa
then leave for years
to grow at interest/pa
Calculate
2. Compounded Money Calculator
What it Does : If you invest certain amount one time and let it grow for some years at some interest
rate annually , it will give you the total amount at the end.
Example : If you invest 1,00,000 in a mutual fund for 10 years which gives 30% annual return
(CAGR) , the amount will grow to 13,78,585
One time investment
for years
at interest/pa
Calculate
Portfolio Builder
Investment every year

for years
Risk Tolerance
Involvement
Your Financial markets Knowledge
Calculate
EQUITY
DEBT
GOLD
Hope you like this ...

Continue Reading
Monday, May 19
8 Steps of Financial Planning
What is Financial Planning ? Its a little stupid definition, but its just planning
you finances. You plan your Investments in such a way which meets your
financial goals over time. You must be very disciplined when you do this , you
must know from where you the money is going to come to you and how are you
going to save or invest it , and in future how are you going to achieve your
goals.
Steps in Financial Planning
1. List down your Goals
Prepare a list of financial goals. It can be any requirement like Buying Home , Car , Child
Education , Child Marriage , Vacation , Retirement etc . Along with this there must be a very clear
timeline associated with the Goal. Something like "I want to buy a Car after 3 years , which will
cost 10 Lacs at that time" .
2. List down Your Cash Flows
Prepare the list of your cash flows , cash flow means , how money is coming and going ? Any
money coming in is Cash inflow and Any Expenses is Cash outflow.
It it help you understand how money is coming to you and how is is utilized and how much is
remaining for investing purpose.
Example (yearly) :
Read-Error
By Doing this , you can get very clear of how you are going
to get money and how you are going to spend it, and how
much you are left with to spend.
3. Understand and figure out your Risk-appetite

This is a very important part of financial Planning, Risk appetite is the amount of risk a person can
take while investing. How much money you can afford to loose in order to earn high returns defines
your risk taking ability.
For Example:
if you are ready to loose 60% of your money , your risk appetite is high
If you are ready to loose 25% of your money , your risk appetite is moderate
If not at all ready to loose your money even 1% , you are not at all a risk taker.
It depends on you which category you belong in. it depends on individuals Psychology , Family
Conditions , Attitude etc
Generally people in there early age have more risk appetite as they have less responsibilities and
more freedom to invest . Later when they get married and have responsibilities , they cant risk
money to loose.
4. List down your Financial Goals
At this point , you must be clear with your goals. Financial goals are the list of
things for which you need money and you must have a predefined target time.
Example:
Ajay earns Rs 3,00,000 per year with Rs 1,00,000 left for investment, he has moderate risk appetite.
Goals:
1. Buy a Car within 2 years worth 5 lacs.
2. Vacations in New Zealand worth 8 Lacs within 4 yrs.
3. Buy home worth 40 lacs in 10 years.
Here, Goals are not compatible with amount invested per year and with that kind of risk-appetite.
Therefore , Goals must be realistic and achievable , it must not look totally irrelevant.
5. Make sure your Goals are realistic
At this point you must make sure that your goals do not look unrealistic and unachievable . If they
do , then you must either lower your goals or increase risk appetite or increase the investible amount
per year. This gist of the matter is , Be Realistic !!!
6. Make the Plan
Once you are done with all these steps , Its the time for the planning.
For each goal you must devise a systematic investment plan , by choosing the correct investment
instrument. For example: For your child Education make sure you invest in something which is not
very risky for the time period you are going to invest in that. You can invest in equities for that , as
Equities are not risky in very long term and generate great return.
But for a short term goal like vacation in 1-2 yrs , don't invest in equities , rather go for a debt fund
or a fixed deposit.
In this way , you have to be clear how you are going to invest for achieving your goals.
7. Review and Take advice
Revise your steps and make sure everything is correct. If you are unclear about anything meet some
one who is more knowledgeable than you , See a financial planner or a knowledgeable friend.
8. Take Action and keep Reviewing
The last step is to take Action and start executing the plan with discipline and make sure you change
you goals , risk appetite as time passes and these things change over time.
Continue Reading
Tuesday, May 6
How Inflation Eats away all your savings
Inflation : Its a tool to measure the increase in
prices. If inflation is 6% , it means on an average the
prices have increased by 6% , means anything
which had ciost of Rs 100 last year will cost 106
this year. (Its a average price and not exclusively for
some item)
Considering inflation at 6% , the value of Rs 100

will go down to Rs 53.86 in 10 yrs and to 29.01 in 20 yrs .
Inorder to keep value of you money same , the absolute return earned must be greater then inflation.
Investing in Fixed Deposits just retains its value, but people feel that they get good returns upto 8.5
or 9.0% . There is a tax of 3.5% on your FD returns and then if you adjust inflation of 6% after that
, you will realise that though your Rs 100 has become 109 in a year , you have to pay 3 or 3.5 tax on
that , and then if you have Rs 106 after that, you can purchase the same thing which you could have
purchased in Rs 100 a year ago.
Hence , FD don't give returns in real sense , they just keep your buying power. (considering
inflation + tax = return from FD)
Investing in GOLD is considered the best way to beat inflation. Historically Gold has always
outperformed inflation.The worst thing one can do is to keep Cash in Bank account , which can be
invested . Cash must only be kept to a limit which may fulfill your emergency needs (preferably 3
times of you salary). Any extra amount must be invested.
Continue Reading
Monday, May 5
Avoiding Bad decisions is better than taking good one's
"You only have to do a very few things right in your life, so long as you don’t do too many
things wrong." - Warren Buffet . What should be your motive as an investor? - To earn great return
on your investments with minimum risk , right ? We generally take good amount of risk to get more
return , and many times we get it :) ... It might happen that if we make good profit 2 times , we
make 1 loss also because of the high risk we take. And we think its fair getting the losses , and you
are right if you think so. We cant get profit always , if we take risk we have to accept losses .
But it is a good strategy?
Its questionable , lets explore on this topic today. Lets try to find answer of a question , what is
better ?
1. Taking high risk for high return at the cost of losses some times.
2. Avoid getting losses at the cost of just moderate return and not great return.
Case Study :
- Robert do not understand much about investments, but still invests in high risk high return
instruments like shares and risky mutual funds. He invests Rs 1,00,000 for 5 yrs and gets returns of
50% , -35% , 30% , -20% and 45% for 5 yrs .
- Ajay does not take much risk and invests in something which gives him better returns than
conventional FD's or PPF , but has risk component much lower than Robert case. he earns return of
8% , 17% , -10% , 20% , 15% .
Who has more money at the end ?
Robert : 1,00,000 * (1 + .5) * (1 - .35) * (1+ .3) * (1- .2) * (1 + .45) = Rs 1,47,030
Ajay : 1,00,000 * (1 + .08 ) * (1+ .17) * (1 - .10) * (1.20) * (1 + .15) = Rs 1,56,940
Observation : A fixed deposit will give similar kind of returns 1,00,000 * (1 + 8.5/100) ^ 5 = Rs
1,50,365
Why did this happen ?
- getting 0% profit overall is better than getting X % loss after getting X% profit. if you get 40%
profit and then 40% loss on your investment of 1,00,000 , it will first become 1,40,000 after profit
and then it will become 1,40,000 * (1 - .40) = 1,40,000 * .6 = 84,000 , which is a loss of 16% .
So even if you get 40% profit , a loss of 28.57% is enough to wipe out that whole profit earned.
- If Robert never got those losses and only profit , his final amount would be Rs 2,82,750 . Just loss
of 35% and 20% ate way most of it .
- On the other hand Ajay , who put more efforts on avoiding losses on the cost of getting less return
way rewarded more at the end.
- The return percentage required to cover the losses is more than then percentage loss.
Learning and Moral
What do we learn from this article and the examples above?
The important part of investments are not earning great returns but taking measures to avoid losses.
Earning high returns must be secondary goal , the major goal must be to avoid losses at any cost
though we have to compromise on moderate returns. Because one loss is enough to wipe out major
portion of your profits and the hard work you take to earn great returns.
Continue Reading
Friday, May 2
Why Financial management is Important?
Why do we work? Why do we go daily to work and that too for years ?
Some people love their work and they enjoy what they do and that's a good thing. But as per my
understanding , every one goes to work for there livelihood , because we want to earn and generate
wealth over long term. People want to create wealth , want to buy home and car. they want to go for
vacations , they want to accumulate millions in 10 or 20 years .
People give 100% time to there work , but not even 1% for the motive behind the hard work they
put, which is to generate long term wealth , for buying home , children education
I have seen people who earn well , but fail to invest it properly , in fact in a wrong way , and hence
they loose on that. Whats the use of working so hard if you cant invest it properly to achieve you
goals , Is there any use of your working for so many years, and after all we work for money , and if
we cant manage that money or dont take some serious time to manage it , i personally consider it as
waste.
One of my friend has taken a ULIP policy to save tax without knowing what it is . The insurance he
gets on that ULIP is 1.25 lacs with yearly premium of 25,000 with health insurance premium of
4.5k.
he didn't pay any attention to what he is buying , Does he really need it , how is it going to be
beneficial to him.
One of my other friend took a Endowment policy with insurance of 10 lacs for 15 years with
premium of around 90,000 , when i asked her , how many financial dependents she had , she was
clueless and when i cleared what i am asking she said , "No one" .
People dont take any interest in knowing/learning/asking about financial instruments from anyone
and take idiotic decisions , loosing there hard earned money .It does not take 1hr / week or 4
hrs/month or 1 day / year to take fair decision (if not best) regarding your finances.
If people start giving 1% time to there investments and finances and 99% to there work compared to
100% time to work , they can do much better . A person earning 20,000 per month can generate
more wealth than a person earning 50,000/month , with better investment technique.
"Money does not grow just by investing more , but disciplined and great investing technique."
What do you think is the biggest reason for people in India for not taking financial planning
serious . ?
Difference between Growth and DIvident option in mutual funds

People are confused , really confused ...
There are 3 Mutual Funds Options (Growth , dividend , dividend Re-investment) and we will
discuss those today. There are lot of misconceptions and myths which add to confusion in the world
of mutual funds and agents use it against investors and make them fool ...
Different Options in Mutual funds
1. Growth Option
Under this option you get the units at the time of buying and you have same number of units till the
end. The NAV keeps changing according to performance
2. Dividend Option
This is the most misunderstood option in mutual fund.
Dividend option in mutual funds means that you will be repaid some amount of your investments
every year and it will be called as "dividends" , this helps those people who want some regular
returns every year from their investments in mutual funds.
People think that dividend is something extra which they receive other then their investments which
is not true :) , Dividend is declared per unit basis, if you have 100 units and MF declares dividend
Rs 4 per unit , you receive Rs 400 , and you think that your earlier investments have the same worth
, where as it decreases by the amount you receive as dividend , because its paid out of your
investments only . The NAV of the unit goes down after paying dividend proportionately.
Example : let assume you have Rs 1 lac of units in a mutual fund with NAV of Rs 100 , you will
have 1000 units . dividend declared : Rs 20 per unit
How it works : You will get Rs 20,000 and then your remaining worth will be Rs 80,000 and as you
have 1000 units , the NAV will go down to 80 . So your actual worth is same as Rs 1 lac . The only
advantage to you is that you are getting liquidity with your investments and getting regular cash
every year, unlike growth option.
Agents generally lure investors to invest in NFO's claiming that if company declared dividends,
they will get more dividend compared to existing funds as they will have more units, Which is
nothing but a idiotic myth :)
3. Dividend reinvestment
In this option ,the step is as follows
- Re-adjust the NAV assuming that dividend is paid.
- after that buy more units of same MF with that dividend money and allot it. So ultimately the
number of units increases and the NAV goes down. In this case dividend money is not given to the
investor but re-invested in the same scheme.
Example : let assume you have Rs 1 lac of units in a mutual fund with NAV of Rs 100 , you will
have 1000 units . dividend declared : Rs 20 per unit
How it works : Your dividend will be Rs 20,000 , and NAV will come down to Rs 80 like it
happened above. Now this 20,000 will be re-invested in same mutual fund and you will get extra
250 units (20000/80).
Your Total units = 1250

NAV = Rs 80
Worth = 1250 * 80 = 1,00,000
Which one is better Dividend or Growth ?
It depends . There is no thumb rule to decide which one is better then the other, it depends on the
situation and your needs.
When is Growth Option better ?
If you are a person who earns well and does not need regular money back from your investment and
if you are looking at long term investments then growth option is best for you because your
investments gets compounded , which does not happen on the dividend part in dividend option as it
goes back to investor and its never part of future growth .
When is Dividend Option better ?
If you are a person who need regular money every year from investments for some purpose, It may
happen that you have more responsibilities and more dependents and if any small money which you
get extra every year is helpful to you , in that case you can go for dividend option.
Conclusion : Different options in mutual funds are for different types of investors , before investing
just see what do you want from your investments and take appropriate option.
Returns in long term from Dividend and Growth : Below is an example which shows the returns
from similar funds with growth and dividend options and there performance over 3 years.
Continue Reading
Monday, April 21
All about SIP , systemetic Investment plans
SIP
Read-Error is a
way of investing in Mutual

Funds where you pay a fixed
amount each month for a fixed
tenure.
Like If you take an SIP of 5,000

for 1 year on Jan 1 , 2008 , you
will be paying Rs 5,000 per
month for next 12 months.
Please understand that its not a financial instrument , but a way of investing in mutual funds , some
people confuse SIP with PPF ,NSC , and mutual funds , they think they can invest in "SIP" , its just
a mode of investment.
SIP CALCULATOR : http://contentlinks.asiancerc.com/mt/tools.asp?pageSubType=toolsSIP
When to invest in mutual funds through SIP ?
Investment through SIP must be done only when markets are uncertain or very volatile , when you
dont know which side they are headed to ..
Read Magic of SIP
SIP will be beneficial only if markets really are volatile or going down after you invested. If it
happens that markets turns bullish and starts going up , in that case SIP will not be beneficial and
will give less return compared to lumpsum investment in start.
SIP is a simple concept and hence very powerful , lets see some reasons why its worth investing
through SIP
Reasons to invest through SIP in Mutual Funds?
More convenient for average person on wallet
Its more easy for a person to invest in small amount every month , rather than a lump sum amount.
Investing through SIP is lighter on wallet. Its easy to pay Rs 5,000 per month for 1 years , rather
than investing 60,000 at a same time.
It brings your average cost price for unit down (in volatile market)
The biggest advantage of SIP is this part , There is a concept of rupee-cost averaging, In SIP you
buy less when market and NAV are UP and you get more units when they are low. When this
happens , the average cost of per unit is lower.
Lets take an example of "Ajay" who invests 1,000 per month through SIP starting Jan 2 , 2007.
Read-Error
How SIP helps in this case ? See the result below :

Read-Error
ADVANTAGES
- Makes you a disciplined Investor
The other advantage of SIP is that it makes you a disciplined investor,. Once you start SIP , each
month you have to contribute certain money in mutual fund and that habit is cultivated.
DISADVANTAGES :
- It will not work in bullish markets or when market goes up over time
When market goes up and keeps growing over time , the units bought every time will be at high
price then the previous one, which will ultimately bring the average cost up , compared to the lump
sum investment at the start.
- In case of tax saving fund , the lock in period gets extended for every investment.
Tax saver mutual funds lock your money for 3 yrs, When you invest through SIP , each of your
investment is locked separately for 3 yrs from the date of investment. So if you pay your first
installment on Jan 2007 , it will locked till Jan 1 2010 , then the instalment paid on Feb 1 , 2007 will
be locked till Feb 1 , 2010 and like this each instalment will be locked with the gap of 1 month .
• In which type of markets do you think SIP will not work ?
Continue Reading
Thursday, April 17
What is Diversified Portfolio and how to create it ?
Today we will discuss How to build a Diversified Portfolio and hence and strong portfolio and why
we need it ? If you don't understand a lot of terms and terminologies related to investing and finance
, have a quick look at terms and terminologies page to quickly understand the terms. it will take 5
minutes.
What is Portfolio ?
Your investments all together is your portfolio , as simple as that .So , if i have
• 10,000 in shares
• 20,000 in real estate
• 1000 cash
that's my portfolio
What is an Asset Class ?
An Asset class is something where we can invest and build assets. If i buy a Home or land , i build
an asset in real estate category , if i buy anything in shares or mutual funds (equity) , i create assets
in Equity asset class .
(Dont know what is mutual fund , click here)
They are just categories . Following are some asset classes:

1. Equity : Shares , Equity Mutual funds , Derivatives (Future and Options)
2. Debt : Fixed Deposits , PPF , NSC , FMP (How to find the best Fixed Deposit)
3. Real Estate : Land , Flat , Commercial Plots , Home
4. Commodities : trading in commodities , leave it if you don't understand
5. Gold or Silver : Recently these are also counted as Asset classes
6. Cash : that's the hottest thing :)
Now what is a Diversified Portfolio ?
As the heading says, Diversified portfolio is a portfolio which is not heavily invested in some asset
class , but has balance over every asset class , There is no thumb rule that what percentage of your
portfolio shall go in which asset class. It depends purely on :
• What is your Risk appetite
• Goals (short , medium and long term)
• Economy and Political atmosphere
• Current market over long term
Why Diversification ?
When you diversify you investments over different asset class , not only your money gets
diversified , but also risk , so if some particular asset class is not performing well , it will affect only
that part of your portfolio and not whole of it.
Obviously it also effects the returns , you returns are collection of returns from all the asset class ,
so even if some asset class did not perform over a period , it doesn't affect you hardly.
Every asset class provides some thing like :

• Equity : Very High returns , Volatility , Liquidity
• Debt : Low but Secure returns , No liquidity
• Real Estate : Good returns , stability , No liquidity
• Gold : Hedge against inflation , Stability
• Cash : High liquidity
Every asset class provides some thing good and some thing bad . Diversification helps in getting all
benefits in some or the other way and being at the centre of all. With diversified portfolio you get all
the elements of : Good returns , Stable returns , Liquidity , Security
Lets see some examples :

1. Anyone who was heavily invested in "Debt" around 2003-2004 didn't get high returns from the
zooming stock markets (equity) for 4-5 yrs
2. Anyone who was heavily invested in Equity around start of 2008 , saw his investments go down
by 40-60% .
3. Anyone who is totally invested in Debt cant get instant money if required, either he has to take
some loan over those investments or break his PF or FD etc.
That does not mean , non-diversification always hits ...
1. Anyone heavily invested in Equities before the bull run of stock markets in 2003 onwards made
fortunes (but at their risk) .
2. And people who had most of there money in GOLD in 2007 got the highest returns compared to
any asset class.
3. It totally depends on person to person. I hope this point is cleared. Also , inside every asset class ,
another level of diversification is important. Like in Equity there are different categories like Large
Cap , Mid Cap , Small Cap . Read Magic of SIP
In Mutual funds there are sectoral funds , equity diversified , balanced funds , debt funds , liquid
funds etc . Another level of diversification is also necessary to achieve high level of diversification .
Case study
Ajay a software engineer earning Rs 35,000 monthly (post tax) with a Family of 3 (1 wife and 1
kid) has following portfolio
Expenditure : 20,000 per month
Portfolio :
• Tax savers Mutual funds : 1 lacs (locked for another 2 years)
• Real Estate (a land in his native place , pahari in UP) : 3.75 lacs
• Fixed Deposits (for 5 years) : 2 lacs
• PPF : 3 lacs
• Cash (in bank) : Rs 25,000
• Insurance Payout : He pay 55,000 per year as life insurance premium for an endowment
policy , for which he is insured for 12.5 lacs for 20 years . he started this policy before 4
years.
His Future plans
1. His goals are to buy a home in another 5 years for which he need down payment of 3-4 lacs
2. Want to save 10 lacs for his son education in 10 years
3. He want to retire early with monthly income of 45,000 at least . Read 6 steps of retirement
Planning .
This Portfolio looks like diversified, and yes it is, but not in a well mannered way.
The asset wise allocation is
* Equity : 10%
* Debt : 37.5%
* Real Estate : 50%
* Cash : 2.5%
His overall Portfolio Shortcoming

• His exposure to different asset class is not well balanced according to his over all situation
• His Life insurance is very less and and not at all enough . For this he is paying a hefty
amount every year which adds a lot to his burden.
• His Equity Allocation needs to go up
• His Debt allocation needs to go down
• His cash needs to go up for liquidity. none of his investments in any asset class provide
liquidity or near term liquidity , If he needs 1 lacs suddenly he cant get it , or will get it after
breaking his FD.
Read a Nice article on Power of Asset Allocation .
Suggestions :
The first thing he must do is to restructure his portfolio.

• He shall surrender his existing Endowment policy and take a Term Insurance 35-40 lacs for
20 years for which he will pay around 13000-14000 per Annam. he will save surplus of
40,000 per year because of this.Also when he surrenders the policy he will get back around
Rs. 2.4 lacs back.
• He must invest more in Shares and Mutual funds (as his risk taking capabilities is more
because of his less age and less dependents)
• The land in his native place is not appreciating in value much faster unlike other places like
other real-estate hot spots. He shall consider buying his home sooner and sell his land at
native place. if he sells his land he will get around 4 lacs.
• With the money he gets from surrendering policy (2.4 lacs) and selling his land (4 lacs) , he
will get around 6.4 lacs and he should utilize this money as the down payment for new flat
and rest he can take as Home Loan. (Want to know how EMI on home loan is calculated ?
click here ) He can do it later if he wants (when he can afford the monthly EMI)
• He shall consider increasing his Cash to a level which can meet his contingent needs if any
arised. He shall have at least 2 to 3 times of his monthly expenses as contingency fund ,
which is totally liquid.
• Also apart from Cash and investing in Tax saver mutual funds , he shall consider investing in
some non-tax saver mutual funds which also gives him near liquidity.
• He may leave the debt investments as it is . If he wants he can break his FD in case he is
going for the Home loan , he can increase the down payment part from this money.
• In case he is going to take home loan after 1 year , he can also take some loan on his PPF , at
least for some part he will pay less interest than the home loan.
• Also he shall invest some money in GOLD , to give more stability and security to his
portfolio.
• At last he shall consider taking a Family floater Health Insurance plan , which helps him to
secure his Family from and health problems or illness.
Recommended Portfolio
Apart from His Home (considering he takes Home soon)
• Equity 65% ( Direct shares 20% , Equity Funds 60% , Balanced Funds 20%)
• Debt 20%
• Gold (ETF) 10%
• Cash 5%
Conclusion
Diversification does not say that you have to invest in some money in every asset class for sure , the
idea behind it is just that the risk is minimized by diversification and the portfolio is more
stable.Happy diversifying :) and Leave comments ...
Continue Reading
Sunday, April 13
All about TAX in 2008
There is just one word which can describe year 2008-2009 tax structure ... GREAT. This article will
tell you everything about tax in 2008 . Following things will be discussed :
1. Tax Slab in 2008 for salaried employees

2. How much will you save ?
The exemption limit for year 2008 is 1.5 lacs , which means that if your taxable income is upto 1.5
lacs , you dont pay any tax .
What is Taxable Income ?
The pay which you get has many components , like HRA , conveyance allowance and others.
Out of this income some things are deductible on your hand and after deducting you arrive at a
amount called Taxable income , on which you have to pay tax.
Taxable Income = Your Gross Salary - (HRA) - (Investments under Sec 80 C) - (Conveyance
allowance) - (Health insurance Premium , Sec 80D) and some more things which you may claim.
The slab for year 2008-09 is as follows:
Exemption Limit for Men = 1.5 lacs

Exemption Limit for Women = 1.8 lacs
Exemption limit for Senior Citizens = 2.25 lacs
Read-Error
3% Education cess also on the tax amount after tax and surcharge (if any)
What is surcharge?
* If salary is above 10 lacs , 10% surcharge will also be applicable.
Example : Ajay earns Rs 14 lacs
Total Income (14 lac ) - amount under sec 80c (1 lac) - HRA (Rs 70k , for example) - Conveyence
allowance (9,600 , 800*12) - health Insurance (10k , max 15k) under sec 80D (its seperate from sec
80C) = 14 lacs - 1,94,800 = 12,05,200
Now lets do tax calculation :
0 - 1.5 : 0
1.5 - 3 : 15,000 (@ 10%)
3 - 5 : 40,000 (@ 20%)
5+ : 2,11,560 (@ 30%)
= 2,66,560 + surcharge (10% of this amount)

= 2,66,560 + 26,656
= 2,93,216
Now education cess will also be applied : @ 3% , so 2,93,216 + 3%

= 2,93,216 + 8796.48
= Rs. 302012.48
This is the total tax payable.
Note : education cess is charged after surcharge is applied and not before.
Continue Reading
Friday, April 11
4 reasons to invest in GOLD
There are many reasons why we shall look beyond conventional Fixed Deposits , PPF and high
growth Shares and Mutual Funds. Gold is always seen as a thing to own and only for consuming as
ornaments , for jewellery but seldom as an investment purpose , in fact silver also for that matter.
But now there are many reasons to invest in GOLD , just like people invest in Shares , Mutual funds
, PPF , NSC and Fixed Deposits.
Reason 1: Stock Markets are becoming risky and uncertain
Stock Markets are in Bad shape for atleast short or medium term atleast. No one knows whats going
to happen in 6 months or 1 year or 2 year. Long term may be good but still medium term
perspective is not very clear.
Not only Stock Market , but whole of financial Markets are uncertain , if you consider problems
like Inflation , dip in projected GDP growth of economy etc .
Reason 2 : It acts like hedge towards Inflation and Foreign currency
As Indian currency is gaining against Dollar and other currencies , Rupees is set to become more
strong in coming years. Gold has inverse relation with Dollar.
http://news.goldseek.com/SpeculativeInvestor/1171382460.php
In future as Dollar weakens , GOLD will become more strong.
Reason 3 : Its a relatively less known investment option and has high potential in future
Looking at history , and every time we see that a investment option starts becoming popular and by
the time most people know about it , it already gives most of its returns and becomes a talk of past.
GOLD has started gaining attention as investment option and becoming popular and still in its
middle stage , if not early.
So its the time to ride the boat.
Reason 4 : Future High Demand and less supply
In future gold is going to in high demand and its already in less supply , so according to the
demand-supply logic the prices are bound to go up in near future. Indians account for 23% of
world's total annual consumption and overall global demand has increased 15% Year on year
Gold demands were on all time high in 2007 and expected to increase in coming years due to
mismatch in demand and supply.
Reason 5 : More Diversification
Before some time back , diversification of portfolio was limited to Equity , Debt and Real Estate
and some cash , so that your risk is spread across different class of assets. GOLD has evolved as
another asset class and not it help in diversifying your portfolio.
Whats the Best way to invest in GOLD ?
It really depends on person and situation and the motive of investment.
One can invest in GOLD directly by buying gold in physical form like jewellery , gold biscuits ,
gold bars. It all of these require some maintenance and some problems are associated with investing
in physical format like :
- No surety of purity , you can be sure that you got the same purity as promised
- Preserving cost : if you have physical gold , you will invest in bank locker etc
for secure storage.
- Risk of theft , mishandling etc
To avoid all these problems , we have an alternate way of investing in GOLD , called Gold ETF's ,
read it next ...
Read about Gold Funds (Click here)
What are GOLD ETF's
Gold ETF's are special type of ETF's (Exchange traded funds) , ETF are not covered here , but view
them as open ended mutual funds , which are traded on stock exchange just like normal stocks. You
can buy units on Stock Exchange , each unit is equivalent to one gram of gold or .5 grams of gold.
So if you want to invest in 100 grams of gold , you can buy 100 units of a GOLD ETF from stock
exchange , you can buy it just like any share from stock exchange.
gold ETF's price changes real time , as they are traded on stock exchange like shares.
In India currently there are Five Gold ETF's.
- Benchmark Gold ETF (Stock Code on NSE/BSE : GOLDEX ) (the first one in country)
- UTI Gold ETF (Stock Code on NSE/BSE : UTGOLD )
and other 3 from Reliance , Quantum and Kotak listed on NSE.
Gold has returned 38% in last 1 year and 170% in last 5 years (absolute). And it looks great in
future.
You can easily enter and exit from GOLD ETF's unlike physical gold.
How investing in Gold ETF's scores over Physical gold like Bars or jewellery ?
Comparison of GOLD ETF's vs GOLD BARS vs Jewellery
Consider you are investing Rs 1 Lacs in Gold , there are 4 parameters to judge.
If you purchase Them
- Jewellery : Making charges of 15-20%

- Gold Bar : 10% to 20% mark up charges by banks.
- Gold ETF: 1.5-2.5% entry load
If you Sell
- Jewellery : 10% - 20% is lost due to Purity issues

- Gold Bar : Banks do not take it back , so premium paid at time of purchase is written off.
- Gold ETF : Brokerage of 1% or even less
Maintenance Charges
- Jewellery : Insurance charges and locker charges (if you put it in locker)
- Gold Bar : Insurance charges and locker charges (if you put it in locker)
- Gold ETF : 1.5 - 2.5 %
Tax Implications
- Jewellery : Long term capital gain of 20% , but after 3 years. 1% wealth tax
- Gold Bar : Long term capital gain of 20% , but after 3 years. 1% wealth tax
- Gold ETF : Long term Capital tax of 20% , but after 1 year. No wealth tax
Note : Gold is taxed at 30% if held for less than 1 year in any format.
So on all these 4 scenarios , GOLD ETF's score heavily over other means of investing in
GOLD.
Read about Gold Funds , another article on Gold Investing , Click Here
To read more on why gold is a must buy now and how silver is much better than gold , read
http://silverstockreport.com/
Continue Reading
Thursday, April 10
Learn about your EPF and PPF in detail
Lets see each of PPF and EPF in detail . Both are providend fund benefits for retirement .
Employee Provident Fund (EPF)
The Employee Provident Fund, is a retirement benefit scheme that is available to salaried
employees.Under this scheme, a stipulated amount (currently 12%) is deducted from the employee's
salary and contributed towards the fund. This amount is decided by the government.The employer
also contributes an equal amount to the fund.
However, an employee can contribute more than the stipulated amount if the scheme allows for it.
So, let's say the employee decides 15% must be deducted towards the EPF. In this case, the
employer is not obligated to pay any contribution over and above the amount as stipulated, which is
12%.
Other Points :
- Return on Investment: 8.5%
- If you urgently need the money, you can take a loan on your PF. You can also make a
premature withdrawal on the condition that you are withdrawing the money for your
daughter's wedding (not son or not even yours) or you are buying a home.
- tax benefit under Sec 80C.
- The amount if withdrawn after completing 5 years in job will not be taxable.
Public Provident Fund (PPF)
The Public Provident Fund has been established by the central government. You can voluntarily
decide to open one. You need not be a salaried individual, you could be a consultant, a freelancer or
even working on a contract basis. You can also open this account if you are not earning.Any
individual can open a PPF account in any nationalised bank or its branches that handle PPF
accounts. You can also open it at the head post office or certain select post offices.
You can take a loan on the PPF from the third year of opening your account to the sixth year. So, if
the account is opened during the financial year 1997-98, the first loan can be taken during financial
year 1999-2000 (the financial year is from April 1 to March 31).
The loan amount will be up to a maximum of 25% of the balance in your account at the end of the
first financial year. In this case, it will be March 31, 1998.
You can make withdrawals during any one year from the sixth year. You are allowed to withdraw
50% of the balance at the end of the fourth year, preceding the year in which the amount is
withdrawn or the end of the preceding year whichever is lower.
For example, if the account was opened in 1993-94 and the first withdrawal was made during 1999-
2000, the amount you can withdraw is limited to 50% of the balance as on March 31, 1996, or
March 31, 1999, whichever is lower.
If the account extended beyond 15 years, partial withdrawal -- up to 60% of the balance you have at
the end of the 15 year period -- is allowed.
Other Points:
- The minimum amount to be deposited in this account is Rs 500 per year. The
maximum amount you can deposit every year is Rs 70,000.
- Return on investment : 8%
- tax benefit under Sec 80C , no tax on the maturity and no tax on interest earned.
- If you’re involved in a legal dispute, a court cannot attach or question the money in
your PPF account.
Who should invest in PPF ?
Its mainly for people who are very conservative and cant take risk to great extent.
Any one who wants to invest for long term in some secure saving instrument must invest in PPF. To
achieve long term goals there are many option like:
- Mutual Funds (Equity)
- Shares (Equity )
- PPF (Debt)
- Fixed Deposit (Debt)
- NSC (Debt)
- Others
Out of these , all under Debt catagory are safe. PPF is the most recommended if the investment
horizon is very long like 15+ years.
Because of compounding you money will grow to a big amount.
Continue Reading
Friday, February 29
Finance Presentation , Excel Sheets and Ebooks Download
This is Download Page , There are Presentations , Ebooks , Excel sheets and other Reading
Materials . Go ahead and download them and use them .
PRESENTATIONS
• Finance Presentation
• Personal Finance for Starters
• Life and Health Insurance
• Investments and Growing Wealth
• Important Calculations in Personal Finance
SHORT EBOOKS and READING MATERIAL
• Download this Blog in Single PDF [All articles till 22'08/09]

• A small Ebook on ULIP's FAQ
• All about ULIPS
• Ebook on "How a newcomer should Start in Stock Market"
• Ebook on "Basics of Technical Analysis"
• A Short eBook on Technical Indicators
• A talk by Breet Steenbargar on Trading
EXCEL SHEETS
• Monthly Contribution Calculator
• Compounding Calculator
• Stock Portfolio Management Excel Sheet
• Retirement Calculator
Continue Reading
Monday, February 25
All Tax Saving Mutual funds are not same !!!
All Tax Saving Mutual funds are not same !!!
This post targets those who already know ELSS or Taxsaver mutual funds. But many people do not
know that not all ELSS are same.
They might know that Tax saver funds are Diversified equity Mutual funds , yes they are !!! . But
still they can be differentiated in the catagory of :
- Aggressive Tax savers : These are the ELSS who bet more on small cap and mid cap stock, and
hence have more return potential.
- Safe and balanced Tax savers : they heavely bet on Large Companies , which are more safe then
mid cap or small cap stocks.
A person who want to invest in ELSS shall not put money in just 1 ELSS , but 2-3 different ELSS.
Again Putting all money in same type of ELSS is not good , as they will be of same portfolio type
( i mean more stake in Huge companies and less in Mid and Small cap)
Rather , they shall put money in ELSS both types.
Let us see some top performing Mutual funds and there catagory:
Aggressive ELSS:
1. Birla Equity Plan - D

2. DSPML Tax Saver -G
3. Principal Personal Tax Saver
Safe ELSS
1. HDFC Taxsaver
2. HDFC Long Term Advantage
3. SBI Magnum Taxgain
source : http://www.valueresearchonline.com
Continue Reading
Friday, February 22
Life Insurance...How to go about it .
Life Insurance is nothing but the insurance covered for
your Life. In case of death the sum assured is given to the
nominees.Unfortunately in India, people see Life
Insurance as Investment Product and not as an Insurance
Product.
They don't understand that insurance gives financial

security to their dependents in case of there death, rather
they see it as the last benefit provided to them and the
most important thing for them it that they get the money back in case they survive the tenure of
Insurance.
People are ready to pay higher premiums to Insurance Companies for a policy which gives them
death and survival benefits like Endowment plans and Money back plans.
People are not ready to pay premiums if they don't get any thing in case of surviving the tenure and
that's the reason why Term Insurance never became popular in this Country. That's also the reason
why many people are under-insured because of the high premium, they cant pay for higher insured
sum.
Many People even don't know that Term Insurance exists, the reason for that is their insurance agent
never told them about it, because they get a very little commission on it unlike Endowment Plans.
Life Insurance is to provide a good enough cover to dependents in case of death. This is the only
target of life insurance.
Case Study
-------------------
Rajesh is a salaried person with salary around Rs 20000 per month , He has 2-3 dependents like his
parents and wife.
Rajesh can afford maximum of 10% of his salary as insurance premium outgo in a year.
So Rajesh takes Endowment plan of Rs 10 lacs for 20 years in 2005.
- If he dies between 2005 - 2025 , his family will get Rs 10 lacs.

- If he survives till 2025. He will get Rs 10 lacs .
- Monthly premium = Rs 2,000
- Total premium in an year is 24,000
- Cover : Rs 10 lac
There are some points to consider here.
- He is highly Uninsured , Rs 10 lacs is very less amount to get covered . He needs at

least Rs 25-30 lacs as cover , as he have financial dependents.
- The premium of Rs 2,000 monthly or Rs 24,000 yearly is not a small amount at the
moment and adds to his financial burden a lot.
- In case of survival he gets Rs 10 lacs , but in 2025 . Considering inflation at an

average of 5% , the current value of that amount will be Rs 3.5 lacs. Which means in
2025 the value of that 10 lacs will be very less and considering that after 20 years rajesh
will be earning very good money and Rs 10 lac at that time will be a small amount for
him , may be less than what he may be earning in a year. It means It does not benefit
him a lot after 20 years.
He could have solved all of his problem if he would have taken a term insurance instead of
Endowment Plan ...
If he takes Term Plan , he can get a lot more cover in very less premium , and can invest the surplus
money in much better investment avenues like Diversified Mutual funds or Equities.
He can take a term plan of Rs 30 lacs for 30 years , with an annual premium of 9,000 per year .
(including service tax , approx).
So instead of Rs 24000 in a year he can just pay 9,000 can be covered for 30 lacs and that too for 30
years.
He can invest the extra 15,000 (24000 - 9000) in diversified mutual funds with good track record
for next 20 years through SIP every month or yearly lump sum .
Equities in long term outperform all the investment options , In last 10 years HDFC taxsaver has
given around 43% CAGR ... that's the magical returns one can expect ... SBI MAGNUM Taxgain
has done much better ...
Let be on the safe side and be pessimistic and consider returns around 18-20% CAGR for next 20
years..
The investment will be worth

• Rs 16 lacs at 15% return
• Rs 94 lacs at 30% return (less chance)
• Rs 3.14 crore at 40% return (very less chance)
remember that this is for 20 years and not 30 years. In 30 years it will be much much more ... for eg
at 20% it will be 1.77 crores and 13 crores at 30%.
If we consider this case : when he has taken Term Insurance He is in profit at any point of time
- If he dies early his family will get 30 lacs + some investments
- If he dies late , his family gets 30 lacs + his investments which has grown a lot now.
- If he survives , his investments are enough :)
The biggest thing to consider is that his Family is covered with good amount in case of his death ,
which is the main factor and sole idea of Life Insurance.
According to me , Endowment and Money back plans are investment products with a pinch of Life
insurance in it. Term Insurance are the best , simple , "pure life insurance" and "must have" product.
I am not against Endowment policy or Money back Plans , but they have a different motive.
Dont see what it takes from you , see what it gives you.
Continue Reading
Friday, January 25
Terms and Terminologies used in Investing , Finance , Insurace , Tax , Stock
Market
Share or Stock : A Share is a representation of the amount of
a company that you own. So if you own 100 shares of a
company which has 100000 shares you are owner for 1/1000th
part.
Entry Load : Commission paid while purchasing units of a

mutual fund from a broker, No Entry Load to be paid if
directly purchased from Mutual Fund Office or its Website
online.
Exit Load : Commission paid while selling off the mutual funds before a specified time limit.
generally it is .5% or 1% if exit before 6 months or 1 year.
NAV : The current price of each Unit of Mutual Fund , it goes up or down depending on the growth
or decline in value of mutual fund investment.
NFO : New Fund Offer , When a new Mutual Fund is Launched , its call NFO of that Mutual Fund.
Open Ended Mutual Funds : Mutual funds without restriction on Entry or Exit , Anyone can buy
or sell the units anytime.
Close Ended Mutual Funds : Mutual Funds having restriction time on entry and exit , there is
some particular time duration to buy the units and then its locked for some pre-decided period . For
Eg. ABC mutual fund , a 3 years Close Ended Fund.
Growth option in Mutual Funds : Upon choosing this option, a unit holder does not receives any
dividend from Mutual funds but the money it is added to investments which helps in increasing the
NAV of mutual fund. Its good for people who do not want to receive cash regularly as dividend.
Dividend Option in Mutual Funds : By choosing this option a investor receives the dividend from
the mutual funds whenever it is declared. Its good for investors who need regular cash.
Equity Fund : These are the funds which put most of there money in Equity and less in Debt.
Equity refers to instruments with high risk and high returns like Shares , and Debt refers to
instruments with no risk or low risk and less returns like bonds , Fixed deposits etc . These are high
risky and with high returns.
Debt Fund : The funds which put more money in Debt and less in Equity . these are Less risky and
with less returns.
Balanced Fund : The Funds which have money in both the categories in a ratio such that it makes
it medium risk and medium return Fund. The ratio need not be 50:50 ... even a ratio of 70:30 in
booming markets can be considered as balanced. and 20:80 in bad situation will be considered as
balanced.
Fund House : A Fund House is a company which manages money invested in different kind of
mutual funds. Like all the HDFC Mutual funds belong to
Sectoral Funds : These funds put money in a specific sector or a group of inter-related sectors.
They have high risk , high return nature.
Fund Managers : These are the experts who manage he Mutual Fund, they take the decisions like ,
which sectors to put money in , and which company they will pick up , the strategy , the road map ,
etc ...
Mutual Fund Benchmark : Every mutual fund has a benchmark against which they measure there
performance, They they perform better than there benchmark its considered that they have done
good , else bad. For Eg . A lot of mutual funds have Sensex as benchmark , some sectoral fund
investing in Pharmaceutical may have BSE Heath care as its benchmark.
SIP (Systematic investment Plan) : This a investment method through which you can invest in
mutual funds every month. Instead of paying 60,000 together , one can take an SIP of 5,000 for an
year.
Stock Market : Its a market which facilitates the buying and selling the shares of companies by
connecting buyers and sellers . It can be considered as a mediator between buyer and seller. So
anyone who wants to buy or sell shares can do it from stock market.
Sensex and Nifty : These are indexes of BSE (Bombay Stock Exchange) and NSE(National Stock
Exchange). Sensex and Nifty, both are indicators of how prices of major stocks are moving at any
point of time. Sensex comprises of 30 Shares and Nifty comprises of 50 shares. They are calculated
by a method called "Free Flow Market Capitalization" . When sensex moves up it indicates that on
an average more shares have increased there value and some have declined and vice-verse. It moves
up or down depending on the combined valuations of the shares they comprise of.
Market Capitalization : This means how much worth all company shares collectively are. Simply
putting:
Market Capitalization = Total number of shares available X Current Price .
Its the total money required to buy all the shares of the company available to public.
IPO (Initial Public Offer) : When a company offers shares to general public for the first time , its
call IPO . The purpose of this is generally to raise funds to finance there future project and
expanding there business.
Correction : It is a sharp increase or decrease in stock market which was overdue for long . When
market goes more up or down then expected because of rumours or for some short term reason ,
then to average out that correction happens ...
Term Insurance : In this you are insured for a big amount for very less annual premium,But dont
receive anything when your maturity expires. Its a very cheap form of insurance and considered as
the best insurance anyone can get.
Endowment and Money Back Plans : In this you get insurance and you get a big lump sum after
the tenure expires along with periodic payments in between. The premium is high per Annam.
ULIP's : These are insurance+investment product , from the premium you pay, some amount is
used as your premium towards insurance and rest is invested as per your choice. this product needs
a lot of questions to be answered before taking .
Short Term and Long term Capital Gain and Loss : In case of Shares and Mutual Funds , Any
profit or loss made within 1 year. Tax treatment will be:
- Short term profits : 15% flat. (2008-2009)
- Long term Profits : Nil
Incase of Land , House , Jewelry , Any profit or loss made within 3 years. Tax treatment will be:
- Short term profits : 20% Flat
- Long term Profits : 30% Flat
Portfolio : Total investments combined are called Portfolio. So if Person ABC has invested Rs x in
shares , Rs y in Insurance , Rs z in PPF and Rs k in Real Estate , it will combined be his Portfolio.
Trading Account : An account through which a person deal in instruments on stock market.
Demat Account : An account where shares are stored in electronic format. Its just a account which
stores shares.
Commodities : Commodities are things like sugar , steel etc ... A person can trade in these things
also just like shares and mutual funds. Multi Commodity Exchange of India Limited (MCX) is the
commodity exchange in india just like BSE and NSE for shares.
Continue Reading
Tuesday, January 22
Power of Compounding and Early Investing
This post talks about the importance of Investing early in life and do not get late at all. Also it
shows how powerful compound interest and regular investing is. When we invest early in our lives,
the amount keeps growing and when it becomes a big chunk, the growth in amount every year is a
lot more, compared to initial years .
For Example: Suppose you start in 2008 and want to save for retirement and If regularly invest 1
lacs every year at 15% return per Annam , the investment will be Rs 4.35 Crores in 2038 , but if you
do late for 2 years and start in 2010 , it will be Rs 3.27 Crores only by 2038 , that will leave you
with Rs 1.08 Crore less money.
Even a delay of 1 year will result in total corpus of Rs 3.77 Crores , which is short of Rs. 58 Lacs.
This 58 Lacks is nothing but 15% interest on 3.77 Crores which you missed.
This happens because in later years you don't get benefit of compounding.
Below is the table of how Rs 1 lac will grow with different interest rates and different time lines.
Read-Error
(click to
enlarge the file)
Lets see two Case studies and there results of early investing:
CASE STUDY 1
Robert and Ajay start career same time at age 23
Case 1 (Ajay) :
- Understand the importance of investing Early, enjoys some time and then ...
- Start investing early (at 25) and invests Rs 50,000 every year.
- Assuming 10% return every year , accumulates Rs 7.97 lakh at the end of 10th year.
(This is annuity , don't confuse with Compound interest :) )
- Stops after that and doesn't invest extra money till he is 65 , he just leaves that 7.97
lacks in investment and that keeps growing.
- when he is 65 , he has Rs 1 Crore 40 Lacs :)
Case 2 (Robert):
- Spends a lot and doesn't believe in investing early, and when he is 35 he starts
investing for next 30 years he regularly invests 50,000 till he is 65.
- Assuming the same return of 10% per year.
- He has only 82.2 lacs :(
Even after saving for extra 20 years Robert has 43% less than Ajay .
Total amount after n years with A amount every year at i .
return=A *[(1+i)^n-1]/i
Ref : http://en.wikipedia.org/wiki/Annuity_(finance_theory)
CASE STUDY 2
After 100 years : Robert from Robertsganj and Ajay from Haryana (rebirth) , This time Robert is
extra smart and Ajay is a Software Engineer.
Both are 25 and want to retire at 60 , both earn good money ... (both can invest 1 lac per/year) ...
assuming return at 12% per/Annam ...
Case 1 : Robert starts early , invests 1 lac each year for next 10 years, In this 10 years his money
grows to good amount and he just keep that money invested till he retires ..., he can invest for
another 20 years also but now he spends all this 1 lac for travelling and enjoying his life every year
...
Case 2 : Ajay thinks Robert is an Idiot, who is not enjoying his life, what bad will happen if he
starts after 5 years , he thinks lets enjoy some years .
Case 2.1 : After 5 yrs he starts investing 1 lac every year for next 5 year ... He sees that
Robert has stopped investing now and enjoying now, so he also does same , stops
investing and leaves his money invested which is growing ...
Case 2.2 : After 5 yrs Ajay starts investing and thinks that he will now invest for next 30
years till his retirement, he wants to have more money than Robert at the end.
Results at 12% return

Case 2.1 : Ajay get how much ??
- 66 lacs
Case 2.2 Ajay gets ??

- 1.64 crore
And what about Robert? investing 10 yrs and stopping after that and enjoying for next 20 years
- 1.72 crores !!
Continue Reading
Monday, January 21
Different Categories of Mutual Funds
We will see here different categories of mutual funds (What are Mutual Funds) like:
Diversified Equity Funds
Tax saving Funds (ELSS)
Balanced Funds
Sectoral Funds
Mid Cap and Small Cap Funds
Index funds
Exchange Traded Funds
Fund of Funds
Debt Funds
Liquid Funds
Diversified Equity Funds : These are those mutual funds which invests across all sectors and
diversify their portfolio. They invest in large companies to small companies. Which results in wide
diversification. It helps in spreading risk across all sector and return potential is very good.
Tax saving Funds (ELSS) : These are special category of mutual funds which are tax saving funds
called ELSS (Equity Linked Saving Schemes). These have a lock in period of 3 years. They are
Diversified mutual funds in nature.
Balanced Funds : These are the funds which put money in Equity and Debt in some balanced
proportion. Balanced does not mean 50:50 , it may happen that they put money in ratio of 70:30 or
60:20 or may be 80:20 ... but the ideal ratio would be 50:50. It depends on market conditions. In a
very fast booming market, a fund with 7:30 mat be a balanced one. And in a bearish market a
combination of 50:50 may be considered are an aggressive fund. These funds have low risk and low
return capacity in comparison with normal equity funds.
Sectoral Funds : These are Funds which invests all its money in companies of a particular sector or
a bunch of sectors related to each others. The reason for this is high faith in the sector for growth
and return potential because of which these funds are very risky and have high return potential. For
eg: Reliance Diversified Power Fund .
Mid Cap and Small Cap Funds : These funds are those funds which invest there money in Mid
cap Stocks or small Cap stocks ... Mid cap and Small Cap companies are companies categorised by
there market capitalization.
• Large Cap : greater than $10 billion
• Mid Cap : Between $2 and $10 billion
• Small Cap : Less then $2 billion
Mid cap and Small Cap stocks are more riskier as they are small compared to large Cap stocks
because of size and reachability in market. They also have huge potential for growth so they can
give superb returns too. For eg:
"Sanghvi Movers" gave a return of around 4500% in 5 years from 1992 - 1997. An investment of
Rs 1 Lac was worth Rs 45 lacs in just 5 years.
In the same period "Jindal Power and Steel" gave return of 20000% . So investment of Rs 50,000
was worth Rs 1 crore in just 5 years.
Index funds : These are mutual funds which mirrors a particular mutual fund. They Put there
money in the companies which are part of that index and in same proportion as per the weightage of
the company in that index. For Eg:
Franklin India Index Fund which tracks S&P CNX Nifty Fund will invest in companies in that fund
in the same ratio as their weights. Suppose following is the weightage table for index:
Reliance 10%
Infosys 8%
Wipro 8%
.....
.....
Ranbaxy 3%
Then the fund will also invest in these companies stocks in same proportion. The NAV's of these
mutual funds increase or decrease in the same way as the index. if index will grow by 2.4% then
NAV will also increase by 2.4% .
Exchange Traded Funds : ETFs are just like Index funds with some differences, ETFs are a mix of
a stock and a MF in the sense that
1. Like ‘mutual funds’ they comprise a set of specified stocks e.g. an index lik Nifty/Sensex or
a commodity e.g. gold; and like equity shares they are ‘traded’ on the stock exchange on
real-time basis
2. ETFs are passively managed, have low distribution costs and minimal administrative
charges. Hence most ETFs have lower expense ratios than conventional MFs.
3. Convenient to trade as it can be bought/sold on the stock exchange at any time of the day
when the market is open (index funds can be bought only at NAV based on closing prices)
Fund of Funds : These are mutual funds which invests in other mutual funds. They put money in
different mutual funds in some proportion depending on their goals and objectives.
Debt Funds : These are mutual funds which have their major holdings in secure and fixed income
instruments like Fixed deposits , bonds . They also put a small proportion in Equity (High risk ,
high returns). These are secure in nature and provide low returns.
Liquid Funds : Liquid funds are used primarily as an alternative to short-term fix deposits. They
invest with minimal risk (like money market funds). Most funds have a lock-in period of a
maximum of three days to protect against procedural (primarily banking) glitches, and offer
redemption proceeds within 24 hours. Liquid funds score over short term fix deposits.
Continue Reading
Friday, January 18
How Home Loan EMI is calculated.
In this post we will learn how do we calculate monthly EMI for home Loan and how increasing
Tenure does not help much after a certain point.
In Housing Finance , Equated Monthly Installment(EMI) refers to the monthly payment towards
interest and principal made by a borrower to a lender. EMI is calculated using a formula that
considers .
- Loan Amount
- Interest Rate
- Loan Period
EMI = ( L x i ) X (( 1+ i ) ^ N) / ([(1+i)^N] - 1)
Where,
L = Loan amount
i = Interest Rate (rate per annum divided by 12)
^ = to the power of
N = loan period in months
Assuming a loan of Rs 1 Lakh at 11 percent per annum , repayable in 15 years, the EMI calculation
using the formula will be :
EMI = (100000 x .00916) x ((1+.00916)^180 ) / ([(1+.00916)^180] - 1)
====> 916 X (5.161846 / 4.161846)
EMI = Rs 1,136
Note : i = 11 percent / 12 = .11/12 = .00916
EMI caculator : http://contentlinks.asiancerc.com/mt/tools.asp?pageSubType=emi_calculator
Read : what is Net Present Value ?
Well i would like to raise a point here , or a question ??
Q. How much benefit we get by increasing the Tenure of the Loan. Considering a Loan of Rs 30
Lacs at 12% interest rate.
I did a bit of my so called "mathematical skills" ... and found out that EMI is of form
EMI(n) = C1 X C2^n / C2^n-1 , where
C1 = L * i
C2 = 1+i
So the difference in the EMI value for n+1 and n is nothing but
by a bit of caculation i got :
EMI(n) - EMI(n+1) = C1 x (C2^2n - C2^n) / (C2^2n - 1)
and when n becomes very large ... and appling limit, we get
Lim C1 x (C2^2n - C2^n) / (C2^2n - 1)
-> Inf
=>
Lim C1 / C2^n
n->Inf
and as C2 > 1 (C2 = 1+i)
=>
Lim C1/C2^n = 0
n->Inf
Or in other words if we differentiate the EMI formula ... we get a constant ...
It shows and proves that the difference in EMI value is not very significant copmpared to the
change in tenure and at one stage its almost of no gain to increase the tenure.
To show this argument : i would like to present an example, considering my old question:
Q. How much benefit we get by increasing the Tenure of the Loan. Considering a Loan of Rs
30 Lacs at 12% interest rate.
I am listing down the EMI value for different Tenures from 10 years to 100 years
Tenure EMI Differnce in EMI when tenure increased by 5 years
10 43041 7036
15 36005 2972
20 33032 1435
25 31596 738
30 30858 391
35 30466. 211
40 30254 115
45 30139 63
50 30076 34
55 30042 18
60 30023 10
65 30012 5
70 30007 3
75 30003 1
80 30002 0.95
85 30001.17 0.52
90 30000.64 0.29
95 30000.35 0.159
What it tells us is that it's almost useless to extend the tenure after some time ...
Continue Reading
Friday, November 16
Advantages of Mutual Funds
1. Management : One of the biggest advantage is that in very low cost the investor gets his
investment managed by experts. If they want to get the services solely for their investment , it can
be very expensive but by investing in MF they can take advantage of the scale.
2. Scale Advantage : The transaction costs of a single indivisual is very less because mutual funds
buy and sell in big volumes.
3. Diversification : With mutual fund investment your money gets diversified in a lot of things,
which helps in minimising the risk factor. Also if one particular sector does'nt perform well the loss
can be compensated with profits made in other sectors.
4. Liquidity and Simplicity : You can sell or buy mutual funds anytime. So mutual funds are good
if you want to invest in something which you can liquidate easily . Also MF are very simple to buy
and sell .
Disadvantages of Mutual Funds
1. Risks and Costs : Changing market conditions can create fluctuations in the value of a mutual
fund investment. Also there are fees and expenses associated with investing in mutual funds that do
not usually occur when purchasing individual securities directly.
2. No Guarantees : As Mutual funds invest in debt as well equities , there are no sure returns .
Returns depends on the market conditions .
3. No Control : Investor does not have control on investment , all the decisions are taken by the
fund manager. Investor can just join or leave the show.
Continue Reading
Mutual funds Common Myths
1. A Mutual fund with low NAV is better than other MF's with high NAV.
This fallacy is due to the fact that investors perceive the NAV of a mutual fund (MF) as similar to
the price of equity shares.
Comparison of NAV of MF unit and Share price
NAV = (market value of all the shares held in the portfolio + CASH - LIABILITIES)/ total number
of units
Share Price = combination of company's fundamentals, demand-supply, public perception about
the company + other complicated things
It is Funds Quality , Fundamentals and values that determines your returns and not NAV , its just
the "book value" of the unit.
Example : Consider Fund A with NAV Rs 100 and Fund B with NAV Rs 5 . Both has corpus of Rs
10,00,000, Fund A has good fundamentals and is better mutual fund in terms of strategy compared
to Fund B. After 1 year say their return is 40% and 30% as expected. So the NAV for A will be 140
and for B will be Rs 6.5 and fund A will give better returns compared to fund B.
The point to understand is its the strategy and the asset allocation which matters. Low NAV can
only get you more units and nothing else :)
2. Mutual funds with good Past Performance are best choice
This is a common misconception among the Mutual funds investors that funds which have
performed very well in past are the best choice . People believe that if a ABC mutual fund has given
60% return in past year and XYZ has given 45% return , then ABC is a definite choice this year
also.
They should understand that performance over 1 or 2 years have very little to say about them. They
must analyse performance over 4-5 years atleast to understand how a mutual fund has performed.
3. NFO's give better returns
NFO's are more risky than the existing mutual funds as they don't have no track record to compare.
There is no advantage with NFO when it comes to investments , they have no extra magic. A NFO
must be generally avoided until they have very strong strategy and unique and strong idea.
4. Putting money in lots of mutual funds will help
As a rule of thumb , no one should have more than 5-6 different mutual funds . and even those must
be different kind of mutual funds .
People buy 20-30 mutual funds and don't see that all of them are of similar nature and with same
kind of strategy. All of them have same kind investment portfolio.
They should put money in some limited mutual funds and all should be of different type.
They can buy:

- tax-savers with aggressive strategy
- tax saver with balanced aggressiveness
- 2 sectoral funds
- balanced fund
- SOME special fund (like special situation fund)
- an ETF
Tuesday, November 6
What is Mutual Funds, An Easy Explaination
The most popular thing in the financial sector now a days are MF (mutual funds). But most
people are confused of this instrument. To understand What are Mutual Funds , one needs to
understand:
Company : Company is a voluntary association of persons formed for the purpose of doing
business having a distinct name and limited liability. These company needs to be registered under
The Companies Act, 1956, However, company is not a citizen so as to claim fundamental rights
granted to citizens.
Shares : To put in simple terms , its a share in a company. So it can be a very minuscule part of
ownership in some company, For Example, if some one has 100 shares of Rs. 100 each for
Company XYZ , it means that he has invested that much money in that company and is owner for
that much part. Commonly called "stocks" and "equities."
As we have got some understanding of what are these terms. we can proceed further.
Now anyone who has good knowledge of Stock markets, with good knowledge of analysing the
company performance, buying and selling of shares , timing the market, etc can directly buy and
sell shares and do the investment directly in stock market.But there are people who have no good
understanding of these things and they can't take good decisions themselves, For them MF comes
into picture.
So MF is a financial instrument that allows a group of people to pool their money to build a huge
corpus and then this money is invested by group of people (refereed as FUND MANAGERS) who
are investment experts, have deep understanding of investing in stock market and overall financial
markets.
All the mutual Funds have there Units just like "shares" in Company . So if some one wants to
invest Rs 10,000 in ABC MF and price for a unit is Rs. 10 , he gets 1000 units of ABC MF , and
over a period of time as the MF investment grows, the unit price also grows with almost same ratio.
Read different terminologies used in financial world .
The price of these units are referred as NAV (Net Asset Value) .
When a new MF launches , its called NFO (New Fund Offer , just like IPO in case of new
Company's Share issue to public)
So for example the total corpus of the MF on 1/1/2007 was Rs 100,000,000 and per unit price was
Rs 10 . and after an year on 1/1/2008 the total investment has grown to Rs. 134,000,000 , the unit
price will be now Rs 13.40 (approx , it may be little less as there are some administrative cost and
other expenses to be incurred).
A mutual funds can invest money in different type of instruments ranging from shares , debentures ,
gold , FD and some cash also.There are two categories of mutual funds.
1. Open-ended : Entry and Exit at anytime.
2. Close-Ended : Entry and Exit restricted for some time.
There are different kind of mutual funds to suit different kind of consumers.I feel its a good
background for the Mutual fund to start with.
Thanks
Thanks for reading the ebook . I hope you have learned some thing which can
help you . To read more articles like these visit http://www.jagoinvestor.com
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Questions and Answers , Part 3

Question 2 # by Taranprit Singh

I would suggest you this .

Question 3 # by (Name not allowed to Disclose)

>>> 25000 * (1.12)*(1.12 ** 20 -1)/.12

>>> 25000 * (1.15)*(1.15 ** 20 -1)/.15

At 6% , it comes out to be 9.7 lacs

Learn the Calculation in this Video

Best Equity Diversified Funds

Sundaram BNP Paribas Taxsaver

Your Mutual Funds Portfolio Above 8 Lacs with ICICI

Your Mutual Funds Portfolio is Below 8 Lacs with ICICI

If your SIP payment is High

Read why SIP is best for salaried class people

If your SIP payment is Small

Suggestion to people who have lot of Mutual funds in your portfolio

What is most Important

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Other Major Changes which can affect a Common person

1. Tax Exemptions upto 3 Lacs

5. Suggested abolishing the Securities Transaction Tax (STT)

7. Lowering Corporate tax to 25% from 30%

Comparison of New Vs Old Tax Code

Lets see an Example

Name : Ajay Patel

Tax as per Current System

Tax as per New Tax Code

Is New Tax Code Good or Bad

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DSP Blackrock Fund : EXCELLENT funds , Keep it , increase the exposure

What is IRR and How to Calculate it ?

Use this Spreadsheet to calculate IRR for yourself

What is XIRR and How to Calculate it ?

Use this Spreadsheet to calculate XIRR for yourself

Real Life scenario when you can use it .

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Manish giving some knowledge about SIP and its Importance

The wonderful Audience we had

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So how does opening a PPF account now helps us ?

Question and Answers , Part 1

Do let me know if you like this section or not .

If you want to ask a question to me , Click here

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Analysis of Case Study

So Following are the questions needed to be asked

Reason why Indians dont like Term Insurance

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My take on the Subject

1. It is a property I would be happy to live in.

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What Happens Currently ?

What is JagoInvestor all About ?

Be a part of Jagoinvestor and take part in improving your Financial decisions .

IRDA rules for ULIPS

2. For Products whose Maturity is less than 10 years

3. For Products whose Maturity is more than 10 years

Look at this Video

What will be the Implications