Different Asset Classes available for Investments

Hello Friends,

I hope all of you are enjoying the current Bull Run :-) . So, what do you think? Where the market is heading? towards new Highs or for Correction?
Hey, I don’t know about this and please don’t ask me about it, because it is the duty of so called experts on Business Channels. ;-)
But what I know is how to make you Knowledgeable and Financially Literate, because it is my promise that has to be fulfilled. So this time I will be sharing the Knowledge about Different asset classes available for investments and investment options available under them.

Different Asset Classes:

1. Equity
2. Debt
3. Real Estate
4. Gold
5. Liquid



1.Equity Asset Class:

Equity asset class investments refer to buying and holding of shares on a stock market by Investors. They anticipate income from Dividends and Capital Gains as the value of the shares rises. If you are getting a return of 15% from Equity investments consistently, then you are meeting the objective behind it.
Following are the instruments available in the market as Equity Investment Options:
• Equity Shares:
Investing directly in stocks.
• Equity Mutual Funds:
Pooled Investment vehicle. E.g. Diversified Equity Mutual Funds, Balanced Fund, Sector Fund, etc…



2.Debt Asset Class:

Debt Asset class investments refer to buying fixed income securities. The main objective behind debt investment is protection of invested capital. This investment option is suited for conservative investor, who does not want to take any kind of risk. On an average a good debt instrument can give you 7.5 % + returns over a longer term horizon though these rates change as per RBI Policies.
Following are the instruments available in the market under Debt asset class:
• Fixed Deposits:
You people know it better than me :-)
• PPF and PF:
This also, you people know better than me. :-)
• Post Deposit:
Visit a post office and explore :-(
• Bond/Income Fund:
These funds invest in commercial papers from companies. These are debt mutual funds
• Gilt Fund:
Gilt Funds invest in Government securities. These are debt mutual funds

3.Real Estate:

Definition of Real Estate Investment (According to Invespedia)
Real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation.
Common examples of investment properties are apartment buildings and rental houses, in which the owners do not live in the residential units, but use them to generate ongoing rental income from tenants. Those who invest in real estate also expect to generate capital gains as property values increase over time.
Expected rate of returns for real estate will differ from city to city.
Some Real Estate Investment Options:

• Real Estate Mutual Funds
• Real Estate Investment Trusts (REIT)
• Physical Real Estate

4.Gold:
One day I was discussing on phone regarding stock market. After the discussion my Mom said “ Don’t gamble in stock market, if you want to double your money then go to P N Gadgil ( One of the biggest jeweler in Pune) and buy some Gold. There you will earn returns.
Hey! Nothing that she is an expert in metal market, but that is the value of Gold in India. I know Indians don’t give direction to Gold Prices but still India is one the highest consumption market for GOLD. Gold is a finite asset, effectively its demand will increase and supply will decrease. So, this asset has only one direction in long term and that is towards North. It is also considered as Real Asset in your portfolio. Expected Rate of returns form Gold = 12% pa

Some Gold Asset Investment Options:
• Physical Gold
• Gold ETF

5.Liquid:

Cash in hand or balance in your savings account can be considered as liquid. Liquid means readily available to spend or invest or for any purpose. Liquid asset class has its own advantage and importance also. Expected returns on Liquid are very less. Liquid Mutual Funds are also available in the market which will give you returns of about 4 to 5%.
Some Liquid Asset class Options:
• Savings Account
• Cash :-)
• Liquid Fund

In the next blog, we will discuss about Importance of Asset Allocation in Portfolio Management. So follow it……..
Happy following,
Regards,
Parimal.

PE Ratio - Useful tool to analyse stocks

Hello friends,
Time to share some more knowledge with you.
Today, we will talk about P/E Ratio. You must have heard this term a lot of times. I will explain you how to calculate P/E Ratio and what needs to be interpreted from this term.

P/E Ratio = Price to Earnings Ratio. It explains the relationship between a stock a stock price and company’s earnings. Research Analysts (God’s creations, which we see on CNBC and NDTV Profit) also refer this term as “Price Multiple” or “Earnings Multiple”. It is one of the important metric of Stock price analysis. But we cannot completely depend on this metric.
P/E Ratio = (Market Value per Share)/ (Annual Earnings per Share)
Market Value per Share = Current market price of the stock
The annual earnings per share is the net income of the company for the most recent 12 months period divided by number of outstanding shares of the company.
Annual Earnings per Share (EPS) = Net Income / No. of Shares
Example: Reliance Industries Limited is having a share price of Rs. 1100/- and its EPS is Rs. 48. Then the P/E Ratio of RIL would be 22.92 (1100/48).

But what does P/E Ratio explain?
First thing, P/E Ratio gives you an idea of what the market is willing to pay for the company’s earnings.

Some Interpretations are:
• Higher P/E = Means market is willing to pay more for the company’s earnings.
Example: P/E Ratio of Reliance Industries Ltd is 22.92 and P/E Ratio of L&T is 28.95. It means market is willing to pay more for L&T as compared to RIL.
• But, some investors look at it in a different way. They will say L&T is overpriced as compared to Reliance Industries Ltd.
• A low P/E Ratio may indicate “Sign of no-confidence” by the market which means the investors have undervalued the stock due to lack of confidence in its future growth. However, it could also mean that this is a stock which has been overlooked by the market and does possess strong future growth potential.
• A low P/E ratio stock can become a “Value pick” before the rest of the market discovers its true value.
• One cannot be very sure of movement of stock depending on P/E Ratio only. It can be used as one of the tool to analyze the stocks. In future blogs we will discuss about other analyzing tools.

Do not depend only on P/E Ratio, but use this as a very directive tool. You can compare PE Ratio of a company with its Earnings Growth rate. The PE Ratio should match the Growth rate of company. If it is matching the growth rate then you can call it as fairly valued stock. If Growth rate is more than PE Ratio, means the company is undervalued. If Growth rate is less than the PE Ratio, then the company is overvalued.
To know the PE Ratio of company, you can visit the following URL
http://www.kotaksecurities.com/jsp/EquitySearch.jsp and then type the name of the company. You will be able to see all the details of that stock.

And now something interesting. Watch this video, it is not related to our blog. But still want to share it with all of you.
http://economictimes.indiatimes.com/tv/TED-India-Pranav-Mistry/videoshow_ted/5231080.cms

Happy Learning,
Parimal.

Tax Planning Season: Some Suggestions for you

Hi All,

Here comes the second blog!

Few days back, I got a call from my friend. He was asking me about tax planning. He wanted to save some tax by doing some investment. I told him some options like ELSS, etc. After discussion I realized, does he have any idea where his money is going. And the honest answer is, he doesn’t know. Actually it is not his mistake. That is the problem many of us are facing. Because in our education system they don’t teach us what is money? What is Savings? What are investments? Theoretically we know all these terms. But the problem comes when we have to execute the plan. We don’t look at it practically.

Hey, I am not here to change the education system, though I intend to do that :-). But my political background is not that much strong. Anyways jokes apart. We will have to concentrate on this Learning part which requires some discipline from your side and some from my side also. So my sincere request to all of you is take at least 15 minutes of your precious time and read something to make yourself financially literate.

Now my discipline part includes that I should write good articles for all of you and yours will be to read it. Hey, one more thing I am not trying to teach you something. It is just that I have realized the importance of Financial Literacy. :-)

Bohot gyan ho gaya. Ab kaam shuru karte hain.

With the tax planning season about to start, we will have to discuss some tax planning things.

Here I am writing for section 80C

• Section 80C:

1. First calculate your yearly PF contribution.
2. Are you paying some LIC or other life insurance premiums (not medical insurance premium)? If yes you can add that also.
3. Are you doing some ELSS (Equity Linked Savings Schemes) investments? If yes add that also.

Now these are some common investment options everybody knows.
Following are some other options which are considered under section 80C:
1. Public Provident Fund
2. National Saving Certificate
3. 5-Year fixed deposits with scheduled banks
4. Principal component of home loan repayment

Now more specifically, where should you invest?

1. ELSS (Tax Saving Mutual Funds)
In ELSS, Your money will be locked for 3 years. But if you want to enjoy the participation in appreciation then take Dividend payout option.
While Investing, don’t look for just past one year performance. You need to focus on consistency. Which fund house is that? Is it reputed one like HDFC, Reliance, ICICI, Fidelity, SBI, Sundaram, etc…
Following are some good ELSS investment options:
1. SBI Magnum Tax Gain
2. Sundaram Tax Saver
3. ICICI Pru Tax Plan
4. HDFC Tax Saver

Now regarding Life Insurance Premium,
If you have not taken any risk cover, then you should take it at lower age. It will benefit in terms of the Mortality cost i.e. the cost you are paying to cover your life.
If you are going for ULIP i.e. Unit Linked Insurance Plan, take it for long term, you can plan your retirement by investing in ULIPs. But be careful, to which plan are going for? If the plan is charging heavily then don’t go for it. A Lot of Insurance agents are available in the market. BE CAREFUL. :-)

So, these are two main investment options for 80 C.

Other options are not looking that much lucrative in present scenario. But if you are very conservative Investor, then those are the best options for you. For those options not much of analysis is required. They are easily available.

So that’s it from my side for this discussion. If you have some queries feel free to reply.
Till that time,
Happy Tax Planning!

Regards,
Parimal.

Investor Education through Financial Literacy

Financial Literacy - A term which we can call as need of the hour. I will tell you why it is important.
We do our work sincerely and earn money. It is our hard earned money, and one day somebody comes as an advisor and tells you to invest somewhere. He/she will use some jargon some fictitious calculations with mind boggling numbers and convince you to invest in some investment option or so called financial product.
This is not done. It's your money and you should know where it is going. So my sincere request to all of you, please understand some basic terminologies and make your money to work for you. Because you deserve the best from your Hard earned money.
I am starting a series of discussion with this blog. I will appreciate if you can participate in the same.
Happy learning and becoming financially literate....
Regards,
Parimal.