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Wednesday, 28 December 2011

What is Balance Sheet and the importance of it


If you are a share holder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.
What is Balance Sheet?
Balance Sheet is a financial statement of a company.
There are three segments summarizes in this Balance Sheet.
1.Company's Assets
2.Company's Liabilities
3.Share Holders Equity
Balance sheet always follows the following formula.

Asset=Liabilities+Share holder's equity

By using this Balance Sheet investors will get an idea as to what the company owns and owes as well as the amount invested by the share holders.
Assets
Assets are what a company uses to operate its business.
There are two types of assets.
1.Current Assets: Current Assets have a life span of one year or less,they can easily converted into cash.
They are
Cash: Non restricted bank accounts and checks.
Cash equivalents: These are very safe assets that can be readily converted into cash.
Accounts receivable:It consists of the short term obligations owed to the company by its clients.
Inventory:This represents the raw materials, work-in -progress goods and the company's finished goods.
2.Non-Current Assets: Non-current assets are assets that are not turned easily into cash.
They are
Tangible assets: machinery,computers,building and land.
Intangible Assets:Good will,patents or copy right.
In tangible assets: Good will,patents or copy right.

Liabilities

Liabilities are the financial obligations a company owes to outside parties.
There are two types of liabilities
Current liabilities: Current liabilities are the company's liabilities which will come due or must be paid, with in one year.
Example: Accounts payable, current portion of longer term borrowing such as the latest payment on a 10 year loan.
Long-term liabilities: These are debts and other non-debt financial obligations.

Share Holder's Equity 

Share holder's equity is the amount of money initially invested into the company plus any retained earnings.This is the source of funding for the business.This account represents a company's total net worth.

Wednesday, 21 December 2011

RBI,Interest Rates,Stock Market


Now a days we are listening much about interest rate hike by RBI to tame inflation. What exactly interest rates are? How these are related to inflation? How  interest rates  effect the stock market? These are the questions arosed in your brain. Am I right? Here I am going to give you some details

What exactly interest rates are?

An interest rate is the rate at which interest is paid by a borrower to lender for the use of money that he borrows from a lender. These interest rates have been set by national governments or Central Banks. For united states it is Federal reserve. England's bank of England and funds rates varied from 0.5% to 15% from 1989 to 2009.For India's RBI(Reserve Bank of India) and the interest rates varied from 3.25% to 14.50% from 2000 to 2010.
Repo Rate: When ever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI.
When the Repo rate increases borrowing from RBI becomes more expensive.
When the Repo Rate decrease then it is helpful to banks to get money at a cheaper rate.
CRR Rate: Cash Reserve Ratio is the amount of funds that the banks have to keep with RBI.
If RBI decide to increase the percentage of this, the available amount with the banks comes down.
Reverse Repo Rate: Reverse Repo Rate is the rate at which RBI borrows money from banks.
Banks are always happy to lend money to RBI since their money are in safe hands with good interest.
Increase in reverse Repo Rate can cause the banks to transfer more funds to RBI. It can cause the money to be drawn out of the banking system.
SLR (Statutory Liquidity Ratio): SLR is the amount a commercial bank needs to maintain in the form of cash or gold or govt. approved securities(bonds) before providing credit to its customers. SLR is determined and maintained by RBI in order to control the expansion of bank credit.

How interest rates are related to inflation?

Bank interest rates depends on many other factors out of that the major one is inflation.
Whenever you see an increase on inflation there will be an increase of interest rate also.
Inflation may be recognized as of money goes up, the supply of goods goes down, demand for money goes down or demand for goods goes up.
Our Indian government gets involved in it to control the inflation by adjusting the level of money in our economical system. 
Factor like rates of import and export, the production cost of farms, value of dollar, price of oil(crude oil), market movements of other overseas markets cause global liquidity. RBI needs to control this excess liquidity in our economic system. For this RBI increases the Repo Rate which makes Costly credits and thus increases the CRR rate . This kind of measures by RBI can only control the inflation to a certain extent only.

How interest rates effect the stock market?
When RBI increases the funds rates, it does not have an immediate impact on the stock market.
It influence both individual and businesses.
How individual affected?
Individuals are affected through increase to credit card and mortgage interest rates, if they carry a variable interest rate(an interest rate that moves up and down on the changes of an underlying interest rate index)
This has the affect of decreasing the amount of money consumers can spend. After all,people still have to pay the bills, and those bills become more expensive. This means people will spend less discretionary money(The amount of an individuals income that is left for spending , investing or saving after taxes and personal necessities have been paid).
How businesses affected?
Businesses also indirectly affected by an increase in the RBI rates as a result of the actions of individual consumers. Business is also affected direct way as they borrow money from banks to run and expand their operations. Less business spending can slow down the growth of a company, resulting in decreases in profits.
How stock market affected?
RBI funds rate affect the behavior of consumers and businesses as well as the stock market also.

Valuing a company is to take the sum of all the expected future cash flows from that company. If a company is seen as cutting back on its growth spending or is making less profit- either through higher debt expenses or less revenue from consumers then the estimated amount of future cash flows will drop. This will lower the price of the company's stock. If enough companies experience a decline in their stock prices, the whole market or the indexes will go down.
For many investors, a declining market is not desirable out come. to invest.They wanted to see their money to increase in value. When RBI raises funds rates ,newly offered government securities, such as treasury bills and bonds are often viewed as the safest investments. making these investments more desirable.

Friday, 16 December 2011

Gross Domestic Product(GDP)


In a given period of time, GDP of any country refers to the the market value of all final goods and services produced within a country.
The real GDP per capita of an economy is often used as an indicator of a country's standard of living.
Economic growth is the increase in the value of the goods and services produced by an economy or growth of potential output. Economic growth is there fore often seen as indicating an increase in the average standard of living.

GDP can be determined in three ways.

1.Product(output) approach
2.Income Approach
3.Expenditure approach

GDP=Private consumption+gross investment+government spending+(exports-imports).

Consumption: Consumption is normally the largest GDP component in the economy. 
Example:food,rent,gasoline,medical expenditures,jewelry etc

Investment: Investment includes business investment in equipments.
Example:Buying houses,savings,buying stocks,bonds etc.

Government spending:This is the sum of government expenditures on final goods and services.
Example:Salaries of public servants,purchase of weapons for the military and investment expenditure by a government.

Exports:Exports represents the gross exports to other countries.

Imports: Imports represents the gross imports from other countries.

Usually GDP is expressed as a comparison to the previous quarter or year.
For example , if the year-to-year GDP is up 4% means the economy has grown by 4% over last year.

The GDP in India expanded 6.9% in the third quarter of 2011 over the previous quarter. From 2000 until 2011, India's average quarterly GDP growth was 7.45%. It reached the historical high of 11.80% in December 2003 and a record low of 1.60% in December 2002.
Indian economy hurt by high local borrowing costs and a deepening euro-zone crisis.
GDP grew 6.9% from a year earlier. The economy had expanded 7.8% in the January-march quarter.

Thursday, 15 December 2011

What is happening in India?


India is a developing country and economically we are very strong and fundamentals of domestic company's are very strong if GDP goes down no problem.This is the confidence we have so far.

Uncertain things happening in India.


1.Our inflation will goes up and down with out any reason.

2.To tame inflation we need FDI in multi retail's sentiment created by government then some of investors started to invest in the market but opposition doesn't like it.After rolled back the decision, suddenly inflation came down to 6.6%. How strange it is? It is 4.35% now, suddenly our farmers started to grow much vegetables and cereals.

3.RBI raised interest rates 13 times to bring down the inflation.Now inflation 4.35 % lowest in nearly four years then why should not RBI cut the rates? due to interest rates hike and exports and imports our IIP index shocked us.Now FII's are again started to sell with the fear. What this government wanted to do?
There is no certainty in their words and their monetary actions.
Related links:
Crunch time for indian companies
Rupee fall spells big troubles for FIIs in Indian market

Sunday, 11 December 2011

Why India is struggling with depreciation of rupee and how effective it is?


In the first half of fiscal 2010-11 the Indian economy grew at a healthy rate of 8.9%. India's economy has become increasingly interlinked with global markets.
The USD-INR Exchange rate is an important indicator of investor sentiment and can significantly impact not only the fortunes of individual firms and sectors but also the government.This Exchange rate has been very stable overall for the last five years. On April 24 2006 it was 44.86 and on April 2011 it was 44.34. USD-INR moved from 40 to 52 from March 2008 to November 2011.

There are significant factors to increase USD-INR Exchange rate (or) fall of rupee against dollar.

1. Inflation is at an all-time high: The Consumer Price Index (CPI) increased by 10.88% in 2009 and by 13.19% in 2010.The monetary policy changes undertaken by the government to control inflation have been ineffective. We believe this is because inflation is being driven primarily by structural supply side challenges such as lack of agricultural infrastructures, low crop yields and the obsense of organized retail.


2.Decline of FDI for long term prospects: India is one of the fastest growing economies and is considered a favored destination for investment. But we have seen the decline of FDI in the year 2010. FDI is an important indicator of investors faith in a long-term prospects, but FII(Foreign Institutional Investors) provides short -term portfolio investment money inflows.


3.Corruption: Recent widespread corruption scandal have reinforced the negative perception of governance deficit in India. Regulatory and tax uncertainty will deter many foreign investors.


4.Decline of Remittances: Another major source of foreign currency inflow to India is remittances. India received USD 55 billion in remittances during 2010.Remittances from countries like Saudi Arabia and UAE experience a decline as unemployment in these nations rises.The Indian abroad leave the region due to security concerns.


5.Government failure: The government finances are in a bad shape and the combined central and state government deficit has stubbornly stayed around 10% of GDP .Experts believe that oil prices will remain high in the near future. This is a major concern for India as it imports about 70% of its oil and efforts to increase the production capacity of Petroleum and natural gas domestically have not been successful.


6.Deficit level:India's current deficit is about 3%, the level it reached during the crisis of the 1990's. India's rising import bill and threat to remittances, the deficit will remain high in the near future creating pressure on the Indian Rupee.

How it is effecting our economy?

Unstable Rupee is always a case of concern for both exports and imports.

Exports:In case of exporters ,Rupee depreciation means short-term advantage. Those exports who hold their products would be benefited. However the Euro zone crisis and global meltdown have affected exports from making the desired profit.Demand slowdown in US and Europe . The government is focusing more on Africa and Latin American markets.
India's total exports in the year 2009-2010 is 84,553,364.38 and in the year 2010-2011 is raised to 114,264,897.18. Growth rate is 35.14%.
Our max exports to the countries UAE, and USA.

Imports: Imports are losing ground owing to the devaluation. Indians imports are about 70% of its oil. Experts believe that oil prices will remain high in the near future.Coal and some raw materials are also importing from other countries
India's growth of importing rate rises to 35.63%. Our max imports from the countries china,UAE,Switzerland etc. 
Related links:
Eu-summit-may-not-calm-investors-for-long

Billionaire investors strategy of 2011


Retail investors are confused and watching at the Europe countries and the crisis which is making them worse. At the same time many rich people are enjoying the situation and investing in the market.Billionaire investors like Warren Buffett and Bill Gates have been loading up on these stocks for years. Warren Buffet recently invested $2.5 billions, Bill Gates invested $4.0 billion and the richest man in the world Carlos Slim invested $14.5 billion.

Buffet and the world richest men following the Value Investing strategy or some other?

This time Buffet is not following the Value Investing strategy.All rich people are following the particular type of investment. They are investing in the stocks which are the basic building blocks of economic growth that you dig,drill or pump out of the ground. 
Yes i am talking about the Natural Resources like oil,gold,natural gas and metals.

Warren Buffett owns 29.1 million shares of oil power house Cono Cophillips(NYSE:COP). He invested $2 billion in this company .

Bill Gates has piled $570 million into oil stocks.He recently bought $5.8 million shares of the largest cement company in the world CEMEX(NYSE:CX)

Carlos Slim has invested $7.1 billion in a mining company called Minere Frisco.

A third of the world's 100 richest people made their fortunes in the Natural Resources.
Mega fortunes were made in natural resources than in Technology or real estate or any other business. Many more billionaires are storing their wealth in natural resources.

Sunday, 4 December 2011

How to read the report card of a company


If you want to analyze the company's fundamentals and the report card of a company, you need to know some metrics.
Following are some very best metrics to tell you about the company 1.EPS(Earn per share)
2.P/E(Price earning ratio)
3.Face value
4.Net profit Margin
5.Bonus shares
6.Dividends
7.Sales

EPS(Earn per share): EPS is the amount of earnings per each outstanding share of a company's stock.
Comparing the earnings of one company to another doesn't make any sense because the two companies have a different number of outstanding shares.

EPS=(Net Earnings-Dividends on Preferred stock)/Out Standing Shares.

There are three types of EPS.
1. Trailing EPS: last years number and the only actual EPS.
2.Current EPS: This year numbers which are still projections.
3.Forward EPS: Further number, which are obviously projections.
EPS is helpful in comparing one company to another, assuming they are in the same industry. But it doesn't tell you whether it is a good stock to buy or not.

P/E ratio(Price earning ratio): P/E is the most popular metric of stock analysis. It looks at the relationship between the stock price and the company's earning.It gives you an idea of what the market is willing to pay for the company's earnings.
P/E Ratio=Stock Price(Market Value per Share)/EPS(Earn per share).
A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with lower P/E.
It would not be useful for investors using the P/E ratio as a basis of their investment to compare the P/E ratio of a technology company(high P/E) to a Utility company(low P/E) as each industry has much different growth prospects.
many investors think that the lower P/E always a better investment than a stock with a higher one. But it is wrong. It always depends. P/E ratio's tend to vary from industry to industry. Mature industries which have more moderate growth potential have lower P/E ratios than company's in relatively young,quick growing industries with more robust future potential.

Face value:Face value is the real value of the share offered in the primary market and shown on the certificate.Face value is fixed by the company.In the case of Common stock face value is largely symbolic. In the case of preferred stocks, dividends may be expressed as a percentage of face value.
The issuing company promised not to issue further shares below face value, So investors could be confident that no one else was receiving a more favorable issue price.
The face value is a nominal value of a security which is determined by an issuing company as a minimum.

Net profit Margin(%): Net Profit Margin tells you how much profit a company makes for every $1 it generates in revenue(or)sales.Profit Margin is an indicator of a company's pricing strategies and how well it controls costs.

Net Profit Margin =(Net income after taxes/revenue)*100.

Higher profit margin indicates a more profitable company that has better control over its costs.
Increased earnings does not mean that the profit margin of a company improving. For instance ,if a company has costs that have increased at a greater rate than sales. It leads to a lower profit margin. This is an indication that costs need to be under control.

Bonus shares: When the additional shares are allotted to the existing share holders with out receiving any additional payments from them. It is known as issue of Bonus Shares.
Issue of Bonus shares results in the conversion of the company's profits into Share Capital.
Bonus issue tends to bring the market price per share with in a more reasonable range.
It increases the number of outstanding shares. This promotes more active trading.
Share Holders regard a bonus issue as a strong indication that the prospects of the company have brightened and they can reasonably look for an increase in total dividends.
it improves the prospects of raising additional funds.

Dividends:Stock dividend is distribution of profit among the investors as share rather than cash which increases the ownership right of holder of shares as well. Dividend giving stock are normally a healthy stock.

Sales: If the sales of a company increases then their net profit margin increases. The company's which have growth rate of 15 % every year then they are called growth stocks.

Tuesday, 29 November 2011

Indian Market at present condition


The unfolding Euro Zone crisis, slow down in US and persistent inflation,repeated monetary tightening could be the reasons for India's growth slowing , but economic fundamentals are strong. India's overall economic growth slowed to 7.7% in April-June quarter against 8.8% in the same quarter last year. The India Inc. has criticized the rate hike saying it is unlikely to tame rising inflation and could instead lead to further slowdown investments and industrial growth. The RBI , which has raised key short rates as many as 13 times in the past two years to tame inflation.
What is Inflation?
Inflation is a rise in the general levels of prices of goods and services in an economy over a period of time.
Causes of Inflation
It is very difficult to say that the cause of inflation but some causes are accepted by many Economists.
1.Demand pull inflation: If demand is growing faster than supply, prices will increase. This usually occur in growing economies.
2.Cost push inflation: When companies costs go up, they need to increase prices to maintain their profit margins.
3.Historically ,infusions of Gold and Silver into an economy also lead to inflation.
4.Increase in prices of imported raw material will cause inflation.
Inflation effects:
Negative Affects:
 1.Decrease in the real value of money and other monetary items over time.
 2.Uncertainty over future inflation may discourage investment and savings
 3. High inflation may lead to shortage of goods 
 4. Domestic products become less competitive.
 5. Decline in purchasing power of money and standard of living.
 6. Inflation increases transactions and information costs, which directly inhibits economic development.
Positive Affects:
1. Central banks can adjust nominal interest rates and encouraging investments.
2. Debtors gain when the interest rate raised to tame inflation
How the Inflation will affect the investments?
Inflation causes many distortions in the economy. It hurts people who are retired and living on a fixed income. In the long run a company's revenue and earnings should increase at the same pace as inflation, but inflation can discourage investors by reducing their confidence in investments. The main problem with stocks and inflation is that a company's returns can be overstated. Int he long term stocks are good protection against inflation. The impact of inflation on your portfolio depends on the type of securities you hold.
Where to invest in the times of inflation?
1. Commodities: Investing in commodities like gold and silver therefore helps in diversifying the risk element in your portfolio.There is no surety that they do well. Investing in a commodities takes care of the risk arising due to erosion in value of the currency.
2. Stocks: Stocks which are beaten and have returned in excess of 15% p.a are best option for investment.
Two sectors are relatively immune to inflation are Pharmaceuticals and software.
3. Inflation Index bonds: Thee are securities that offer investors the guarantee that returns will not be eaten up by inflation. Treasury inflation protected securities(TIPS)
4. Short term deposits and funds: These instruments will give you the required liquidity you need while ensuring that you do not lose out in case interest rates were to rise.
5. Property: Property is again a preferred avenue of investments An alternative can be real estate mutual funds. Which are very popular in international markets .Apparently, SEBI is considering allowing such funds in India.
How the FDI in retail to cut inflation and increase productivity?
Foreign Direct Investments in retail will safe guards small shop keepers and it would bring down costs on transportation,cold storage etc. In India farmers are struggling with the destruction's of natural calamities and the lack of technology is also one of the main reason to cause food inflation. Indian govt is trying to educate farmers but could not do it properly. If FDI's will come in retails there is a chance to bring new technology and to increase Agriculture production and bridge demand and supply gap.
                         There is an expectation that the Inflation rate will fall sharply over the next few months and the country's economy should hold up despite the global economic slowdown.

Thursday, 24 November 2011

Good Dividend Stocks


Any company or corporation earns a profit, that money can be put in two ways
1. It can be re-invested in the business called retained earnings
2. It can be distributed to share holders called dividends.
Most secure and stable companies offer dividends to their stock holders. High Growth company's rarely offer dividends. These companies reinvest all of their profits to sustain their growth.
Investing in dividend stocks and blue chip stocks are always profitable for long term investors.
Dividend: Dividends are taxable payment made by a corporation from its portion of corporate profits to its share holders.
For a joint stock company a dividend is allocated as a fixed amount per share. Public companies usually pay dividends on a fixed schedule. Some times companies pays special dividends.These are different from fixed dividends.
These dividends are paid in the form of cash,shares in the company or property
Cash dividends are a form of investment income and are usually taxable. 
Stock dividends are paid out in the form of additional stock shares of the issuing corporation. At that time the company increases the number of shares while lowering the price of each share without changing the market capitalization.
Property dividends are paid out in the form of assets. These type of dividends are relatively rare.
How to calculate Dividend?

Dividened yield(%)= (Annual dividend/current share price)*100.

Stocks which are having good history of giving dividends.
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  • TCS                                                                        India Bulls
  • ITC                                                                         HCL Info
  • IOC                                                                        GE shipping
  • NTPC                                                                     Tata Elexi
  • Hero Honda                                                            Chennai petroleum
  • Reliance Industries                                                  Hinduja global
  • State Bank of India                                                  LKP Finance
  • Infosys Technology                                                  Nestle       
  • HUL                                                                        Glaxo Smith Pharma
  • Sail                                                                       Bajaj hld&invs
  • ICICI Bank                                                             HDFC Bank 
  • BHEL                                                                   Bosch
  • HDFC                                                                    Asian Paints
  • Gail                                                                       Gujarat Gas
  • Wipro                                                                    Mahindra& Mahindra
  • Tata motors                                                           Reliance Industries
  • Oil india                                                                 Thermax
  • L&T                                                                      Foseco India
  • Petronet lng                                                           Mundra port
  • Delta corp
Related Links:
Very Useful Article for Wall Street
Three hottest sectors for 2012

Stock Market Crash


A rapid and often unanticipated drop in stock prices, resulting in a significant loss of paper wealth. Crashes are often occur under the following conditions
1. A prolonged period of rising stock prices.
2. Excessive economic optimism
3.A market where P/E ratio exceed long term averages.
4. Extensive use of margin debt
5. Leverage by market participants

Historical Crashes:

Wall Street Crash of 1929:


The lead up to October 1929 saw equity prices rise to all time high multiples of more than 30 times earnings. It was a technological golden age as innovations such as radio,Auto mobile aviation, telephone and power grid were deployed and adopted.
on august 24 1921 the Dow Jones Industrial average stood at a value of 63.9. By September 3, 1929 it had risen to 381.2. By the summer of 1929 the economy was shrinking and the stock market went through a series of unsettling price declines.On October 28 an 29 the Industrial Average fell 38 points to 260, The Dow Jones Industrial Average would lose 89% of its value before finally bottoming out in July 1932.

The crash of 1987:

The crash of 1987 did not lead to a bear market. The rapid and severe down turn in stock prices that occurred in late October of 1987. After 5 days of intensifying stock market declines selling pressure hit a peak on October 19 known as Black Monday. The Dow Jones Industrial Average fell a record 22% on that day alone, with many stocks halted during the day as order imbalances prevented true price. Investors and regulators learned a lot from the 1987 crash.,specifically with regards to the dangers of Automatic or program trading. Humans are needed more than ever to assess the situation and possible over ride imprudent market thresholds.

The crash of 2008-2009: 

On the September 16,2008 failures of massive financial institutions and US banks, most notably the Lehman Brothers Bank resulted in a Global Financial Crisis. This affected banks throughout Europe. Iceland was worse hit and the value of its Krona reduced rapidly threatening to send the whole country into bankruptcy.Iceland was able to secure an emergency loan from the International Monetary Fund in November. In United States , 15 banks failed in 2008.On October 24 many of the world's stock exchanges experienced the worst declines in their history with drops of around 10% .By march 6th 2009 the Dow Jones Industrial Average dropped 54% from 14164 to 6469.
every body was looking to get as far away as they would from stocks but one person was busy putting all his money into stacks. And this person was none other than the legendary investor Warren Buffett.
Buffett believed that when the entire world sees things with short term view , even good , fundamentally strong companies witness a drop in price along with all the other stocks. He believed that such companies would set new earnings records 5,10 and 20 year down the line and hence you are getting an opportunity to grab them for cheap now.

Sunday, 13 November 2011

What to do if you want to invest in Mutual Funds.


Mutual funds may be formed under company law,by legal trust or by statute. There are fund managers who manage the investment decisions, Fund Administrator who manages the trading,reconciliations, valuation and unit pricing, a Board of Directors or Trustees who safe guards the assets and ensures compliance with laws ,regulations and rules and the share holders who own the assets and associated income.

Internationally recognized mutual funds are 
1. Exchange traded funds(ETFs)
2. Real Estate Investment trusts(REITs)
3. Sovereign investment funds.
The terminology varies with country.

There are many ways to find mutual fund securities in India.

1. Get in touch with Asset Management Company(AMC) through online. Some mutual fund sites allow you to invest online for that you need to have an account with the banks they have partnered with and get in touch with fund houses. You will find all these sites on web.

2. Visit  the Association of Mutual funds in India: Here you find a list of mutual fund agents across the country.

3. Investigate your friends relative and colleagues 

4. Visit your bank: A number of banks are mutual fund agents.

5. Check the online finance portals.

                                                            All the best

Saturday, 12 November 2011

Types of Mutual Funds


Most funds have a particular strategy . It is important to find which strategy fits to your investment criteria and style.
Mutual funds are divided in the base of structure and Investment objective.
In the base of structure mutual funds are divided in to three types.
1.Open-ended Funds
2.Close-ended Funds
3. Interval Funds
Open-ended funds do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value(NAV) related prices. The key feature of open end funds is liquidity. 

Close-ended funds have fixed number of shares. The value of the shares fluctuates with the market, but fund manager has less influence because the price of the underlining owned securities has greater influence.

Interval funds are that funds which combines the features of open ended and close ended funds.The units may be traded on the Stock Exchanges or may be open for sale or redemption during pre-determined intervals at Net Asset Value(NAV) related prices.

In the base of Investment Objective Mutual Funds divided in to 16 types.
1.Based on company size large,mid and small capitals: Stocks from firms with various asset levels such as over $2billion for large. In between $2 and $1billion for mid and below $1billion for small.
2. Index Funds: These funds are Position Philosophy based funds. The securities are maintained by the fund manager to mimic the index fund which it is following.
3.Enhanced Index: This is an Index fund which has been modified by either adding value or reducing volatility through selective stock picking
4. Value Stock Funds: Stocks from firm with relative low price to Earning (P/E ratio),usually pay good dividends. It is good for the investor who is looking for the income rather than capital gains. 
5. Income stock funds: Investor who is looking for income can prefer these funds. Income usually come from dividends or interest. These stocks are from firms which pay relatively high dividends. This fund is much like the Value Stock fund but accepts a little more risk and is not limited to stocks.
6. Growth stock funds: Stocks from firm with higher low price to earning(P/E ratio). usually pay small dividends. This is good for the investor who is looking for capital gains.
7.Tax efficient funds: The main key to this fund is to minimize the tax bills such as keeping turnover levels low. These funds still shoot for solid returns.
8. Balanced Funds: These funds are good for the investor who is wishing to balance his risk between various sectors such as asset size ,income or growth. 
9.International funds: Stocks from International firms.
10.Stock Market Sector funds: The securities in this fund are chosen from a particular marked sector.
11.Defensive Stocks: The securities in this funds are chosen from a stock which is usually not impacted by economic down terms.
12.Convertible Funds: Bonds of preferred stocks which may be converted into common stock.
13. Junk bond funds: Bonds which pay higher than market interest but carry higher risk for failure and are rated below AAA.
14. Mutual Funds of Mutual Funds: This funds that specializes in buying shares in other Mutual Funds rather than individual securities.
15.Exchange Traded Funds(ETFs): Baskets of securities that track highly recognized Indexes similar to mutual funds. Except that they trade the same way that a stock trades on a stock exchange.
16.Gilt Funds: These funds are to invest their corpus in securities issued by government
Risk return matrix: The following graph clearly showing the returns and the risk.Its up to you to decide which funds suits for your financial goals and how much risk you can take.





Friday, 11 November 2011

Investment in Mutual funds

          I posted so far about  Direct Investment in share market. Another type of Investment is Indirect Investment. Indirect investment means investing in Mutual funds and portfolio management services.Let me explain about mutual fund. 
          Mutual fund is a collective investment scheme which is professionally managed. Number of professionals dedicated their time to observe good stocks. These professionals buy stocks,bonds,short term money market instruments with the money which is invested by many investors.

There are many reasons to buy mutual funds

1.Diversification: You can buy a mutual fund and obtain instant access to a hundreds of individual stocks or bonds
2. Professionally managed: Professionals like mutual fund managers and analysts dedicating their lives for researching and analyzing current and potential holdings for their mutual funds.3.Mutual funds have low minimums: Many mutual fund companies allow investors to get started in a mutual fund with as little as $1,000.
4. Systematic investing and withdrawals: It is simple to invest regularly in a mutual fund. Many Mutual Fund companies allow investors to invest as little as $50 per month directly into a mutual funds. Money can be regularly with drawn from a mutual fund and be deposited into a bank account. There are generally no fees for this service.
5 Automatic reinvestment: An investors can easily and automatically have capital gains and dividends reinvested into their mutual fund with out a sales load or extra fees.
6. Transparency: Mutual fund holdings are publicly available,which ensures that investors are getting what they pay for.
7. Mutual funds are liquid: If you want to sell your mutual fund, the sum derived from the sale are available the day after you sell the mutual fund.
8. Mutual funds have audited track records: A mutual fund company must maintain performance track records for each mutual fund and have them audited for accuracy, which ensures that investors can trust the mutual funds.
9. Safety of investing in mutual funds: If a mutual fund company goes out of business, mutual fund share holders receive an amount of cash that equals their ownership in the mutual fund. Alternatively the mutual funds Board of Directors might elect a new investment adviser to manage the mutual funds.

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Thursday, 10 November 2011

Analysis of a stock


Before Investing , you need to know the different types of stocks and have to analyze the stocks.

What are different types of stocks in Stock market?

1.Common stocks:  These stocks are stocks that offer you a bit of ownership of a company. Entitles you to some dividends and allows you one vote for each share you own in electing directors or making key business decisions. These stocks are different from debentures or bonds. which are money given to a company as a loan in return for the promise of specific interest.
2. Preferred stocks: These stocks offers you preferential treatment when it comes to paying of dividends.If you have preferred cumulative stock, your position is secure.Those holding preferred types of stocks usually have no voting ability.
3. Growth stocks: The stocks which increase their sales and earnings from one year to the next year by at least 15% will come under growth stocks. The company with growth stocks is generally a stable company.
4.Value stocks:The stocks that were beaten down due to temporary problems will come under value stocks.Investors believe that the stock market overreacts to news about a company.
5.Dividend Stocks: The stocks which gives dividends based on the number of shares owned and typically on a quarterly basis and financially solid will come under dividend stocks.
6. Seasonal Stocks:Stocks which grows according to the seasons are seasonal stocks.
7.Blue chip stocks: Companies who are considered leaders in their industries and show promises of long term success. They have good reputation for dividend payout and have recognizable brand.
8. Technology stocks: Technology stocks are stocks bought from companies that are involved in higher technology sector.
9. Speculative Stocks: These stocks are riskier stocks and often offer a greater chance for higher profit but also pose a greater risk. These stocks are generally good only for very confident investors.
10.Low-risk,Medium-risk and High-risk stocks: Stocks from banks and utilities fall into the Low-risk stocks. Those stocks which have good history of dividend payout considered medium-risk. Penny and Speculative stocks fall into the High-risk stocks.

How to analyze the stocks?

There are many techniques to analyze the stocks.
1.Fundamental Analysis:It looks at the details of a specific company like 
  • Who are the directors
  • How the company operates in the market
  • What are the chairmen statements
  • History of the company
  • Current status in the market
Reviewing its income and Balance sheet
2. Technical Analysis: It is looking the company's stock value only over a period of time on a chart. By comparing the stock price against its moving average and other calculated chart lines. A company's financial statements are less important in this type of analysis.
3. Index method: In this type of analysis, investors value their portfolio by trying to create diverse investment strategies.The investment portfolio is weighted by market capitalization.
4.Analyzing using Inside information: Some investors try to analyze the stock market by using information gained from insider sources in a company. This is illegal in most places.
5. Comparative Analysis of stocks : In this method of analysis investors compare different stocks, trying to figure out which stocks are yielding  more profit and which stocks are most likely to offer profit in the future. This type of analysis make it easier when deciding which stocks to buy and which to sell.
6. Earnings revisions of stocks and the services of an analyst: In this method of analysis investors look at analysts projections and earnings expectations.
7.Stock analysis software: Investors use software to evaluate investments regularly and make them alert.
8. Online stock analysis:  Investors also use online stock analysis to evaluate and make them alert