15 January, 2011

SIP even if you have the cash

The reason you want to invest in a mutual find via a SIP is simply to average out your costs. Smart strategy given the uncertainty of the stock market. But what if you have cash sitting idle in your bank account? My opinion: its still worth opting for the SIP.

However, rather than leave the money in your savings account earning a measly 3%, put it in a few staggered fixed deposits. Stagger them so that they mature in 3, 6 and 9 months so that you can get better than 3%.

The only irritant here is that in most cases the banks offer the best rates at 3 months 16 days, 6 months 16 days and so on and not 3, 6, or 9 months. The reason for this is that the banks would like to incentivise such deposits so as to give them a bit of a buffer to get back the money they've lent out. A very good explanation for this can be found on the TOI here. How it works exactly is a bit of a mystery to me as I am sure lenders and borrowers do not synchronise their transactions. What this certainly means is that on an average most deposits will be for longer terms than the borrowings.

Assuming this is the case and assuming you'd like to invest Rs 10,000 a month over a year, you could:
  1. Leave 40,000 in your savings account. This takes care of the first 4 months.
  2. Deposit 30,000 for 115 days (or closest best rate).
  3. Deposit 30,000 for 6 months 16 days.
  4. Deposit 20,000 for 9 months 16 days.
The interest rates offered by HDFC Bank for these periods (as on 15 Jan 2011) would be 3%, 5.5%, 7.75%, and 7.75% respectively (Latest HDFC Rates available here)

Smart personal finance should not be maximising potential returns and taking unreasonable risks but about getting reasonable returns while taking reasonable risks. Putting in a large investment in one go is taking an unnecessary risk given that the stock market may move adversely at any time. Its best to take a safe FD route while still investing in the SIP.

06 January, 2011

MeraFoF

Following up on my post on building the core portfolio, I have decided to track the core portfolio, or MeraFoF as I'll call it. I'm starting with 02 Dec 2010 as the base date. No scientific basis to this date except the fact that the sensex closed near the 20K mark on this date, 19992.7 to be exact. I've 'allocated' around Rs. 3333 to each of the funds identified, and this is what I have...


The portfolio value as of 02 Dec 2010 was Rs. 19,997.
Value as on 03 Jan 2011: Rs 19,962 as against the sensex which closed at 20561. So in the past month while the sensex has gone up by around 3%, MeraFoF has gone down by a fraction of a percent.
Not good. Lets see what happens next month.

02 January, 2011

50 Punjab and Sind Bank Shares

... is all I got of the 300 I applied for. In fact all of the 8 people I have spoken to have been allocated 50 shares irrespective of what they applied for. Actually no, one of them got nothing.

50 shares is nothing write home about. I got them at 114 and they closed at 128.35 on the 31st December. I think the Indian investor has unreasonable expectations when it comes to IPOs; we tend to demand that we get returns in the range of 25-40% at the very least. And that too on the day the stock lists.

As I mentioned in an earlier post about the PSB IPO, I too went in with the idea that I would get huge returns on listing, sell of immediately and encash my profit.

How much was my profit by the way? Turns out not too bad...
  1. In 2 days of being listed, the stock closed 14.35 rupees higher. On 114, that means a return of around 12.5%. Not bad at all for 2 days.
  2. If I consider an overall 'investment' of 36,000 rupees (for 300 shares @ 120 put in on the 14th December), I am looking at Rs 717.5 in half a month. A return of around 2%. Which translates to 48% per annum.
What am I saying? I am saying that even with the 'low' rise of the IPO stock, there still is a decent percentage to be made. However, with just 50 shares, the decent percentages do not really add up to significant money.

Was it worth it? Absolutely not.

    01 January, 2011

    Happy New Year 2011

    A very happy and prosperous 2011!!!

    For the record, here are a few resolutions for this year...
    1. Move all current mutual find investments from current funds to those I proposed earlier in a post about building a core portfolio.
    2. Identify a set of 8-12 good mid cap stocks to invest in.
    3. Buy the stocks identified above and beat the sensex (at the very least :)).
    4. Decide once and for all whether I want to buy a house or not; if yes, buy the bloody house.

    A note about the sensex. It has been easing upwards since the last year and a half or so and has been swinging between 19000 and 21000 ever since late September. I have a feeling the new year will bring some cheer and free up the sensex. I see it going up smartly in the new year.

    All the very best and happy investing!