Repost

Back after a very long time. Been busy and distracted by the day job but expecting some more action now!

Thoughts on Filing Income Tax Returns

Having just finish filing the income tax return in a mad rush towards the end of the 31th July deadline, I must say that it's good to see the progress being made in the way the tax filing process is being automated and brought online

The pdf and excel based IT forms are indeed very handy, but from what I could make out, are useful only for those with salary income and maybe something for the banks.

If you have multiple income streams, then good luck filling out the forms without a CA! Even with a CA, I seriously doubt if all IT returns are filed correctly.

The problem is not the forms or the CAs, but the very complex income tax rules in India. Steps have to be taken to simplify our tax rules to ensure that most people do not see filing tax returns as a pain in the backside, and consequently do not shy away from filing their taxes.

Pantaloon Retail

I first thought about buying shares of Pantaloon Retail a few years back while standing in a very long queue at Big Bazaar. While looking around at all the people struggling to actually pay money I was thinking it might be a good idea to be receiving all this money - as a shareholder :)

I did buy some shares in October 2008 (with an eye on on upcoming stock split; which I now know may not be a great idea) and then again in September 2009. Though the stock went above Rs. 500 at a point, it is now at Rs 277; which by the way is the same as I bought it at around 2 and a half years back and lower than what I got it for a year and a half back.

What now? The queues are still there, and the chain is growing, so I'm going to go with my gut and buy some more!

Following up on MeraFoF

Following up on MeraFoF, it has been tracking the Sensex, but lagging a bit behind. The lagging part is not too good, especially if you want to base your investment strategy on it.

Of course, 4 months does not conclusively prove anything, and I remain convinced that over the long run, the MeraFoF would prove to be an investment with lower than average risk and higher than average return.

Buying Before a Bonus Issue or Stock Split

Does it make sense buying a share just before a bonus issue or a stock split?

I just did that (see previous post) and now I am wondering whether that was a wise decision.

Here is the math: KVB bank offered 2 shares at Rs 150 for every 5 held.
I bought my shares at around Rs 550 so my total investment would be...
550x5 = 2750
and then...
150x2 = 300
... which means I buy 7 shares at 3050, or Rs 436 per share.

KVB is at Rs 390 (18 Mar), which means that I have already lost around 10%.

Anyway, lesson for the future: The market will account for these events i.e. bonus, or splits do not come cheap or for free. On the day of the split/bonus the stock price will go down proportionately.

Because the previous post has so little detail... the reasons I bought this stock in the first place were that its financials looked pretty strong (to me), offered regular dividends, and the bank was on an expansion plan. They also offer the highest rates I've seen on term deposits, so they must be doing something right (or so the logic goes).

These reasons still hold true for me and I'm sure the stock will pick up. The lesson here is that bonuses/splits can be safely ignored when deciding to buy a stock.

Links:
KVB on Google Finance
KVB on MoneyControl

Karur Vysya Bank

Bought Karur Vysya Bank @ 547.57 on 15 Feb 2011. Will buy more @ 150 in the rights issues around the corner.

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.

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.

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.

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!

Growth or Dividend?

This is a question any mutual fund investor should ask himself. Should I opt for the growth or the dividend option? Also, does dividend re-investment make any sense whatsoever?

If you leave this to your advisor (in most cases the salesman), he will chose one almost randomly. In fact he does not really care as his commission/fee is not dependent on this. You have to make the choice based on your requirements.

• In the Growth Option all returns from the assets held are simply ploughed back in. You get no dividends, and appreciation is basically seen in the NAV going up. If you are looking at long term asset appreciation and are not dependent on the income being generated by your investments for your expenses, go for the growth option.
• The Dividend Payout Option basically gives you any asset appreciation in the form of dividend. If your investments are your source of income, then dividends will come in handy.
• The Dividend Re-investment Option gives you the dividend, but basically invests it back into the fund. This option makes absolutely no sense to me. In fact when you are redeeming, you may end up having to pay for short term capital gains on the units that you bought from the dividend. Unless our tax laws change (and I cannot imagine how) this option is totally useless. If you are even considering this, simply go for the growth option.

Another factor to consider is your investing approach. Conservative investors who would like some investments in relatively higher risk assets, may want to get dividends from the higher risk assets and invest the proceeds in a debt/income fund or their bank deposit.

In theory, any option you choose should give you identical results. In case you choose the dividend payout option, returns would obviously depend on what you do with the dividend income.

Punjab and Sind Bank IPO

Did you not apply for the Coal India IPO? Did you miss out on the big money people made on it? Have you applied for the PSB IPO?

I did not apply for Coal India, but I did apply for the PSB IPO. I am not a big fan of PSUs, or any company that is basically state owned, so I was never keen on either. Looking at the the prospectus for PSB, there is a huge list of risks, including a few civil cases and IT cases.

As it is, there is nothing in this IPO that would attract one to buy it for the long term, but the fact is there appears to be some money to be made on almost any IPO listing, especially a nationalised bank. So I have applied for some shares, which I intend to sell off at the first reasonable opportunity. The fact that this IPO is oversubscribed almost 50 times, I am not too optimistic I will get too many shares, but it's worth a shot!

Building the Core Portfolio

Here is what I have decided I need on my core mutual fund based portfolio: Some balanced funds, some large cap and maybe some mid cap funds. The balanced and large cap funds should provide the stability and the mid caps should provide the growth.

Value Research Online is an excellent source of information when it comes to mutual funds in India and general personal finance tips. It is on the basis of its categorisation and rating that my fund selection is largely based on.

Anyway, here is my list:

1. Balanced: HDFC Prudence Fund. This is a fund that has been going strong for more than a decade and has provided excellent returns to its investors.
2. Large Cap: Franklin Bluechip and DSP Black Rock Top 100. The Bluechip fund is one that I have personally held for more than 6 years and has proven to be a good, stable investment. The DSPBR Top 100 is not a fund I have invested in, but has a solid track record over the last 7 odd years.
3. Large and Mid Cap: HDFC Top 200. This is not a fund I hold, but has been on my radar for quite a while now. Since its inception around 13 years back, this fund has been an outstanding performer.
4. Mid and Small Cap: Reliance Growth.
5. Multi Cap: HDFC Equity.

The last 2, in fact the last 3, are what I am hoping will give a boost to the portfolio. The primary reason to stick with Reliance Growth and HDFC Equity, despite the  fact that they are not rated too highly, it that I've held these for a while now and they have not disappointed. Also, I do not want worry about short term capital gains in case I have to redeem to buy house in the near future.

Thoughts on the Core Portfolio

Ideally I would like my portfolio to double every couple of years, and be at least a millionaire within a few years, and then live happily ever after. Wishful thinking? Absolutely! Will this happen? Unlikely... unless I win the lottery. Of course since I have never bought a lottery ticket, that's not really happening.

I am willing to settle for a core portfolio of securities with a low/medium risk profile and a medium/high return. This is a reasonable requirement for almost everyone... right? The only challenge is to identify the right investment vehicles.

So far, here is my plan: put in the bulk of my investments in good balanced and large cap oriented mutual funds. This represents the bulk of my portfolio and should provide reasonable results with a reasonable risk. I can essentially fire and forget, and focus on other things. Like the itch to beat the market, where I set aside a small amount that I can play around with directly in the stock market, and any losses, though painful, do not wipe me out!

Thoughts on what goes into the core portfolio: HDFC Prudence, HDFC Top 200, Franklin Bluechip, and maybe a couple of index funds.

Gammon India... going down

Q2 results for Gammon India are not looking so good. The stock today stands at 179, higher than the 151 I paid for it in June 2009, but lower than the 197 I paid in September 2009.

The reason for first buying the stock was that you could see Gammon all over the place in Delhi. The were building the metro and countless flyovers in Delhi. Financials were good, and in September 2009, I had already made a decent amount of money. The financials still made sense and there was no reason not to buy a bit more. It looked pretty good in the portfolio at that time.

The stock went further up and stayed in the 220-240 range, when I should have sold, and then started the gradual decline. I still think it is a decent company to invest in, the industry as whole has good potential, but the recent bad press means that the share price is likely to go down further in the near future.

For now, I am selling. However, I will try to keep an eye on the stock and buy back at lower levels.

Links to Gammon India:
Google Finance
MoneyControl

Stock Buying Strategy for the Aam Aadmi

So you want to buy some shares on the Indian stock markets... but don't have the time or energy to do the full due diligence. But you know that you can beat the market... You want the returns but can't put in the time. You want the thrills but need a safety net... you want the cake, and want to eat it too.

Well... yes you can! Well, I can. Here is what I do: I build my self a safety net of mutual funds, and keep some money on the side for investing in the stock market. I know very well that there is no way I can find the time to fully research the stocks I should be buying, so I widen my safety net as much as possible. The bulk of my money goes into mutual funds, and I have set aside a small amount to play around with, to get the thrills.

This strategy gives you a nice safety net where your investments can grow in the hands of professionals, and at the same time gives you an opportunity to 'play the market' and pit yourself against the professionals. And by the way, I see no reason why you shouldn't be beating the professionals.

Buy That Share... Now!

A number of studies and statistics categorically prove that investing in stocks can potentially be the highest yielding investment possible.
The aam aadmi is of course an expert at investing in stocks. He knows what to buy, and the perfect time to do so, and the perfect time to sell. He knows where to get the right tips. He understands that the market is rigged in favour of the big players, but he also knows how to beat them at their own game... Or does he?
Fact is, knowing when to invest in what, and when to sell requires a lot of effort and hard work, and you still have a high chance of making mistakes. The system is rigged, but in favour of people whose job it is to buy and sell, people who make an effort to find out the news before you and I know about it, people who employ armies to analyse the annual reports of companies, line by line, number by number.
Does the aam aadmi, do you, have the time and the expertise to do so? Maybe some expertise... but the time? I certainly don't. So, what to do? Certainly do invest, but take the easier route and leave it to the professionals. Go the Mutual Fund route. A good mutual fund will give you decent returns over the long term, and most importantly, your free time is actually free.
That still leaves us with this: There is a wild animal called the Stock Market out there. I know I can tame it. I need to tame it... can't control the urge...

PPF as part of Asset Allocation plan

What proportion of your investments are tucked away in fixed income securities like bond or debt funds? Bank fixed deposits? While these investment avenues may be good options but do you consider what you put away in your PPF account in this category?
All the time our financial advisers will sell us equity funds, debt fund or ULIPs, but what none of them will recommend is your PPF account, yet this is possibly the best fixed income vehicle that is available in India. The only time PPF is considered is for its tax benefits. But is that tax benefit the only reason to invest in PPF.
Simply, a PPF is an account where you get a tax benefit on investment, tax free returns of 8% (as of now), and any cash you take out is fully tax free. Most people will look at only the first component, and ignore the other two.
Here is what you should be doing: try to use up your 1 lakh limit for EPF and  insurance first. The tax benefits from your PPF account will accrue over the years and may even outstrip any bond, fixed deposit or debt fund. This is because the 8% you get is tax free, unlike any returns from other places. And of course, Bharat Sarkar ensures the safety of your investment.

LIC Charges? Can't see them!

Why are there no details of any of the charges levied by LIC on their policies on their website (www.licindia.in)? I am looking at getting some insurance, and was advised that LIC would be the most effective solution, but unfortunately I can find absolutely no indication of the costs that I will incur. This applies, for example, to Cash Back or ULIP type policies, where most of my money should go towards investment in some form, while the insurance company keeps some operating costs.

Maybe, the costs are there and its only me who cannot find them. The closest I came to was 'The Unit Fund is subject to various charges and value of units may increase or decrease, depending on the Net Asset Value (NAV).' at http://www.licindia.in/profit_plus_features.htm. In contrast, other insurance companies, HDFC Standard Life for example, clearly mention the charges applicable on their policies.

It is a shame that LIC is not being forthright with its potential customers. Maybe its just bad website design and not an attempt to hide information, but given that it is the largest insurer in India, one would expect better.

Why?

This is a collection of notes I make while investing. So far, I have a small collection of stocks on the BSE and NSE while the bulk of my investments are in mutual funds.
This blog is a repository of notes while I explore new avenues for investment and personal finance.