There are two choices you have while investing in the stock market - active investing and passive investing. In the active style, you pick your own investments and make all the decisions about your money. In the passive style, you simply let your investments mirror a stock index or a collection of stocks selected by a third party.
When you hear the term investing - most people are referring to the former. A lot of people believe that you have to constantly monitor the market and keep on top of all the news about stocks you own. Whats ironic about all this 'active' management is that even after all this monitoring the odds are against you to beat the benchmark such as the BSE Sensex Index. If you think this is a lot of work for very little return you can choose the more 'passive' style. In this form of investing, you pick an index and buy an ETF that mirrors the returns of the index. All other things being equal, your returns will mirror that of the indexes with very little management or research on your part.
At this point, you have probably figured out which style suits your personality best. Before we jump into the exact steps involved in buying stocks, you have one more step to complete. You have to plan and set goals before you start investing. Why before you ask? Stock investing can be a very emotional process. That is because everyone is very emotional about losing or gaining money. If have a few guidelines in mind regarding how much you want to make or how much you are willing to lose in a particular investment, you increase the odds of making better investing decisions during the whole process.
Some questions that you should answer before you start investing are:
- How much money do you need to sustain your current lifestyle in retirement?
- How far are you away from retirement?
- What type of investments are you comfortable with?
- How much money will you keep aside for short-term financial needs?
- What kind of returns on your investment (profit) would you be content with?
After answering the above questions, you have an idea of what your investing style is, how much money you'll need and the big picture in general. Now, you're ready to start investing your money in stocks.
Thursday, April 29, 2010
Wednesday, April 21, 2010
Why Financial Planning Is Important
Over the last few years, terms like financial planning and personal finance have emerged as buzzwords of sorts. Newspapers, magazines, television channels and just about every one under the sun seem to be talking about the importance of financial planning. So what is financial planning; more importantly, does it merit the attention that it is being given?
Financial planning is a process through which an individual can chart a roadmap to meet expected and unforeseen needs in life. Simply put, the intention is to take necessary steps to ensure that the individual is equipped to accomplish what he has set out to achieve and is prepared to deal with contingencies as well.
And yes, the importance of financial planning (especially in the present scenario) cannot be overstated. Among others, two factors are responsible for the same i.e. inflation and changing lifestyles.
Inflation is a situation where too much money chases a limited number of goods. This leads to a fall in the value of money. It is also expressed as a rise in the general price level. For example, a product that costs Rs 100 at present would cost Rs 105 a year from today, assuming that prices rise at 5 per cent. This is the impact of rising prices over one year; over a 30-Yr period, assuming that inflation continues to rise at 5 per cent, the same product will be available at Rs 432!
Financial planning can ensure that one is equipped to deal with the impact of inflation, especially in phases like retirement when expenses continue but income streams dry up.
The second factor is changing lifestyles. With higher disposable incomes, it is common for individuals to upgrade their standard of living. For example, objects like cars that were considered luxuries not too long ago, have become necessities today. Financial planning has a role to play in helping individuals both upgrade and maintain their lifestyle as well.
Finally, there are contingencies like medical emergencies or unplanned expenditures that an individual might have to cope with. Sound financial planning can enable him to easily mitigate such situations, without straining his finances.
At its core, financial planning is not a very difficult task. All it takes is discipline and religious adherence to the principles of financial planning.
Discipline has a part to play at every stage, from setting objectives to actually executing the plans that are meant to achieve those objectives. In fact, an adhoc approach while dealing with finances is one of the major reasons for the financial distress that individuals find themselves in.
Setting objectives, investing in line with one's risk appetite and asset allocation are some of the fundamental principles of financial planning.
In conclusion, it can be stated that achieving financial nirvana isn't as difficult as it is often made out to be. To get there, all one needs to do is, stick to the basics of financial planning
Financial planning is a process through which an individual can chart a roadmap to meet expected and unforeseen needs in life. Simply put, the intention is to take necessary steps to ensure that the individual is equipped to accomplish what he has set out to achieve and is prepared to deal with contingencies as well.
And yes, the importance of financial planning (especially in the present scenario) cannot be overstated. Among others, two factors are responsible for the same i.e. inflation and changing lifestyles.
Inflation is a situation where too much money chases a limited number of goods. This leads to a fall in the value of money. It is also expressed as a rise in the general price level. For example, a product that costs Rs 100 at present would cost Rs 105 a year from today, assuming that prices rise at 5 per cent. This is the impact of rising prices over one year; over a 30-Yr period, assuming that inflation continues to rise at 5 per cent, the same product will be available at Rs 432!
Financial planning can ensure that one is equipped to deal with the impact of inflation, especially in phases like retirement when expenses continue but income streams dry up.
The second factor is changing lifestyles. With higher disposable incomes, it is common for individuals to upgrade their standard of living. For example, objects like cars that were considered luxuries not too long ago, have become necessities today. Financial planning has a role to play in helping individuals both upgrade and maintain their lifestyle as well.
Finally, there are contingencies like medical emergencies or unplanned expenditures that an individual might have to cope with. Sound financial planning can enable him to easily mitigate such situations, without straining his finances.
At its core, financial planning is not a very difficult task. All it takes is discipline and religious adherence to the principles of financial planning.
Discipline has a part to play at every stage, from setting objectives to actually executing the plans that are meant to achieve those objectives. In fact, an adhoc approach while dealing with finances is one of the major reasons for the financial distress that individuals find themselves in.
Setting objectives, investing in line with one's risk appetite and asset allocation are some of the fundamental principles of financial planning.
In conclusion, it can be stated that achieving financial nirvana isn't as difficult as it is often made out to be. To get there, all one needs to do is, stick to the basics of financial planning
Sunday, April 11, 2010
Choose an Life insurance policy that suits you well
This article has some tips to help you choose a policy that suits you well
While choosing an insurance policy, the first step is choosing the insurance company. The factors that you need to look at are the promoters, customer service, performance track record and the product portfolio. The next step is to understand your own financial needs, taking into account the life stage, risk profile, dependants, disposable income and liabilities. This will help you identify your protection and savings needs.
The amount of insurance required is a factor of your future earning capacity, your assets, and your liabilities. Insurance is not static and needs to be reviewed at different stages in life, depending on the changes in those factors. The amount of insurance required changes with factors like income of the family, assets and liabilities of the family, size of the family and the number of dependants in the family, the stage of life of the dependants - birth, education, marriage, and so on.
You need to think through all these to arrive at the suitable option and amount of life insurance cover. You should review your insurance needs at least once in every two years to take into consideration any changes in earning capacity, profile of dependents, cost of living, liabilities like housing loan etc to ensure that the life insurance cover is adequate.
Life insurance policies are long-term contracts. As such, it is important that you make the right choice of plan to meet your requirements. Unit-linked policies have several key advantages such as flexibility, transparency, simplicity, liquidity and efficiency in fund management. These policies are adaptable to the changing needs of the customers over their lifetime. Participatory policies are less flexible and adaptable. Customers opting for these policies need to be certain of their milestone requirements and will have to time the purchase of their policy accordingly. Besides timing, they may have to buy multiple policies to meet different needs. These policies are restrictive in that they do not provide the option to rebalance the proportion of life insurance and savings within the policy.
Unit-linked plans are more efficient in their charge structure. The high level of disclosures required in these plans is an automatic check against an inefficient charge structure. At the same time, the level of awareness among consumers about the charge structures in life insurance plans is not very high.
The protection should provide for all the liabilities and future earning potential of the person insured. This will, at a minimum, ensure that the lifestyle of the dependants is not significantly altered if anything unfortunate were to happen to the person.
The savings portion should be determined by your financial goals. Life insurance as an investment instrument enjoys several distinct advantages. There is very little or no risk of capital loss, the long-term nature of the contracts ensures that investment horizons are long-term, thus leading to efficient funds management.
The regular nature of saving and the benefits of compounding ensure a substantial corpus over a period of time. The differentiating factors are flexibility, transparency and the customisation possibilities that are available in the product. These aspects are crucial to ensure that the product adapts to the changing financial needs of the customer. The structure of charges is specific to each insurer, which would derive that a seemingly high charge is not necessarily more inefficient than a charge structure that looks low. This is primarily because life insurance contracts are long-term contracts where charges can get levelled out over a period of time.
While choosing an insurance policy, the first step is choosing the insurance company. The factors that you need to look at are the promoters, customer service, performance track record and the product portfolio. The next step is to understand your own financial needs, taking into account the life stage, risk profile, dependants, disposable income and liabilities. This will help you identify your protection and savings needs.
The amount of insurance required is a factor of your future earning capacity, your assets, and your liabilities. Insurance is not static and needs to be reviewed at different stages in life, depending on the changes in those factors. The amount of insurance required changes with factors like income of the family, assets and liabilities of the family, size of the family and the number of dependants in the family, the stage of life of the dependants - birth, education, marriage, and so on.
You need to think through all these to arrive at the suitable option and amount of life insurance cover. You should review your insurance needs at least once in every two years to take into consideration any changes in earning capacity, profile of dependents, cost of living, liabilities like housing loan etc to ensure that the life insurance cover is adequate.
Life insurance policies are long-term contracts. As such, it is important that you make the right choice of plan to meet your requirements. Unit-linked policies have several key advantages such as flexibility, transparency, simplicity, liquidity and efficiency in fund management. These policies are adaptable to the changing needs of the customers over their lifetime. Participatory policies are less flexible and adaptable. Customers opting for these policies need to be certain of their milestone requirements and will have to time the purchase of their policy accordingly. Besides timing, they may have to buy multiple policies to meet different needs. These policies are restrictive in that they do not provide the option to rebalance the proportion of life insurance and savings within the policy.
Unit-linked plans are more efficient in their charge structure. The high level of disclosures required in these plans is an automatic check against an inefficient charge structure. At the same time, the level of awareness among consumers about the charge structures in life insurance plans is not very high.
The protection should provide for all the liabilities and future earning potential of the person insured. This will, at a minimum, ensure that the lifestyle of the dependants is not significantly altered if anything unfortunate were to happen to the person.
The savings portion should be determined by your financial goals. Life insurance as an investment instrument enjoys several distinct advantages. There is very little or no risk of capital loss, the long-term nature of the contracts ensures that investment horizons are long-term, thus leading to efficient funds management.
The regular nature of saving and the benefits of compounding ensure a substantial corpus over a period of time. The differentiating factors are flexibility, transparency and the customisation possibilities that are available in the product. These aspects are crucial to ensure that the product adapts to the changing financial needs of the customer. The structure of charges is specific to each insurer, which would derive that a seemingly high charge is not necessarily more inefficient than a charge structure that looks low. This is primarily because life insurance contracts are long-term contracts where charges can get levelled out over a period of time.
Why does Small Retail Investors Loose
Why does Small Retail Investors Loose
Inspite of more Transparency, inspite of the Advances made in the field of
Communications, in spite of there being more awareness about both companies
and investing, people still loose money (some are successful). At the end
they give a variety of excuses to show that fault did not lie with them, but
other factors contributed to their failure.
Having seen many investors in my stock market career, I can without doubt
say that most of these excuses are so pathetic that the investor himself has
difficulty in actually believing. But to show to others that he did not trip
up he coins these excuses.
I will hereby try to analyse why investors, at least the majority, loose.
When an investor comes into the market, he is generally anticipating a
return, which is more than what he can get by investing in other places.
This in turn means he should be looking at around 24% return per annum would
be quite attractive given that any other investment may not yield more than
12% per annum. This kind of return expectation is moderate due to the fact
that the Investor takes more risk and more risk should always mean more
gains.
But in actuality, an Investor hopes to make a killing in the market. He
would have read or heard somewhere that how some person had made a killing
in the stock markets and he comes with a fixed mindset of making his
investments double in one year if not more.
The said Investor is least prepared and least bothered as to how to select
stocks. At no other place will a person spend money on someone’s sane or
insane advice, as he would do in the stock market. Just as an example,
suppose you want to buy a new television. Do you buy just because someone
recommended it, - of course not. You will go to innumerable TV showrooms,
checks out what all are available and depending upon your necessity will
decide which best to buy. And here I am talking of a maximum investment of
15,000 rupees. But in the Stock Market, Investors put faith and money to the
tune of Lakhs of rupees just based on either someone’s advice or even
overheard conversation.
Most investors don’t enter into the markets when they are down and there is
a picture of gloom in the market as a whole. If asked to invest, they just
go away saying that investing in the markets is not at all profitable and
how he has heard about losses incurred by market participants. When the
markets start moving up, he still neglects the same saying either that time
is not ripe enough for investment or saying that he will enter into the
market when they return to the previous low levels. The markets advance
still more when a small section of investors test the water by making a few
small investments. The market moves up still farther giving small profits to
the Investors small investments. He rues the fact that he invested so less,
but still books the profit available to him. The markets meanwhile have
moved still up and have started to make news. All papers and television
channels start carrying reports about the rise in Index that is happening in
the markets. Now the Investor starts to believe that this time the market
has no way to go but up and he well may profit from the rise. And because be
believe be will get out at a small profit, he invests much more than he
would have done any other time. The markets continue their rise and the
Investor gets into profit. But our Investor is not selling, because he has
come to believe that the markets are not going to see the earlier levels /
rates and since his luck is running great, why not take advantage of it. He
also believes that even if there is a small fall, it is advantageous since
he will be able to get into his favorite stocks cheaper. He believes that he
has the capability to withstand such small falls.
The markets now start to slide a little bit. But our Investor is not
worried. Of course, he knew such a thing would happened. He may even try to
enter a few more stocks since the rate is cheaper. But the slide continues a
little bit more. Our Investor in not unduly worried since he believes it is
just taking a little more time to recover than he expected and isn’t it true
that the Analysts are saying that. Suddenly one good day there is a very
huge drop. This is where Fear comes to him. He hopes that the market may
bounce back. But the markets continue to fall. Investors who had invested
with the help of margin money are the first to get out (kicked out). With
regard to Investors who had invested their hard earned and saved for a very
long time money, they curse their luck and hope that some day, their rate
may come. { Infotech Boom Investors are still waiting!}
This phenomenon is not limited to India, but is the same everywhere. Every
bull market is followed by a strong retraction if not a bear rally. Small
Investors get butchered never to return to the market. But in the next rally
a new wave of Investors come. As old water flows away new water takes their
place. Only if Investors follow prudent Investment policies can they avoid
falling prey to this cycle of Butchering.
Inspite of more Transparency, inspite of the Advances made in the field of
Communications, in spite of there being more awareness about both companies
and investing, people still loose money (some are successful). At the end
they give a variety of excuses to show that fault did not lie with them, but
other factors contributed to their failure.
Having seen many investors in my stock market career, I can without doubt
say that most of these excuses are so pathetic that the investor himself has
difficulty in actually believing. But to show to others that he did not trip
up he coins these excuses.
I will hereby try to analyse why investors, at least the majority, loose.
When an investor comes into the market, he is generally anticipating a
return, which is more than what he can get by investing in other places.
This in turn means he should be looking at around 24% return per annum would
be quite attractive given that any other investment may not yield more than
12% per annum. This kind of return expectation is moderate due to the fact
that the Investor takes more risk and more risk should always mean more
gains.
But in actuality, an Investor hopes to make a killing in the market. He
would have read or heard somewhere that how some person had made a killing
in the stock markets and he comes with a fixed mindset of making his
investments double in one year if not more.
The said Investor is least prepared and least bothered as to how to select
stocks. At no other place will a person spend money on someone’s sane or
insane advice, as he would do in the stock market. Just as an example,
suppose you want to buy a new television. Do you buy just because someone
recommended it, - of course not. You will go to innumerable TV showrooms,
checks out what all are available and depending upon your necessity will
decide which best to buy. And here I am talking of a maximum investment of
15,000 rupees. But in the Stock Market, Investors put faith and money to the
tune of Lakhs of rupees just based on either someone’s advice or even
overheard conversation.
Most investors don’t enter into the markets when they are down and there is
a picture of gloom in the market as a whole. If asked to invest, they just
go away saying that investing in the markets is not at all profitable and
how he has heard about losses incurred by market participants. When the
markets start moving up, he still neglects the same saying either that time
is not ripe enough for investment or saying that he will enter into the
market when they return to the previous low levels. The markets advance
still more when a small section of investors test the water by making a few
small investments. The market moves up still farther giving small profits to
the Investors small investments. He rues the fact that he invested so less,
but still books the profit available to him. The markets meanwhile have
moved still up and have started to make news. All papers and television
channels start carrying reports about the rise in Index that is happening in
the markets. Now the Investor starts to believe that this time the market
has no way to go but up and he well may profit from the rise. And because be
believe be will get out at a small profit, he invests much more than he
would have done any other time. The markets continue their rise and the
Investor gets into profit. But our Investor is not selling, because he has
come to believe that the markets are not going to see the earlier levels /
rates and since his luck is running great, why not take advantage of it. He
also believes that even if there is a small fall, it is advantageous since
he will be able to get into his favorite stocks cheaper. He believes that he
has the capability to withstand such small falls.
The markets now start to slide a little bit. But our Investor is not
worried. Of course, he knew such a thing would happened. He may even try to
enter a few more stocks since the rate is cheaper. But the slide continues a
little bit more. Our Investor in not unduly worried since he believes it is
just taking a little more time to recover than he expected and isn’t it true
that the Analysts are saying that. Suddenly one good day there is a very
huge drop. This is where Fear comes to him. He hopes that the market may
bounce back. But the markets continue to fall. Investors who had invested
with the help of margin money are the first to get out (kicked out). With
regard to Investors who had invested their hard earned and saved for a very
long time money, they curse their luck and hope that some day, their rate
may come. { Infotech Boom Investors are still waiting!}
This phenomenon is not limited to India, but is the same everywhere. Every
bull market is followed by a strong retraction if not a bear rally. Small
Investors get butchered never to return to the market. But in the next rally
a new wave of Investors come. As old water flows away new water takes their
place. Only if Investors follow prudent Investment policies can they avoid
falling prey to this cycle of Butchering.
Friday, April 9, 2010
Health Insurance
What is the use of it can anybody guess it
Health Insurance works when nothing works it helps in getin out of any medical emergency which can happen any time during the 24 hours a day where it helps in getin the cashless treatment avalaible at a no of hospitals empannled with your insurance provider.
This life is very precious so its health and you never know when need arise for hospitalization where one has to deposit heavy amount before the treatment can begin.
at that time cash less card which is being provided by the health insurance company comes handy and you dont have to take tension to arrange for the cash.
so friends do think about your health and future and do take your health insurance cover which starts from 1 lac to unlimited amount
Health Insurance works when nothing works it helps in getin out of any medical emergency which can happen any time during the 24 hours a day where it helps in getin the cashless treatment avalaible at a no of hospitals empannled with your insurance provider.
This life is very precious so its health and you never know when need arise for hospitalization where one has to deposit heavy amount before the treatment can begin.
at that time cash less card which is being provided by the health insurance company comes handy and you dont have to take tension to arrange for the cash.
so friends do think about your health and future and do take your health insurance cover which starts from 1 lac to unlimited amount
SIP (Systematic Investment Plan)
A systematic investment plan (SIP) is a disciplined way of investing your
funds. It works on the principle of regular investing. SIPs allow you to
invest a prefixed amount for a prefixed interval in a mutual fund scheme
of your choice. On the defined date, the amount indicated by you will be
automatically debited from your bank account and invested in the scheme
selected by you. Hence, after you have set an SIP you are not required to
track the investment dates
BENEFITS OF SIP
Avoid timing the market: By investing a small amount regularly
into the schemes you can avoid the common error of investing
larger sums in bull markets (when the markets are at a high) and
smaller sums in bear markets (when the markets are at a low)
Rupee cost averaging: An SIP allows you to invest a pre-specified
amount in a scheme at periodic intervals (e.g. one month, three
months, etc). Therefore, whenever the market moves down and
the net asset value (NAV) of the scheme is lower, you end up
buying more units of the scheme. If the market moves up, the
NAV of the scheme rises and you will get less units of the
scheme. Hence, the average cost of purchase works out lesser
Not just savings but investing too: Usually we tend to save some
amount but fail to invest the same. An SIP not only imparts
savings it invests your capital and frees you from answering the
question of where to invest each time you save
funds. It works on the principle of regular investing. SIPs allow you to
invest a prefixed amount for a prefixed interval in a mutual fund scheme
of your choice. On the defined date, the amount indicated by you will be
automatically debited from your bank account and invested in the scheme
selected by you. Hence, after you have set an SIP you are not required to
track the investment dates
BENEFITS OF SIP
Avoid timing the market: By investing a small amount regularly
into the schemes you can avoid the common error of investing
larger sums in bull markets (when the markets are at a high) and
smaller sums in bear markets (when the markets are at a low)
Rupee cost averaging: An SIP allows you to invest a pre-specified
amount in a scheme at periodic intervals (e.g. one month, three
months, etc). Therefore, whenever the market moves down and
the net asset value (NAV) of the scheme is lower, you end up
buying more units of the scheme. If the market moves up, the
NAV of the scheme rises and you will get less units of the
scheme. Hence, the average cost of purchase works out lesser
Not just savings but investing too: Usually we tend to save some
amount but fail to invest the same. An SIP not only imparts
savings it invests your capital and frees you from answering the
question of where to invest each time you save
Benefits of Term Insurance
Term insurance offers few of those advantages that you can't get with traditional life insurance policies. It has several benefits.
Term insurance is the cheapest form of insurance.
Select the length of the term for which you would like coverage, up to 35 years.
Payments are fixed and do not increase during your term period.
In case of an untimely death, dependents will receive the benefit amount specified in the insurance agreement.
You can customize term life insurance with the addition of riders, such as Child, Waiver of Premium, or Accidental Death.
Another popular feature of term insurance is return of premium. It is a little bit higher than your regular term life insurance. But they carry the benefit of refunding what you have paid for 100 percent.
As a investing rule if we look at it we should always take insurance cover 10-15 times the annual salary we are getin
For example if somebody is earning 1 lac rs per annum then ideally he should have a insurance cover of 10-15 lacs for his or her life
For this we should not consider traditional insurance plans rather then we should focus on term plans which offer insurance at very cheap rates
Term insurance is the cheapest form of insurance.
Select the length of the term for which you would like coverage, up to 35 years.
Payments are fixed and do not increase during your term period.
In case of an untimely death, dependents will receive the benefit amount specified in the insurance agreement.
You can customize term life insurance with the addition of riders, such as Child, Waiver of Premium, or Accidental Death.
Another popular feature of term insurance is return of premium. It is a little bit higher than your regular term life insurance. But they carry the benefit of refunding what you have paid for 100 percent.
As a investing rule if we look at it we should always take insurance cover 10-15 times the annual salary we are getin
For example if somebody is earning 1 lac rs per annum then ideally he should have a insurance cover of 10-15 lacs for his or her life
For this we should not consider traditional insurance plans rather then we should focus on term plans which offer insurance at very cheap rates
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