Tag - investing india

May 2010

You can SIP in stocks – The 10 Steps

You can SIP in stocks , Systematic INvestment Planning, The 10 Steps, Dollar Cost Averaging, Rupee Cost Averaging, .

SIP or Systematic Investment Planning is a concept. It means that you periodically invest your money. It inculcates discipline, takes out the emotional part of decision making and allows you to seamlessly participate in investing.

However, many people associate or assume that Sipping is available only with Mutual Funds. Thereby, they miss the whole essence of what SIP is all about. Indeed, mutual funds offer automatic withdrawals from your bank account to be invested in Mutual funds. And they promote SIP (albeit, not aggressively, you see, they want you to make the payments upfront and not by SIP).

However, it is to be noted that SIP is a concept and can be applied while purchasing shares or equity as well. Yes, you heard me right, you can SIP in stocks.

There are many cases, when you would want to SIP in equities like – (a) You want to build your own portfolio of stocks with a tilt towards a particular sector (b) You are a Buy-and-Hold type of Investor (c) You are interested in investing in good Dividend Yielding Stocks (d) You do not want to incur the annual AMC charges in the range of 1.75 -2.5% on your portfolio value year after year which all the actively managed Mutual Funds charge. Check this post. (e) You are interested in investing in ETF’s (Exchange Traded Funds) etc.

There could be ‘n’ number of reasons where you are interested in investing in stocks. Once you have made up your mind that you want to invest in equities, you can go about doing a Systematic Investment Plan for your equity investment.

10 Steps to SIP in Stocks :

1. Decide on the intervals (or periods) in which you would like to SIP. eg: Monthly 25th of every month

2. Decide on the periodic SIP amount you would like to invest e.g.: Rs 14,000/- every month

3. Use a Calendar to set reminders. (I am a google addict You can use google calendar) or use whatever means (Physical Calendar, tell your wife etc.)so that you will receive a reminder call about the periodic investment. And you can set aside the funds to be allocated for investments.

4. Decide on the asset classes to invest. e.g.: ETF’s like Goldbees, NiftyBees, Stocks like HDFC, Cipla, BHEL, ITC etc. Debt ETF like Liquidbees (can be used for the for the debt component)

5. Decide the amount to be allocated to each asset e.g.: Rs 2,000/- each.

6. And that’s it you are all set to start sipping. Execute the Plan. Once you get a reminder Just go ahead and buy the assets.

7. Do a periodic review of your purchases every quarter in order to assess the performance.

8. Have a performance yardstick. Aim for good returns (Hey, there is no harm for trying to beat the index by a couple of percentage points year on year).

9. Measure your performance against the returns. Review.

10. Apart from TIME-WISE SIP, you can also go a step ahead. You can also do a PRICE-WISE SIP as well intelligently. If there is a > 10% drop in price of a stock between your two planned purchases, you can go ahead and pick up the stock and skip the next installment of that particular stock.

Eg: You pick up Rs 2000/- worth of Cairn India @ Rs 200/- on 25-Jan-2010. You have plan of picking up Rs2000/- worth of Cairn India on 25-Feb-2010. However , if Cairn India were to drop by > 10% or more in Jan itself , then go ahead and pick up in the stock in Jan and skip the Feb-2010 installment.

There are many Index ETF’s which are available and which are a good, low cost alternative to mutual funds which you can (or rather should) avail.

Understand what type of Investor you are, if You are the Saver Kind of Investor, go ahead SIP in Stocks. Step-by-Step over a period of time you would have created a portfolio of stocks which will generate income for you in form of dividends and which will also appreciate with time to generate wealth over a period of time.

February 2010

Purpose of Investments

Purpose of Investments, Wealth Management, Wealth Generation, Accumulation, Distribution, Estate Planning, Tax Planning, Power of compounding.

The world of finance can be intimidating, But as Raplh Waldo Emerson says “Fear always springs from ignorance”. The stock market and so called greater financial world is not complicated once you become aware of the basics of investing and dispel fear of ignorance.

First let us see What is not a Investment? Now, This is fun….

First of all, Investing isn’t a get-rich-quick scheme. (There are other risky, very risky avenues of speculation to get-rich-quick which very often turn to get-poor-quick for people with no discipline and patience. Remember – High Risk , High Return, Less Risk, Less Return) . Investing is not speculation. Investing is not buying stocks on a “Hot Tip”. Always remember a Hot Tip leads to a bottomless Pit.:-). Investing is not following the herd which often leaves the investors high and dry. Investing is not listening to channels to analysts and always clicking on your portfolio to see it (along with your heartbeat) fluctuate on a daily basis. Investment should not be done emotionally (Oh, my uncle’s wife’s son’s friend’s sister wants to sell me a insurance cum investment policy, How can I say No. Well — Learn to say No. There are many things in life where you have to say No. ).  Investment is also not just about returns.

So that brings us to What is a Investment : Well, What does wikipedia have to say : “Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in form of interest, income, or appreciation of the value of the instrument”

Investing is putting your money to work for you in order to generate wealth. Generally Money is earned by income generated for some work done for which we trade our precious time. Problem is: for more money, you have to work more hours and give more time. And time is a limited resource. One way is to make your money work for you and start earning. Quite simply, making your money work for you maximizes your earning potential.

goal_purpose

Again, Investments have to be planned and done with a purpose, a meaning, and should be done to realize goals of life. Investments are not a one-size-fits-all manner and are individual specific, situation specific. Goals like, Retirement , Child Education, Child Marriage, House Purchase in future, Purchasing assets in future, — goals in different times/ stages of life. etc. And so Investment Planning is utmost important. Plan , Plan , Plan and then execute. Look at the big picture and do not miss the forest (long term enrichment goals) for the trees (unplanned short sightedness)

There are many different ways you can go about making an investment. Stocks, Mutual Funds, ETF’s , Money Market Liquid Funds, bank FD’s etc., or real estate , or  starting your own business. It does not matter which method you choose for investing your money. However, the objective is always to put your money to work over long periods of time (5 yrs-10yrs-15yrs+) with adequate margin of safety, and let the magic of compounding take over,  so that it beats inflation and generates wealth and fulfills the purpose and more or less  achieves the goals.

This is the most important concept in investing.