July 2010

Larsen and Toubro showing good signs after a long time.

lnt-jul20102

LNT Stock is a favourite of Investor community and is also one of the top holdings in most of the Mutual fund Portfolios.

It has recently broken above 1700 levels after almost 9 months with decent amount of volume backup.

If you are one of those who wants to own this in your portfolio , then, now – it can be accumulated on dips for investment purposes.

The 50,100,200 Exponential Moving averages levels mentioned above in the chart can be used to accumulate.

June 2010

Beginner Investors : Investing with Index funds/ ETF’s is a good choice

Guide to Beginner Investors , Investing with Index funds, ETF's is a good choice, Financial Planning, Goal Oriented Planning, Understanding Risk.

What is Index Fund

An index fund is a a mutual fund which tries to replicate an index of a financial market. (For eg: Sensex or Nifty). An Index fund follows a passive investing strategy called indexing. It builds a portfolio with the same stocks in the same proportions as the index. The fund makes no effort to beat the index. The purpose of the Index Fund is to earn the same return as the index over a period of time.

What is ETF

ETF stands for Exchange Traded Funds — these are funds that trade on the stock exchange just like any stock. And they are stored in yuor Demat Account just like any Shares you purchase.

Why are Index Funds/ETF’s not as popular or not  advertised like other Mutual Funds ?

Expert Professionals / AMC’s don’t make enough fees from them, so they often go ignored. Just like Term insurance….. , Term Insurance is not promoted as much. Insurance companies do not benefit from them (You can see the correlation…., What is good for Investors and also available for cheap, is not often promoted enough. Because it does not pocket enough profits for the providers/agents…….)

What is the basic difference between Index Funds/ ETF’s  and Mutual Funds?

Mutual Funds try to beat the index over a period of time. This is active investing. Fund Managers are paid to beat the index over a period of time by generating alpha (The excess return of the fund relative to the return of the benchmark index is a fund’s alpha.).

Index Funds/ ETF’s on the other hand, try to mirror the index returns. This is known as passive investing.

What is the advantage of Index Funds/ ETF’s over Mutual Funds?

– Much Lower Expense Ratios (AMC’s are much lower)

– More Flexible

– Transparent

– Approximately 60%-80% of equity mutual funds underperform the average return of the stock market over a period of time. This is the price of “active management”.

On top of this the AMC charges 2-2.5% of the portfolio value annually.

So , you have to pick the funds carefully. This becomes just like picking Individual Stocks. Of course, if you pick up the right funds (or for that matter right stocks) , then you would be beating the Index handsomely. However this process requires good amount of time, effort and judgement on your part. It sounds simple but is not easy.

– On the other hand , investing in index funds in the beginning , you can start participating in the capital markets and once you have a substantial base, then you can start exploring “active”  investing options.

The writeup on Types of Investors will get you to understand more about different kinds of investors.

Mandatory 25% Free Float on Listed Companies

The Amendment details as promised by the Finance Minister , for minimum threshold of 25%, to the public shareholding is here

The salient features of the amendment are as follows:

a)The minimum threshold level of public holding will be 25% for all listed companies.

b)Existing listed companies having less than 25% public holding have to reach theminimum 25% level by an annualadditionofnot less than 5% to public holding.

c)For new listing, if the post issue capital of the company calculated at offer price is more than Rs. 4000 crore, the company may be allowed to go public with 10% public shareholding and comply with the 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum.

d)For companies whose draft offer document is pending with Securities and Exchange Board of India on or before these amendments are required to comply with 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum, irrespective of the amount of post issue capital of the company calculated at offer price.

e)A company may increase its public shareholding by less than 5% in a year if such increase brings its public shareholding to the level of 25% in that year.

f)The requirement for continuous listing will be the same as the conditions for initial listing.

g)Every listed company shall maintain public shareholding of at least 25%.If the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall.

Effects of mandatory 25% free float —-

– Listed Indian companies have a free float of at least 25% as against the current minimum free float of 10%.
– Companies that have less than 25% free float shall have to sell at least 5% of outstanding equity each year and should attain the mandated level of 25% over a period of three years.
– Companies going to be listed can sell minimum 10% equity in the IPO if the market capitalization is Rs.4000 crore or above. However, they also should raise the free float to 25% over the next three years.
– Free float enhancement to 25% would lead to additional supply of stocks worth $ 31 billion from existing listed companies.
– Another huge round of equity flow could be expected if big PSUs like Coal India and BSNL are getting listed.
– Some companies would be re- rated upward while certain others could face a downward rating.
– Increase in free float leading to rising interest from large buyer, may act as catalysts for a positive rating. Stocks like SAIL, Power Grid, Power Finance Corporation etc.  can fall in this category.

Investor Classroom…

Here is a good link — a classroom from morningstar – for all kinds of Investors.whether you are a novice or an experienced investors. It talks about Stocks, Bonds, Mutual Funds and Portfolio etc.  The classroom is from Morningstar US site. However the concepts are applicable in India as well.

It also delves into the financial rations and basics of valuation.

http://www.morningstar.com/Cover/Classroom.html?t1=1173112294

Pretty Useful.