In this article, we’ll explore where risk premiums come from in debt and equity. This is important because risk premiums are not fixed and change with time. So, if you base your return expectations wrong, you may wind up with a different corpus that you originally planned to.
There are certain characteristics which make evaluating banking and finance stocks different from others which produce goods and services. Money cannot be lent to someone unless there is an inflow by way of capital or debt. Since it is not practical to lend only from capital, borrowing (or leverage) is the sustaining food for this business. Naturally in using this leverage, there are good and bad apples.
A company’s Annual Report is a statutory document that contains material facts and information about the company. This makes it among the most reliable sources for information on a company. In this article, we will try to give examples of where in an annual report you can find information that is useful for your understanding of business and financials. This is an illustrative article and not an exhaustive one.
Stocks to Riches explains the fundamental concepts one needs to understand, to achieve success in the stock markets. Concepts like investing, differences between trading and speculation, loss aversion, sunk cost fallacy (and how to avoid falling into it), decision paralysis, mental accounting, and herd mentality. Every investor has dealt with and will have to deal with these situations in their investment journey. So having all these concepts neatly compiled and explained in one book certainly helps.
Price to Book Value (P/BV) ratio is a measurement of how much an investor pays for a stock over its book value. Book value is
When we invest in mutual funds, the profits we make are subject to taxes. The good news though is that, in many cases, this taxation is somewhat better (lower) than the regular income tax that we pay. The basic reason for this is that the government considers these profits as a different form of inflows/income compared to regular salary or interest incomes.
Understanding the impact of taxation is important – obviously, since our real returns from a mutual fund investment is what we get after tax. But, more importantly, understanding taxation will help us design our portfolio in a manner that could potentially reduce our tax burden and increase our ‘post-tax’ returns.
In this article, we will take a look at how such profits are considered, how taxation differs across mutual fund categories, what the actual tax rates are, and such other topics. This article, as in other articles in this series, has been written assuming very little prerequisite knowledge from the reader.
When it comes to mutual fund returns, two things are true for most mutual fund investors:
It is the most important thing for them
It is among the least understood set of concepts
An advisor may talk about all the nuances of mutual fund investments to an investor – risk mitigation, balancing, diversification, down-side protection etc – but at the end of the day, the person would only care about how much he/she would end up making.
And yet, when it comes to reading and understanding returns, they could make elementary mistakes. For example, once when I recommended an investor invest in a scheme for 5 years for optimal benefit, he said he would invest in it for a year, because “the fund has better 1-year return than 5-year return” – obviously going by the most recent numbers.
A good way to gauge the state of personal finance books that are India-centric would be to visit the ‘Book’ section of Amazon’s India website.
If you go to the American Amazon.com, you will find the ‘Business and Money’ section, under which you will find ‘Personal Finance’. Boom, done – you have access to a treasure trove on all topics PF.
If you go to the Indian Amazon.in, you will find a ‘Business and Economics’ section, and under that, you will find ‘Analysis and Strategy’, ‘Economics’, and ‘Industries’. If you, by power of logical reasoning and elimination, go into the first category, you will find, along-side books about American personal finance and self-help (Dale Carnegie!), a smattering of books by Indian authors to help Indian investors.
A handful, at best.
No doubt, this is an emerging section, but the current state of limited selection is properly captured by just browsing through these aisles.
Monika Halan’s ‘Let’s talk money’ is, especially in this context, a much-needed publication that addresses a sore need in the Indian market.
When you choose funds, knowing risks alone may not be sufficient. You need to understand debt fund strategies. You will broadly know the following in this article
– What is accrual strategy
– Which categories follow accrual or a hybrid model
– How you can use accrual funds
Every time you need to review your portfolio, no doubt your mind is flooded with questions.
“My fund is underperforming. Should I sell it or not?”.
“How to go about selling it – in one shot or in a staggered manner?”
“How long should I hold an underperformer?
“If I hold a mediocre fund but start SIPs in a fresh one, over time, the number of funds in my portfolio goes up. What to do?”
Before we move on to discussing these questions, to the extent we can, let’s first talk about the review process per se.
What are the best practices for long-term investing? There is so much jargon and confusion about how to invest for goals like retirement and long-term wealth building. Vidya breaks it down into five simple principles.