Introduction on r/IndiaInvestments Wiki

Disclaimers and Disclosures

Mon, 01 Jan 0001 00:00:00 +0000

Disclaimers and Disclosures

The content of this website has been prepared by contributions from multiple authors from the India Investments community on Reddit and Discord .

The content on this website, including but not limited to text, images, videos, spreadsheets, hyperlinks, and computer source code; is written and created solely for educational purposes. It is NOT meant to be fiduciary financial advice. When in doubt, a legally registered fiduciary financial advisor may be contacted. In India, a fee-only financial advisor registered with Securities and Exchange Board of India (SEBI) may be contacted.

What is the best mutual fund app for investments?

Mon, 01 Jan 0001 00:00:00 +0000

What is the best mutual fund app for investments?

Intro 💫

In India, presently there are many Mutual Fund platforms available, for free. Being spoilt for choice, it can get overwhelming to decide which one’s best for you.

To begin with, this choice is not as important as you’d like to think. For most apps, if you use one and don’t like it, it’s pretty straightforward to be able to move to another platform. It’s a reversible decision.

Why should I invest in Direct Plans instead of Regular Plans?

Mon, 01 Jan 0001 00:00:00 +0000

Why should I invest in Direct Plans instead of Regular Plans?

A mutual fund is not free from costs. An asset management company (AMC) is a for-profit entity who aim to make some profit from their venture. They also have to pay their security analysts, operations teams, pay brokerage fees for market participation, and record keeping fees to registrars like CAMS and KFintech, formerly known as Karvy.

A regular plan of a mutual fund has one more additional expense — distributor commission.

What’s the best mutual fund I can invest in?

Mon, 01 Jan 0001 00:00:00 +0000

What’s the best mutual fund I can invest in?

If you google top mutual funds, you’d find plenty of communities or online publications tossing you some names of well performing funds.

No one can predict how markets would perform in near future (short term), or over long periods of time. And when we say no one, we really mean no one at all.

Amsterdam is the oldest stock exchange, founded in the 1460s. London stock exchange is one of the oldest, founded in 1801, with nearly ~220 years of history. US markets have been around for ~200+ years, since the early 1800s (NYSE was established in 1817). Indian markets are relatively young, been around for only a little over 40 years, in any meaningful way. BSE was founded in 1870s, but it’s hard to find reliable data since before Sensex was created in 1979. Some even suggest to ignore data from before NSE was created in 1994, which gives us ~25 years worth of market data to analyse.

Which date(s) is/are best for SIP in a month?

Mon, 01 Jan 0001 00:00:00 +0000

Which date(s) is/are best for SIP in a month?

There’s no such thing.

It’s rare for markets to move up / down so much in a single month, that a single SIP instalment being on a different date would make a sizeable difference in your long term corpus.

If you start investing today via SIP, and analyse 10 years later, you’d find that, say for example, 23rd of the month was the best day to invest for your funds. That’s something you can know only if you know the NAV history of next 10 years, which no one does.

I’ve to invest in ELSS for 80C tax saving. Which fund(s) should I pick?

Mon, 01 Jan 0001 00:00:00 +0000

I’ve to invest in ELSS for 80C tax saving. Which fund(s) should I pick?

When it comes to ELSS, present categorization gives the fund managers wide berth in picking stock from Nifty 500 universe of stocks. They can pick any stock from top 500 stocks listed in NSE / BSE - this is different from funds that are categorized as large-cap, mid-cap, small-cap, or multi-cap funds. Only flexi-cap category of equity funds is similar.

Should I get a Demat Account to buy units in Mutual Funds?

Mon, 01 Jan 0001 00:00:00 +0000

Should I get a Demat Account to buy units in Mutual Funds?

Intro💫

No! You don’t need demat account / trading account, to invest in mutual funds.

Mutual funds are sold by AMC (Asset Management Companies) directly to you. RTA (Registrar and Transfer Agent) of the relevant AMC processes the transaction, and keeps records of your units purchase or selling.

It’s already stored electronically, with legal ownership that it belongs to you.

Lumpsum investment vs SIP/DCA

Mon, 01 Jan 0001 00:00:00 +0000

Lumpsum investment vs SIP/DCA

This is quite confusing to many people, since the finance world touts SIP (Dollar Cost Averaging in foreign terms) as the best way to invest.

Definitions

SIP (Systematic Investment Plan)

One invests a fixed amount of money at a regular interval (daily / weekly / monthly / quarterly). In short, it is transfer of money from cash to a particular asset (mutual fund / direct equity called the DIY-SIP or other such names).

Why are Index Funds in India not as cheap as Vanguard's Index Funds and ETFs?

Mon, 01 Jan 0001 00:00:00 +0000

Why are Index Funds in India not as cheap as Vanguard’s Index Funds and ETFs?

Before we begin, Total Expense Ratio (TER) is the amount that investors pay to AMCs for the operative and administrative expenses of managing a mutual fund. If a mutual fund has total assets under management (AUM) of ₹10,000 crores and an expense ratio of 1%, it charges ₹100 crores as expenses in an year.

The difference between regular plans and direct plans of mutual funds is explained in the article linked below. In short, regular plans have an additional cost of distributor commission. This doesn’t go to the AMC.

Should I invest in this LIC policy?

Mon, 01 Jan 0001 00:00:00 +0000

Should I invest in this LIC policy?

LIC doesn’t create money out of thin air. Over-simplified & shortened description of how it works: It collects premium from policyholders, then it invests that in market-linked securities (bonds, stocks, CP, CD, commodities etc.). Eventually, it pays out policyholders after keeping some cut for itself.

Unlike bank or post-office deposits, LIC returns are not legally guaranteed. Govt. of India is a major stakeholder in LIC, but that does not mean it’s a major stakeholder in your future. Govt. would do its best to prevent LIC from going under. But your returns come at the cost of LIC’s income - when those two are at odds with each other, Govt. would pick LIC over your financial future.

Opinions on investing in smart wealth plan by bank?

Mon, 01 Jan 0001 00:00:00 +0000

Opinions on investing in smart wealth plan by bank?

This is not that different from the query on LIC. Bank / Insurance company would take your money, invest in some market-linked securities, deduct insurance related charges; and give you back peanuts. Upside is limited, but bank would sell you on the idea that downside is also limited.

As a rule of thumb, any policy or plan sold by bank, especially one that has a smart in its name, can be avoided without further consideration.

Up to what age should I take term cover?

Mon, 01 Jan 0001 00:00:00 +0000

Up to what age should I take term cover?

What really is term cover?

A term cover is an income replacement plan. It should be covering you, till you’ve dependents who’re reliant on your income, and miss it if something were to happen to you.

This money would never be yours. It’s meant for your family, in the event of something highly unlikely.

How does it matter?

It matters because for most people with income from salary or contract work; it’d be hard to sustain their income after age of 55-60.

Do I need my own health insurance? Employer already has group policy

Mon, 01 Jan 0001 00:00:00 +0000

Do I need my own health insurance? Employer already has group policy

Intro 🍁

According to IRDA (Insurance Regulatory & Development Authority) of India

A group insurance policy gives you advantages of standardized coverage and very competitive premium rates

The risk for a group insurance provider is spread over a larger population, hence making the premiums cheaper.

Group covers have lot of benefits.

Features ✨

Salient features of Group health insurance:

Should I take top-up policy or super top-up?

Mon, 01 Jan 0001 00:00:00 +0000

Should I take top-up policy or super top-up?

Introduction ✨

Before we get to the answer for this, we need to define and establish common understanding around some domain specific terms.

A Base Policy, which could either be a group, an individual, or a family floater policy, covers you and/or your family members up to the Sum Insured.

This is for any hospitalizations; for a minimum period of 24 consecutive in-patient care hours, except for specified procedures/treatments where such admission could be for a period of less than 24 consecutive hours.

Is it worth paying extra premium for term insurance?

Mon, 01 Jan 0001 00:00:00 +0000

Is it worth paying extra premium for term insurance?

Intro 💫

When buying a term cover, anyone would want to do their best to ensure their nominee(s) can claim the cover amount in their absence, if the worst were to happen. But it’s easy to let our emotion guide us, what should be a rational process.

With various restrictions in place by IRDA (Insurance Regulatory and Development Authority), there aren’t that many advantages of paying a premium to large reputed companies for their insurance cover.

Should I invest in smallcase?

Mon, 01 Jan 0001 00:00:00 +0000

Should I invest in smallcase?

There are two parts to investing via smallcase:

the tooling around managing a watchlist of stocks, which enables us to execute transactions at portfolio level rather than at scrip level
the basket of stocks offered by smallcase themselves, such as the Low Risk - Smart Beta smallcase, which can have a collection of stocks, ETFs, commodities etc.

There’s no doubt that the usability of smallcase, as a tool, to manage a stock portfolio is quite good. When we say “usability”, we mean the user experience of using the smallcase website and its aesthetics. If you already have a plan to invest in a collection of stocks of your choice, you can create a watchlist and place orders using smallcase.

What is the best app for buying or trading stocks?

Mon, 01 Jan 0001 00:00:00 +0000

What is the best app for buying or trading stocks?

Intro 💫

In India, there are plenty of small and big brokerage platforms available to you, that let you open trading and demat accounts for equity, bonds, ETFs (Exchange Traded Fund), commodities etc.

Read this to get an overview of features / functionality of popular brokerage services, and the costs you’d be incurring if you were to go with one of these.

Which screener(s) should I use?

Mon, 01 Jan 0001 00:00:00 +0000

Which screener(s) should I use?

Introduction

Though stock-screeners calculate a lot of things, you must do your own calculations too. You will miss a lot of good opportunities or make some expensive mistakes if you consider only the pre-calculated values.

The objective of this article is to explain the importance of your own calculations. The article provides examples where the screening portals might not give right results. The examples are not to demean any portal but to explain the reasons for the difference in numbers across websites.

The Stock Market Has Crashed. Which Stocks Should I Buy?

Mon, 01 Jan 0001 00:00:00 +0000

The Stock Market Has Crashed. Which Stocks Should I Buy?

Market Corrections Aren’t Unusual

A correction or a crash in the stock market isn’t an unusual event, despite what one might think during such an event. According to Fidelity Investments ,

Since 1920, the S&P 500 has, on average, experienced a 5% pullback 3 times a year, a 10% correction once a year, and a 20% decline every 7 years.

Of course, similar behavior can also be observed in India with the S&P BSE Sensex index in the past 20 years, starting from 1980 to 2020. According to this blog post by Funds India (archive.org link | archive.is link ),

Why should I invest in the US markets?

Mon, 01 Jan 0001 00:00:00 +0000

Why should I invest in the US markets?

Intro ✨

As an Indian equity investor, there are plenty of reasons for you to invest in the US equity markets. Equally, there are good reasons why one should avoid investing in US markets, if they are already exposed to Indian equity.

Reasons in Favor 👍

Diversification

Diversification is an important part of an investment journey. It helps one reduce volatility and risk of their portfolio, especially at larger portfolio sizes.

How should I invest in US equity?

Mon, 01 Jan 0001 00:00:00 +0000

How should I invest in US equity?

Intro ✨

Investing in US equity markets can be rewarding, if done for the right reasons, with right expectations.

When it comes to overseas investments; costs are usually the biggest factor to keep in mind. Unlike market returns, costs are in your control, and can be a determining factor in outcome of your investing journey.

There are currently two main ways in which retail Indian investors can invest in US stock market:

I don't have any tax to pay. Do I still have to file ITR?

Mon, 01 Jan 0001 00:00:00 +0000

I don’t have any tax to pay. Do I still have to file ITR?

Filing an Income Tax Return (ITR), and paying taxes are two different things. A return filing is a declaration. Even if you’re not eligible to pay taxes in a particular financial year; we recommend filing a return nonetheless.

An ITR is a piece of document that might need to be used in the event of a loan application, credit card application, or even visa interviews.

Where can I park money for a few days, a few months, or a few years?

Mon, 01 Jan 0001 00:00:00 +0000

Where can I park money for a few days, a few months, or a few years?

First of all, it should be clear what you mean when you say “park money”. You intend to keep some money safe somewhere for a requirement that’s going to come up in the near future (somewhere between a few days to 1-3 years down the line).

Bank Savings Account

Let’s start with the absolute basic thing you can do. Nothing. If you want to park money for a few days or a few months, you can keep it in your savings bank account which, as of Jan 2021, would yield anywhere from 2.7% to 3.5% in too big to fail banks like SBI, HDFC, and ICICI. Axis Bank and Kotak Mahindra Bank are offering upto 4%.

What are chit funds? Should I invest?

Mon, 01 Jan 0001 00:00:00 +0000

What are chit funds? Should I invest?

How does a chit fund work: ELI5 version

It is a savings plus credit / loan product. There is an organizer (a.k.a foreman) and there are a specified number of members, who agree to pool/pay/deposit a specified amount of money periodically for a pre-decided fixed duration.

E.g. there can be a chit fund with 20 members (and a separate 21st organizer who conducts the whole show), and they agree to pool Rs 1000 every month for 20 months. So, a fixed number of members, periodic deposit monthly, deposit amount of rs 1000 and fixed total period of 20 months. In the first month, the total amount of deposit would be 20,000.

Is Gold a good investment now? It has gone up ~50% this year

Mon, 01 Jan 0001 00:00:00 +0000

Is Gold a good investment now? It has gone up ~50% this year

Past performance is not indicative of future returns. If you pick assets after they have performed well, you’d most likely miss out on assets that performs well after you have invested in it.

If Gold has gone up 50% this year, right time to invest in it would’ve been 1 year ago.

Instead, question your asset selection process: is your selection criteria good enough for it to have picked Gold as an investment a year ago?

How to transfer shares from one demat account to another

Mon, 01 Jan 0001 00:00:00 +0000

How to transfer shares from one demat account to another

Intro 👋

Before we begin, we need to clarify on some terminologies used in this document.

A DP (Depository Participant) is a broker who coordinates with the national depository to keep our shares, debentures etc. in electronic form

National Depository: Centrally authorized share depositories. Presently, there are two such depositories in India

CDSL (Central Depositories Services India Ltd)
NSDL (National Securities Depository Ltd)

Depending on to which national depository both the DP (From where you want transfer and to where) are associated with, the procedure for transfer are different.

How to move from one mutual fund platform to another

Mon, 01 Jan 0001 00:00:00 +0000

How to move from one mutual fund platform to another

Intro👋

There are 2 ways to hold mutual funds. One in the demat form and another in physical (rematerialized) format. The method of transfer will vary depending on the form that your mutual funds are stored in.

Transfer Procedure📇

Demat Mutual Fund transfer 🚧

Please follow the steps mentioned in here since transferring of Mutual fund in demat form is done in the same way.

How to switch a Mutual Fund from Regular to Direct Plan

Mon, 01 Jan 0001 00:00:00 +0000

How to switch a Mutual Fund from Regular to Direct Plan

Intro👋

If you know which mutual fund you want, it is always better to buy a direct mutual fund since it eliminates the commission deducted by AMCs as fees for distributors (the person or entity who had facilitated the transaction(s) for you to invest in the fund).

The difference between TER of regular and direct plan normally varies between 0.5% to 1.5%.

How to file SEBI SCORES complaint?

Mon, 01 Jan 0001 00:00:00 +0000

How to file SEBI SCORES complaint?

Intro 👋

As an investor, you’ve certain rights, and market participants (AMC / RTA / broker / depository / advisor / distributor etc.) have to make sure your rights are not violated.

Indian securities markets are highly regulated. And if you’re not satisfied with resolution of an ongoing issue with your broker or AMC you’re investing with; you can approach SEBI (Securities and Exchange Board of India) to hear you out.

How to Update Nominee Details?

Mon, 01 Jan 0001 00:00:00 +0000

How to Update Nominee Details?

Intro 👋

Let us first begin with what nomination means.

According to AMFI (Association of Mutual Funds in India):

Nomination is a facility that enables an individual unit-holder (including sole proprietor of sole proprietary concern) to nominate a person, who can claim the units held by the unit-holder or the redemption proceeds thereof in the event of death the unit-holder.

In short, nominees do not inherit the assets after the death of the unit holders. They are responsible for distributing the assets, as per the will, or to the legal heir of said unit-holder.

How to rematerialize mutual fund from demat form

Mon, 01 Jan 0001 00:00:00 +0000

How to rematerialize mutual fund from demat form

Intro 💫

There can be some disadvantages and inconveniences for having the mutual funds in dematerialized (aka demat) form.

Some of these are

Difficult to change the investment platform or DP (Depository Participant)
Vendor lock-in, where you are locked to the brokerage platform and its subset of functionalities.
You will have to pay various charges like annual charges, depository charges etc.

Note

How to Pay Advance Tax

Mon, 01 Jan 0001 00:00:00 +0000

How to Pay Advance Tax

Introduction

Income tax is commonly deducted at source by the entity (employer, banks etc.) while making a payment to the taxpayer in any form (salary, interest, income from profession etc.).

This is known as TDS (Tax Deducted at Source) and is generally reflected in Form 26AS every financial year/ assessment year.

For example, if an employer has paid ₹1,000,000 in salary over the year to an employee, then depending on tax saving investments for the employee, the employee might be liable for, say, ₹80,000 in taxes.

Can You Beat the Market?

Mon, 01 Jan 0001 00:00:00 +0000

Can You Beat the Market?

Here you’ll find,

What does beating the market mean? Is it possible?
Whether one can consistently beat the market - and what it takes

Beating the market — what it means

The phrase beating the market can mean different things for different people. The intuitive definition is to earn returns on a portfolio level that consistently beats the market index. However, more people allocate their equity investments in funds managed actively than passively - so it makes sense to see how your returns stack up against that of professional investors (simply put, those who invest money on behalf of others), or at-least try to understand how an individual investor has a fighting chance against institutions in the chase for every possible rupee gain.

Reading an Annual Report

Mon, 01 Jan 0001 00:00:00 +0000

Reading an Annual Report

Disclaimer & Disclosures

The author of this section DOES NOT have any long or short position for companies used in this section for illustration purposes as of the date of being published. This may or may not change in the future.
The companies used as examples are mentioned solely for educational purposes, mention of any company is random and is certainly NOT an investment recommendation.
Readers are advised to read the complete fine-print of an annual report while conducting due-diligence and avoid skipping contents that went unmentioned in this section.

Introduction

There are various filings & documents an investor should read before making an investment decision, such as the company’s annual reports, quarterly reports, transcripts of conference calls held by the company, credit rating reports, brokerage reports, and so on. Of these, annual reports are unquestionably the most critical to study.

Researching a Sector

Mon, 01 Jan 0001 00:00:00 +0000

Researching a Sector

Disclaimer & Disclosures

The author of this section DOES NOT have any long or short position for companies used in this section for illustration purposes as of the date of being published. This may or may not change in the future.
The companies used as examples are mentioned solely for educational purposes, mention of any company is random and is certainly NOT an investment recommendation.

Introduction

As individual investors, our primary focus is to,

Profitability

Mon, 01 Jan 0001 00:00:00 +0000

Profitability

Gross Profit

There are three major types of profits -

gross profit
operating profit
net profit

Each of them are significant in their own way.

Gross Profit is the amount of money a company earns after deducting the costs directly associated with producing their goods/products/services from the revenue. These costs are collectively known as Cost of Goods Sold or COGS.

How do we define COGS though and what do directly associated costs mean? Interestingly, the answer can vary depending upon the company we’re looking at. Let’s look at some examples.

Using Screeners

Mon, 01 Jan 0001 00:00:00 +0000

Using Screeners

Disclaimer & Disclosures

The author(s) of this section does not hold any position (long or short) in any of the companies used in this section at the time of writing this. The purpose of using these companies is purely illustrative and educational in nature. Mention of any company in this section is NOT financial advice.
The screens run in this section are purely for educational and illustrative purposes. The results of queries run in this section are NOT stock recommendations. The screens themselves are NOT financial advice.
The watchlists in the screenshot of this section are NOT the author(s) actual watchlist. They are just resultants of arbitrary screens run for illustration and educational purposes. Stocks under these screenshots are NOT stock recommendations.
The author(s) of this section did not get incentivised for recommending or not recommending any websites/tools/products mentioned in this section.

Note

Due-Diligence Checklist

Mon, 01 Jan 0001 00:00:00 +0000

Due-Diligence Checklist

Sector/Industry

The Product
- What is the sector primarily selling?
- How is the sector sub-classified based on product segments? (for example, FMCG can be categorized into home care, personal care, food products, etc)
- What is the market size for the product?
- Is the product prone to disruption from an alternate solution?
Brief History / Key Events
- What are some key events that have had material impact on the industry?
- What are the domestic policies that affect the sector; what forthcoming policies are expected; how will they affect the sector?
Value Chain
- What are the key raw materials & machinery/equipment required to build the product?
- Where does the sector largely source these raw materials & machinery/equipment from?
- What are some geographical advantages that preferred production destinations enjoy?
- What kind of labour force/workers are required for conducting the production process?
- What are steps involved in the core production process?
- What is the preferred strategies for marketing, distribution, delivery & installation of the product?
- How capital intensive is the production, marketing, distribution, delivery & installation of the product?
Market Overview
- How mature is the sector domestically? Is the sector expecting a turnaround from the current trend?
- How is the product’s market share split between organized & unorganized players? Which way is the market leaning now?
- How is the product’s market share split between domestic & international players? Which way is the market leaning now?
- Who are the key players that set the trend for the sector? (in terms of pricing power, product innovation, market practices)
- Who are the emerging players that could have material impact on the trend for the sector?
- What barrier to entry does the sector enjoy?
Industry Benchmarks / Key metrics
- Industry’s preferred benchmark for capacity
- Industry’s preferred benchmark for utilization
- Industry’s preferred benchmark for consumption

Business

Brief History/Key Events
- When was the company founded?
- What are some key events that have had an impact on the core operations of the company?
- What are some key events that have had material impact on the stock price?
Value Proposition
- What is the company primarily selling?
- What product segment is the company catering to?
- Where does the product fit in the market? Is there something that differentiates the product against competitors?
- What is the addressable market size for the product?
- What is the product’s market share, mind share, or position in the market?
Business Model
- A brief overview of the business model of the company.
- What are the growth avenues for the company?
- How does the company market its product?
- What is the capital allocation policy of the company?
- What is the earnings retention policy of the company?
- What is the dividend distribution & buyback policy of the company for earnings not retained?

Financials & Ratios

Profit & Loss Statement
- What does the revenue & profit breakup look like between different businesses of the company?
- What does the revenue & profit breakup look like in terms of the geographies the company sells to?
- What has been the revenue growth for the past 3, 5 & 10 years?
- What has been the EBIT (earnings before financial costs & taxes) growth for the past 3, 5 & 10 years?
- What has been the net earnings **growth for the past 3, 5 & 10 years?
- Is the revenue of the company overly concentrated within a few clients?
Balanced Sheet Statement
- Is the balance sheet clean/strong?
- How does equity dilution look like in the past few years for the company?
- How much cash, or equivalents does the company hold currently?
- What’s been the major capital expenditures that the company has done in the past few years?
- How does regular capital expenditure look like for the company?
- What is the quantum of debt obligations for the company?
- Is there inventory building up for the company?
- Does the company face issues with collecting cash — Is there receivables building up for the company?
Cash Flow Statement
- Are cash flows from operations comparable to net earnings?
  - If CFO > Earnings, cash is not translating to earnings in the P&L statement
  - If CFO < Earnings, there may be early revenue recognition without realizing/collecting it
- How much cash is being left after tending to operational expenses and capex (free cash flows)
- Are there any anomalies/red flags in the cash flows of the company?
Profitability Ratios
- What has been the trend for operating margins for the past few years?
- What has been the trend for net profit margins for the past few years?
- What has been the trend for return on capital (roic/roce) for the past few years?
Capital Ratios
- Is the company over-leveraged? (in terms of debt to equity etc)
- What is the latest cost of equity, cost of debt, & thus weighted average cost of capital for the company?
- Is the company able to service its debt obligations? (in terms of interest coverage ratio, quick ratio etc)
Efficiency/Operational Ratios
- How much time does it take for the company to convert its investments into cash? (in terms of cash conversion cycle)
- How much time does it take for the company to convert its inventory into sales? (in terms of inventory days/inventory turnover)
Industry Benchmarks
- How does the company stack up against peers in terms of industry benchmarks (like capacity utilization, average revenue per user, revenue per room, gross merchandise value etc)

Management

Overview of promoters & management
- Are the managers of the company competent enough to run it?
- Is the management style overly conservative or aggressive?
- Have the actions of the promoters or managers been in the interest of minority/retail shareholders?
- Have the promoters or managers been transparent & integrous in actions that impact the operations or valuations of the company?
- Is there a proper succession plan in place for key positions of the company?
- Is the management of the company being remunerated more than they should be?
- Do the promoters or managers of the company communicate well with the shareholders (hold conference calls, conduct interviews, answer to investor relation emails, etc)?
Shareholding Pattern
- What has been the trend for promoter shareholding in the recent past?
- How does the distribution look between retail and institutional shareholding?
- Is there enough free float? Are the shares of the company liquid?
- Is the quantum of shares pledged a concern?
Red Flags
- Is there any pending litigation against the promoters or managers that can materially impact the stock?
- Is there any pending litigation against the company that can materially impact the stock?
- Are there too many/suspicious related party transactions taking place?
- Is the structure of the company too complex (in terms of subsidiaries, holding companies etc)?
- Are there any red flags in the auditor notes?

Valuation

Multiples
- What multiples have been used to evaluate the valuation of the company, if any?
- How do the multiples compare versus peers in the same sector?
- Is there a significant discount for risks that the multiples of the company suffer from? Why?
- Is there a significant premium for moats that the multiples of the company enjoy? Why? Does the moat show up in financial statements?
- Has there been a significant rerating of multiples for the company? Why?
Valuation Models
- Have you used any valuation models (such as Discounted Cash Flow or Discounted Dividend or Sum of parts) to evaluate the company?
- If a valuation model has been used, what is the approximate intrinsic value of the stock as per the model? What discount does the stock price enjoy with intrinsic value in context?
Valuation Philosophy
- Would you characterize buying of the stock as value investing, or growth investing?
- Is there adequate margin of safety in an investment in the stock? What constitutes it?

Investment Thesis

Consideration of investment
- What is your primary thesis for investing in the business?
- What is the expected duration for which the company is being bought?
- What are the quantitative factors that could invalidate this investment thesis?
- What are the risks or threats that could cause invalidations to this investment thesis?
- What would conclude your investment in the company if everything goes according to the thesis? What is the exit plan?
- Is your investment thesis in consensus with other participants of investing forums such as r/IndiaInvestments Subreddit/discord or ValuePickr? Does this classify as a contrarian bet?
- Is your investment thesis based on a corporate action or a key event that would have material impact on the stock price? Does it therefore qualify as a workout investment?
Should this transaction be avoided?
- Where does the primary thesis for this investment come from? Was it peddled on a news channel/social media post or did it come into your radar as a consequence of independent research?
- Is the investment being done due to Fear of missing out on positive price action momentum?
- Can the investment qualify as a case of Catching a falling knife?
- If you’re exiting an investment because it has fallen significantly/sharply, is it because something has changed fundamentally about the business or its future earning potential?
- How does the stock fit into the overall portfolio? How much do you own of that sector/country already?
Staying on track
- Does the latest Quarterly earnings report validate or invalidate your investment thesis?
- Does the latest Annual report provide you any material information that could validate or invalidate your investment thesis?
- Does the latest Investors call or management interview provide you any material information that could validate or invalidate your investment thesis?

Diving Deeper into Businesses

Mon, 01 Jan 0001 00:00:00 +0000

Diving Deeper into Businesses

In the previous chapter , we noted that as individual investors, our job is to find and exploit disparities between market and intrinsic values of businesses. Further, we explored a way to build a universe of companies to study and track based on sectoral categorization.

But, a mechanical study of sectors will only take you so far. Sure, we’ve gathered qualitative information and numbers associated with a sector based on a generic understanding, but that doesn’t cut it.

Efficiency

Mon, 01 Jan 0001 00:00:00 +0000

Efficiency

Asset Turnover Ratios

One of the most basic operational aspects of a business is generating sales using its assets. We can measure the efficiency of this operational aspect using the asset turnover ratio which can be defined as

Asset Turnover Ratio = Total Income / Average Assets

We’ll consider the average of the total assets during a financial year to account for potentially abrupt changes in total assets due to unusual events like sales of fixed assets, increase in goodwill etc.

Liquidity and Solvency

Mon, 01 Jan 0001 00:00:00 +0000

Liquidity and Solvency

Debt to Equity Ratio

The Debt to Equity ratio tells us how much a company’s debt weighs against its shareholders equity. It gives us an overview of a company’s capital structure by measuring the amount of employed debt against equity.

The Debt to Equity ratio can be defined as

Debt to Equity Ratio = Total Debt / Shareholders Equity

We’ll consider total debt as the sum of financial obligations which bear interest and lease liabilities. This includes current and non-current borrowings, lease liabilities, current maturities of long term debt and lease obligations, and any other liabilities that can bear interest. We will NOT consider trade payables, provisions, and deferred tax liabilities for calculating the total debt. Keeping this in mind, we can define total debt as,

Reactive UI & Updates

Mon, 01 Jan 0001 00:00:00 +0000

Reactive UI & Updates

Intro

Consider a sample receipt from your local kirana store, that looks like this

Item	Qty	Price	Total
Apple	3	20.00	60.00
Egg	12	5.00	60.00
Milk	2	76.00	152.00
Onion	20	7.00	140.00
Total			412.00

In real stores, they won’t issue receipts with four columns. But for the sake of this discussion; let’s assume they do provide such detailed tabulation.

Your task is to find out if the tally is correct.

Using External Data : Google Finance

Mon, 01 Jan 0001 00:00:00 +0000

Using External Data : Google Finance

Intro

Almost all popular Excel-compatible applications, such as MS Excel or Google Sheets etc., allow programmatically fetching data from external sources.

What are external sources, in this context?

Anything external to your Excel sheet, is an external resource. It can be a database, another excel workbook, a file with data in it (CSV format), or an API endpoint out there on the internet.

MS Excel offers in-built Get Data tool to just copy-paste an endpoint URL, and fetch data from that.

CSV Format

Mon, 01 Jan 0001 00:00:00 +0000

CSV Format

Introduction to CSV format

CSV stands for Comma Separated Values. It’s a text file, which has entries, separated by comma (,).

The following is an example of transaction histories in comma-separated values format:

Date, Folio Number, Name of the Fund, Order, Units, NAV, Current Nav, Amount (INR)
2020-08-20,123456789,ICICI Prudential Bluechip Growth Direct Plan,buy,55.432,45.10,58.7,2500.0
2019-08-26,123456789,ICICI Prudential Bluechip Growth Direct Plan,buy,58.343,42.85,58.7,2500.0
2018-08-24,123456789,ICICI Prudential Bluechip Growth Direct Plan,buy,55.853,44.76,58.7,2500.0
2018-08-17,123456788,Aditya Birla Sun Life Frontline Equity Growth Direct Plan,buy,10.41,240.15,307.63,2500.0
2017-10-06,123456789,ICICI Prudential Bluechip Growth Direct Plan,buy,126.167,39.63,58.7,5000.0
2017-09-11,1234567891,SBI Blue Chip Growth Plan,buy,26.968,37.0803,53.0466,1000.0
2017-08-10,1234567891,SBI Blue Chip Growth Plan,buy,27.866,35.8865,53.0466,1000.0
2017-07-10,1234567891,SBI Blue Chip Growth Plan,buy,28.022,35.6867,53.0466,1000.0
2017-06-12,1234567891,SBI Blue Chip Growth Plan,buy,28.373,35.2445,53.0466,1000.0
2017-05-10,1234567891,SBI Blue Chip Growth Plan,buy,28.815,34.7041,53.0466,1000.0
2017-04-10,1234567891,SBI Blue Chip Growth Plan,buy,29.591,33.7945,53.0466,1000.0
2017-03-10,1234567891,SBI Blue Chip Growth Plan,buy,30.903,32.3593,53.0466,1000.0
2017-02-10,1234567891,SBI Blue Chip Growth Plan,buy,31.033,32.2233,53.0466,1000.0
2017-01-10,1234567891,SBI Blue Chip Growth Plan,buy,32.842,30.4492,53.0466,1000.0

Notice the first line of the entry:

Computing LTCG Eligible Equity Units

Mon, 01 Jan 0001 00:00:00 +0000

Computing LTCG Eligible Equity Units

Problem Statement

Now that we’ve seen how to import CSV data, and more importantly, how to massage that data for further use; we need to put this skill to use.

As an investor, you might have a portfolio of equity funds, and you’d want to know how many units you can sell without exceeding Long Term Capital Gain of ₹100,000 (1L INR, in colloquial terms).

Process for Estimating Tax

Mon, 01 Jan 0001 00:00:00 +0000

Process for Estimating Tax

Intro

In the previous chapter, we’ve seen how to compute total number of LTCG taxation eligible units, if equity transaction history has been provided.

Picking up from where we’d left off in in part 1, we can start with planning for potential tax computations

Planning for Tax Computation

At this point, we’ve computed units outside of STCG zone (purchased more than a year ago, that’s still in investor’s portfolio, eligible for LTCG taxation if redeemed). STCG stands for Short Term Capital Gain.

CAGR: Point-to-Point Annualized Returns

Mon, 01 Jan 0001 00:00:00 +0000

CAGR: Point-to-Point Annualized Returns

Intro

So far, we’ve covered various computations, which mostly involved algebraic sum / multiplication / subtraction.

Except, these aren’t enough.

We need to add new tools in our arsenal to fully unlock the powers of excel, to aid with our day-to-day financial decision-making process.

Learning about CAGR is only the first step towards that.

CAGR

CAGR (Compound Annual Growth Rate) is a measure of how fast a value has been growing, assuming this value is probably a result of a compounding process.

A Gentle Introduction to XIRR

Mon, 01 Jan 0001 00:00:00 +0000

A Gentle Introduction to XIRR

Intro

In the previous chapter, we’ve covered CAGR and how it can offer insights into rate of price growth of common listed securities.

In this chapter, we expand on this; and measure rate of growth of portfolios, which is consisted of set of articles.

For an investor, asset’s growth and portfolio growth are two different aspects; as we’re about to learn.

XIRR

XIRR (eXtended Internal Rate of Return) is a generalized form of portfolio return measurement, that takes into account both entry and exit transactions.

A Rigorous Introduction to XIRR

Mon, 01 Jan 0001 00:00:00 +0000

A Rigorous Introduction to XIRR

Intro

Now that we’ve gained some ideas about XIRR (eXtended Internal Rate of Return), it’s time to formally introduce XIRR.

XIRR is tightly coupled with concept of discounting.

Discounting can be thought of as the opposite of compounding.

Discounting and XIRR

Popularly, compounding formula is written as $$P\times(1+r)^t$$.

Instead of $$P\times(1+r)^t$$, where $$(1+r)^t$$ is being multiplied with the value of P; in discounting, we’d do the opposite, to denote decay over time.

Government Securities

Mon, 01 Jan 0001 00:00:00 +0000

Government Securities

A government security is a type of bond issued by the Central Government or the State Governments. They are broadly classified into two main categories based on the duration.

Short Term Bonds - Colloquially known as Treasury Bills (T Bills), these are secrurities that are issued for durations shorter than a year. Generally, only the central government issues this type of securities.
Long Term Bonds - These are dated securities which are sometimes referred to as GSecs (despite only being a subset of government securities). There are issued by both the central government as well as the state governments. When issued by the latter they are reffered to as State Development Loans (SDLs).

Due to being issued by the government itself, these bonds are a form of sovereign debt and have low credit risk. The overall risk of a nation’s bond can be assessed by looking at their sovereign credit rating which is an assesment of the creditworthiness of a country. For example, India’s credit rating as of this article is BBB- according to Fitch and Baa3 according to Moody’s which is the minimum grade required for a bond to be considered “investment grade”. Furthermore, investors see full transparency of the investment process as the RBI conducts the auction for participants to see. As such these can play a crucial role in an investor’s portfolio for long term wealth creation as a low risk debt instrument.

Corporate Bonds

Mon, 01 Jan 0001 00:00:00 +0000

Corporate Bonds

In the previous module we learnt about bonds issued by government but governments are not the only entities that raise debt through bonds. Bonds that are issued by private and public corporations are known as corporate bonds. Companies may issue debt to raise money for a variety of purposes for example to raise money for a new plant and these bonds act as a way for people to lend money directly to the company.

Miscellaneous

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Miscellaneous

US Investing

Mon, 01 Jan 0001 00:00:00 +0000

US Investing

US ETFs and Index Funds

There are several indices involved in the US markets similar to the Indian counterparts Sensex and Nifty. As with India most of the ETFs and mutual funds you will find in the market will be either tracking these indices (Index funds or ETFs) or be benchmarked to them.

Meeting the Indices

As with India there’s several indices in the US though we will focus on some of the big ones.

Getting Started

Mon, 01 Jan 0001 00:00:00 +0000

Getting Started

Intro : Level Zero 😊

https://tenor.com/view/po-level-zero-kung-fu-panda-fail-gif-11786422

You’re at level zero, if you’ve basic idea about bank accounts, or maybe some idea about FD, have heard about SIP stuff, and that is it.

Otherwise, we’d assume you’re a well-earning professional, protected by parents. Who are also likely to not have great ideas about money management.

These are some common ideas you probably hold dear

Buy your house first
Real estate is the best investment
FDs are the best, even better if you invest in FD in your spouse’s name ,to save tax
Gold is the best hedge against inflation, it always goes up

A Basic Question ❓

Let’s start with the most basic question.

Part Two - Defensive Setup

Mon, 01 Jan 0001 00:00:00 +0000

Part Two - Defensive Setup

Now that we want to park the money into a more flexible instrument, we can proceed to next options. You focus on what can go wrong and take care of it first.

Part 2A is Health Insurance.

Take a decent amount of health insurance (more correctly called Sickness Insurance, since what it means is that when you get sick and get admitted in a hospital, then you get part or all of the medical expenditure you did).

Part Three - Spending Pattern

Mon, 01 Jan 0001 00:00:00 +0000

Part Three - Spending Pattern

Work done till now:

Start a mutual fund account with one/two AMCs and put money in the liquid fund.
Got health insurance.
Got life insurance.

Now to the question of how to go forward about the monthly fixed/variable salaries.

The most basic rule of Saving/Investing is Earn more, spend less. If you are not doing that, no investment plan is going to get you off the ground. You are digging a hole faster than it can be filled.

Part Four - How to Invest

Mon, 01 Jan 0001 00:00:00 +0000

Part Four - How to Invest

How to go about putting the money which has been allocated for savings/investing?

How to decide how much to put where?

We will create two categories or my preferential term Baskets (or Buckets).

Basket 1: Money which can be needed in next 5-7 years

Basket 2: Money which is needed after 5-7 years.

Why 5 years? Because that is the cycle of our national elections! Just kidding. It is just an arbitrary number but 5-7 years is a reasonable. If you like 7 years, keep it 7. Say if you like India (5 letters), keep it 5 years and if you like Bharata (7 letters), then keep it 7 years.

Basics of Investment Strategy Plan

Mon, 01 Jan 0001 00:00:00 +0000

Basics of Investment Strategy Plan

THE Basic PRINCIPLES:

It should be fairly straightforward. No need for assessment of complicated risk tolerance (graphs/psychological tests etc). Follow the KISS principle (Keep it Simple and Stupid).
Identify the objective as Maximum Terminal Value (Growth) / Regular Cash Flow or a combination of both in varying degrees.
Third objective is Capital Preservation - for those who have adequate money and now do not want to risk or have hassles. Precious FEW. Capital Preservation is also good for something like saving for a downpayment.
Capital preservation and Growth objectives are polar opposites and are not possible to get in a single instrument. Any instrument which claims to give both is an oxymoron like reality television, selfless politician, mature baby, etc.

THE Basic DETERMINANTS:

Time Horizon: Select the particular appropriate time horizon. For retirement corpuses, you should consider the life expectancy of both the husband and wife plus if you want to leave for your kids. The longer the horizon, the more equity is appropriate. For say child education (a very common goal), initially it should be in equities and as the time for actual money comes closer, an yearly or 2-yearly change of the allocation pattern according to the graph should be done. The corollary is if you need money in the next 5 years, do not invest in equities. See Graph
Cash Flow: If regular income required is upto 2-3% of the total portfolio (this is based on US data, but for our country, even 4-5% should be a safe and reasonable yield), then an all-equity portfolio is ok. If more is required, then a blended portfolio of 70:30 or 60:40 (equity:debt) is advisable. Either a SWP (Systematic Withdrawal Plan) or periodic sellings or dividends (from stocks) or interest income is advisable depending upon the instruments.
Return Expectation. It should be remembered that all asset classes except short-term debt instruments give returns in lumps. That is, for some periods the asset class will give magnificent returns for months, years to decades and at other periods, the same asset class can give flat / negative returns for similar periods.
Individual Pecularity. Best example of this is ownership of gold. Some people get a warm feeling by having this asset class in their portfolio, while others just hate having an asset class with low returns and high volatility. Although, emotional attachment to various asset classes may not the best thing to do, but if such a thing means a feeling of “All is Well” then such personal preferences should be followed.

Some important CHECKS:

Check availability of decent amount of living expenses (usually for next 6 months) in a liquid instrument, which canbe cash, savings account, short-term/liquid debt funds or FDs. Monthly Living expenses = your yearly expenses (including the compulsory and the arbitrary expenses) divided by 12.
Check Insurance requirements (life, health, car/bike, etc).

Depending upon the above criteria, the appropriate allocation into stocks, debt and others should be done.

A simple Financial Planning Roadmap

Mon, 01 Jan 0001 00:00:00 +0000

A simple Financial Planning Roadmap

Step 1: Check Insurance requirements

Check Health Insurance for you and family. If your company provides a decent amount, well and good. Otherwise, get one.
Do you have people who depend upon your income?
For most new young unmarried starters, the parents are usually not dependent on them for income (there are exceptions).
While for married people, the exceptions will be inverted. So, if someone is dependent on you for your income, get a decent life cover, preferably through an online term insurance plan (works out the cheapest).

Various types of Risks in Investments

Mon, 01 Jan 0001 00:00:00 +0000

Various types of Risks in Investments

A common definition used is ‘Risk is the uncertainty that an investment will earn its expected rate of return.” It includes both Upside and Downside Risk. Although, we like the Upside Risk (return much greater than expected), we abhor the Downside risk. One needs to understand that both are sides of the same coin and mostly cannot be separated. If you want an instrument which can give / has given higher returns than expected in the past, then in future, the opposite can happen too.

Are you a Stock or Bond?

Mon, 01 Jan 0001 00:00:00 +0000

Are you a Stock or Bond?

One way to view human life is to see it as a process of converting human capital into wealth, both financial and real. When you start out, the human capital is high while wealth is low. Midway (around 40 years), there should be assets which show the result of past 15-20 years of use of the human capital. At 65-70 years of age, the human capital is almost spent and now the wealth capital has to take care of rest of the life.

Assets and Asset Allocation

Mon, 01 Jan 0001 00:00:00 +0000

Assets and Asset Allocation

In increasing order of possibility of loss of principal:

Income yielding assets:

Cash in Bank Account.
Fixed Deposit.
Liquid funds.
Money-back policies.
Annuities
Government and state bonds.
Good quality Corporate FDs.
High yield Corporate FDs.

Growth and Income yielding assets:

Debt oriented hybrid funds.
Equity oriented hybrid funds.

Growth assets:

Blue-chip stocks and stock funds.
Dividend yield stocks.
Real Estate
Mid and small cap stocks and funds.
Penny stocks.
Put / Call options. Futures. (There is too much complexity in deciding which is riskier).

Other points to consider:

Critical Mass

Mon, 01 Jan 0001 00:00:00 +0000

Critical Mass

A state of freedom from worry and anxiety about money due to the accumulation of assets which make it possible to live your life as you choose without working if you prefer not to work or just working because you enjoy your work but don’t need the income. Plainly stated, the Land of Critical Mass is a place in which individuals enjoy their own personal financial nirvana. Differentiation between earned income and assets is a fundamental lesson to learn when thinking in terms of critical mass. Earned income does not produce critical mass……critical mass is strictly a function of assets.

Asset Rebalancing

Mon, 01 Jan 0001 00:00:00 +0000

Asset Rebalancing

Original Post

Main Ideas:

In a well-diversified portfolio, the individual investments are expected to generate a certain rate of return based upon their characteristics and risk profiles.
The returns of different asset classes in a short-term cannot be known in advance. And the markets (both debt and equity) can have significant volatility so as to throw the investors off track. In other words, the short-term performances of assets are Unknown unknowns.
Over longer periods of time, it has been shown that Regression to the mean occurs for the major asset classes. In Jason Zweig’s words - “Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the stage for surprisingly good performance.” Link .
By rebalancing, we are actually selling the asset class which has gone up, while buying the one which has gone down. It is the idea of Buying Low, and Selling High. Although, in practice, it is quite difficult to do for most people.

Methods of Rebalancing:

1. Calender Method – You do your Asset rebalancing on a monthly, quarterly, yearly, 2/5 yearly basis. Or you do it daily (David Swensen used to do it daily in his Yale Endowment portfolio, largely because that portfolio did not incur any taxes). There have been few studies which have shown that the frequency of rebalancing, as such, does not have any statistically significant effect over the overall return of the portfolio, provided you do the rebalancing. (I cannot get reference for that right now).

Lumpsum or SIP/STP

Mon, 01 Jan 0001 00:00:00 +0000

Lumpsum or SIP/STP

Original Post and discussion

This is quite confusing to many people, since the finance world touts SIP (Dollar Cost Averaging in foreign terms) as the best way to invest.

Definitions:

SIP (Systematic Investment Plan) = one invests a fixed amount of money at a regular interval (daily / weekly / monthly / quarterly). In short, it is transfer of money from cash to a particular asset (mutual fund / direct equity called the DIY-SIP or other such names).

Life Insurance: What it is exactly?

Mon, 01 Jan 0001 00:00:00 +0000

Life Insurance: What it is exactly?

Life Insurance is basically a Death Insurance and better term is Income Replacement Insurance. It is a transfer of risk of your death, in terms of financial liability, from you to the insurance company. Like a car insurance, if something happens to the car, the insurance company will pay for the repairing work / or pay an amount according to the value assigned in case it gets stolen. Similarly, a life insurance is a contract between you and the insurance company, in which the company takes money (=premium) to ensure that it will provide money (=life cover value) in case of death of the insured person (like Stolen car analogy).

How to Evaluate Life Insurance Needs

Mon, 01 Jan 0001 00:00:00 +0000

How to Evaluate Life Insurance Needs

Things to ponder over

Apparently, most people tend to be under-insured. That’s because what generally happens is that they get approached by some Life Insurance agent who works on a commission basis that throws around some jargon(despite what the advertisements say, this still happens), shows you an amount that looks ‘big enough’ on maturity or death. You ask how much premium is required, you take a cursory look at your monthly savings and wonder if you can go for it, you arrive at a plan that you think is affordable and boom, you pat yourself for being a responsible adult. More often than not, it is NOT GOOD ENOUGH.

ULIP - Unit Linked Insurance Plan

Mon, 01 Jan 0001 00:00:00 +0000

ULIP - Unit Linked Insurance Plan

BASIC DEFINITION

This is a single instrument / vehicle which gives Insurance and Investments. It uses the income tax laws to provide tax-free returns(most of them do, but changing laws sometimes changes the status of such plans – so always do check the actual laws and the relevance of the particular Ulip).

In other words, Ulip is a type of mutual fund (in the sense that they get your money, convert them into units and professionally manage the money while charging you a management fee) which uses the tax laws to make the entire instrument tax free or as tax-friendly as possible.

Some FAQs on Life Insurance

Mon, 01 Jan 0001 00:00:00 +0000

Some FAQs on Life Insurance

Q1. What happens if the company I have bought insurance from goes bust? Is there any mechanism to protect customers like Deposit insurance corporation?

A1. The IRDA regulations mandate that the solvency ratio (mainly indicates the assets versus liability adequacy) of the insurance company should have a decent margin of safety. Check this Link for more details. Currently, all the companies have decent solvency ratios. Hence, we do not need Deposit Insurance corp or any other such fallback for that.

Links to Answers related to Life Insurance

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1. Short Primer on Life Insurance as a comment: Link

Health

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Health

How to Buy Health Insurance - this includes a pointer regarding Room Sublimits.

Varun Dua (Co-founder of Coverfox.com) AMA

Post/Comment Section

Health Insurance for Parents

Others: Disability / Home

Mon, 01 Jan 0001 00:00:00 +0000

Others: Disability / Home

HouseHolder Insurance

Comment

Child Plan

Mon, 01 Jan 0001 00:00:00 +0000

Child Plan

Basic Principles:

Please check This . You need to define the following 2 things-

1. Time horizon. If you will not need the money in next 10 years, the equity allocation would be 80-100%. If it is 5-10 years, then equity allocation would be 50-70%. Etc. It really depends upon the age of your child and when you would approximately require that money. Say, if you child is 10 years old, and you may need the money at 18 years, then the approx. time horizon is 7-8 years. While, if the child is 3 years old, the time horizon will be 15+ years. 2. Your own investment psychology. The above allocations are kind of aggressive. You may want to tone it down by 10-20% from equity to debt. You may want to add Gold as some percentage.

What is a Mutual Fund?

Mon, 01 Jan 0001 00:00:00 +0000

What is a Mutual Fund?

A mutual fund is an instrument / vehicle by which a company (called Asset Management Company or AMC) collects money from investors by selling units / shares and using that money to make investments.

Depending upon the mandate; a mutual fund can invest in equities, bonds, a mix of both, gold, international equities, other mutual funds etc. So, mutual fund automatically does not mean equity mutual fund. Equity mutual funds are a subset of all mutual funds.

Types of Mutual Funds

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Types of Mutual Funds

Income Objective

You have to opt for dividend option if you want to get the dividend declared to come to your account. Alternatively, you can opt for growth option and ask for a specific amount of money as per needs to get the actual income. This can be automated with SWP or it can be done as per your request.

Liquid Funds

These are a type of Money-market funds. These types of mutual funds invest in highly liquid and high credit rated securities with very short maturity time frames (usually less than 91 days) like CD (certificate of deposit which is a big FD), government securities, commercial papers, and corporate bonds (AA+ and above, mostly).

What and Why of Mutual Fund Ratings

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What and Why of Mutual Fund Ratings

AKA Mutual Fund Rankings do not make Sense! Or Do They?

You will find lot of media (print, TV, blogosphere, sites) screaming their heads off about 5 star funds. Friends swearing about some sites about 5 star funds. We will try and dissect the methodology of this, and then the disadvantages.

The major sites (Valueresearchonline, Morningstar, Moneycontrol) first categorise different funds in different categories, according to their own whims and fancies (if you will check, they will tell you they have definite criteria but all those criteria are based on relatively short-term periods of recent past, eg. 1 year or 3 year). Few years back, VRO had a group of Diversified Equity, which later got divided into Large, Large-midcap, Multicap, Mid-Small cap. In future, it can happen with the higher number of funds, that there will be a Large-Medium-Mid and a Medium-Mid group too (who knows!).
According to their current portfolio, different funds are kept in different groups at different times. Eg, a flexi-cap fund like HDFC Equity will be placed in Large-mid cap fund group at one time, while at other times it will be put in multi-cap group (which is actually its group). So, the place of individual funds can change over time. Which means, if you categorise HDFC Equity as a 5 star fund in the large-mid cap fund group and later on, its group changes to multi-cap, then the rating of 5 star of large-mid cap is just junk for this particular fund. (For clarity sake, HDFC Equity can invest in any company, will prefer to get mid and large companies, and since its benchmark is CNX 500 (major 500 companies, so it is best characterised as a multi-cap).
The method of Rating. A Risk adjusted Return is followed which includes a lot of maths, usage of exotic terminology like ‘downside risk’, ‘utility function theory’,‘risk aversion’, etc. Then they compare monthly/weekly returns with a risk-free return (savings bank account rate or short term FD), and assign downside risk and excess returns, do some more jugglery in terms of percentages allocated to various parameters. Then all the funds of a category are separated into different star groups, the top 10% are awarded 5star rating, next 22.5% 4 star (so the top third are 4/5 star).
All these ratings are purely quantitative without any subjective component. If the main catalyst of all fund selection – eg the fund manager, leaves, there will be no change in the rating. Even, the complete change of the entire management team like Fidelity leaving lock-stock-and-barrel does not change the rating of their funds which have been taken over by L&T with a new team. Amazing, if you really look at it.
Then these ratings are disseminated to people in various forms and adverts. And people flock to the 4 and 5 star funds.

What are the problems in this way? Is it not better to use 4/5 star funds than to use the lower performing funds (the 1 and 2 star funds)?. Yes, selecting funds on basis of stars can be a good start, since most of the long term decent funds are 3 or 4 or 5 funds. But the problems are:

How to Select a Mutual Fund

Mon, 01 Jan 0001 00:00:00 +0000

How to Select a Mutual Fund

PRINCIPLES

It is important to understand that selection of mutual funds is NOT the first or the most important step in the making of a portfolio.

For all long-term investors, there is only one objective – maximum total real returns after taxes (John Templeton). Warren Buffett has specified the same with the phrase, across the prospective holding period.

CORE INVESTMENT BELIEFS

Investing is a young field with only a few decades old historical data. And new data cannot be created so scientific analyses cannot be applied rigorously to different trading / investing systems. That is probably a reason why there is no consensus system of something which works across everything (no irrefutable laws). So, you believe or you do not believe in them!

FAQs for Mutual Funds

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FAQs for Mutual Funds

Can I buy mutual funds directly? Or do I need a broker like Zerodha? Or does it depends on MF/AMCs?

Refer to our FAQ on Best platform / app for buying mutual funds.

What is the best mutual fund app for investments?

Are MFs also stored in demat?

Not necessarily. Only if you buy from a broker, then you can see them in your demat account. In all other options, you get statements like demat accounts and it can work out completely online, eg. for a particular AMC, you can have an account wherein you can do all types of transactions. From Karvy/CAMS, you can get overall statements of all of your MF based on the PAN. There is no advantage of having MF units as demat.

SIP and Mandates

Mon, 01 Jan 0001 00:00:00 +0000

SIP and Mandates

Most retail investors prefer SIPs over any other mode of investments, reason being it’s automated, and drives the whole thing on auto-pilot.

It should be abundantly clear that SIP only automates the process of investing, and keeps investors disciplined. It’s a behavioral easing tool.

If you manually purchase (lumpsum first purchase, or additional purchase), for same amount, on SIP date; you’d receive same NAV and units against those NAVs.

How to Become Crorepati using Mutual Funds

Mon, 01 Jan 0001 00:00:00 +0000

How to Become Crorepati using Mutual Funds

Mutual funds are outstanding investment vehicles after you learn how to utilize them correctly. Most people, however, do not have a solid understanding or conviction about mutual funds.

The first absolutely essential point to understand is that the big money in mutual funds is always made by sitting through several business cycles. In other words, to reap large returns from funds, you have to have the strong belief and patience to sit tight for 10 or 15 years or longer. It’s like real estate. You may not make anything if you buy and later become impatient or shortsighted and sell out after only three or four years. It simply takes time. Nervous Nellies are not good fund shareholders. Investors in open-end investment companies, as mutual funds are sometimes called, tend to buy the best-performing fund after it has had a huge performance year. The next year or two will probably show slower or poorer results followed by an inevitable economic recession. This is usually enough to scare out those with less conviction or the “I want to get rich quick” fund holders.

Analysis using long term equity and debt funds in India

Mon, 01 Jan 0001 00:00:00 +0000

Analysis using long term equity and debt funds in India

Part 1: Only Equity Fund

Data used: NAV of Franklin Blue Chip funds, since its inception. Modifications: Used average monthly NAVs for analysis. I did not put the 2% investment charge which was there for most of the period.

Some basic data:

Time	NAV	Note
Dec 1993	9.4
Dec 1994	20.2	(a jump of 100%)
Dec 1995	15.6	-22% loss
Feb 1997	10.3	back to starting point of 3 years back (with 30% loss)
Feb 1998	14.0	40% up in 1 year, but still not recovered over 2 years
Jan 1999	20.3	gain in 1 year, but over last 4 years, Nowhere.
Feb 2000	57	almost tripled in 1 year (+200%)
Oct 2000	20.7	retraced back, & lost 65%, back to level of 6 years ago.
Oct 2001	16.1	20% more loss.
Nov 2002	20.3	same old story, back to 8 year level.
Jan 2004	53.9	again a 150% increase.
Jan 2005	61	just 11%
Jan 2006	92.9	50% more
Jan 2007	132	50% more
Jan 2008	181	50% more & 9 times in last 5 years.
Jan 2009	97	lost 50% in 1 year.
Jan 2010	186	gained 100% again
Jan 2011	217	an 11% increase
Jan 2012	196	a 10% loss.
Jan 2013	241	20% increase.
Jan 2014	242	flat.

Few conclusions:

Primer on Retirement Planning

Mon, 01 Jan 0001 00:00:00 +0000

Primer on Retirement Planning

Original Post and Discussion

So, you probably groaned in your head when you read the title. Retirement planning is not something that you feel is something that deserves your attention because ‘Hey, my career started quite recently! I have a long way to go before I start worrying about things like retirement, right?’

Wrong! Now I am not asking you to worry about it. But through this post, I will hopefully be able to teach you why you should do it whilst explaining the different options that you have out there.

Why You should not Opt for a Readymade Pension Plan

Mon, 01 Jan 0001 00:00:00 +0000

Why You should not Opt for a Readymade Pension Plan

One of my friends recently met a smart young supposedly “IRDA approved financial consultant” who gave him an overview of investing into a retirement plan (and which was not a Ulip, in his words). I was merely an observer.

He gave him nice descriptions about the plan, and how that will be the best thing for his retirement and how he can then enjoy the best things in life automatically (only and only) if he invests in that plan. Awesome idea. Their fund management team had worked fabulously, and provided 15% returns on balanced funds (balanced funds = funds which can invest in both equities and debt). And implied in the response was that they will continue to do that for all the coming years. Great thing indeed again.

Studies of Long Term Portfolios and Retirement Withdrawal Rate Suggestions

Mon, 01 Jan 0001 00:00:00 +0000

Studies of Long Term Portfolios and Retirement Withdrawal Rate Suggestions

This analysis gives you a basic idea about the historical and current perspectives of institutions which manage money on a large scale. And because the world economy is increasingly getting unified (as compared to past), these ideas will be applicable on a principle basis. Hence, this idea is important as far as the basic strategy is concerned.

However, how it applies tactically in individual cases and in an Indian context will be different.

Do-It-Yourself Retirement Plan

Mon, 01 Jan 0001 00:00:00 +0000

Do-It-Yourself Retirement Plan

Using concepts outlined in following links

A simple Financial Planning Roadmap

Basics of Investment Strategy Plan

Basket 1. First ascertain, how much money you need in next 2 years (2 years expense including discretionary and non-discretionary). Put this amount partly in Bank account (obviously with an ATM/debit card), and rest in short-term / ultra-short term debt mutual funds.

Basket 2. Now ascertain an approximate amount of money needed in next 3-4 years (This is just an approximation again). Keep this amount into a dynamic bond or income fund.

Personal Finance

Mon, 01 Jan 0001 00:00:00 +0000

Personal Finance

WARNING: This section of the wiki needs an overhaul and the information presented in this section may not be up to date or reflect the current state of affairs. However, the concepts presented in this section should still hold true and valuable.

If you’re interested in making this section better, send us a message on our Discord server.

Marriage and Finances

Financial Considerations/Compatibility before Marrying

See this section on /personalfinance .

Behavioral Biases

Mon, 01 Jan 0001 00:00:00 +0000

Behavioral Biases

If you’re interested in making this section better, send us a message on our Discord server.

Behavioral Biases

Framing
The Keynesian Beauty Game
Loss Aversion
Loss Aversion - 2 and the Value Function

Time Value of Money

Mon, 01 Jan 0001 00:00:00 +0000

Time Value of Money

This is one of the most important concepts in finance. It implies that rupees paid or received in the future are different from the rupees paid or received today. It is easier to understand that ₹1000 in your wallet today is worth more than ₹1000 in your wallet 5 years in the future. This is because you can invest that ₹1000 in your savings account and earn interest for 5 years and get more than ₹1000 5 years later.

Inflation

Mon, 01 Jan 0001 00:00:00 +0000

Inflation

Basics

Inflation is the rate of rise in the general level of prices. It is measured by the changing cost over time of a “basket of goods and services” for a typical household. In other words, the rate of rise is calculated for multiple things and services and an average value is provided. Important phrases:

Rate of rise- it is a rate of rise (like in physics, it is rate of change of velocity aka acceleration). So, even if inflation rate is getting down (like in the past few months), the rise may still be there. Only when the inflation is 0% or negative will the actual prices be stable or go downwards.
Basket of Goods – The price of some goods may rise while those of others may fall, so an average weighted value of increase (or decrease) is calculated officially.
Typical household – Presently, there is a typical rural and a typical urban household which have different weightages to individual components.

The weightages in CPI are as follows:

Life Insurance

Mon, 01 Jan 0001 00:00:00 +0000

Life Insurance

Step 1: Whether you need it or not?

Anyone whose death will cause financial trouble for near-and-dear ones should get a policy. In case, you find that you have enough Assets to cover up their needs, as per calculation in the next step, then also you don’t need to have a policy.

Step 2: How much you need?

The Needs based approach:

Income Replacement Needs – What are the annual expenses of your family? Multiple by 20 (this would mean that they can get by a 5% yield).
Debt Repayment Needs – If you have home loan, car loan, credit card debt (=this is really dumb, if you have it), or any other kind of loan, add this amount.
Education Needs for Kids – School and College education amounts (take help of the Time value of money article to have an idea of the Present Value of that goal).
Any other major expenses like marriage of kids or even your spouse (why not!).

Add all of the above values. Subtract your present value of Assets from the above. The final amount left is what you should cover by using a life insurance policy.

ELI5 guide to Selecting an Equity Mutual Fund

Mon, 01 Jan 0001 00:00:00 +0000

ELI5 guide to Selecting an Equity Mutual Fund

Step 1:

Identify the Category of fund needed.

The categories would fall into:

Large Cap fund
Flexicap fund (depending upon the manager’s decision, this fund can become a large cap or a predominantly mid/small cap fund)
Mid and Small cap fund
ELSS

This step is decided by you, the investor. And it is the most important step.

Step 2:

Goto Morningstar.in Analyst Rating Reports section. Link , and select your category of Step 1.

How do I start investing in mutual funds [ELI5 series]

Mon, 01 Jan 0001 00:00:00 +0000

How do I start investing in mutual funds [ELI5 series]

So, you have thought about investing in mutual funds but don’t know how to start. Congratulations, because getting started up is the hardest part .

For investing in mutual funds, you will have the following options:

A. Invest through an agent. They can be individuals, someone living close to you, OR they can be big institutions like banks or Fundsindia.

The advantage is that they will do everything from their own side and you will just have to sign few papers and that is it.
Disadvantage is that you will be investing into regular plans of the mutual funds and lose out on the cost benefit of the direct funds. The regular funds pay back some fees directly to the agent.

Steps: Call your agent and sign the forms.

Mis-selling of Insurance Products

Mon, 01 Jan 0001 00:00:00 +0000

Mis-selling of Insurance Products

This is going to be long. But you asked for details. And you may not be the only one, and some may be newbies. This is meant for absolute laymen. Fire away questions if necessary.

When you start off investing, unless you already have knowledge about various instruments, you are likely to get fooled. And you are more likely to be fooled by the people who already have knowledge about your purchasing power i.e. your bank.

Contributor License Agreement

Mon, 01 Jan 0001 00:00:00 +0000

Contributor License Agreement

In order to clarify the intellectual property license granted with Contributions from any person or entity, India Investments (“IndiaInvestments”, “We” or “Us”) must have a Contributor License Agreement (“CLA”) on file that has been agreed upon by each Contributor, indicating agreement to the license terms below. This license does not change your rights to use your own Contributions for any other purpose.

You accept and agree to the following terms and conditions for Your past, present and future Contributions submitted to India Investments. Except for the license granted herein to India Investments and recipients of Documentation distributed by India Investments, You reserve all right, title, and interest in and to Your Contributions.

How to link FAQ via bot in Discord

Mon, 01 Jan 0001 00:00:00 +0000

How to link FAQ via bot in Discord

Intro 🍁

As a community of investors, we get queries from time to time, that are frequently asked. Often repeatedly.

We have FAQs on our wiki, for queries such as these, that addresses such queries. But having it in an archive is of no value, if it cannot be searched and linked, as and when needed.

We’ve a setup that solves this problem - any active member can invoke the bot with a specific tag, and the bot would take care of presenting right information to the user.

General Style Guide

Mon, 01 Jan 0001 00:00:00 +0000

General Style Guide

Intro 👋

This document should serve as a standard guideline on how to write for r/IndiaInvestments wiki.

There’s no one true way of writing it. But when working on a collaborative project such as this, we all should agree with certain ground rules, to have uniform content throughout our knowledge base.

It also helps reviewers, reducing cognitive load on what to watch out for.

Following points are meant as a way to help you form an article from scratch. We can then tweak it later, based on review feedback.

FAQ Style Guide

Mon, 01 Jan 0001 00:00:00 +0000

FAQ Style Guide

What is FAQ?

Our FAQ sections exist, to address common queries often asked by investors. These queries are so common, that instead of covering these as part of their dedicated series; we chose to group them under a dedicated series of its own.

These are available in our Discord #faqs channel. And on top of that, it’d be available as a bot command - when someone asks a common query whose answer is already in our wiki, another community member can have a bot fetch that for the member right away.

How To Style Guide

Mon, 01 Jan 0001 00:00:00 +0000

How To Style Guide

Intro 👋

We’ll soon have lot of process-oriented, step-by-step guides on various common tasks an investor needs to execute from time-to-time. These would form our How To section.

As a result, we’d have a ton of content that people can quickly refer to, as a sort of checklist.

But this has some challenges as well. Step-by-step guides can frequently become outdated, if the underlying product or platform changes in look-and-feel, functionality etc.

Excel Series Style Guide

Mon, 01 Jan 0001 00:00:00 +0000

Excel Series Style Guide

Intro 👋

Excel series is about covering excel programming lingo in a way that’s palatable for most people who’re starting out with investments.

Learning enough excel to be dangerous is the goal for end user. We’ve to assume that user has no reason to know why they’d need excel; at least in the beginning.

They just need to be guided, step-by-step, so they feel comfortable using excel, for day to day finance-related queries.

Stocks Style Guide

Mon, 01 Jan 0001 00:00:00 +0000

Stocks Style Guide

This article is meant to serve as a style guide on how to write content in the Stocks section.

This isn’t a strict requirement but a general recommendation or advice about how to approach writing content which meets the level of quality we’re looking for in the Stocks section.

This is in addition to our general style guide

General Style Guide

Use Beginner Friendly Writing Style

Unless something has already been covered in one of the sections written before, please don’t assume that the reader would know about it. This doesn’t mean that content should be dumbed down, but it should be easy to approach such that understanding it doesn’t feel uncomfortable.

How to Search the Wiki From Discord

Mon, 01 Jan 0001 00:00:00 +0000

How to Search the Wiki From Discord

You can search this wiki from our Discord itself, using India Investments bot’s slash command.

Steps

On your Discord app, either on phone / tablet, or on web / desktop app; visit #testing channel on our Discord.
Type / (front-slash), then start typing wiki It should auto-prompt the right slash command you’ve been looking for.
Now enter your search query (2-3 words are more than enough) in the query field.
Hit return or Enter in your keyboard.
Wait for result(s) to arrive.
Depending on your query, the bot might return one or more than one result. If that doesn’t match your expectation, bot would also give you a link, that would directly take you to our wiki.

I'm unable to send messages to stocks-fundamentals channel on Discord. Why?

Mon, 01 Jan 0001 00:00:00 +0000

I’m unable to send messages to stocks-fundamentals channel on Discord. Why?

Tip

NOTE: As of 1st April, 2021; we’ve opened this channel up for everyone on our Discord. It’s our belief that the community now has enough guard-rails and helpful materials to fall back on, should anyone need help with discussing how to pick stocks. However, depending upon the situation, we may restrict the channel again to selected members of our community.