Monday, April 27, 2015

Book transcript completed

What an experience!

At the outset, writing a book looked a really tough task, especially considering that I had only written articles ranging from 400 words to 2500 words. There were only a few write ups that exceeded 10 pages in all. The challenge of the task looked big.

However, writing the book turned out to be much more challenging than I could imagine.

Finally, the transcript is ready. It is a great feeling.

I will keep sharing more on this ...

Who should consider investing in sector funds?

Click on the link below to read my article on Sector funds ...

The English translation of the article is as under:

“Which sector is most likely to lead the next bull run? How do I take benefit of the same?”
I wish I knew the answer. The fact is: while most of us do not know the answer to the above questions, many want to know. Speculation about the future events, is part of the basic nature of human beings. We all want to know the future in advance.
Whereas we may not know the answer to the first question, the second question is easy to answer. If you know which sector is likely to lead the next bull market, find out if there mutual funds available investing only in that particular sector. These funds, as a groupd, are called “Sector Funds”. The objective of these funds is to generate long-term returns by investing in companies belonging to a particular sector.
In the Indian market, we have many options available, viz. Pharma funds, FMCG funds, Banking and financial services funds, Infotech funds, to name a few.
The investor having a positive view for a sector may invest in a fund related to that sector. The critical factors for success is the knowledge of the sector prospects. In order to understand the sector prospects, you must first understand how the sector operates. Developing this understanding takes time. One’s understanding may be limited to one or two or three sectors, at most.
Since these sector funds invest only in one industry sector, they lose out on the benefit of diversification. In one of our earlier articles, while talking about diversification, we had highlighted two issues with concentrated portfolios: (1) some developments, e.g. changes in Government policy, or technological advancements, or change in public preferences may have a negative impact on the prospects of an entire sector; and (2) price movements driven by sentiments may see fall in the prices of shares belonging to an entire sector together.
In either case, anyone holding a portfolio concentrated in a sector is likely to see drop in portfolio value – sometimes for short periods, or sometimes for long. The prices of shares in a sector are likely to move up or down much more than the broader market. It is important to understand whether one has the financial and psychological ability to withdtand such fluctuations – may be deep and long.
Most of us would be better off leaving the sector selection decision in the hands of the fund manager.
Sometimes what one is trying to do is to take a view on few sectors based on Government action (or any such single factor). Your long-term investment strategy should not be changed every now and then if the Government changes the policies. In the long-term, a diversified portfolio should actually be able to withstand such changes.

Most of us are better off leaving the sector selection decision in the hands of the fund manager. You may consider investing in sector funds only (1) if you understand the secret very well, and (2) you are ok with the risks, including volatility, of the sector.

Amit Trivedi
The author runs Karmayog Knowledge Academy. The views expressed are his personal opinions.

Monday, April 13, 2015

SIP in ELSS - a good way to save taxes right from the start of the financial year

My article on the highlighting the benefits of starting early in the financial year to plan for saving taxes ...

The English translation is as under:

Someone has aptly said, “If you want to sell something to a man, tell him there is a tax benefit.” We all love to save tax, even if we have to spend more than the tax saved, sometimes. Well, on a serious note, in order to promote a certain behavior the Government offers some incentives in form of tax rebates.
One such incentive is in the form of tax deduction under Section 80C of the Income Tax Act. Among other alternatives eligible under this section, we covered ELSS in one of our earlier articles. We would like to repeat the importance of this investment vehicle. Someone may think, why now? Shouldn’t we worry about the tax saving in the end of the year?
Well, we have observed over the years that the tax deductions from salary start towards the end of the year as the companies assume the employees would (and should) take their time to plan out whether and how to save taxes.
We think, some simple things are possible to start doing. All of us know the limit under Section 80C of the Income Tax Act is Rs. 1,50,000 per year. We all also can estimate the PF deduction, our annual insurance premium amount, etc. Based on this, it is easy to arrive at the limit available for other avenues, of which ELSS is one.
If you have made your overall financial plan – either yourself or with the help of a professional – you also know how much contribution you need to make towards equity investments.
Let us assume that you have the entire limit of Rs. 1,50,000 available for ELSS and your financial plan also requires that you invest that much in equity for the year.
Given that, it is easy to invest a sum of Rs. 12,500 every month into ELSS rather than putting a sum of Rs. 1,50,000 at one go. First of all, one may not have that much saving in one go. Secondly, putting a large sum in one transaction carries the risk of entering the stock market when the prices are high. As against that, the same also may provide an advantage if the entry happens to be at a very low price. Should one take that risk? Is it prudent? If one has a reasonable knowledge to identify market tops and bottoms, the strategy to invest in one go might be a good idea; if not, it could be disastrous.
Most of the retail investors do not have the skills to know if the market is currently high or low. With that limitation, it is prudent to spread one’s investments. In one of the earlier articles, we also talked about systematic investing and its benefits.
Combine the above points and the picture is clear. We are recommending that one may consider investing systematically in ELSS schemes through SIP. Starting this process in April reduces the burden at the end of the year. Such a strategy allows one to invest in equity, spread the investment monthly and thus reduce the burden, take the advantage of price fluctuations in stock markets and avail the tax benefit – all through one simple plan.
However, one needs to keep a few things in mind. One, ELSS is an equity linked savings scheme. Please understand that you are investing in equity markets. Go with proper understanding. Two, units of ELSS schemes are locked-in for three years from the date of allotment. Hence someone investing in ELSS through SIP route must understand that each investment would be locked in for three years from the respective investment date. The lock-in does not end three years after the first investment for all your units.
Plan to save taxes, start as early as possible and have a wonderful 2015-16 ahead.
Amit Trivedi
The author runs Karmayog Knowledge Academy. The views expressed are his personal opinions.

Thursday, April 9, 2015

Why only MF investments are subject to market risks?

Many investors equate risk with losses. Many individuals believe that all mutual fund schemes invest money in shares. In reality, not all schemes invest in shares. And not other investments are free of risks. 

Read my views on the above topic ...

Why only MF investments are subject to market risks?