My Initial Investing Mistakes

Some mistakes I have made in my initial days of investing:

Trading very often
When I first learned how to buy-sell stocks, I used to do this very often. As soon as stock will give me 5% profit, I used to sell it off. Later, not sooner I realize, this way it's not me but it's ICICI Direct that's getting richer.

Putting all my eggs in one basket
Infrastructure was at peak when I started. I bought all Infrastructure related stocks. I am still hoping they will recover one day.

Sunk-Cost fallacy
I bought a share at its peak. It fell badly in few days. Rather then buying something else, I fooled myself and bought same stock again at lower price. Logic, if we can say it at all, was that by buying further I am lowering its average cost which will help me to recover my losses earlier. :(

Trying to time
Yes, I tried doing this. Now when I look back, I laugh on it. What else can I do?

Losing Patience
When I started trading Sensex was trading at 17K range. It then fell to 14K range and further to 8K before re-bouncing last year. I held my losses all the way through 17K to 11K. But at 11K, I sold my entire portfolio. Please don't even ask how much I regret it and how much I have learnt from it.

Fund Houses in NOIDA

Principal MF
307 Jaipuria Plaza,
D 68 A, 2nd Floor, Opp Delhi Public School,
Sector 26,
Noida - 201301

Reliance MF
Reliance Capital Asset Management Limited
Shop No. 1, Gound Floor,
Ansal Fortune Arcade,
Secotor, 18,
Noida, - 201301
Tel. No. : 0120 - 2514729

HDFC MF
HDFC Asset Management Company Limited
K-24/25, Premises No. 36 & 37,
Pearl Plaza, Sector-18,
Noida - 201 301
Tel No.: 60006767 (Do not prefix STD code) / 18002336767 (Toll-free)
Fax No.: (0120) 3980610

ICICI Prudential
F-25, 26 & 27, First Floor
Savitri market, Sector-18
Noida - 201301
Toll Free Nos. 1800 222 999(BSNL/MTNL) / 1800 200 6666(Other Service Providers)

SBI
sbimf investor service desk gf- 07,
ansal fortune arcade sec-18,
noida-201301
Tel/Fax : (0120)4232214
Cell : 9999029356

TATA
Ground Floor, 8,
Ansals Fortune Arcade,
Sector - 18,
Noida – 201 301
Telephone (0120) 6455819/ 4279189

No Branch in NOIDA for following Fund Houses:
Canara Robecco
DSP Black Rock
Fidelity India
Franklin Templeton
Kotak
HSBC
DBS Chola

How to buy Mutual Funds directly through Fund Houses

I bought first Mutual Fund through a Fund House directly in Feburary 2008 and have never looked back. Personally, I find it convenient and very personal way of buying Mutual Funds. If you want to buy a mutual fund or open a SIP directly through fund house, please take care of following things:

If this is the first time you are buying Mutual Fund of this Company, carry a Xeroxed copy of your PAN Card.

If buying for the first time, and investing more then Rs 50000, please take one photograph of yours and proof of permanent residential address. It’s required to fill KYC (Know Your Customer) form.

Also, for the first time buyers, it is necessary to carry original PAN Card because it will be verified while submitting the form.

If you already have some mutual fund from this company, carry your folio number. New units can be bought against same folio number.

Different Mutual Funds of same company can be bought under same folio number. For example, if you currently have Reliance Equity Mutual Fund and planning to but Reliance Regular Savings Fund, same folio number can be used.

In the form, "Agent that you are buying from" field should be marked as Direct.

Carry at least one cheque.

Carry post dated cheques if you don't want to allow ECS through your bank account and want to open a SIP.

Know the MICR code of your bank. It’s the nine digit code in the cheque just after cheque number.

If your MICR code is starting with 00, it is incorrect due to some reason, most probably because your cheque is "At Par". Please get the correct MICR code, as otherwise ECS will not be possible.

Keep all these points in mind and you can buy a Mutual Fund in 10 minutes.

SEBI - Caution to Investors

I am copying it straight from SEBI's press release.
These all very important and basic points of investments.

Deal only with/ through SEBI registered intermediaries.

Do not get carried away by advertisements promising unrealistic gains and windfall profits.

Do not invest based on market rumours or unconfirmed or unauthentic news.

Be aware that advice through television or print media does not mean that it is the opinion of the channel or publisher.

Be extra cautious while using information available from media sources such as Websites/ Blogs/ Newspaper Advertisements/ SMS’s Emails/rumours/ advice through television or print media for information and tips for intra-day, short term or long term investing.

Do not be guided by astrological predictions on share prices and market movements.

Do not make investment decisions on the basis of implicit/explicit promises made by anyone.

Do not be unduly influenced by indicative returns.

Do not be unduly influenced by Bull Runs/Bear Runs while making investment decisions.

NSC - National Savings Certificate

This is the fifth and final post of the series and covers NSC.

1. What is NSC?

NSC stands for National Savings Certificate.

NSC can be bought from any of the Post Offices.

It is available in denominations of Rs 100, Rs 500, Rs 1000, Rs 5000 and Rs 10000.

They cannot be en-cashed prematurely.

2. What is interest rate of NSC?
8% is the current rate of interest though it can vary with time.

3. What is the lock in Period?
Lock in period is 6 years.

4. How to get the money back?
After lock in period money can be refunded back to main account.

5. Is interest accrued on savings is Taxed?
Interest earned through NSC is taxable.

ELSS - Equity Linked Savings Scheme

This is the fourth post of the series and covers ELSS.

1. What is ELSS?

ELSS stands for Equity Linked Savings Scheme.

Unlike PF, PPF and FDs, ELSS invests money in equity market.

ELSS are almost same as Mutual Funds.

Dividend reinvestment option should be avoided as every time dividend is reinvested, dividend's lock in period starts from there.

Dividend payout option can be useful because dividend paid out is actually tax free.

SIP can be done for ELSS.

2. What is interest rate of ELSS?
As ELSS invests in Equity market, there is no guaranteed return. Return varies depending on Fund's performance and investment has risk.

3. What is the lock in Period?
Lock in period is 3 years.

4. How to get the money back?
After lock in period money can be refunded back to main account.

5. Is interest accrued on savings is Taxed?
Dividend paid out is tax free but other gains are taxed.

Further Reading:
List of ELSS Funds

FD - Fixed Deposit

This is the third post of the series and covers FD.

1. What is FD?

FD stands for Fixed Deposits.

Any FD of 5 years or more can be used as Tax Saving instrument.

It can be open in any Scheduled Bank. List of scheduled banks can be found at: ThankPlainInvest

If FD is in joint name, only primary holder of the policy can avail the tax exemption.

2. What is interest rate of FD?
Interest rate for FD varies from bank to bank.

3. What is the lock in Period?
Lock in period is 5 years.

4. How to get the money back?
After lock in period money can be refunded back to main account. Interest can be taken either quarterly or reinvested.

5. Is interest accrued on savings is Taxed?
Yes, interest accrued is Taxable.

Further Reading:
ThankPlainInvest
RaagVamdatt

PPF - Public Provident Fund

This is the second post of the series and covers PPF.

1. What is PPF?

PPF stands for Public Provident Fund.

It is a voluntary form of saving. Any individual, even non-earning ones, can open PPF account in their name.

It can be open in any National Bank or some selected Post Offices.

There can be only one PPF account in name of any individual. Joint PPF accounts are not allowed.

The minimum amount that has to be deposited is Rs 500 and maximum can be Rs 70000.

Up to 12 transactions are permitted per financial year.

If deposits are not made in a PPF account in any financial year, the account will be treated as discontinued. The discontinued account can be activated by payment of the minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year.

2. What is interest rate of PPF?
Interest rate for PPF accounts is fixed by Central Government every year in March / April.

3. What is the lock in Period?
Lock in period is 15 years from the time first time this account has been opened.

4. How to get the money back?
Full amount can be withdrawn after the lock in period.
After lock in period, it can be operated for another 5 years.

5. Is interest accrued on savings is Taxed?
No income tax will be applicable on money withdrawn after completion of lock in period. So, in a way interest is not taxed.

Further Readings:
Rediff
TaxGuru

EPF - Employee Provident Fund

Starting from Today, there will be a series of post that will cover different Tax Saving Instruments covered under Sec 80C.

This is the first post of the series and covers EPF.

1. What is EPF?
EPF stands for Employees Provident Fund. It is a mandatory form of saving. Employee and the employer, both have to contribute to this fund. 12% is the minimum that needs to be added to it and employer has to match till this amount. It is of two types:

Provident Fund (PF) - This is the mandatory part of EPF. It is applicable to all the companies that have more then 20 employees. If you work in any of such companies, 12% of your basic pay will get automatically added to PF and employer has to match this amount.

Voluntary Provident Fund (VPF) - Any other contribution to PF over and above 12% mandated amount is considered as VPF. Company is not liable to match this amount. Maximum contribution allowed towards VPF is 100% of Basic + DA (Dearness Allowance).

2. What is interest rate of EPF?
Interest rate for PF accounts is fixed by Central Government every year in March / April.

3. What is the lock in Period?
Lock in period is till you get retired. In general, till you turn 55, your money will be locked in PF.

4. How to get the money back?
Full amount can be withdrawn in case of:

Retiring after attaining the age of 55.

Retiring on account of disability (permanent and total).

Migration from India.

In case of downsizing.

90% of it can be availed after attaining age of 54 or within one year before actual retirement, whichever is later.

Various loans can also be availed against PF.

When shifting the jobs, PF balance can be transferred.

5. Is interest accrued on savings is Taxed?
No income tax will be applicable on money withdrawn at the time of retirement. So, in a way interest is not taxed.

Further Readings:
BPOPioneers
RaagVamdatt

Decide which one to buy!

We all need stuff. So buying the products is part of our life and when we say frugal living, it certainly doesn't mean that u live cheaply, it only means u live reasonably within Ur means.

But every product has so many different brands available that I can hardly decide. And over the period of time, my accumulated golden principles for buying one particular brand is:

1) Compare the maintenance cost and buy with the least of them, even if this means buying little expensive item at first place. It pays in long term. I remember me and my friend once bought some electronic item together. It cost him Rs 5000 and me Rs 7000. But in long run, on same usage, mine consumes electricity worth Rs 100 and his Rs 180 per month. So eventually my extra Rs 2000 are compensated in 25 (2000/80) months. And if I am going to use that product for around 10 years, I have definitely the best value for my money.

2) List the features available in all the products and make a separate list of the features you want to have. Only buy the product that has features closer to your list, reason, why to pay for features that you any how not going to use much!

I hope my 2 golden principles will help you too. :)

SIP - Systematic Investment Plans

Second in the series for tools for investments:

Let me start with listing few of the traits:

1) You can not shelve huge amount for savings at once, but can take afford small amount periodically.
2) You have no understanding of equity market.
3) All your savings always lie in bank deposits.
4) You have more or less risk aversion, and want minimal risk.
5) You can stay invested for period of 5 – 10 years.
6) You always seem to be waiting for the “right time” to invest

If you have more or less similar traits, Systemic Investment Plans (SIPs) are appropriate for you. SIPs are just like recurring deposit schemes of the banks. Through SIPs you will be investing in Mutual Funds at regular intervals and can leave the worry about following things:

1) Timing the market. If market is going low, you will be buying at cheaper rates and if market is going up, you are getting returns.
2) Selecting the right mutual fund every time you have lump sum money available with you.
3) You are investing in equity, small amount every month, so cost will be averaging over the period of time. Cost averaging will keep the risks at bay.
4) Avoid panic sales
5) Invest as little as Rs.500 / Rs.1000 per month
6) Becoming a disciplined Investor
7) Taking advantage of Power of Compounding

So, you convinced that SIPs are ideal for you. Next step, decided which mutual fund you want to start with, consider few of the following things:

1) Fund House – performance of various funds of that fund house
2) Fund Manager – look at the performance of various funds managed by him.
3) Track Record of Fund – This will give you the confidence that this product is in market from quite some time and has survived so far implying, chances are that it will survive further also.
4) Investment Portfolio of Fund – My personal preference, when it comes to investing through SIPs is to avoid sectorial funds. Reason, simple, the sector which is hot now may fall in next one year, and SIP is a long term investment. So, I prefer diversified portfolio based funds for SIPs.

There are many sites available where you can get all this information. My favorite is though www.moneycontrol.com. I also consult www.indiabulls.com before making my call and invest for at least 3 years in any fund and then leave it aside for another 3 – 5 years.

Starting with Smart Savings: Money Multiplier Account

When I passed my college and joined job, I was a financial illiterate. All my savings used to lie in bank account and that’s it. Then I came across ‘Rich Dad and Poor Dad’. But once I finished reading the book, I realized that I am also one of the abundant species of “Financial Illiterates”.

I decided to change my breed, and from then started my regime of “Smart Savings”. I decided on my long term goals and decided that not only I’ll be saving regularly; I will also use those tools to save that will help grow my savings at rate > 10% annually. Why more than 10%, because banks will give you 10% returns. So if you spending some time on investments, then returns should be > 10%, otherwise I call it a failure.

When I started Smart Savings, basic problem I faced was deciding what all tools to use. There are so many instruments in the market to perplex you. But now after 2 years, I can list some tools for a fresher in the field that one can explore to start with:

Money Multiplier Account: Its one of the product of ICICI Bank, Corporation Bank of India. (I know about these two banks only. There can be other banks, may be you can consult your bank!) Money multiplier account is nothing but a Fixed Deposit (FD) Account. The only difference is that you don’t need any special request to break it in case you need that money. A Money Multiplier Account allows you to set a minimum balance to be maintained in your Savings Account. You can put in a request for the transfer of the excess of the minimum Savings Bank Account balance to Fixed Deposits. So you enjoy a higher effective rate of interest on your deposit.
Generally most of people will keep their 3 months expenses worth money in their bank accounts. They won’t use FD schemes for them, thinking that in case they need money before FDs mature, it will cause extra hassle. And moreover, I can’t use my money on the spot. What I mean by that let me explain:

Let’s say I want to buy some furniture. First I have to go to my bank to close that FD (or at least call them for same) one day prior of my shopping. Then if I didn’t get what I wanted to buy, I again have to go to the bank to create FD. That’s a pain. With money multiplier account, when you need the money you can withdraw it by issuing a cheque or through an ATM. Thus, you don't lose out on liquidity either!
The Money Multiplier feature gives you the liquidity of a Savings Account coupled with high earnings of a Fixed Deposit. It’s just like cash in your savings account, but will fetch you an interest of FD. It’s worth exploring and the best feature of my ICICI bank account. :)

Anxiety after impulsive buying

I wanted to do my drawing room, it just looks so plane otherwise.

On last weekend we went to Cottage Emporium and place was ‘Shopping Paradise’ for handicraft fetish people like me n my hubby. And we bought a dining table and little sitting arrangement. I kept reminding myself all the while that it’s not a good idea to buy all the things at one go, but couldn’t resist the stuff available there.

This is real example of impulsive buying. Our drawing room definitely looks very good now and given rakhi next weekend, redo is rightly timed as well. The only problem is anxiety now; impulsive buying always leaves me with doubts, like:

1) Was it really a good deal?
2) Will the stuff be durable enough?
3) Will everybody like it as much as I do?
4) Did I really need this stuff in first place?

I wonder whether it’s only me who gets anxious after Impulsive Buying or there are many more just like me! But for now, I am just keeping my fingers crossed to get good comments (even OK will do) from relatives visiting us this weekend. :)

Identify Your Financial Goals

In my last blog, I shared my motivation for spending time on ‘Smart Savings’. Once you are convinced that ‘Smart Savings’ is worth exploring, take the first step: define your Various Financial Goals. Let me explain this with some example.

Assume, you earn X amount and can save some Y amount, where both X and Y is variable. You can use Y to get an optimum corpus but key here is to know when you might need this money! Ok, no one can answer this for sure, because future is uncertain. So, comes the planning. No plan can be perfect. I mean my plan can never work for you, why? Simple, I have different financial background, different needs, different liabilities, and different age. So, always plan for yourself. Don’t copy from someone else’s plan, but only learn. Factors to consider while doing the planning are:
1) Your current age
2) Age when you want to retire
3) How much money you want to save and spend (and when)?
4) Current Liabilities

Converting it all into financial goals, know how can you divide the money in following categories:
1) Long Term – Corpus that is adding directly to my long term goals (eg. having 1 crore rupees at the end of 20 years).
2) Mid Term – Corpus that you can save now but may need 2 years from now, or 5 years from now. Idea of time period will help you in selecting the right investment tool.
3) Cash in Hand – Corpus that may be needed tomorrow. Basic principle that all experts (me anytime not an expert) suggest is; have 3 months of expenses available as cash.

Now fill your goals quantitatively, that is determine what’s your long term goal, what’s mid term goal and what’s short term goal. Various instruments that I am aware for these different types of investments are:

Long Term: ULIP, Gold, Pension Plan, PPF, ELSS, Mutual Funds, Real Estate.
Mid Term: Equity, Mutual Funds, Bank FDs, Stocks, Real Estate, Postal Savings Certificate.
Short Term: Savings Bank Account, FMPs, Money Multiplier Account, Bank Fixed Deposits.

There are many more investment tools which I keep on exploring as I get time, and latest I am learning is F&O.

For now, try to quantify your goals and see how much portion should go where and take advantage of principle of computing to achieve your wealth related goals.

Savings Smart - Let your savings grow on themselves

Wealth management is my pastime since childhood. I use numerous techniques to handle my money and always try to learn more. My basic principles behind increasing my wealth include:
1. Earn more
2. Spend less
3. Spend smart
4. Manage savings judiciously

Earn more: Increase your earnings. Improve your skills so that you get good salary. Always be ready to learn new things, as they will give you edge over others and will help you earn more.

Spend less: Spend less than what you earn. If you spend all that you earn, your wealth will never increase.

Spend smart: Spend smart and will have more blogs on same here subsequently.

Manage savings judiciously: Yes I am earning and spending less then what I earn! Now why do I need that! Simply for same reason for which you want to save in the first place: “Future Security and increasing your wealth”. Let’s take a meager example; there is a man, ABC, who earns Rs 10000 per month. He follows principle# 2 and spends Rs 8000 only. So he saves, Rs 2000 monthly. He keeps his savings with him and not in bank and he is doing this from last 12 months.

So total he have (10000 – 8000) * 12 = 24000.

He wants to buys a bike whose cost is Rs 50000 and increases 2% annually. So if in current year its cost is Rs 50000, next year it will be:
50000 + 50000 * .02 = 50000 + 1000 = 51000

To buy that bike, ABC needs to save for 27 months approximately.

But the main thing to notice here is cost of bike is going up every year, but his savings are not growing on its own. This is called “Inflation into Picture”. And what it means is once you will stop earning, cost of living will increase day by day, but your savings will only be depleting. So, while you are young and can take some risks, learn the art of ‘Smart Savings’. One of the naiveté and least time consuming approach may explain it better.

Now consider the second scenario, ABC saves his money in bank and for simple calculation sake, let’s assume that bank gives 4% return after every 12 months. So how much money will this gentleman have after 1 year, i.e. if he started in Jan 2007, how much will he have in Jan 2008:

Month	Principal	Interest	Total
Jan	2000	2000*4*12/(100*12) = 80	2080
Feb	2000	2000*4*11/(100*12) = 73	2073
Mar	2000	2000*4*10/(100*12) = 66	2066
Apr	2000	2000*4*09/(100*12) = 60	2060
May	2000	2000*4*08/(100*12) = 53	2053
Jun	2000	2000*4*07/(100*12) = 46	2046
Jul	2000	2000*4*06/(100*12) = 40	2040
Aug	2000	2000*4*05/(100*12) = 33	2033
Sep	2000	2000*4*04/(100*12) = 26	2026
Oct	2000	2000*4*03/(100*12) = 20	2020
Nov	2000	2000*4*02/(100*12) = 13	2013
Dec	2000	2000*4*01/(100*12) = 06	2006

At the end of 12 months, now he has Rs. 24516 instead of Rs 24000. And his dream is not Rs 51000, and he needs Rs (51000 – 24516) = Rs. 26484.

Now in the second year, he starts with 24516 + 2000 = 26516, and it goes like this:

Month	Principal	Interest	Total
Jan	26516	26516*4*12/(100*12) = 1	27576
Feb	2000	2000*4*11/(100*12) = 73	2073
Mar	2000	2000*4*10/(100*12) = 66	2066
Apr	2000	2000*4*09/(100*12) = 60	2060
May	2000	2000*4*08/(100*12) = 53	2053
Jun	2000	2000*4*07/(100*12) = 46	2046
Jul	2000	2000*4*06/(100*12) = 40	2040
Aug	2000	2000*4*05/(100*12) = 33	2033
Sep	2000	2000*4*04/(100*12) = 26	2026
Oct	2000	2000*4*03/(100*12) = 20	2020
Nov	2000	2000*4*02/(100*12) = 13	2013
Dec	2000	2000*4*01/(100*12) = 06	2006

At the end of second year, he has now Rs. 50012 instead of Rs 48000. And bike is Rs 52020. So one more month saving and he achieved his target in 25 months, instead of 27.

So, got the point, mediocre 4% annual returns on his savings helped ABC to achieve his goal one month faster. That is why one needs to manage his savings judiciously.

Inflation and interest figures used here might be fictitious but not the facts. There are many tools for investments with various terms and conditions and it’s too late for today to discuss them. Will write about my techniques in some other blog, for now think about ‘Smart Savings’.