Mutual Funds, Insurance and other Investments

Is it a time!?

2008-10-30T13:46:00.002+05:30

This could be the best time to invest equities. Share prices have fallen to such extents and P/E rations are in lower single digits for many companies.

Difference between Growth option and Dividend Reinvestment option in MF

2007-08-20T04:35:00.000+05:30

So what is the difference between Growth (G) option and Dividend Reinvestment (DR) option of a Mutual Fund. At present, there is no difference.

There is no entry load when the dividend is reinvested in DR scheme. The dividend is simply used to buy back shares at the new NAV. As a result, the net effect of DR is same as it would have been in a Growth scheme.
If the tax policy changes in the future to either introduce dividend distribution tax, or long term capital gains tax, it would adversely affect DR and G options, respectively.

Smorty - blog for money service

2007-06-16T16:45:00.000+05:30

As part of my posts about blogging for money services, I will discuss about another such website today. Smorty is one of the get paid to blog services that connects advertisers and bloggers. Advertisers pay bloggers to put links on blogs and write about their service to get traffic and create buzz. A regularly updated blog has good chance of getting accepted. They, however, reject blogs if the content is not updated frequently, is not indexed by Google and Yahoo, or is not at least 3 months old. This service is only available for blogs in English.

Smorty's interface is easy and any publisher can easily set up an account. The offers for review are priced based on the Page Rank of a blog. More Page Rank sites gets higher paying campaign offers. They also have a combined score called smarty score based on Google Page Rank, Alexa ranking, return rate of given tasks, approval rate of completed tasks and the number of completed tasks. Blogs scoring higher get higher paid offers.

One advantage of Smorty is that one can submit as many blogs as he/she wants unlike some other blog for money services. This is greatly beneficial for small time bloggers. Another advantage is the payment which is a weekly system. So bloggers get paid every week for the previews done last week through PayPal. One can apply from any country for Smorty's service.

One of the limitations of Smorty at present is that one can't submit more than one blog from the same account. One has to create as many accounts if he/she wants to submit many blogs as a publisher. They say they are working on fixing this issue. Also, it seems there are limited number advertisers for blog advertising at Smorty. This puts it at a disadvantage as compared to other more established names in the blog for money services. Hopefully, as the service gets older, more advertisers will register for Smorty.

Mortgage loan guide

2007-06-09T02:55:00.001+05:30

I was reading a blog post by Deepak Shenoy the other day in which he mentioned some terms in the US that are unique and not used elsewhere. One of the terms mentioned was Mortgage. It's used when a person applies for a loan to buy a house in the US. It is pretty expensive to buy a house and so most people would find it impossible to pay the price in cash. Not to mention, the tax man would come calling if someone did pay cash.

Mortgage is a common term used in the US for house loans. There's a useful website with links to many useful articles to learn more about mortgage. Mortgage Loan Place has articles ranging from FHA loans to Reverse mortgage to Mortgage insurance and Refinancing. Some of these are complicated terms (e.g. Reverse mortgage) and there are many articles in the guide to make you understand them better. I found the articles interesting to read even though I went to the page to do this review.

The guide gives information on any policy changes and housing market. Buying a house is a dream for most people and one of the most important decisions in their life. Being well aware of the current situation in the market is a must for anyone. The articles in Mortgage Loan Place are one of the easiest way to learn more about loans. The articles are free to read and updated regularly. Anyone interested in knowing more about the housing loans can go read them.

Life Insurance for Key Man

2007-06-08T23:15:00.000+05:30

Among different types of insurance that companies buy, key man life insurance is usually neglected. Businesses that protect their assets like buildings and other properties forget to protect their key men. The key man of a business is an important person who is essential to run the business. An obvious key man is the CEO. There can be other important employees like General Managers who can be insured using the Key Man Life Insurance.

Most insurance companies provide this type of insurance for businesses. Among the various ways to get quotes from these insurance companies, getting it online is the easiest one. One can get quote online for key man life insurance.

In case of the death of the key man, the face value of the money he is insured against can be used to hire new key man or other employee. It can be very useful for a business in such scenarios.

Financial goal - calculate the rate required

2007-06-04T21:04:00.000+05:30

The author of the book described in my previous post gave a very simple method to calculate the interest rate required to achieve a financial goal in the long term. As an investor knows very well, one should always have a financial goal in mind when he starts investing. Otherwise, his approach won't be a systematic one and the returns not as good. Most investors have a retirement goal.

To start, you must compute a variable called Investment Capital. This is an estimate of the amount of money you have invested and will contribute in the future. The equation to compute this Investment Capital is:

Investment Capital = Value of Current Investments + (1/2 * Annual Contributions*Years to Retirement)

From this equation, compute the Capital Fraction as:

Capital Fraction = Investment Capital ÷ Financial Goal

For example, if I have a goal of 20,000,000 that I want my investments to grow to in 25 years. If my current investments are of worth 400,000 and I contribute 100,000 every year to my investment.
Then,

Investment Captial = 400,000 + (1/2 * 100,000 *25 ) = 1,650,000

The Capital Fraction variable would then be computed as 1650000/20000000 = 0.0825

Now, there is a chart with years and Fraction variable matching the compound interest rate required. It is given in the chart below.

From the above chart it is clear that if I want my investment to be worth 20000000 in 25 years, I have to match 0.0825 in the column '25' i.e. my investments have to grow at about 11.0 to 11.5% every year to achieve that. I find this calculation to be very useful. Just create a long term financial goal, calculate the rate your investment has to grow every year and work towards achieving it.

Investment blunders of the rich and famous

2007-06-02T18:36:00.000+05:30

I've just finished reading a book on Investments, named "Investment Blunders of the Rich and Famous...and What You Can Learn From Them".

Some of the important advice the author of the book gives to investors, and some of his comments in the book are:

- Beware of cheerleader advisors.

- If you have a clear picture of your preferences for the future and what you need to accomplish them, you simply pick the investment alternative that best meets your needs. However, the person with unclear preferences doesn't pick the alternative that fits the goals; he or she picks the option that looks best compared to the alternatives.

- The willy-nilly approach of most investors gives them a lack of solid foundation from which to make decisions. As a result, investor allocations and stock picks are frequently not aligned with their goals. One consequence is that the typical investor spends time moving money from one investment to another, trying to meet an obscure goal. Investing without a plan, or road map, leads to a lack of discipline. The lack of discipline allows your psychological biases and emotions to invade the process

- The more active the investor, the worse the net return. Cost of trading eats away a big part of the investment. Active trading magnifies your emotions and psychological biases that cause these bad choices.

- Investors don't like to sell losers, only winners. They sell when the stock is going higher and hold on to the stock when it is going low. This is not a good strategy.

- Investors have fixed their sights on the purchase price. This is called anchoring. Investors frequently anchor their hopes to fixed prices. The purchase price is one anchor. The highest stock price the investor has seen also becomes an anchor. Investors typically wait for the stock's price to reach these anchors before making a trade.

- Gamblers tend to treat winnings as if the money is not quite theirs yet. Their behavior seems to suggest that the profits are still the casino's money. Specifically, the feeling of betting with someone else's money causes you to accept too much risk. Similar behavior could be seen in the stock market, too.

- Many investors have realized the alluring trap of frequent trading and using debt to buy stocks. People have gone bankrupt when they borrow to trade.

- In order to earn a high return, you must take market risk. We want to take market risk while avoiding firm-specific risk. This is because we are compensated for market risk, but not for firm-specific risk. If you own just one stock, you are taking both types of risk. In fact, most of the risk you are taking is firm-specific risk. However, if you add one randomly selected firm to the firm you hold, you reduce the total risk in your portfolio by 24%. This risk reduction is completely due to the reduction in firm-specific risk. Add two more randomly selected stocks and the total risk in your portfolio is only 60% of the risk of holding just one stock.

- It now makes sense to reduce the firm-specific risk in your portfolio further by holding over 20 randomly selected stocks. In fact, a 30-stock portfolio is optimum.

I found the book title a misnomer since the book was about general Investment theories and not about investment blunders of the rich and famous, but it was an interesting read.

Cashunclaimed

2007-05-31T02:59:00.001+05:30

I'm reviewing of a very interesting website today. It's called Cashunclaimed. For the US people, it seems like there's some kind of central database of all the money that is lying without being claimed by anyone. This website offers a service to find if you have money lying somewhere without your knowledge. It offers money-back guarantee that the legitimate owner will get their money.

One can search the website for free by First name and Last name if they have such money. It could be some inheritance, some savings account, or some other source. The search is free, but if you get some unclaimed money on your name and want to search the records to find where the money lies, you have to pay a fee of $11 per month to Cashunclaimed. You can do anything you want for this one month.

Being sceptic, I entered my first name and last name, and there was no money unclaimed for me. I entered Bill Gates, and his namesakes have some money. Note that there is a big chance that the unclaimed money doesn't belong to you but to some other person with same name as yours - or a person with some variation of your name. There would be only one person or a group of such persons with legit claim on the money, but hundreds others with similar names. So, one has to be careful before registering in such sites. Try to make sure you are likely to have been left with unclaimed money from somewhere. Otherwise, the website will make money.

Review - Compare credit cards

2007-05-29T21:16:00.001+05:30

These days credit cards have become a sort of necessity for consumers. Be it shopping, eating out, or simply booking flight tickets online, many times there is no other option but to use a credit card. With the abundance of credit cards, it would be good to have a website that compares the different types of credit cards available in the market. Today I will review one such website .

There is a website aptly named creditcard.org.uk for credit cards available in the UK. It compares credit cards based on different categories. There are different categories of cards like Gold cards, Cashback cards, Platinum cards, 0% purchase cards, etc.

There are so many options to chose from the available credit cards that such a site for comparing credit cards is useful for anyone planning to get a new credit card. The home page of the site has 'Compare credit cards' menu from which one can select any category to compare. The user can compare these cards based on offers such as rate, duration, cashback, rewards and choose the best one.

Even though there are different categories of credit cards to choose from the drop down menu, I had a feeling that it doesn't have information on all credit cards. For example, I chose cashback cards but the result showed only one card. Similar was the case with Gold cards. That is very unlikey, even impossible, that there's only one bank offering such cards in the UK. Similar was the case for some other categories as well. To be truly useful to a user, all available cards should be available in the result so that he can select the best.

Gambler's Fallacy

2007-05-28T23:39:00.000+05:30

There are people who see patterns in random data and try to predict the future based on such patterns. Probability theory states that for an unlimited set of trials, the numbers in a game should come up equally or the same number of times.

For example, a coin when flipped a given number of times, should have equal number of heads and tails. So, if the coin has been flipped 5 times and the outcome have been head, head, tail, head, head, the outcome has not been what was perceived. A person might assume the chance of the next outcome being tail is more as it has only occurred once in the last five tosses. The reality is that the next toss has equal chance for tail and head, both have 50% chance. The past events don't mean anything for the future outcome. But, the person thinks there'll be an unknown self-correction that will skew the results in favour of tail to make it more balanced as per probability theory. This belief is known as the gambler's fallacy.

There are similarities in such beliefs with trading. Predicting the price change at any time is like flipping a coin. Most of the patterns that are found are a result of the random data searched. These patterns are not likely to repeat in the future. They can't be used to make predictions. But people often make such predictions and others fall for them.

Rule of 72

2007-05-26T23:05:00.000+05:30

Here's a simple rule of thumb to quickly calculate compounding interest in your mind. It is called the rule of 72.

To calculate the annual compounding interest required to double your money in a fixed number of years, or conversely, given an annual interest rate, to calculate the number of years it would take to double your money, divide it my 72.

For example, if the rate of interest is, say 9%, it would take 72/9 = 8 years approx. to double your money. Similarly, if you want to double your money in, say 6 years, you'd need an annual
compounding interest rate of 72/6 = 12%.

This rule gives good results for upto 20 years or 20% rate, and very good results at typical compounding rate between 6% to 10%.

The same rule can also be applied to find out the number of years for the value of money to get halved at a certain inflation rate. For example, for an inflation rate 6% it would take 72/6 = 12 years for the value of your money to get halved. This means the money which gets you a certain commodity now would only buy half of that after 12 yrs. In other words, you'd need double of this money to buy the same thing after 12 yrs.

UK finance forum - a review

2007-05-26T01:29:00.001+05:30

Finance Markets recently changed the look of their website and UK finance forum. They wanted to get a review of the new look forum of their website. So I registered on the forum to experience how it is like before reviewing.

A forum dedicated to discussions on finance anywhere would, expectedly, have similar kind of discussions. The forum is no exception and has all kind of threads of discussions. The discussions are divided into three main categories - Finance, Investing, and General. Each category is then further subdivided into different groups e.g. in Finance they have Banking, Loans, Mortgage, etc. I feel while it is nice to divide them into so many different groups, it somehow fragments the category too much and browsing the forums becomes more cumbersome. Instead, if they had just the main categories, it could be better. Since it is not a heavy traffic forum yet, this could give users a better experience.

The topics of discussion in the forum vary from "how do I save money to invest" to "where should I invest", to any other topic one could come up with related to finance and investments. In addition, the "General" category has threads on other non-finance topics as well.

The look and layout of the forum is not intuitive. In fact, one would immediately feel he has seen such layout many times in other forums. It looks like this is the most common format for online forums.

There are a few hundred registered users in the forum. The traffic is not high; there are entire stretches of weeks with not a single posting in some groups. That is one of the reasons they are pushing on getting the word out about the forum. People interested in Finance and Investment, specially in the UK, could register and might find their answers in this forum.

Super affiliate Zac Johnson

2007-05-25T01:34:00.001+05:30

Today I am reviewing the blog of super affiliate Zac Johnson. The term super affiliate means they run their own affiliate networks and obviously earn quite $ome money online. Well, quite a lot, actually. Zac's network of affiliates is called Moneyreign network.

First thing I did, which I hope every reviewer does, was to go spend some time on his blog. The blog is lively with daily updates on interesting ways to make money online through affiliate marketing. Zac has a lot of experience in online money-making (10+ yrs experience in online affiliate marketing is like doing business on earth since prehistoric time. Afterall, the real thing started with companies like Google, Amazon, and Ebay that weren't around 10 years ago).

One of the things I like most in a blog, apart from the quality of posts, and which keeps me subscribed is the frequency of posts. It should be frequent and Zac does it almost daily which is a big plus. His postings are mainly about money making schemes but there are some personal posts as well, along with pics. Such postings makes the blog more attractive to readers and breaks the monotone. Afterall, there's more to write than just money even if the site is named 'Make money with Super Affiliate Zac Johnson'.

The blog posts are nicely aggregated into categories which a new reader to the blog should find useful depending on his/her topics of interest. Archives of his blog shows that he started the blog in March 2007 which means it is only a few months old. Still, it is generating a lot of traffic and comments. I guess it should have a loyal feed readers, though the number isn't yet shown on the site(maybe Zac want the number to go up to few thousands before putting up that chicklet showing xxxx readers).

There are few ads on the site. In fact, I observed only some affiliate links in the blog, some of which are very wisely converted into tinyurls. The lack of ads on the site indicates he is focussed on increasing the readership of his blog.

Overall, the blog is interesting for those wanting to learn how to make money online. Since I am one of them, I have subscribed to his blog and intend to read it with interest.

Merchant account processing website

2007-05-22T21:50:00.001+05:30

I have decided to review some websites as a filler to this blog i.e. When I don't write about investment, I will try to keep this blog updated frequently with such reviews. These reviews may be of interest to some of you.

Today I am reviewing a website that deals with merchant accounts It provides merchant account processing services to small and big merchants. If you don't know what a merchant account is used for, read it here.

The website accepts Visa/Mastercard processing and also accepts Credit Card Payments processing. Retailers who accept such cards from their customers are expected to have a merchant account. Without a merchant account, a retailer has to wait for weeks for invoice to come and more for the payment to clear. With such accounts it is a matter of days when payments get cleared. Merchant account are provided by banks as well as third party like the website being reviewed. Banks are very selective in opening such accounts, so third party solutions are the best option in that case.

As far as the website is considered, it is decent with every page having at least three links at various places to "Apply now" link. The navigation could be improved though. For example, there is a FAQs section, but it would take some serious effort to locate it. Similary, the help/tutorial/information section is difficult to reach from the main page. These two sections should be on the homepage. Sitemap is not the most obvious place to place those links, and many readers don't even click it.

Overall, it is a good website to go look out for more info on merchant accounts and to get in touch with a processor of such accounts.

How double indexation works for FMPs

2007-05-18T16:15:00.000+05:30

My last post discussed FMPs and why they are better than FDs because of Double indexation benefits. I'll discuss how double indexation works for FMPs against FDs, for the same amount of investment:

Let's say you invest Rs 1000 in FDs and Rs 1000 in an FMP in March this year.
The maturity value in May next year for both FD and FMP = Rs 1100 approx.
Assuming inflation of 6%, the cost price of your investment after March this year = 1000 + 1000*6/100 = Rs 1060
Cost price of Rs 1060 after March next year = 1060+ 1060*6/100 = Rs 1123.6
For FMPs the maturity value of Rs 1100 is less than the cost price of Rs 1123.6, that is you are at a loss in paper. This happen because the effect of inflation in case of FMPs is calculated twice, at the end of March this year (that is the financial year end) and also at the end of March next year. This results in capital gains tax = 0. This is double indexation benefit.

For FDs, the cost price = Rs 1060 ( it is calculated only once ).
Maturity value of Rs 1100 is more than cost price, so you have to pay capital gains tax on the interest earned.

This results in FMPs giving a post tax return of about 8.5%, where as FDs give about 5.5%. This is for a period of about 13 months of investment that started in March and ended in May.
FMPs don't work for you in case you want to withdraw the money invested before the maturity period. Then FDs might be a better choice.
If one is sure they can remain invested for the period, then FMPs are a good choice over FDs.

Fixed Maturity Plans ( FMPs )

2007-05-06T16:25:00.000+05:30

Recently, I read about Fixed Maturity Plans or FMPs as they are commonly known. These plans are of about 13 months duration and give better returns than Fixed deposits (FDs), normally. FMPs manage to do that because of Double Indexation benefits. Double indexation basically is - showing the effect of inflation on your investment for two years even if the investment is for only slightly more than a year. Since the financial year ends in March, FMPs show the period of investment from March of the year of investment to May of next year. This results in showing on paper the final value of investment as being much less than what it is in real. This results in less tax to be paid and more net return to the investor. FDs in banks, even if they give the same % return like FMPs don't have such double indexation benefits and so the investor ends up paying more in taxes and gets less net return.

In effect, while FDs manage to just beat the inflation, FMPs manage to grow the investment. FMPs, thus, are a better choice if one has money they are sure they can invest for at least 13 months.
One thing I haven't found yet is if FMPs are available all year around, or just around March. Would they be available in May? According to a relationship manager, they should be.

Are Index Funds better than other Mutual Funds ?

2006-12-31T04:07:00.000+05:30

I have read at some places that index funds are better than other mutual funds. An example is this blog. Index funds are investment schemes that invest in representative shares of a particular stock market. For example, a fund can have Index fund for BSE or NSE or some other exchange. These funds try to replicate the behaviour of that particular market. For this reason the NAV of these funds rise and fall with the market they are trying to replicate. The main advantage of these funds is that these are automated with no active management needed. So the entry load (the charges paid when you buy a MF) and exit load (the charges when you sell your units) and other charges are low. So, it is generally thought that Index funds earns an investor more profit as compared to other funds like equity diversified mutual funds. I decided to check this yr's results for the Indian market. Hardly 4 index funds have managed to beat the market in 2006. This is called tracking error when automated calculation misses the market behaviour by some points. The best performer has a growth of 49.8% in 2006. On the other hand, about 30 equity diversified mutual funds beat the markets with growth of the best performer being 61.6%. Even after deducting the charges, it is clear than equity diversified funds managed to beat the index funds hands down. Even after assuming that the total number of index funds available to investors is less than the total number of equity diversified funds, it is clear that Index Funds are no better performers than other funds. At least 2006 proved that. The same is true even if we compare last 2 or 3 yrs results.
Check the performance of Index funds here and the performance of Equity diversified funds here.

How do Mutual Funds calculate dividend

2006-12-30T01:50:00.000+05:30

MFs normally pay dividend periodically if they are dividend based (D). Growth based mutual funds (G) pay dividends rarely. (D) type mutual funds pay dividend when they make a profit by the trading they have done in the market. It depends upon the fund managers how much percentage of the profit they want to reinvest and how much they want to give back to investors. That money being given back to investors, minus any taxes etc, divided by the number of Units is the dividend per unit. MFs give it a fancy percentage by calculating it from the face value of the unit which is 10. So even if the book value (that is present unit price) is, say 100, the dividend percent is still calculated based on 10. So a 25 dividend per unit would be called a 250% dividend, although it is only 25% of its present price, since it is calculated based on the face value of 10.
Growth oriented MFs pay dividend sometime if the fund has made profit and fund managers find extra cash which is not likely to be invested.

Mutual funds - what if they don't pay you dividend ?

2006-12-28T23:28:00.000+05:30

I've mentioned in the earlier posts how Mutual Funds (MFs) pay dividend, and why it doesn't matter as far as your net wealth before and after getting dividend is concerned. In short, dividend is just your money that was in MF which is returned to you. The price of the MF unit comes down after the MF pays dividend. So, overall net wealth is same for you. It is just that the part of the money you had invested in MF is now in your bank. This could lie there if you are not careful. Which is not a great idea. For this reason, unless you need cash, dividend isn't a good option.

So MFs pay dividend which is good if you need money. What if you need money and your MF is not paying you any dividend? In that case you can sell some of your MF units. This is like paying yourself a dividend. The effect will be same as if the MF has paid you dividend! This is called Capital Gain. Funny how the terminology changes for same thing. It is your money in MF that you have invested. If MF gives some back to you, it is dividend. If you withdraw it is capital gain.

PS: I'm trying out a few online money making ideas I found on net and have given the links to the right side of this blog. I will evaluate them time to time and remove links I found aren't worth wasting time, or will add links that I find interesting. Two days ago I found myLot which pays for each message you post in the Forum. So far it seems to be working. Paying rate per message is low though. For about 50 messages sent they pay you $1. It is fun to try, but don't expect to earn a lot of money!

Online money making schemes

2006-12-25T23:16:00.000+05:30

Lately, I've been trying to find out money making opportunities online. The only criterion of such an opportunity has to be that it is free to join and no investment is needed on my part. I've found many of them - some ask to sign-up for a course, some ask to send them some money to begin online business with them. Some are free to join and if possible, to make some money too. I will list some of the opportunities that I found interesting and easy to sign up and start up.
-- If one has a high traffic website then putting ads and earning money per click is the obvious way to go. Google Adsense, Yahoo Overture, MSN adcenter, BidVertiser, and Adbrite are a few of the more popular online advertising businesses which are easy to sign up and get started.
-- Then there are multi level marketing business opportunities online. Recently, I found an interesting one called Best Cash Rewards where one can sign up within minutes. It doesn't require any investment. One has to just watch a seminar of about 30 minutes a week, and refer other people to this programme. That's all one has to do. The more people you refer to this programme and the more people they refer in turn, the more you get. The companies giving seminar get a captive audience for half an hour. That is what they want and they are happy to pay on per person basis who attend the seminar. One can sign up for this programme by going to this page.

Feed aggregator

2006-12-23T14:37:00.000+05:30

I was a latecomer in the area of feeds. I used to read all the blogs I liked by individually opening them in new tabs in my Firefox browser. This posed some problems. I had to remember each of the blog addresses I wanted to read. This meant I would often miss some recent blog entries by my favourite bloggers. This is not a very serious problem as blogs can be bookmarked. But still I had to open all the blogs one by one going through bookmarks. Now I read about 25 blogs religiously and wouldn't want to miss any new posts. That would mean 25 tabs in Firefox. As much as I like Firefox, it is a resource hog and opening 25 tabs would often make my computer less responsive.
Enter Feeds. A simple but powerful technique to arrange all your favourite blogs. Now I have installed a Feed reader called Sage. Whenever I want to read blogs, I just click on the Sage icon on the toolbar and all the blogs I have subscribed to show up on the left pane of Firefox. If I want to see if there is any new post I can just click an icon on top of the pane called Check Feeds and it automatically looks at every blog for new postings and updates the pane accordingly. If I go to a new blog that I like, I can just click Discover Feeds icon and it automatically discovers the Feeds in the blog and I can then add it to Sage. Two kind of feeds are popular: RSS and Atom. I wanted to make it simple for me by choosing only one of them, so I chose RSS feed reader but Atom is good as well. Many blogs don't have obvious Feed icons, but there are almost always hidden ones, for example in blogger/blogspot. Discover Feeds will discover them all.
It has made reading blogs a breeze. Just click any blog you want to read in the left Sage pane and start reading. Sage blog aggregator for Firefox can be downloaded from here.

Business and trademarks

2006-12-15T16:07:00.000+05:30

A couple of days back I was discussing about Google with friends when one of them mentioned that Google has become such a well known brand that it has entered into Merriam-Webster dictionary as a word. I told them this is actually not a good thing for a brand. They didn't believe what I was saying. Having done a trademarks course I know a thing or two about it and explained it thus:
Google has created a unique product for search which is widely acknowledged as the best online search engine. It has a unique advantage over competitors now. Anyone wanting to search online would first think of Google search. This is because the brand differentiates it from competitors such as Yahoo or MSN. Users are well aware of it and so they prefer Google search over other engines. But if it becomes a generic dictionary word then it lose its value as people would start using the term Google or worse 'googling' for online search. It wouldn't matter to users then which engine they use. Google for them would mean online search. The differentiating factor that was Google's brand then lose its advantage. One could as well go to Yahoo search and say he is googling.
In the history of brands there has been many a cases where companies lose their valued trademarks because they become generic nouns. It is for this reason that companies tend to use their trademark always as an adjective. Google search, for example. It is almost always followed by a noun. It is for this reason that Google wouldn't be amused if someone tries to make a word 'googling'. Companies protect their marks for the fear of it becoming generic, sometimes even launching PR campaigns.
Some brand owners didn't protect their marks well enough and they have become generic nouns and some are almost on the verge of becoming one.
Some examples of tradmarks that became generic and hence lost the advantage over other products are:

Aspirin: The product name became generic noun and now companies use it just as synonym for a particular medicine.
Escalator: Was a brand, now a generic English word.
386 : This was Intel vs AMD case which Intel lost and also lost the advantage of brand 386.

Some trademarks on the verge of becoming generic are:
Kleenex : Tissue paper.
Xerox : People have begun using Xerox word as a generic word for photocopy. Xerox is fighting to prevent its term from becoming generic by launching PR campaigns.

Stock market rebound and mutual funds you must own

2006-12-14T21:38:00.000+05:30

The stock market has finally rebound nicely after sliding down for a few days. Investors who bought at the peak when BSE was 14,000 and NSE was crossing 4,000 but sold when market started going down would have lost substantially. That is one of the reasons longs won't be affected by such short term trends or corrections. The market always goes up in the long term and they make money. That's a reason why buy and hold strategy works better in favour of more investors. Similar is the case with Mutual Funds.

Talking of mutual funds, the last issue of Outlook money had a list of 10 you must own. Here's the list in no particular order:

DSP ML Opportunities Fund
Franklin India Flexi Cap
HDFC Equity Fund
HDFC Top 200
Prudential ICICI Dynamic Fund
Reliance Vision
SBI Magnum Contra
SBI Magnum Global 94
Sundaram BNP Paribas Leadership
Sundaram BNP Paribas Select Midcap

Is it wise to own all 10 MFs? Is it possible that a few of them have matching portfolio and hence it wouldn't matter if you buy this or that. Having similar portfolio makes them behave the same with the money invested.
I don't own any of them, but if the Outlook guys have done the research right, some of them look tempting.

Some Mutual Fund jargons explained

2006-12-13T23:03:00.000+05:30

Mutual Fund : It's a fund by which people can indirectly invest in the market. These funds normally invest a part of total capital into equity market. You invest into the fund and share its profit/loss. The fund managers look after the money so there's less hassle for individual investors. But it comes with a some fee you have to pay the fund for managing it for you. This means that if you invest directly in the market and hold the same portfolio of shares as the fund, you can make more as there's no fee. There are other factors to affect investments. MFs normally enjoy lower taxes on returns on investment than direct traders. Also, fund managers are experts in their fields with a large capital so they can chose a very diversified portfolio that results in growth over a period.

NAV - Net Asset Value : It represents the value of one unit of a fund. If there are 100 investors each holding say 10 units in a fund which has a total value of Rs 10000, then NAV would be 10000/100*10=10

Dividend option : The fund pays divident periodically to its investors. This makes the NAV go down but the investors get some cash. Overall wealth of an investor remain same before and after getting dividend.

Growth option : In this option the fund doesn't give dividend but reinvests the capital periodically. The goal of this kind of fund is to increase the wealth of the investors by long term investment in the market.

The same fund scheme can have both Dividend and Growth options mentioned by (D) and (G) respectively after the scheme name.

Online trading

2006-12-13T04:48:00.000+05:30

Looking at the market dive my enthusiasm to try out online trading has kind of worn off now. :)

Stock market correction?

2006-12-13T04:28:00.000+05:30

Hmm, my invested worth came down by more than 1k in the latest market correction (?) in the last few sessions. But the mutual funds I've bought are long term plans. There's a mandatory three year lock in period for tax saver funds which I bought. A good lesson to invest in a systematic investment plan (SIP) so that the gains and losses get even out over the investment period. Otherwise, you may buy MFs during the high times and lose money in the shorter period. Long term investors don't have to worry with such fluctuations in the stock market though, as it will definitely go up in the long term.

I've no idea what's causing the market to go down now, and I've not watched or read news for the last couple of days.

Online trading or Mutual Funds?

2006-12-10T20:41:00.000+05:30

To follow up on my last post, a friend told me that ICICIdirect has good online trading service. But now I am in a dilemma. Would it be worthwhile for me to jump into online day trading? Mutual Funds (MFs) seem much safer in the expert hands of fund managers even though they have some fee associated with them. I've read somewhere that MFs have to pay less tax than traders and so in the long run MFs could yield better return. Need to chose MFs which are diversified.
Guess I will wait for a while to learn more about the pros and cons of Online trading vis a vis MFs.

Looking for a good online trading site

2006-12-09T20:21:00.000+05:30

I'm looking for a good online trading site. I've heard of a few like icicidirect, kotaksecurities, sharekhan and 5paisa. Unfortunately, most of them seem to like only IE as a browser as clearly mentioned in their site. Now we don't use Windows at office where most of my weekdays are spent, and from where I'd have to do the trading. Are there any good sites which go beyond Windows IE? I'm specifically looking for one which can be used with Firefox.

Looking at the Gateway account info at kotaksecurities, they ask for a margin of 20,000. Does it mean I've to invest at least 20,000 to begin with? I didn't get any info there about what it means.
20k is a bit too much for trading for a newbie like me. I am looking to start with an amount below 5,000 to learn the tricks of the trade. If anyone has knowledge and experience with a good online trading site, I'd like to know more. Thanks!

Real Estate investment

2006-12-09T01:56:00.000+05:30

A couple of my friends are taking loans from bank to buy an apartment in Bangalore. One of them is planning to take a home loan of Rs 2,000,000. He plans to live in a rented apatt and put his newly bought apartt on rent. So I believe he's taking the house as an investment.
The doubt I had in mind was if it was a better option than other forms of investments where he doesn't have to take loan and still could invest enough over a period of 20 yrs. Of course, the value of his apatt will increase with time. Still, I would be uncomfortable in such investments. I have no idea about how real estate works. Only time will tell how wise the investment is.

Eight Indian mutual funds among world's top 10

2006-12-08T15:55:00.001+05:30

Interesting news item. For a period of last 10 yrs, 8 Indian MFs are among top 10 in the world! For 5 yrs period 7 Indian MFs among world's top 10 performing. Interestingly, in the short term period of last one yr there is not a single Indian MF among top 10. Strange as it has seen the big run in the Indian stock market. Does it mean Indian MFs had the long term horizon in their mind and didn't actively trade when the market soared?
Times of India article here

Which insurance to take!?

2006-12-08T00:19:00.000+05:30

There’re many options to chose from in insurance. I’ve always thought of insurance as something that we take away from savings periodically and get most of it back when the insurance period ends. It could be 10 or 20 or any number yrs when the policy terms expires.

Recently I came across another kind of insurance which I think is the best one to take up. It is called term insurance. The idea is that you invest some amount every yr in this insurance. In the event of any eventuality, which basically means if you die before the policy term expires, your dependents get the money you’re insured for. If you outlive the term of the policy, you get nothing.

For an example, for a 28 yr old person, under the popluar LIC, in the 20 yr moneyback policy, if you want to get 1,000,000 moneyback 20 yrs from now, you have to pay a hefty premium of 62,360 per yr for 20 yrs. That comes to a total investment of 62,260*20 = 1,245,200 over a period of 20 yrs. He gets 200,000 back every 5 yrs and the remaining amount plus bonus at the end of 20 yrs. LIC premium calculator

In case he invests the 200,000 he gets every 5 yrs in MFs, at the end of 20 yrs the amount would have grown to 3081400 + 1238340 + 497660 = 4817400. Adding the remaining 400,000 plus bonus he gets at the end it would go upto 5500000 at most. Still much less than what he can grow the money with term insurance and MFs from the beginning.

If the person takes a term policy instead for 20 yrs for insurance of 1,000,000, he has to pay just Rs 2890 a yr. Over a period of 20 yrs, the total amount he has to pay is 2890*20=57,800. He loses this amount if he outlives the policy. It is just a cover for his dependents who get a sum of 1,000,000 if the person dies within 20 yrs.

So what can the guy do? Well, let’s take the difference in the amount he has to pay over 20 yrs for the two policies discussed above : 1245200- 57800=1187400

So he can invest the amount 1187400 into some growth based mutual funds over a period of 20 yrs. He has to invest Rs 59,370 every yr ( or Rs 4948 every month ) for 20 yrs. At the end of the period at the average rate of return of 20% (for long term funds are known to increase at 20% ), his savings from this turns out to be a Rs 12,067,460. That is 1 crore and 20 lakh plus! magic of compounding

So, it seems the best option is to take a term insurance for 20 yrs and invest the rest of money in such funds or other schemes with a good growth history. If anything happens to him in these 20 yrs, he will leave 1000000 for his dependents. Also, the amount he has invested until now would also have grown to some extent. If he outlives the policy, his investments have grown upto 12067460 while he only paid a total of 57800 for term insurance, so he can be sure of a comfortable life for himself and his family whether he lives or dies in 20 yrs!