Wednesday, August 31, 2016

"More Crop You Invest..." - Poem on Investing and Returns

Today I chanced upon reading a very short yet an elegant poem “More Crop You Invest..”  by Ignatius Hosiana. He was talking investments and returns using crop and farming as metaphors.

The message conveyed is that the more you invest, the more dividends you reap, which triggers many crucial questions; how can manage to invest more? What are good investment habits? 

Let me describe the simple good investment habits that will take you to great heights:

  1. Invest First and Spend Next: when you receive your pay-check, first invest the planned amount and thereafter go about spending, again as per the budget.
  2. Control the Urge to Splurge: Lead a simple lifestyle. This will leave additional cash in your hands that will let you invest more. Additionally, by doing so, you will be setting a very valuable example to your children.
  3. Develop Patience: The poet was conveying the message in the language of crop and farming. Farming requires enormous patience - so does investing. Once you have invested well, after thorough prior research, simply forget the investments. Leaving investments untouched will assist the law of 'Miracle of Compounding' to labor for you and produce significant returns on investments.
  4. Slay the Inner Demons:  Greed and Fear the worst internal ghosts that an investor needs to exorcise. Success in investing does not require genius; it only requires character.
Lets enjoy the poem "More Crop You Invest..", discover the true message conveyed by the poet and reap the handsome dividends on investments.

Investors Shall Learn to Slay the Demons, 'Greed' and 'Fear'

What an Investor Must Avoid: Invest in Haste - Poem on Investing and Dividends

Invest in
Haste is
A Total Waste;
Nay - a Misery Taste.

Rest and
Reap the
Value Invest!

Where Can I Get Ten Years Financial Information of Indian Listed Companies?

Unfortunately, to my knowledge, In India, all websites are only providing five years data. Even I was searching for myself.

Under the circumstances I take a lot of pain to collect more than five year old information by downloading annual reports from the ‘Investor Services’ place on companies’ websites.

Everything You Need to Know About Wealth Creation Through Systematic Investment Plan (SIP)

Successful investing does not require an extraordinary IQ; it simply requires immense measures of discipline. The ‘Systematic Investment Plan’ or ‘SIP’ is the regimen through which the value investor builds the character, which is one of the vital ingredients for triumph in investing.

SIP is a regimen, not a financial instrument like a share or bond.  Mutual funds have created so much of hype and publicity around the term ‘SIP” that it has acquired a unique status and existence, that many people think that it is an investible financial instrument. SIP is a contract or commitment with a mutual fund to subscribe or invest a certain sum of money in a particular scheme or fund. For example I can decide to invest Rs.1000 every month in HDFC’s equity fund styled, ‘HDFC Top 200 Fund’.  There are many types of funds or schemes like equity or growth funds, debt or income funds and so on but our present topic does not permit us to delve into it and so lets leave for a separate article.

A systematic investment plan need not necessarily be about investing with a mutual fund. If you are able to invest a certain sum every month in shares or bonds or exchange-traded funds regularly with discipline, this is also a SIP.

Frequency of investment
SIP requires a periodic investments but technically the period could be any reasonable time interval such as a month, quarter or six months. However in practice, usually it is very month, which is quite reasonable and convenient.

Minimum investment amount
The minimum investment amount needs to be decided by the investor based on ones financial goals. To create a significant wealth over a period of about 40 years or 480 months (Ideally one should start investing at 20 years of age and enjoy the fruits at 60) the amount should be appropriate. In m they opinion about Rs.10000 to 20000 should be invested every month.

Following graphic depicts the net wealth created for various investment amounts, after taking into account inflation at 10% per annum, which is very high and an expected return of 15% per annum, which is quite reasonable:

As for the minimum investment amount from the perspective of making SIP affordable, funds have brought it down drastically in India. I hear that it can be as low as Rs.50 a month (UTI Retirement Benefit Pension Fund}. I am told that ICICI Prudential also offers a SIP of Rs.50.

Duration of SIP Investment
Finally, the last and crucial golden rule of SIP, which none emphasizes is that a SIP shall be kept alive uninterrupted for very, very long time periods like 40 years. Only then the ‘Miracle of Compounding’ will have an opportunity for work for you and make you a rich and wealthy individual irrespective of which financial class you presently fall in.

Such lengthy period of investment also bring the benefits of ‘Dollar Cost Averaging’.

To conclude, every individual, including the one from the most humble background and means, can become a ‘Crorepati’ or a ‘Millionaire’ through disciplined and long-term ‘Systematic Investment Plans (SIPs). 

Monday, August 29, 2016

What are Repo and Reverse Repo Rates?

Dear Mr.Satinderpal Singh
Sorry for the delay in answering, a good question.
First address the meaning of these two terms and then their significance.
The ‘Repo Rate’ is the rate at which the Reserve Bank of India (RBI) is willing to lend money to commercial banks. The ‘Reverse Repo Rate’ is the rate at which the RBI is willing to pay to accept surplus money lying with commercial banks.
Now let us address the significance of these rates. These rates have the significance of influencing the market interest rates for the whole economy. There is no direct and binding linkage between the RBI denominated rates and banks’ rates but it only has indirect, persuasive influence. When RBI lowers the two rates, it is sending a strong and clear signal that RBI believes the lending and deposit rates need to go down. The actual reduction achieved out of competition. One bank takes the cue and reduces its rates and others will follow. This is called the transmission of interest rate changes.
However, it has happened in the recent past that the commercial banks refused to transmit the rate cuts, forcing the RBI to intervene (again only persuasive) and speak out that there was a clear need for transmission of the rate cut.
Converse persuasion attempts were also made in the recent past where the central government and commercial banks desired a rate cut but the RBI did not oblige and the commercial banks went ahead on their own and cut rates thus putting pressure on the RBI to cut Repo and Reverse Repo rates.
In conclusion Repo and Reverse Repo rates are RBI’s interest rate policy tools that strongly influence the general lending and deposit interest rates by commercial banks and other financial institutions.
Thank you,
With Best Regards,
Please Note: This is almost a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.

What is the Difference between Annualised Returns and CAGR?

Dear Friend!
Annualised return means an extrapolated or extended returns for the whole year based on the available data, which is normally monthly or quarterly or half yearly periods. For example, NMDC Ltd., declared its quarterly results for the quarter ended 30th June 2015, where the EPS for the quarter was Rs.2.55 per share. At that point in time we do not know what the EPS of other quarters would likely be. Suppose at that point in time we wanted to estimate what the EPS for the whole year could be, we multiply the first quarter EPS of Rs.2.55 by four and arrive at Rs.10.20, which is an annualised EPS, as depicted in the ensuing table:
Annualised EPS
The term CAGR stands for ‘Compounded Annual Growth Rate’. CAGR measures the compounded growth percentage of any quantity over a number of years. Let us examine the turnover of NMDC Ltd., for five years, as follows:
NMDC Ltd. Net Sales and CAGR

Proof of CAGR is depicted in the ensuing table:

Proof of CAGR from NMDC Ltd.'s Sales

In conclusion, annualised means extended or extrapolated and CAGR means compounded annual growth rate expressed in percentage.

Please Note: This is almost a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.