Tag Archives: investment

05/08/2008
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Stock Market

Stock Market and Trading

Stock Market, these days there is so much volatility because of our own heroic engineers. 🙂 They all have money, they just pour in and take out based on their emotions. I was one of them, the moment I realized this I thought I should stop this for my own welfare.

Trading looks fun from outside but honestly it is quite a nightmare, it has had its own effects on me. Whenever the prices of stocks were higher than what I had bought that day I would be really happy and vice versa. The greed of wanting more and fear of losing drove me nuts for quite sometime. I was taking decisions emotionally and not logically or financially. This was my biggest mistake. I learnt the hard way not to take decisions emotionally. 😦

Stock Market as all know is a market place. Market has all variety of goods that the buyer needs. It is the buyer who decides the price of the goods. Of course there are regulations as to how to buy goods and all that, but in general the buyer is the Lord of the game. He decides what he wants to buy and also the price of it. It is not the seller who decides the price, the buyer decides the price.

Are we going to mint money at stock market? That is a tough question to answer. My answer is “No”. You can’t mint money but definitely you can make reasonable amount of money better than the bank interests. But to do that, you need discipline. This is my observation, to make money in Stock market one has to be disciplined. That’s it.

I will be writing more about Stock Market and all related stuff that is needed to be educated before getting into the Stock Market. Keep Visiting. Happy Investing.

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15/07/2008
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Personal Finance

Investing for Tax Benefit

Investing your hard earned money is most important aspect of managing your money. I always feel that without having a financial plan there is no necessity to invest for tax benefit. Since it wont be of any benefit.

I have observed the following pattern, most of the investments happen during the Jan, Feb and Mar months of the year since that is the time people start realizing that they need to have investments in order to benefit from tax. I am totally against this philosophy. It does not make any sense to me. If government gives a tax break it certainly means there is something behind it. Everyone around us don’t think in those terms. We are happy to be in debt in order to get a tax benefit. If you are that category then it would make sense to you not otherwise. I always feel that government should genuinely give tax break say for investing in stocks but it is not so.

According to me, Investment should be made as investment and not for the purpose of tax break. Generally investments are made on Mutual funds, Life-Insurance, ULIP and on similar financial instruments during the start of the year since we get tax benefit on only these financial instruments. These products sell like hot cakes during this time. Since only these products are advertised and shown to the high paid professionals, they prefer these instruments as they are very busy with their life and stick with these. Truth is that not many business man prefer these instruments since they know that it is not for them. These products are tailor made to high paid professionals. Since these professionals can’t think as they have no time to think about all these products. They assume that it is best financial instrument that anyone can get and pour the money. Truth is there are many good financial products which can be used only if planned properly else only last minute pouring of money happens and I am sure most of them would have not got the returns on investment as assured by the agents of these products.

Start planning your financial future as soon as possible. If government gives you a tax break of 1 Lakh think of all possibilities that can be there and then invest your hard earned money else it does not make any sense. You can pour money in either of the products its all the same.

Choice is yours! Either plan up or screw up!

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07/07/2008
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Personal Finance

Short Sell

In Stock market, short sell is practiced by Traders and not Investors. Traders try to make money when the stock prices are going down. They Sell the stocks at the market price and hope for the stock prices to go further down so that they can buy it at lesser price and keep the difference. In this way they make money.

Short selling is trading and not investing. This type of trading is suited during the bearish times i.e. when the stock market is going south. You sell it at relatively higher price and buy it back at a lower price.

How it works?
Generally the broker house or the broker helps in short selling. The trader owes the shares of short sold stock to their broker house/broker. In turn these people owe it to some other investor or some financial institution which holds these stocks for long. The broker itself seldom actually purchases the shares to lend to the short seller. The lender of the shares does not lose the right to sell the shares. In all it just runs on assumption and not actual. The stock is virtually traded.

Can we make money?
Yes, we can make money. But to make money like this, one has to be dedicated to stock market and watch it very closely. When I say closely it does not mean just sit and stare at the computer screens. It is not suitable for engineers who can’t devote dedicated time for stock market.
But this is definitely good for brokers as they make money during selling and buying. They are the ones who make more money than the trader :).

Just an hypothetical assumption.
Consider that I want to short sell XYZZ corp and I have Rs. 1k. Brokerage is 1% and XYZZ corp is trading at Rs.22 and it is falling.
Now I short sell 40 shares XYZZ corp at Rs. 22. It costs me Rs.880 + 1% brokerage = Rs. 880 + Rs. 8.8 = Rs. 888.8
I buy back 40 shares at Rs. 20. It costs me Rs. 800 + 1% brokerage = Rs.800 + Rs.8 = Rs.808

My Profit ~= Rs .64 (80-16) Risk = 100% (Since there is equal chance of making a loss)
Brokerage = Rs.16 Risk = 0%

Even if I make a loss, still I had to pay for brokerage.

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05/07/2008
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Personal Finance

Public Provident Fund

I would say Public Provident Fund is one of the best Tax saving options that the Government provides for the citizens. The best part about PPF is that there is a deduction in income and also the interest that is earned also is tax free. Since this scheme is by the Government of India, I think it is relatively safer than any other financial investments.

The money that is invested is tax free under section 88, are eligible for 20% Tax Rebate. The maximum amount that can be invested is Rs.70,000. The returns on money invested is also pretty good. Government pays around 8% p.a. it is just a percent lesser than savings account. The best part is no tax on interest, effectively it is more than what we think that we are saving by investing in PPF. Good thing is that one can open a PPF account and invest from Rs.500 to Rs.70,000 and also the investments can be made in 12 installments in one year and the amount that is deposited need not be identical, that gives the best option. We can always invest the money whenever we have surplus. This is a great deal. The entire amount that is accumulated over in years is exempted from wealth tax.

Some negative points about PPF:
1. The investment term is very long – 15 years.
2. The interest rates varies over the period of time and you never know how much interest you might get. (Little uncertain)
3. Interest is calculated on lowest balance between 5th and last day of March.
4. Money is held and it can’t be liquidated easily.

I would strongly urge most of the individuals to have a PPF account and start depositing money in it.

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03/07/2008
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Personal Finance

Investment for Tax Benefit

I was wondering as to how to save tax and invest in Stock market. There are numerous options to save tax and was wondering why does government ever give tax breaks when they need money to run the nation effectively and efficiently. So there should be something fishy. I always believe that “There is nothing called FREE FOOD”.

So have you ever noticed or thought about in which government gives a tax break? Only for long term investments, home loans, mutual funds, Life Insurance and so on.. Why does Government gives tax break for such kind of things? I would prefer government giving me tax break on buying Stocks, personal loans, vehicle loans and so on.. but government does not even consider it. Why?? I think the government does not earn or get any money from us in any ways. If that is the case they don’t give the tax break. As simple as that.

Anyways, let us not ponder too much about that. How much ever think about it we can’t formalize a new tax rule. All that we can do is either pay tax or not pay tax. But being a responsible citizen I feel we should pay tax.

I feel Public Provident Fund (PPF) is a very good option for tax benefit. Everyone should have PPF because it is a good option with very less risk. Why I claim that very less risk is because you never know what might happen to the government and what might happen to the money you have provided them to take care of. But it is much safer in the government’s hands.

You can invest in other financial instruments also but I am not sure how much it is safe and what is sum assured. I will get into depth of these topics in the further topics.

See you around!!

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