5 must-do things for simple portfolio hygiene

Mutual fund schemes, where you participate, have a mandate where to invest and have to abide by that. For instance, HDFC Equity fund, categorized as diversified equity scheme, is tracked with the benchmark CNX Nifty. However, we must also appreciate that products will never be more efficient than the market at large. Your view and your risk taking appetite will however be the key!

Also, if you are an investor, it could be tricky to identify whether the person you have handed over your portfolio of investments and bestowed trust upon, is doing a good job of it or no!

“The best way to find a helping hand is at the end of your own arm.” - Swedish proverb.

Managing the basic hygiene of the portfolio is in your own interest. If you are an investor who has either been investing for a long time or a new investor in mutual funds, here are some hygiene activities which must not be overlooked.

Below are 5 must-do simple and easy steps to manage investments

 

1.   Ensure that your PAN number is registered with your investment. This data can be found my asking the mutual fund customer care center by sharing relevant details. This will help you in tracing your investments just in case you don’t have your Account folio number handy with you.

2.  You must always ensure that all the investments made by you have a nomination done. Just in case of an eventuality to the investor, the nominee will then be able to receive the benefits of the investments hassle free. Many a times, this is missed out either out of oversight or sheer negligence.

3.  Consolidation of your investments in one folio per fund house is as critical as any other hygiene factor! Imagine having 10 different investments in HDFC mutual fund and Reliance Mutual Fund, you would end up with 20 account folio numbers which can be a hindrance for effective management. Ideally, then you can have consolidation with one folio for all HDFC Mutual fund schemes and one for Reliance. This then reduces your task to monitor only 2 folios instead of 20.

4.  Understanding the tax effectiveness of your investments is also another important consideration because this then allows an apple to apple comparison over similar asset class investments

5.  Have you gone through the pain of not receiving the redemption proceeds of your investments as you have closed the account from which you had earlier invested the funds? You surely could have moved jobs, or found another banking proposition more interesting than the earlier one! I am sure most of you reading this would have gone through a similar challenge at some point. In simple terms, its very important to register your bank account number where you want the monies and the dividends to be credited directly on notifications both at time of making the investment as well as at the time of you changing your bank account!

Self-help is best help!

Hope the above pointers help in streamlining your investments and manage your hard earned monies more efficiently! Will be glad to hear your views or comments on the above, and I shall be happy to revert.

Understanding Private equity investments, the new age investment tool catching pace in India

Private equity, in simple terms, means investments by a private investor in equity securities in operating companies that are not publicly listed on the stock exchange. The premise could be to provide working capital to the unlisted targeted company and nurture expansion, new product development or even restructuring of management or ownership.

One of the examples could be Sequoia Capital, the venture capital arm of Citigroup, and 3i, invested to the tune of 223 million dollars in Ind Barath Power. 


Private equity is broadly used for to mean both early and late stage investments. There could be 5 main styles of Private equity investments. Each of these categories of investor has its own set of goals, preferences and investment strategies:

      

•       Venture capital funding where investment is made with high stakes in early stages and fast growing investments. A novel idea or a breakthrough technology investment could be some of the likely beneficiaries of angel/ venture investors.
•       Growth capital funding is more often than not investing with minority stakes in large companies who need capital to expand their business, maybe even enter a new market.
•       Buyouts, where large stakes are bought in more established companies, normally listed space and the investor normally has a view to take it private.
•       Mezzanine capital: Investments are in the form of subordinate debt or preferred equity securities, the most junior form of the capital structure and has seniority to common equity capital. In India, an example of this investment form could be ICICI ventures India Advantage Fund VII which raises capital from investors for deploying them to targeted companies for mezzanine funding.
•       Secondary investments: This is an investment style when investments are made in an existing private equity asset, involving sale by an existing private player, exiting the stakes in a privately held company.
  Prominent secondary sale in the last couple of years has been the one between ChrysCapital and ICICI Prudential Life Insurance Co. Ltd, for offloading one third of its stake worth nearly 60 million dollars (Rs 300 crores) in Shriram Transport Finance in 2009.

Let’s look at what could be the possible reasons for a company to ask for private equity funding:

• New age/ young companies may find it difficult to raise money with the traditional sources, the gap being filled by venture capitalists.
• Bank debt is normally is normally backed by secured assets, however private equity is a way of making the investor your partner for medium to long term, thereby improving the companies’ balance sheet.
• For companies which are distressed and need funds to grow, private equity could help infuse fresh blood and an opportunity to come back in the reckoning. Private equity investments not only provide fresh cash flows, but also bring with them intellectual capital that could contribute positively in improving the operational performance of the company.
• In specific industries where Research & development capabilities are the edge over long term, Investments made could be earmarked and used for research and development and even developing new technologies.
•  In very competitive industries, investments received in the form of private equity participation can also be used to make acquisitions in their related field to increase competitive edge.

As visible, the above could be various reasons why private equity investments could be welcome for companies in various stages of lifecycle. However, at the end of the day financial wisdom must prevail. Surely, there has to be merit in such investments for investors in the private equity fund, the true stakeholders.

Often the difference between a successful investor and a not-so-successful one is not one with better abilities or ideas, but the courage that one has to bet on ones ideas, to take a calculated risk-and to act!

4 steps for success at D- Street

Success at Dalal Street

From the peak of 13400 for the REALTY Index in Jan 2008, right up-to the lows of 1600 in Jan 2012, it would rather be inappropriate to say that Investors have not made monies in the real estate Listed space. When the going was good the realty index actually rose nearly 10 folds from early 2006 right to 2008 highs. 

However, the flip side is 4 years later; the index is back at nearly the same levels as 2006. For instance, the stock of Unitech Ltd, was available at Rs 42 in 2002, and then 1400 in 2006 and now available at Rs 20 in early part of 2012. Opportunities have been plenty, but a passive investor may cry foul.

When investing in equities, remember these Golden rules

1. Invest in a good company: Good corporate governance, return to shareholders capital, alongside industry trends and market news that’s affecting the stock price are important barometers for identification of a good company. Spend as much time as you can to identify a good organisation. You are eventually partnering and being a stakeholder in the company you invest

2. Invest regularly: .Markets at any given time can either be good, bad or unpredictable. When the going is good, invest and surely participate in the rally. Don’t be missed out; buy at each level and thus average out your cost of acquisition. You may not end up making super normal profits in a rising market, but what the heck, not everyone can predict the market all the time. Similarly, when the market is highly volatile and range bound, like we have been witnessing for the last few quarters, regular investments sure make a lot of sense At the prevailing price, you will be glad to hold the given stock even if it means holding for a high period of time. At every predefined dips in the stock price from this identified level, you would actually accumulate the stock and since the market is volatile, interim opportunities will be presented for partial exits, again at predefined levels, thereby, en-cashing some of the profits. This would also help you reduce the cost of acquisition, still allowing you to build your long term quality portfolio. The third case being when the market is in a downward trend, many analysts would actually suggest you to invest in stocks for the initial leg of the downfall, and this recommendation will die out and so will your advisor when the fall continues. Also, as an investor, you would feel "Cash is King". Why lose money when you can save it. You would have a lot of quality stocks that would be available at a discount. As mentioned earlier, if you have identified a good company, at a fair price (in your mind), bought at dips, you should have no reason to worry. It may take a while for the tide to turn, however, when the tide does turn, you would have better chances to recover and make the most of the upside. This should also be the phase of super normal profits. This fundamentally stems out our next golden rule

3. Maintain your Asset Allocation: Pre-define your asset allocation, the one that would best define your risk appetite. Some people would say that there are a lot of fancy risk profilers doing the round, and trust me, I have seen  quite a few of them personally too, but I am a firm believer that these profilers should actually be used as a ready reckoner by advisers to interpret the risk grade and return expectations of investors. This would also mean that advisers and investors need to ensure that no additional risk is added in the portfolio, unless the underlying risks are well understood by the investor. Tampering your asset allocation too much from predefined levels will probably add more risk in your portfolio and digresses the investor from his actual risk appetite. If the inherent views go wrong, this could actually spell danger to the good work done on the portfolio thus far.

4.  Portfolio Monitoring and review: This is the final rule which will actually safeguard us, ensuring we are better equipped to identify the early signs of repair work required on our portfolio. If I could draw an analogy here, think about the need of getting health check-ups done once in a year. At least, regular checks will ensure the damage, if any, is less. On the other hand, if all is good, then we will be more confident about lifestyle and way of life. The same is true for portfolios. If the portfolio is doing alright, you know the advice you are getting is appropriate. If there is a huge difference in pre-decided norms, then maybe it’s time to revisit the portfolio, and maybe, even take second opinion.

To sum it up, it’s rightly said that you only have to do a very few things right in your life so long as you don’t do too many things wrong. Warren Buffet

What not to do while investing in real estate

Buying physical property is the most traditional way of investment, and with the ever increasing population, the demand for real estate looks to be on an upward trajectory over a long period of time to come.

What does this mean for an investor who is looking at taking exposure through this investment vehicle?

Does it mean anything one would touch would turn gold?

To my mind, the answer is a BIG NO!

There are some pitfalls that one should be wary off and draw the investment decision after some of these considerations

 

1.     Don't compromise on location:
If not the best, because all of that would come at a price, ensure you surely buy a good location. An analogy can be drawn from our Golden rule number 1. while investing in stocks, you are looking at investing in a good company so that even if you had to hold on to the same, you would not be worried.

2.      Risk of concentration:
Diversify, if you can, considering the price of each property could be significant, likewise could be loss or profit thereon, hence important to break down investments across cities, segments(residential/ commercial) and even sizes if possible.

3.      Don't buy over priced assets, also avoid mediocre opportunities available cheap:
Like Warren Buffet says, “Its far better to buy a good company at a fair price, than a fair company at a wonderful price” I think this analogy just goes really well with real estate too.

4.      Don't overspend:
Don’t go overboard on your pre-decided budgets/ capacities. You do things when the opportunities come along. There could be periods together where you would have a bundle of ideas that come along, and then there could be periods where you would have long dry spells. In the words of Benjamin Disraeli, "The secret of success in life is for a man to be ready for his opportunity when it comes"