The Financial Planning Blog

Nike Call Closed - 1 day - Up 34%

2011-08-29T14:03:00.002-06:00

Just got out of my Nike Call at $3.01. Up by 34%

Speculative pick- technical

2011-08-29T07:31:00.001-06:00

From a basic technical view, I am bullish on Sep Calls of Nike at 87.50 trading for $2.23. Expecting a quick 30% upward movement. Shall keep you posted on the results.

NSCEF fund update -WiLan takeover offer to Mosaid Technologies

2011-08-18T09:35:00.002-06:00

Hello folks, I am glad to inform that another stock that I had as a part of my 19-stock portfolio can potentially be bought out. WiLan has made an all-cash deal to takeover Mosaid Technologies. The stock is up 25% today and I promptly got out of it with 50% gains after initiating a purchase back on October 25, 2010 when I put my portfolio together. If successful, this would be the second such instance after Timberwest Forest was taken over by a pension plan behemoth. I am not here to brag about my fund or my picks, but this in my opinion stands testimony to the fact that if your stocks have inherent value, it is just a matter of time before the market and competitors identify it. There are numerous websites and market gurus who claim to help you become a millionaire even before you can count the number of zeros in a million (all the power to them) however, isn't investing supposed to be a prudent approach to financial independence? And by the way, what happens to your peaceful sleep at night if you spend all the time thinking about what may happen to your money that has been invested? If slow and steady wins the race, I want reassert that slow movers are not stupids.

Well, back to my fund. Having closed 6 of my positions, the fund has $68000 in cash and $66000 in equity- up by 34% . Due to lack of time and prices that I was not comfortable with, I did not buy any stock so far. Now that the markets have corrected a bit, I hope I can scout for some value picks. The Philly Fed rocked the markets as I write this and J P Morgan has warned that the US may be dangerously close to a recession. Let us not forget, a country is just a collection of people and resources. If mismanagement of debt is a bad thing for an individual, I don't think why it would not mean the same for a country - does it matter if it is the US? In my opinion, I don't think so.

Short - Defense Contracting Companies

2011-08-07T01:23:00.001-06:00

Although markets everywhere look like a shorter's paradise, I am keen on the US Defense contractors. Now that the US debt had been downgraded, they are forced to take austerity measures to avoid further downgrade. When it comes to cutting costs, especially for the US, a good chunk has to come by cutting down defense spending. In my opinion, Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC) are the pick of defense shorts. I have left out Boeing, considering the fact that the company has good exposure to civilian markets which may not just be the same as defense but does provide some consolation. Both Lockheed and Northrop are highly defense-inclined. A cut in that is going to pinch, maybe hard. So what have I done here?

Bought Jan 2012 puts on LMT @ 5.60 with a strike price of 72.50

Bought Jan 2012 puts on NOC @ 3.20 with a strike price of 55.00

I am expecting 100% returns on each one of these puts. Let us see. I shall keep you updated on the progress. The reason for buying long term puts is that I expect the impact of cuts in spending to take at least a couple of quarters to show its real face in the earnings though I expect it sooner.

Speculative pick - Closed - Up 30%

2011-07-18T08:59:00.000-06:00

Sold Orcl puts bought in the last trading session of friday, for 1.32 each, up by 30% after commissions. (good for one day!!!)

Speculative pick

2011-07-17T00:24:00.000-06:00

On purely technical speculation, I bought puts on Oracle Corp. (Aug 2011). Puts were bought at $0.99 a share.

Technical Portfolio - Health Check

2011-07-01T22:39:00.000-06:00

A month after I posted my second technical portfolio, I am glad to write that 8 out of the 9 stocks hit the target. The one which missed also suffered a reasonable 4% loss. Just as I had written earlier, I am planning to hang on to the portfolio and just make modifications as and when appropriate. Here is the update on each one of the stocks.

Arch Coal (NYSE:ACI)
The stock is currently down 7% after falling nearly 11% since I initiated a short position in the first week of June. ACI has had a smart rebound owing to the macroeconomic factors and may have a slight upmove, but in my opinion there is no clear indication of an upside breakout. So I have bought a July Call at $0.66 per share to take advantage of the increase in share price, while still maintaining the short position.

Research in Motion (NYSE:RIMM)
There is not much to enunciate about this hero of yesteryears. RIMM is really in trouble which is well confirmed not just by Apple's sales figures but also by the company's growing alignment towards Microsoft. Understandably, the stock is currently down by 34% from the time I shorted after tanking almost 50%. I cashed out half of my holdings at 40% profit. Although I will not initiate any short position at this point, it may not hurt a lot to hold a small portion with stop buy at $30 a share. As of yesterday, RIM is a participant in bidding successfully for some of Nortel's patents.

Altria Group (NYSE:MO)
If you had read my post when I started this portfolio, this was the only stock I bought when I shorted all the rest. Turned out that I had 9 on 9 short candidates. After almost a 7% slump, the stock has recovered 3% now. As of now, the stock is a hold. If there is a downside breakout of $26 on good volume, I will consider buying a put option.

Lowe's (NYSE:LOW)
Lowe's hit the target of 5% but is now at a negative 3% since I initiated the trade. Although a rising RSI is tempting, I am still short on this stock as I am not convinced of any significant breakout. If the stock goes pas $26 on good volume, buy calls.

The Walt Disney Company (NYSE:DIS)
I am still short on this stock. However, I bought Aug 40 Calls at $0.85 per share as a short upmove seems around the corner. Again, no significant hint of any direction change.

Applied Materials Inc. (NYSE:AMAT)
AMAT showed good resilience by moving up by 7% in the past 5 days, but indecisive directional movement. A short upmove possible, but I am still short on this stock.

Charles Schwab (NYSE:SCHW),The Gap Inc. (NYSE:GPS), Juniper Networks (NYSE:JNPR)
Similar inferences as Lowe's and I am still short on all of these. But in no mood of buying any call options on these.

I shall post the spreadsheet on returns and adjustments shortly.

Playing with Options

2011-06-24T00:02:00.002-06:00

After spending considerable amount of time admiring the brains that created derivatives, I decided that it is time to take a plunge. I felt (rather assumed) that I had the ammo to go the distance. Time spent paper trading turned out to be time well spent and lessons well learnt. So, here are my first trades in the first week ( I loved the week for the way it went!!!!. Sorry for my Greek buddies) So here is the list. My trades and the outcome.

Kroger - Call - Closed @ 35% gain
Rimm - 35 Put - Closed @ 170% gain
Adobe- 31 Call - Pending @ 64% loss
Jabil Circuits -19 Call - Closed @ 42% gain
Fedex - 90 Call - Closed @ 106% gain
Red Hat - 43 Call - Closed @ 38% gain
Oracle - 33 Call - Pending @ 2% loss

Cumulative return - 58%
Return per trade - 7.25%
Duration - 1 week.

Oracle took a hit during the after-hours of trading today and is likely to bleed tomorrow. So I see the loss from Oracle trade widening. However, considering that the call doesn't expire until July 16, it is worth to hold this contract. Same is the case with Adobe. The cumulative return was more inspiring and impressive than I had imagined. Being on the right side of things does have some benefits. Ready for the rough seasons as well. I will be more than happy to answer any questions regarding the strategy involved or the details of the trade. Feel free to question or comment. All updates to options based trading will be tagged under "Options trading" label. Happy trading.

Sino Forest - Fraud allegations

2011-06-10T23:02:00.001-06:00

I had earlier recommended Sino-Forest (TSE:TRE) from a value proposition. The recent allegations of fraud from short seller Carson Block has dealt a severe blow to the company, as the stock is down 70% from the price it was a week ago. Now, it remains to be seen what the truth is, analysts in every major analysis firm is shocked by the fact that there could a falsification of this sort from a company that has shown consistent growth over a period more 15 plus years. Ironically, Satyam Computer Services, (NSE:SATYAMCOMP), which had in its clientele organizations like FIFA crashed under similar circumstances after falsification was admitted by its CEO. What led or prompted such a confession still remains a point of debate. What would have happened if he had not confessed? No answers. But Sino Forest is a different case. While Satyam had an intellectual pool which made it a nice takeover target, Sino Forest's only asset base is its plantations. If there is a falsification with that, I am really not sure what kind of equity remains in the company to make it worth acquiring. China has been a mystery and is difficult to do business in.

Only 2 questions bother me really.
1 - Carson Block released his report on June 3, Friday and the stock got hammered. Why did Sino-Forest not comment on the issue on that day evening? Did they or do they lack the manpower or the intellectual prowess to decipher something a bunch of analysts at Muddy Waters claimed to have created?
2 - They did come out with a defiance on June 6 (Were the directors enjoying their weekend even in such extraordinary situations????) When Block is so aggressive with his allegations, why does Sino-Forest, an entity, lack the teeth to give a fitting reply?

Investors can only wait and watch after being made sitting ducks by the company and targets of a so-called cleansing action by a short-seller.

Declaration: I have exposure to Sino-Forest.

Update to Tech Portfolio June 2011

2011-06-10T08:37:00.000-06:00

RIMM, ACI and SCHW, 3 out of 9 picks achieved their target of 5% in 3 days. Closed them out and shorted Tellabs Inc.(NASDAQ:TLAB) at $4.10 per share.

Technical Portfolio - 05 June 2011

2011-06-05T12:18:00.004-06:00

My Technical Portfolio for the month surprised me. Once again, I have 9 picks-but the contrast is in the composition. It has 8 shorts and a buy. Makes me wonder about the speeches that heads of state give on economic recovery. Well, this is only technical analysis and not fundamental or macro-economic - however, it does throw light on people's perceptions compared to that of the heads of state.

From this month, the portfolio will have a target of 5% and a stop loss of 5% on the negative side. You can hold for longer if you are comfortable with. The targets are just indicators of generally acceptable risk levels.

ACI - Short - Arch Coal

RIMM - Short - Research in Motion

MO - Buy - Altria Group

LOW - Short - Lowe's

DIS - Short - Disney

AMAT - Short - Applied Materials Inc.

SCHW - Short - Charles Schwab

GPS - Short - Gap Inc.

JNPR - Short - Juniper Networks

See you in a month with the results!

Pick of India

2011-05-20T20:10:00.004-06:00

I always wanted to create a fund that is focused on India, considering the hype around the country's economy. It remains a fact that I am more impressed with IPOs in the Indian markets rather than the ones in the Americas (one Linked-in doesn't change a lot.) So here it is. I just took the time tested investment strategy of picking companies that have shown a track record of strong and growing revenue and earnings over 5 and 10 year timeframe.

The list of stocks are given below. Click here to visit my scribd page to view the complete document.

Apollo Tyres Ltd

Aurobindo Pharma Ltd

Torrent Pharmaceuticals Ltd

Amara Raja Batteries Ltd

Sintex Industries Ltd

Vijaya Bank

Opto Circuits (India) Ltd

Indusind Bank Ltd

ELGI Equipments Ltd

Coromandel International Ltd

All these stocks have shown phenomenal growth over the past 5 and 10 year periods. In terms of stock prices, earnings and revenues, the companies have shown an increasing trend. This also includes the fact that the 5-year increase in revenue and EPS is greater than during a 10 year timeframe. This is a testimony that the increasing trend is still in tact. Add to this the sound management principles and managers these companies possess, it seems to be a right choice for a long term in my opinion.

Performance Updates

2011-05-20T19:31:00.003-06:00

Updates of all of my funds:

Technical Portfolio (20 Apr - 20 May)

A reminder note to begin with. My technical portfolios are only for a month's time and I will promptly wrap it up by that time.

The last four weeks have been really testing for the markets. The Index, (S&P 500) hit a high of 1369.5 and a low of 1321.5, and gained 0.22%. My technical portfolio closed at its highest point of the month gaining 2.34%. The lowest point was the point of origin. Find below the exact performance of the portfolio against the S&P 500.

Overall gain/loss: S&P 500 - 0.22%

My portfolio - 2.34%

5 buy calls and 4 shorts. One each of the buy and short ended up in the red. Out of the two failed calls, one went down from a high of +4.5% during the course of the month.

Fund results:

NSCEF - 28.75% (29 weeks)

Pure Value fund - 1.71% (9 weeks)

Technical (Month) - 2.34% (4 weeks)

I shall post my new India based fund with companies that have long term growth potential that have also shown exceptional performance over the past 10 years.

Monthly Technical Portfolio

2011-04-21T17:37:00.007-06:00

Alright. So, we have two funds running at the moment. The NSCEF and the Pure Value Fund. NSCEF is up by 16.87% since inception 26 weeks ago while the Pure Value Fund is up by 4.28% since inception 5 weeks back.

While the NSCEF is aimed at being a superior parallel to the Toronto stock exchange index, the Pure Value Fund is based on brutally honest analysis on delivering value for every dollar invested. I just thought a short-term (monthly) portfolio based on technical analysis would be a good complement. I have made it at a simpler level with just MA crossovers and RSI. Although I was short of time, I could research almost half of the stocks that make up the S&P 500 and this is what I came up with.

5 Buy calls and 4 Shorts.

I shall update the performance as and when required. The profit target is generally 10% over a period of 1 month. Stop loss depends on a close below the MA crossover point. It is advisable to take some cash off the table on quick profits of 10-15% and it depends on the trader's risk appetite to hold on to the stocks further.

Performance update

2011-03-30T14:00:00.004-06:00

Gladly, my fund is up by 25% while being in existence for 23 weeks. As an addition, now I have created a Pure Value Fund. The focus is to identify 20 value stocks that can constitute 5% each of our value portfolio. The project began in January 2011. The Fund start date was 10-Mar-2011 with 2 constituent stocks.

Atwood Oceanics NYSE:ATW bought @ 42.81

Sino Forest Corp. TSE:TRE bought @ 20.60

I believe value investing provides the safety and cost effectiveness that makes investing attractive. Follow my investing community in facebook.

http://www.facebook.com/pages/Value-Stocks-Investment-Club/209534035730612

Exams are on!!!

2011-03-18T21:17:00.003-06:00

My exams are on and I am unable to spend time on research and writing. Damn!!!! However, I have formulated an utterly conservative (not as cons. as the bonds) derivative play using covered calls and hedging puts as and when found necessary. You can monitor my portfolio by keeping a tab on the latest updates.

How to restrict the downside risk of the underlying asset in a covered call?

Buy a put option slightly out of the money considering the net purchase value of the stock as breakeven point. Take the following real time example.

Shares of Citigroup Inc. (NYSE:C) closed today at $4.50. If you were to buy 100 shares, it would cost you $450. If you write a covered call expiring April 16, 2011, you would get a premium of 13 cents. Through this, your purchase price has become $4.37.

Consider the following possibilities:

a) If the price goes over $4.50 at expiry, you will be assigned and you have give up your shares for 2.8% profit.

b) If the price stays between $4.37 and $4.5, you get to keep the premium of 13 cents and also your shares.

c) However, if the price goes below $4.37, you are at a notional loss though you get to keep the premium and your shares. In order to hedge this, you could buy a put option expiring April 16, 2011 with a strike price of $4.00 at 1 cent a share. This would reduce your profit to 2.66%. At the same time, if the price falls, earnings from the put can offset the losses from your shares to an extent.

My current portfolio:

Atwood Oceanics 100 shares bought at $44.57 each during late Feb 2011.

Wrote a covered call expired March 2011 pocketing a premium of $1.30 per share. Wrote a second covered call expiring April 2011 for a similar premium. Thus my cost basis is now $41.97 and the strike price of my latest call is $45.

Citigroup Inc , 2000 shares bought at $4.82 each during late Feb 2011.

Wrote a covered call expired March 2011 for a premium of $0.09 per share. Wrote another covered call expiring Jan 2012 for a premium of $0.31 per share. Thus my cost basis for this holding is now $4.42.

So, as of now, including the cash inflow from covered calls, the returns stand at 2.5% in spite of the shares having declined in value by 5% cumulative.

Note: As my fundamental research suggests that Atwood Oceanics is due for an upswing and Citigroup will stay over $5 by Jan 2012, I have not bought any hedging puts.

I might be late with my next post due to my exams, however, I will keep the post updated in case of any material change to the portfolio.

IP address and the US sovereign debt

2011-02-06T07:44:00.002-06:00

Two very important things are about to run out of stock shortly, and one of them isn’t oil. They are the IP address for websites and the room for US national debt to hit the ceiling.

The less scary one first – IP address. The IP address is more like a telephone number for the websites so that users can uniquely identify a particular site. However, when it was instituted decades back it had the chance of providing a little over 4 billion IP addresses and was never expected to run out. Thanks to the internet boom, though a lot of companies went bust, they brought this huge wave of interest in people having their own websites. From being a choice, websites have become a norm. As I write this, I read reports that hackers have penetrated the NASDAQ servers. With no IP, locating these attackers would be like finding a needle in a haystack. But technologists have come up with a solution-the IPv6 (IP version 6). This is supposed to do the same job of an IP, with more room and efficiency. However, a very miniscule percentage of websites are actually compatible with this technological alternative at the moment.

On to the horror movie now – The US government has (at least for now) a deficit cap of $14.3 trillion. If everything was allowed to go as it is now, that ceiling would be reached by April or May. What happens then? US may be defaulting on its payments. And look who is the largest lender. Yes, you guessed it – the guys at the Dragonland (China.) A default in payments would mean that the AAA rating bestowed on the US is in jeopardy. Very recently the S&P downgraded its rating on Japan which sent jitters across the globe. One half of the senators in Washington are pushing hard for an increase in the ceiling while there is big time lobbying for budget cuts and austerity measures. There is news that a cutback on spending would save the exchequer close to a trillion dollars over the next few years. Let us do the math. Even at 1%, the maximum debt obligation will command an annual interest of $143 billion. Add to the fact that current economic situation in the US does not provide the cushion of not borrowing at all. With new healthcare reforms and other plans that are in the pipeline, it simply makes no sense in assuming that the US would not be borrowing again. All this after the QE series have left the market with enormous amounts of cash. So how will this play out? Let us see the boom and the bust scenario.

Boom: There is no boom actually. But it is sure better than being bust for time being. The Senate might pass a bill that will give the government more chances to make things worse and keep borrowing; and hope that the US economy recovers in a dramatic fashion and the Wall Street roars and investors pour money into the US system and it manages to make payments to its lenders justifying its AAA rating.

Bust: I might sound like a doomsayer here. But take a look at the possibility from two perspectives – when the senate approves the extension of ceiling and when it doesn’t.

If the Senate doesn’t approve, US defaults on its interest payments. The rating agencies (however unreliable they proved in 2008) downgrade US sovereign debt rating. Not sure of the extent to which a recovering Wall Street would be affected, but think of the dollar. That is going to take a beating. The symbol of American capitalism is going to be thrashed. This would definitely lead to trouble if foreign investors retreat which they might, in all possibilities. The US doesn’t have enough money to fund its latest string of reforms. The QE will go in vain, if the Govt. has to raise taxes to keep it in line with the proposed expenditures. Inflation, liquidity, interest rates, taxes, defaults, bankruptcies – the worst of everything still seems a possibility. It gives us the gentle reminder that the worst might not just be over for the US.

If the Senate approves, then Uncle Sam has glee all over his face and borrows more. The reforms go as expected and with the hope that economy would recover well on time to help avoid another financial catastrophe. In the short term, things look rosy. I pity the guy who is going to run against Obama should this be approved. If he loses, he loses the election to the most powerful (?) office in the world. If he wins, he is going to have one hell of a problem in managing the debt, equivalent to what a homeowner has when he is staring at a possible foreclosure.

I am not a pessimist, but one cannot stop from thinking this. We have seen bankruptcies due to mismanagement of debts/leverage at every level – a common household, a bank, a financial institution like Lehman Brothers, a sovereign nation like Greece or Ireland. If it can happen to them, it can happen to the US. I won’t be surprised if there were bets already making rounds for a possible default on US bonds. It is time the US stopped thinking itself as the big brother of the world and start putting its house in order.

Foreign investments and the Indian economy

2010-12-13T21:35:00.004-06:00

For quite some time now, the world has started taking notice of India as one of the front runners in the race among the emerging economies. The Indian success story as an emerging market unfolded like a fairy tale, with a large young and vibrant population striving hard to break into the big league. There is little doubt that the Indian economy is going to be bullish in the short term, but a closer look throws interesting questions on the longer horizon. Let us take a look at the major economic indicators of this season and its impact on the Indian economy.

QE2:

The US Fed’s decision to flood the markets with 600 billion dollars was criticized by an emerging Brazil and the developed Germany alike. However, India has been a quiet supporter. This is evident because investors from the US would divert the dollars into emerging markets expecting better ROI and India is sure to be one of the major beneficiaries of such a move. Unlike Germany or China, India is running a current account deficit around 2% of its GDP and inflow of cheap money and ongoing payments would be the best thing to happen. On the other hand, this will lead to higher asset prices and inflation. The Reserve Bank of India has increased the interest rates keeping this in mind.

In the short term, India is sure to continue its dream run in 2011, largely attributing to cash flow and the positive effects it would have on the economy in its entirety. Despite the concerns pertaining to budget deficits and double digit food inflation, Indian market has outperformed its peers in Asia. The market has become expensive now but foreign inflows are still strong. This robust rise is due to the abundance of liquidity which is due to get even better with more foreign money ready to flow in.

The situation may lead to volatile exchange rates, something that the Reserve Bank of India is very much aware of. The central bank has hinted that it is not opposed to appreciation or depreciation of the currency as and when required. Sooner or later, India’s real test would be when the interest rates in developed countries begin to rise and the funds invested (multiplied by then) would retract. If India builds its growth story from here based on just rolling the stop-gap funds, the boom might just end up being a bubble.

Employment:

India discovered a treasure in outsourcing business. The sector, quite non-existent a decade ago, is the most happening sector in the country. It employs more people than any other sector and also has the youngest workforce in the economy. It is this genie that feeds the bulging wallets of Indian youngsters who in turn welcome top global brands to the country. Outsourcing has a significant impact on India’s exports and foreign exchange. The US President’s call for an outsourcing ban and his measures to scale down the shipping of jobs overseas did not augur well with the Indian entrepreneurs. While this is something the policymakers have to ponder, from an American standpoint, Mr. Obama is literally out of choices here. Running the world’s largest economy with unemployment rates of 9-10%, the highest in nearly 26 years, he is ought to make such comments or even come hard on such areas.

A sector-wise comparison of employment in India between September 2010 and 2009 shows that employment has increased by 1.29 million, with the outsourcing sector adding 854,000 jobs while the labor intensive textile sector coming a distant second with 152,000 new additions. This somewhat reflects a fragile economy. The country needs to encourage industrial and agricultural growth considering that India is primarily a land of villages driven by agriculture as their primary occupation.

Deficits and Inflation:

If a slightly above average inflation can fuel the economy and take the country to the next level, I feel that we have a deal. However, the actual crisis would be liquidity. Irrational fiscal policies would eventually produce undesired results – and it really doesn’t matter whether the root cause of the issue is domestic or international. The banks have borrowed $27 billion in an environment when the interest rates are well below the inflation pushing real interest rates to sub-zero levels.

The government recently benefited from the sales of 3G spectrum garnering $23 billion. The decision to divest the stake in some of the state-run monopolies would also add to the treasury of the exchequer. But these are stop-gap arrangements and not solutions. The country’s deficits are expected to be around 5.5% of the GDP once we add up the deficits of individual states as well. It is mainly due to reasons like this that the Indian Rupee appreciated only 6% against the dollar last year.

As I write this article, there is news from China about increase in interest rates.

What could India do?

If India wants sustained growth, then it has to utilize the influx of foreign money to its advantage. Investments in education, science and technology could prove to be the asset that they can retain even after the funds leave the country. As of 2008, only 13% of college-aged students in India could afford to attend a college. Thus university education is still a distant dream for many talented individuals in the country. Although India has top notch institutions for education none of them featured in the top 100 universities in the world. The Indian government is in a position where it has to increase its budget allocation exponentially in the field of education. The knowledge pool that would result out of this investment would be the real growth that India needs to keep its party going.

New Transactions - Dec 7, 2010

2010-12-07T15:43:00.006-06:00

Booked 50% profits in First Quantum and ARC Energy Trust. This gives a serious thrust to the cash reserves and the rate of return of the fund is enhanced. The funds will be on the reserve till being reinvest in these stocks when the time is appropriate.

The transactions are as follows:

First Quantum - 52 shares sold for 5475.60 at C$105.30

ARC Energy - 116 shares sold for 2860.56 at C$24.66

Cash reserve up by C$8336.16 by virtue of the above mentioned transactions. I am looking to book some profits in Canadian Natural Resources depending on the stock's movements this week.

I shall post the holdings pattern after that transaction or end of this week, whichever is earlier.

I am happy to say that the performance of NSCEF so far is 13.47% against the index return (TSX) of 5.15%

New Transactions - Dec 6, 2010

2010-12-06T17:37:00.004-06:00

A mutual fund will utilize funds from its new clients to acquire more shares at a price and time considered suitable in the future. This is done mostly to average out and make the share purchase even more lucrative. As my fund does not involve fresh influx of money other than profits, I have to act like the manager of a soccer team trying to play his best possible 11 on that given day. So, there will be some changes in our portfolio which I will keep everyone updated on that very day.

So, here are the first set of changes.

1- TransGlobe Energy Corp. is our new addition with a purchase of 245 shares from the cash reserve in the fund.

2- Booked 50% profits in Centerra Gold selling 115 shares(out of 230) at the closing price of 22.99

3- Cash reserve has gone up and stands at C$6530.27.

This leaves the fund performance at 6.43% so far from its inception on Oct 25, 2010.

Click here to see the latest holding status.

Aries Agro Ltd. - Buy

2010-12-04T23:25:00.004-06:00

I am quite upbeat about this stock. The company is stable and I just feel that the timing is perfect to enter this stock. A good 25-30% move is round the corner.

Click here to read my research report.

Trading Strategies - Stochastics with EMA

2010-11-24T06:26:00.007-06:00

This uses Exponential Moving Averages and Slow stochastic. A crossover of the Exponential Moving averages and the stochastic in the same direction is a very strong signal of what is to come. Multiple indicators are better for a simple reason that there is no single indicator that can accurately predict the movement of a financial instrument. Pairing up the stochastic with the EMA can eliminate some false signals. Coming to our strategy, let us take an example of EURJPY pair.

Process:
1. Add 10 day EMA and 28 day EMA.
2. Add Slow stochastic with 10,5,5 specifications.

How do you do it?
1. Look for the stochastic to rebound from 20 or retrace from 80 levels.
2. Remember, initiate a transaction only on rebound or retrace.
3. You can come out with a minimum of 30-50 pip profit.

Cases:

This seems pretty easy. But follow this with some strict guidelines.

1. Do not get a leverage of more than 40 times.

2. I have tested this only in 1 Hour Candles.

3. Keep a stop loss of 40 pips or the stochastic reaching the opposite side.

4. Remember, EMAs have more weightage than stochastics.

I have been testing this strategy for almost 3 months now. I must say this is one of the more successful strategies I have used. I have tried this only on forex, so the efficacy of this strategy on equities is not tested. I shall post results of the same asap.

Comments and questions are welcome.

Week 4 round up

2010-11-20T19:30:00.004-06:00

Our fund (NSCEF) is nearing one month of existence. It has been quite an eye-opener for me in terms of the strategy used and also the kind of improvisations that I would require to make. The fund has grown over 2% in spite of the news from China, US and the G20 that did enough damage and less repair to the value of the fund. The earnings season was pretty convincing with a good number of our holding companies posting record results. While news from all over the globe didn't let the stocks get their due upside, the results did reflect the fundamental strength of our consitituent stocks.

Forex

Beginning this week, there will also be updates on forex pairs that can be traded. Picks will be based on technical analysis and global macro news.

Happy trading!!

Week 3 round up

2010-11-14T12:13:00.004-06:00

The week came down pretty harsh on the mining companies. All of them tanked towards the end of the week. News from China on possible monetary tightening policies did its part of damage. Furthermore, investors booked profits from the recent surge in markets sending the markets down by a percent and a half in a day. The mining stocks bore the brunt with losses of anything between 2 and 4% on friday alone. The global news was so powerful that even Quadra Mining (TSE:QUX) which reported record increase in earnings was not spared.

The Canadian dollar closed at 0.9904 USD, not a great sight for a country whose main importer is the US. On the other side of the globe, Canadian Prime Minister Mr. Harper is quoted to have entered into talks with India on a possible free trade agreement between the two nations during his meeting with his Indian counterpart during the G20 summit in Seoul, South Korea. This may be a key step in Canada's target of diversification of export markets. Considering the growth potential and currency variation between CAD and Indian Rupees, this might be a valuable addition though not an alternative.

IPO investing - statistical evidence

2010-11-12T18:46:00.009-06:00

An IPO can be a much safer investment if properly picked. The risk gets alleviated largely due to the short nature of the holdings. Investment managers and individuals are always on the hunt for safer and lucrative investments that can boost their yield. However, the individual investors are not as equipped as their managerial counterparts in finance in order to deal with the situations and come out with winning bets. Some of the safer bets would be bonds floated by the governments and corporations while equities would represent enhanced risk. Investments in an IPO can be a lucrative source of profits if the investor makes some rational and well informed decisions.

Click here if you want to read my post on IPO basics

Statistics (Indian stock exchange, TSX data in a later post)

Statistics taken from the website of the National Stock Exchange in India shows that out of the IPOs graded 3, 4 or 5 on a scale of 1 to 5 (with 5 being the best), none of the offerings tanked on opening day if the investors were looking for 15% gains. Investors would have made money on every IPO they invested on. Making this more attractive is the fact that even in 2008, when the recession chipped in, grade 4 and 5 IPOs didn’t lose a dime. Roughly on a scale of investment beginning with 100,000 Rupees on every IPO (max amount for individual investor), it would have translated into 512% profit.

Out of the 53 IPOs that made the cut with respective to our requirements, 25% of them ended the listing day in the red. However, the remaining more than made up for the losses with a whopping 500% plus gains during one of the toughest 3 year period in history. Keeping a conservative investor in mind, I have limited the profits to 35% and losses to 25%. However, just for the record, only one stock went down by more than 50% while 6 stocks went up by more than 50%.

	Company	Listing gains
2008	NU TEK INDIA LIMITED	10%
	RURAL ELECTRIFICATION CORPORATION LIMITED	16%
	V-GUARD INDUSTRIES LIMITED	10%
	SHRIRAM EPC LIMITED	12%
	ONMOBILE GLOBAL LIMITED	17%
	KNR Construction Limited	13%
	RELIANCE POWER LIMITED	16%
2009	D.B. CORP LIMITED	28%
	GODREJ PROPERTIES LIMITED	11%
	JSW ENERGY LIMITED	6%
	COX AND KINGS (INDIA) LIMITED	30%
	DEN NETWORKS LIMITED	-13%
	INDIABULLS POWER LIMITED	-24%
	EURO MULTIVISION LTD	-25%
	PIPAVAV SHIPYARD LIMITED	-7%
	OIL INDIA LIMITED	10%
	GLOBUS SPIRITS LIMITED	-23%
	JINDAL COTEX LIMITED	11%
	NHPC LIMITED	-14%
	ADANI POWER LIMITED	-4%
	MAHINDRA HOLIDAYS & RESORTS INDIA LIMITED	13%
2010	CAREER POINT INFOSYSTEMS LIMITED	30%
	RAMKY INFRASTRUCTURE LIMITED	2%
	MAN INFRACONSTRUCTION LIMITED	30%
	TECHNOFAB ENGINEERING LIMITED	28%
	AQUA LOGISTICS LTD	16%
	JUBILANT FOODWORKS LIMITED	30%
	HATHWAY CABLE & DATACOM LIMITED	-8%
	PRESTIGE ESTATES PROJECTS LIMITED	12%
	TALWALKARS BETTER VALUE FITNESS LIMITED	30%
	SHREE GANESH JEWELLERY HOUSE LIMITED	-25%
	INTRASOFT TECHNOLOGIES LIMITED	16%
	VASCON ENGINEERS LIMITED	-12%
	DQ ENTERTAINMENT (INTERNATIONAL) LTD	30%
	MANDHANA INDUSTRIES LIMITED	5%
	JAYPEE INFRATECH LIMITED	-3%
	INDOSOLAR LIMITED	-12%
	ELECTROSTEEL STEELS LIMITED	7%
	VA TECH WABAGH LIMITED	30%
	SKS MICROFINANCE LIMITED	21%
	BAJAJ CORP LIMITED	17%
	PERSISTENT SYSTEMS LIMITED	45%
	TECPRO SYSTEMS LIMITED	15%
	ASHOKA BUILDCON LIMITED	2%
	OBEROI REALTY LIMITED	15%
	IL&FS TRANSPORTATION NETWORKS LIMITED	14%
	EROS INTERNATIONAL MEDIA LIMITED	18%
	HINDUSTAN MEDIA VENTURES LIMITED	11%
	UNITED BANK OF INDIA	7%
	GUJARAT PIPAVAV PORT LIMITED	21%
	ORIENT GREEN POWER COMPANY LIMITED	1%
	SJVN LIMITED	-3%
	COAL INDIA LIMITED	30%

Data courtesy: moneycontrol.com, National stock exchange of India

IPO investing - why?

2010-11-12T18:37:00.004-06:00

An IPO presents the unique opportunity to make modest profits in the form of listing day gains. This means, you don’t hold the stock for long and are not susceptible to the volatility in the market due to changing global conditions. This said, the downside exists as it would in the case of any equity investment.

Strengths:

Low holding timeframe

Analysis of the company’s worth both in terms of future prospects and the pricing of the issue is done by almost all analysis firms

Subscription information available and is updated every day giving a sneak peek on the amount of interest building up among the investors.

Liquidity – the stock is generally not illiquid on the opening day. There is a flurry of activity though it might be either ways (positive or negative)

Shelter from market weakness as the underwriters would be pretty keen about the timing of the listing and make sure that their timing is right (they do your homework)

Weaknesses:

Not much historic data about the company is available

Possible listing day losses

Uncertainty

In spite of these issues, IPOs are generally safer considering the fact that the holding time is so low. This doesn’t take any credit away from the time-tested investing fundamentals of stop loss, limits and self-discipline.

Click here to read through the statistical analysis.

Inflation in India

2010-11-10T07:30:00.003-06:00

A check on sensex, economy and the aam aadmi.

The sensex is trading at an all-time high. Having just come out of (or recovering from) a recession, this is seen by many as some fresh air. But are we really growing?

A snapshot.

The sensex zoomed because of foreign and domestic investors who sought a safer place than the US or those grown-up economies that are still reeling under the effects of the recession. The Coal India IPO got a huge response, in fact, the value of the bids that came in was close to the GDP of Sri Lanka. But does this mean that we are growing?

No. Atleast not according to me. The commodity inflation still frequently hits double digits. Setting up a business in India is not easy even for Indians. The world bank, in their Doing Business 2011 report, ranks India 134th, well below other growing economies. Ironically, China, whom we claim to be almost a dictatorship land has done pretty well to be within top 80. New businesses are the actual growth as they answer the questions of unemployment too, and not just a few millions of extra earnings from an existing company.(Read the report here.)

Too much money in the hands of too less people is really beginning to drive the inflation. There is this set of people who are ready to pay whatever the price is for what they want.

The RBI has raised the interest rates in November to suck some liquidity off the system and maybe make availability of credit a little scarce than before. But if this doesn't pay off, and if the RBI is forced to make rates so high to reduce big ticket sales and stuff, manages to reduce money flow - there we go, back into a slowdown. This phenomenon is well round the corner in the US. The Fed has made one last(possibly) attempt to infuse $600 billion into the system that is already on life support. Imagine a devaluing of the dollar(again, possible!) - the export oriented industries in India are going to get way less profits than what they projected. If dollar goes from 45 INR per dollar to 40, 5 Rupees of every dollar earnings projected by every company or even the export estimates are gone. Simply put, we are behind the target by 11% right away. Some optimists argue that it would also mean less money spent on imports, but this is going to boil down to everyone working in India. Majority of the people who took a pay cut during recession are not back to their original salaries yet.

The stock market reflects the general interest and promise that Indian companies project. But this, in no way reflects the common man. The "aam janta" does not benefit from this. The primary objective must be to control the inflation irrespective of the loss in foreign investments during that time. Moreover, there is no point in posing as a prince, when you know that your granary is empty.

Weekly Report 2 - Nov 1 to Nov 7 2010

2010-11-08T06:51:00.001-06:00

Canadian National continued to be punished during the week. The mining sector and energy outshone the others. But overall, the week was news driven.The week had good and bad news. Earlier, the Fed's lacklustre response about the bonds drived the markets in the red. Later, the mega billion dollar support from the Fed saw the markets move north. Our portfolio did pretty well however, the TSX surged ahead as well. The Fed's decision raises one important question. How sustainable are these measures? How many more billion dollar support are in the pipeline? I dont see any(personally.) Does this finally pave way towards the debasement of the dollar? If yes, what happens to the global currency(claimed based on acceptance.) ? Is there an alternative to the dollar? Euro - Tough, after the fragile position major European countries are in. Back to gold standard days - no bright possibilities.

If the Fed wants to keep the country and the economy in life support, it is contradicting their own theory. The senators passed comments after bailing out Citi - They said the "too big to fail" clause will not be tolerated and the banks would have to shape up. Now the dollar is in a similar situation. Is the US Dollar too big to fall? Not really, if one were to believe in the Obama administration and under the situation that they live up to their promise.

It all comes down to pride or common sense? Let us wait and watch.

Week 1 - (25-Oct-10 to 31-Oct-10)

2010-10-29T20:12:00.004-06:00

The first week has been good overall, but with mixed results. A few surprises both positive and negative. Canadian National was punished even after beating analysts’ estimates in terms of EPS. Lundin Mining received a similar treatment though it was primarily because of the reduced production outlook for the future. TD and CIBC suffered initially however, the latter recovered towards the end of the week barely managing to close in the green. The Fed’s decision about the stimulus didn’t entice the traders resulting in a minor sell-off on Wednesday.

Centerra Gold was easily the top performer in the NSCEF. The stock was up over 15%. The next week seems to be promising for the fund and especially for this stock. Overall, our fund gained almost twice as much as the TSX in the same timeframe.

Canadian National Railway beats the street

2010-10-26T19:34:00.003-06:00

Canadian National Railway Co. (CNI) said Tuesday third-quarter profit rose by a better-than-expected 21% after hauling more freight, such as cars, coal and minerals and intermodal shipments.

Net income at Canada's largest railroad company rose to C$556 million, or C$1.19 a share, from C$461 million, or 97 Canadian cents, a year earlier. Analysts polled by Thomson Reuters had expected C$1.13 a share. Excluding the impact of exchange-rate fluctuations, CN said earnings would have been C$15 million, or 3 Canadian cents, higher.

Our point of view: We can expect the stock to inch higher tomorrow. The stock is already at its 52 week high.

News Courtesy: The Wall Street Journal

My Fund makes its debut!!

2010-10-25T14:20:00.003-06:00

Feels great. I was able to put together a bunch of stocks, and call it a fund-no money involved, just some ideas, some research, some sense, and a lot of passion. So, I am eager to compare how my fund performs against contemporaries.

Now that the debut is over and the NSCEF has completed one full day, I thought I would give you the performance on the first day and also some parallels that we would look at as we progress. Just a sneak peek on the cumulative market cap of the companies that make up our fund. I am also planning to post news about the companies that are a part of the fund in the "News" page.

All data in Canadian dollars

Market Cap of the companies part of the fund - 283 Billion

Debut on: 24-October-2010

NSCEF on the same day: Closed up by 0.78% at 100,783.25

TSX on the same day: Closed up by 0.50% at 12,663.58

Updation: Weekly

Comments and suggestions are welcome.

*Not a bad idea to rank the fund against the other registered funds in the future, just to see where our virtual fund stands.

Our Fund Portfolio - NSCEF

2010-10-24T11:03:00.008-06:00

Our fund, the NSCEF has a kitty of C$100,000.

Date of initiation: 24-Oct-2010

There will be an update on the performance of the fund every weekend.

Following is the break up holdings.

Around 4-5% of the fund capital is set aside as cash reserve.

The Not-So Conservative Equity Fund

2010-10-24T10:22:00.005-06:00

So, here we go. Our mutual fund is ready. It is all virtual. No money involved. No registration with the securities commission or the CIPF (investor protection fund). So, there is absolutely no way to lose money, at all. Jokes apart, let me tell you what and how this fund is set up.

I have just put together a group of firms, with as much representation for the sectors as in the TSX. I will try to update the performance of our fund on a daily basis. I have picked these companies with some reasonable conservatism and some room for radical growth. Overall, it is aimed at safeguarding an average investor's money while providing a vision for growth. Due to time constraint, I would need at least a week to post the rationale I had behind these picks. But I shall do that shortly.

Now, coming to the name. I wanted it to be unconventional and yet convey the meaning. Thus the name-The Not-So Conservative Equity Fund, hereafter referred to as NSCEF (thats cool.) The portfolio will be posted seperately.

Disclaimer: All views in this blog are my personal opinions, and bear no responsibility to any financial loss.

Land of the Maple leaf

2010-10-24T09:49:00.007-06:00

It has been a little over 2 months since I landed in Canada. An inviting country, I must say. Quite surprised to see that the financial system of a developed country can be so conservative with strict regulations putting stability in the forefront. Is America learning anything from it? Tough question. After some thought, I have decided to have a mock fund set up based on the Toronto Stock Exchange. I shall put up information about that in my next post. On a lighter vein, I feel, there is a necessity for some light stuff, hence, there will be a diary coming up too...

See you later.

Trading Calls - 20-April-2010

2010-04-19T15:53:00.002-06:00

Buy MindTree Consulting

Short term target - 700

Trading Calls for 12 April 2010

2010-04-10T11:18:00.002-06:00

Short term call.

Buy HDFC Ltd.

Current Price - Rs. 2843

Target - Rs. 3000 (2 to 3 days)

Trading Calls - 01-April-2010

2010-03-31T21:28:00.003-06:00

Buy Andhra Bank at 108 - Target Achieved Andhra Bank at 116 now.

Target 112

Stop Loss - 106

Trading Calls - 31-March-2010

2010-03-30T20:39:00.000-06:00

Buy Zee News Ltd at 66.70. - Target Achieved!!!

Intraday target - 69
Stop Loss - 64.5

Short term target - 72

How to identify if a company is financially stable?

2010-02-10T22:28:00.000-06:00

All of us think twice or more before we spend our hard-earned money. Now that one has decided to invest in the stock market, how to identify if the business model is stable or assess the risk factor of a company. Here are a few basic checks you need to do.

1. Does the company generate cash easily? – This is an important question to ask mainly because this will tell you whether the promises of growth outlined by the company is speculative or does it have some serious ground. Let us take the example of two companies that are in an expansion mode and see how long it takes to generate cash. X deals with power and Y deals with food.
If X wants to set up a new power plant to meet the growing need of power, the growth is defined. Yes, power sells well and provides a more or less constant stream of revenue. But, building a power plant might take anything in excess of a year. Connectivity and operational expenses are huge overhead factors. Moreover, it consumes a lot of investment.
On the other hand, opening 20 outlets simultaneously can be done in less than a year and most importantly it starts generating money from day one with less overhead expenses. Furthermore, the business model is very simple for anyone to understand. This generates more cash and provides more oxygen to the company.

Lastly, recovering from an erroneous decision at any level is easy in a food outlet rather than a power plant.

2. Does the company have debts? – The debt to equity ratio of a company plays a key role in determining how strong the company is in terms of funding. Companies that are debt-free are most preferred if they offer good growth prospects. This doesn’t discount the benefits of seeking financial assistance. If the company contemplates an acquisition that can bring in more diversity and cash flow, then such financing is welcome.

3. How diverse is the company? – Diversity reduces risk. This is one of the prime reasons why companies like GE and Unilever find it easy to scrape through the tough times without much damage. When a company sells things as diverse as a pin and a plane something or the other will always remain in demand. This is the key for sustained cash flow.

4. How serious are the promoters? - Promoters need to honest and passionate about their company. At the end of the day, they are the roots. If they are just out there to enhance their wealth through an IPO and exit after some time, it reflects the lack of commitment and you will be better off without investing in such a company. Share buybacks and well-justified expansions are signs of serious promoters.

5. Transparency – This has got to do more with the ethics and the attitude of the company. It is not only important for the company to comply to the regulations of the governing body but also be transparent in its disclosures to the shareholders. Satyam Scam which shook the Indian markets just when they were recovering from a crisis is a perfect example of the shadow that lack of transparency can cast. The company’s balance sheet should provide enough insight to its cash status and the official website should be regularly updated to provide information on the future plans of the company.

General advice and Disclaimer: Do not invest in a company whose business model is not understandable to you. Your friend may find the company interesting, but if you are not convinced, don’t do it.

The magic of Compounding

2010-02-10T08:20:00.001-06:00

These days there is so much hype about the magic of compounding. Indeed, compound interest is the most lucrative mode of multiplying money. In fact, the very aspect of multiplication at such a pace is possible only in compound interest.

So, what makes it special? Let us look at an example. Let us assume that your initial investment is Rs. 10,000 and the interest rate is 10% per annum. In simple interest over a period of 10 years, you will get Rs.10,000 as interest at the end of the timeframe and your principal amount as well. Hence, you will end up with Rs.20,000.

In Compound interest, your investment for the first year is Rs. 10,000 while the second year investment will be the sum of principal and interest for that year. This means the second year principal amount will be Rs. 11,000.

This means you will earn 25% more under the above conditions through compound interest. Look at the comparison.

Hedging

2010-02-09T22:02:00.000-06:00

This a much popular activity followed by traders and fund managers in the investment banking industry. If you are a newbie, Hedging is an activity where you tend to do opposite moves to reduce the risk. In simple terms, it is more like averaging out the risk factor in investing.

To know hedging better, we need to know why to hedge. Forbes Investopedia says, Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge). Now, not all stocks in the exchange behave similarly. Some stocks are more volatile than the others and hence riskier. For example, Real Estate stocks are more volatile than Pharma and hence riskier. This can be attributed to the huge amount of regular investment needed and slow cash flow. Although we cannot alleviate risk in a stock market, it is a good practice to try offsetting some of it.

Let us assume a real-world scenario. Let us say, a real estate stock X is trading at Rs.100 and the Index is trading at 4000. First we should know the Beta value of that stock. (Beta value shows the risk factor.) Assuming that the beta value of the stock X is 2, it means for every Rs.100 spent in buying X, we have to sell Rs.200 worth of the Index. In this case, the risk incurred by buying X is offset by the sale of the Index.

Hedging would definitely take a bite on your profits, but in times of crisis, hedging is a good saviour. Even the reduced profit would be way ahead of the returns you get from any other investment vehicle with reduced risk.

Recommended reading: Beginners Guide to Hedging in Forbes Investopedia

Simple Day Trading Strategy

2010-01-30T23:06:00.000-06:00

I have been doing intraday for quite sometime and struggling to find a simple way to manage my trades. There are quite a few ways to do this but this strategy, I feel, is easy and less risky. Here are the key points.

1. Make sure that you pick a high volume stock.
2. Leave the first crossover.
3. Have the MACD indicator with volume chart in it.
4. Have the 20-day Exponential Moving Average (EMA) indicator.
5. Let all the indicators remain at their default timeframes.
6. When there is a volume increase initiate a trade. Hold on to it as long as the price hovers above or below the EMA depending on the type of trade. (Buy or Sell)

In the above picture you will see that we can purchase the stock when it trades above the 20-day EMA. While doing so, ensure that the volumes are picking as well (if it is a buy). Similarly, if the stock is trading below the EMA and you wish to short sell, make sure that you do so when the volumes dip.

These are concepts – or rather strategies, But how to decipher if we were to buy or sell in real time? Well, a 0.2%-0.25% difference from the EMA is what I prefer. In the example, I normally go for a buy, if the above factors are favorable and if the stock trades 20 paise (100 paise = 1 Indian Rupee) above the EMA and vice versa.

Analysing the graph in subject, the stock breaks the EMA line once around 72.5 and heads to 73.5, which is a good 1.3%. Similarly, breaks down at 73 odd and heads up again at 72. It is also seen that when the stock trades above the EMA, it tends to fall back on the EMA for support and bounces back.

The main advantage in adopting this strategy is that you can stick to one stock, even throughout your life and you would still make good money. This will ensure that you need to do less research and get to know the company inside out. Secondly, you can initiate multiple trades with less risk.

Specifications:

I used Google Finance for charting. You can do the same at www.google.com/finance
Type the scrip name with index name in the text box. Example, NSE:UNITECH.
For the indicators, click on the Technicals link and add MACD and Exponential Moving Average. Click on Settings link and set the default zoom to one day and Chart type as line.

Disclaimer: All views mentioned here are strictly my opinions. I am not responsible for any loss or misinterpretation of any sort.

Home Loans to save tax

2010-01-28T01:49:00.001-06:00

All of us get busy at this time of the year, scrambling up receipts to get a tax rebate. The most probable next step is to answer to one of those cold-caller about your interest in taking their tax-saving mutual fund/insurance. Irrespective of all these, all those who are yet to have the privilege of owning a house (including me) find our way through the rent receipts.

Some slightly higher paid employees (should I call them, managers!!) try to save money by taking a home loan. The general perception about a home loan is that of a tax saving instrument for many of us. Is that true? Let us do a reality check.

Assume that Mr. X draws a gross of Rs. 25,000 with a basic of Rs. 7500. Depending on the city of employment HRA can vary between 20-60% of basic pay. This money is eligible for a tax rebate if you provide a rent receipt.(It goes under the income of your landlord.)

In case of a home loan, the whole EMI you pay is exempted from income tax. But here is the catch. Your HRA becomes taxable. Which effectively means that if your EMI is Rs.15000 a month and your HRA is Rs. 5000, you are not getting a Rs. 15000 rebate, but only Rs. 10000 (15000-5000).

Yet, a home loan is an amazing way to go about getting a house not only for the tax purposes, but there simply isn't any other asset that gives a tax exemption while simultaneously appreciating in value.

Save a million with Rs. 50 a day

2010-01-27T12:58:00.001-06:00

It is widely considered that making a million is a difficult job. Yes, indeed. Even the self-made billionaires would admit that the first million needed much more dedication than the rest. So, here is a simple maths that might stun you. A millionaire by any currency, if you can save Rs.50 (respective currency please) daily for a period of nineteen years. You don't have to bother about the stock market, recession etc. It is the simple, time tested way of using fixed deposits and a savings account.

Now, let us get to the calculation. Assuming that you save Rs. 50 a day, it works out to Rs. 1500 a month and Rs. 18000 a year.
Invest Rs. 1500 in your bank account on a monthly basis and invest in a fixed deposit that gives you a 10% return per annum at the end of the year (FD interest rates vary from 8% to 11%.)

This is what you get.

Now, that is triple the investment you made. Besides, you get close to 4% from your savings account as interest. If you want to increase your risk and invest in mutual funds and equities(stock market @ 25-30% per annum) as well, you could make a million in half the time.