Saturday, November 13, 2010


I have always stayed away from directly getting into equity markets. This was inspite of my firm belief that equity is the best asset class to invest in if one intends to make money over long period of time. The reason why I stayed away was my inability to devote enough time to research the stocks before investing and hence I always relied on Mutual Funds for equity investing.
But, I always had this urge of making quick buck in equity markets. The most popular mode of short term investing in stock markets in via trading either intra day or for few days trades. But IPO investing for listing gains can be a great opportunity for common people to make money in stock markets in India. This I can talk from my own experience of investing in CIL IPO. For retail investors there was money to be made in this IPO and I personally made About RS 19000 in this IPO on an investment of Rs 46000. That's cool 46% in less than a month's time. This extra 19000 could be used to pay off my electricity bill, maid -driver salary , petrol bills etc for a month. Not a bad deal. So why is this such a good deal to invest in IPO of PSUs?
1. Attractive Pricing by Government - Since the Central government at helm of affairs is one which espouses "inclusive growth" , they have made a conscious decision to price the IPOs at very attractive price point leaving some money on the table for investors. This gives you enough headroom to account for any volatility on negative side on the day of listing.
2. 5% discount for retail investors- Any investment in IPO or FPO by retail investors makes them eligible for a discount of 5% on the issuance price and as such the retail investors get an additional 5% margin on listing. So ,theoretically, even if the said stock was to list on the issuing price only,retail investors will still make 5% gain on listing. So minimum 5 Guaranteed on listing atleast on the issue price in a months time. Thats not bad money considering one gets at the most 8% returns in bank deposits over 12 months.
3. Most of PSUs enjoy near monopoly status- One of the most important aspects to consider in a company before investing in it is its level of dominance or market share in the industry in which it operates. Warren Bufett says that the best company to invest in is a company enjoying monopoly . While monopoly is an elusive thing in today's globalised world, we still have lot of sectors which are not open to private sector and there the PSUs have almost a complete monopoly and as such they enjoy huge advantage over other companies in terms of potential for growth and profitability. Coal India is a point in case. Hence investing in good PSUs is an ideal thing to do.
The mood in the current govt is to continue with disinvestment program to meet their fiscal deficit and as such we as an investor will keep getting good opportunities to participate in the disinvestment program both for short term gains and long term wealth accumulation. So , if you want to make quick money then invest in good IPOs of PSU and sell on listing and if you want to build good portfolio for long term wealth building, then hold on to these stocks which will become multibaggers in time to GOOD PSU stocks . All PSU stocks may not give you same results.
Happy investing!!

Wednesday, June 30, 2010

Why IRDA v/s SEBI hasnt gone in your favour???

Those of us who are in India, we have been inundated with news of tussle between SEBI and IRDA to control/regulate the ULIPS launched by insurance firms. The SEBI's contention was that since ULIPS are primarily a MF in the garb of insurance plan with huge upfront charges, SEBI should have right over regulating that product, while IRDA position was that since ULIP is an insurance product it will be regulated by IRDA. This dispute was also referred to court,but, finally the finance minister intervened in favour of IRDA. So, it is settled now, IRDA is the regulator who will regulate ULIPS.
So what does this mean for an average investor like you and me?? Is it good or bad?? The answer is both, good and bad.
Let us see why
1. ULIPS to become relatively a cost effective saving tool- My displeasure over ULIPS as an investment product is well known to the readers of this blog. I feel they are one of the worst products that one can invest in.The reason is its atrociously high charges which can be upto 50-80% of your premiums for first few years. But, now the situation is likely to get better after Sept 2010. The IRDA has mandated that charges be brought down and also should be evenly spread over the tenure rather than being just front loaded as it is now. SO the ULIPS as a product will RELATIVELY become better than its earlier AVATAAR.S o in case you like ULIPS and want to invest only in them, then this is good news for you.
2. The lockin to go upto at least 5 years-IRDA has also mandated that minimum lockin should be 5 years atleast than 3 years currently in vogue. This will ensure that people are stay put in the plan for a longer duration and are able to reap the benefits of long term investing. It will also reduce chances of agents misselling this product as "3 year" saving tool.
3. Charges to be uniformly distributed - Charges will now be equitably distributed over the term of the plan rather than being front loaded. This will ensure that even if one is surrendering the policy early he isnt heavily penalised because of charges.
4.No charges on policy surrender- Currently on surrendering the insurance policy in 3- 4 years time, one does not get anything or if you get then that is close to nothing . This is due to prohibitive charges and upfront commission that companies pay out of your premium. But this will change as now no longer companies can charge any fee on surrendering the plan. This is likely to be effective Sept 2010.
1. It is still a ULIP which will still have charges which may be lower than ULIPS current charges but will still be manifold higher than MF charges. They will still be one of the worst products to invest in.
2. With SEBI as regulator, things like high commission etc would have gone and that would have brought charge structure to MF levels and then ULIP would have been a really good product offering you the twin benefits of insurance and MF at a very effective rate.
In the end, I think the FInance Minister's decision is not really in the right interest of an average investor who wants to invest in a saving tool which gives maximum appreciation head room with minimum possible charges/fees.