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Why It Is Essential To Teach Your Children About Saving And Investing
According to the Pew Analyzed Census Bureau data, only 24% of adults are financially independent before age 22, to that of 32% in 1980. Most adults today complain that they were, never taught about financial independence in schools or at home. It is because of this reason, they struggled with their finances in the later years of life. Financial knowledge is not something that you can learn in one day, month or year. It takes years of discipline and hard work to be financially independent. Parents must teach their kids the basics of financial literacy, like saving and investing, from a young age.

Addressing the above problem. Today, we will discuss about the importance of teaching your children about saving and investing.

Why Do We Need To Teach Financial Literacy To Our Kids?

Have you ever seen the construction of a building? Laying a strong foundation for the building is important, to make it last for years. Similarly, to achieve financial independence, it is necessary to give financial literacy to children from a young age.

But, what exactly is financial literacy?

Financial literacy

Financial literacy is understanding the behaviour and working of money to make sound financial decisions like budgeting, asset building, loan financing and debt repayment. Having financial knowledge helps a person to feel empowered. Moreover, people with better financial education are less likely to be financially vulnerable in future. According to research in India, only 27% of the people are financially literate. It means only 1 out of 5 Indians are capable of making their crucial money decisions by themselves. The numbers are bizarre because dealing with money is one of the most customary aspects of human well-being.

Thus, it is the responsibility of the parents to instil this basic human understanding in their children.

Why Build a Strong Financial Foundation?
- To build a strong financial foundation, children should be made familiar with basic concepts like saving and investing from a young age.
- Saving is that part of your income that is left, after spending upon your consumption. Any person who has just started earning spends a prominent chunk of their income on consumption and saves little to no amount.
- But, as they grow professionally, they start saving more for their future & the people dependent on them. Saving helps to build a cushion to rely on during uncertain times.
- Investing is putting your money to work. Heard this famous quote, “Rich doesn’t work for Money, Money works for them” Weird right? But true.
- By putting your money into Assets, you can make your money work for you even when you are not working. For example, investing in real estate could earn you a rental income and give you capital appreciation in the long run.
Parents should focus on securing their children’s future financially but also focus on building and developing their characters. So that, in case of future uncertainties, they can fight through.

Preparing for Future Financial Challenges

The majority of the people feel anxious when asked about their financial situations. As we grew, we realised that we weren’t ever, taught about financial education in our schools or colleges on which we’re supposed to make real-life decisions. How many of you have learned about finances in your schools or colleges?

I could confidently say that none. Our educational curriculum was never designed in a way to help us with our day-to-day problems. Most adults even today, don’t even know that there are options other than FD and mutual funds to invest in the markets.

Providing your children with early financial knowledge could help them to have a better future.

Introducing Financial Concepts to Children As They Grow

First, introduce them to the notion of money at a young age. Its importance, how it works, why it is necessary & other things related to it
- Rewarding- Reward them every time they progress in their work, like for every book they read. Give them a certain amount of money as a reward or when they complete their homework on time.
- Budgeting- Give them a monthly or weekly allowance and tell them to manage their expenses in that fixed amount. Explain how they should allocate their money towards their needs, wants and savings.
- Savings- explain to your kids why saving is important and how it can help them. Encourage them to Save a portion of their allowances or paychecks (when they start working).
- Taxes- When they grew a little old and started doing part-time work. Teach them how taxes work and how employer deducts taxes from their paycheck.
- Investing- When they start to work, teach them about investing and financial markets. Explain to them how they should build assets.
- Compounding- Teach them about compounding and the significance of early investing in life. Financial literacy is something that everyone should learn about. No matter your profession or field of interest, money is something that we all deal with daily.
Therefore, every person needs to be financially independent & financially literate in life because life is very uncertain.

Conclusion

If you are a parent or a guardian to any child, now you know why you must teach them about finances. No parent wants to see their child. Therefore, they must teach kids about money, which they were never taught about by their parents. It is easy to instil good habits in children at a young age as they are growing. Apart from just giving financial learning, parents should also start to save and invest early to give their children a more secure future.

FAQs (Frequently Asked Questions)
1. Why financial literacy is necessary?
  Financial literacy is necessary to make sound financial decisions in life. Money is something that we all deal with on a day-to-day basis.
2. How to improve financial literacy?
  To improve financial literacy you can read finance books like ‘Rich Dad, Poor Dad, ‘Think and Grow Rich’, ‘And Intelligent Investor’ to learn about the stock market.
3. Why financial literacy is essential for students?
  Financial literacy is essential for students as it helps them understand how to make real-life money-related decisions once they start earning.
4. Is it necessary for children to learn how to wisely spend their money?
  Yes, children need to learn to wisely spend their money.
5. How to explain investing to a beginner?
  You can learn investing by understanding the basic technical jargon like return, risk, portfolio etc. After that, you consume content from different sources like books, online platforms & courses.

September 20, 2023

Amul Case Study, Business Model, And Marketing Strategy

All about AMUL

Amul is an Indian milk cooperative society based out of Gujarat. It is under the ownership of Gujarat Cooperative Milk Marketing Federation Limited, Department of Cooperation, Government of Gujarat. Today, it is controlled by 3.6 million milk producers. Mr. Tribhuvandas Kishibhai Patel laid the foundation of Amul in 1946. Later, Verghese Kurien joined Mr. Patel as the general manager to manage and assist the marketing and technical department of the cooperative. After Mr Patel died in 1990, Kurien became the chairman of Amul and the face of its success.

History of Amul

The main motive behind the commencement of Amul was not profit-making but a fight against the exploitation of Polson towards the Dairy farmers. Polson is the name of a dairy products brand that was started in India by Pestonjee Eduljee in 1915 in Mumbai. Dairy farmers of Kaira, along with Mr Tribhuvandas Kishibhai Patel, went up to Sardar Vallabhbhai Patel to get a solution for the exploitation they were facing by Polson because the prices of the milk were fixed arbitrarily by the Giant, making it very hard for the Dairy farmers to make ends meet. Sardar Vallabhbhai Patel advised the farmers to form a cooperative and sent Morarji Desai to organize the farmers.

After a meeting in Chaklasi, the farmers formed the cooperative and decentralised the whole milk pooling system. Most of the farmers were only able to provide 1-2 litres of milk daily. They were the ones who most benefited from the formation of the cooperative. Later, this cooperative was named AMUL (Anand Milk Union Limited) under the leadership of Mr.Tribhuvandas Kishibhai Patel.

Seeing the success of Amul in the Anand district, neighbouring districts of Mehsana, Banaskantha, Baroda, Sabarkantha, and Surat were set up with similar cooperatives, and this was sometimes described as the Anand Pattern.

White revolution & AMUL

White Revolution popularly, known as Operation Flood, was a government-led initiative with the Spearhead cooperative Amul. The main aim of the revolution was to increase the milk production in the country. Indeed, it was a significant success for India, since India ended up being the top producer of milk and milk products in India. In 1973, an apex body called the Gujarat Co-operative Milk Marketing Federation Ltd was set up to facilitate the marketing of these district cooperatives. The world’s biggest dairy development program, led by Dr. Verghese Kurien. ‘Operation Flood’, as it is otherwise known, transformed the dairy-deficient nation into the global leader in milk production. For the millions living in rural India, milk farming became the largest source of employment and income.

During the 1960’s India had the highest cattle population, & yet India stands among the lowest milk producers in the world. Between 1961 and 1970, the nation had to be dependent on imports to fulfil their dairy needs. The idea behind the white revolution was simple, eliminate the middle man, directly connecting the consumers with the dairy farmers. When farmers were getting a better price for their product they felt incentivized. Hence, they were willing to increase the production of milk, and other milk products. With the combined success of Amul and the white revolution, Mr. Verghese Kurien went on to be called as the milkman of India. The dairy engineering graduate transformed a dusty little town in Gujarat into the milk capital of India.

5 Key Factors That Led to the Success of Amul

1. Amul Girl

Utterly, buttery, delicious! I bet almost all of us have heard this jiggle at least once in our lives. Or have noticed that vivacious little girl on the packs of Amul butter? She became the ultimate advertising mascot for Amul to date. Amul has smartly used the girl mascot to advertise their brand associating it with humour and and how children like everything with butter. Hands down, even today, it is still remembered as one of the best marketing campaigns.

2. Decoding the Whole Supply Chain

One of the main and biggest reasons for Amul’s success was that they managed the whole supply chain of milk production so efficiently. Starting from the pooling of milk from various small dairy farmers to supplying it to the end consumer. Amul follows a three-tier cooperative structure which consists of a dairy cooperative society at the village level that is affiliated with milk unions at the district level, which in turn is federated to a milk federation at the state level. Milk is collected at the village dairy society, procured and processed at the district milk union and marketed at the state milk federation.

3. Constant Innovation

Today Amul has over 2000+ products under its brand name. Started just as a milk cooperative is today the biggest gaint in the milk and dairy product segment. And it’s not just about its product line but also its marketing campaigns and strategies. Their most recent social media campaign #BEMOREMILK is gaining popularity immensely.

4. Diversification

With daily constant efforts, Amul managed to carter every dairy-related segment. Making products for the needs of the kids, men, women, health conscious & taste conscious. You name it & they have it. Through consistent efforts, Amul has managed to have a diversified portfolio in terms of products & it is very hard for any new player to enter the market.

5. Trust Building

By delivering the best quality products at low rates, Amul has built trust and brand loyalty among its target market. Also, a fact to notice is that Amul was the first company to offer condensed milk at affordable prices and made a significant mark among the lower-income group.

Business Model of Amul

So Amul follows a three-tier business model to provide milk to us. The first tier is the village dairy cooperative society, next is the district milk unions & then there is the state milk federation.

Village Dairy Cooperative Society

This is the lower and the first tier of the business model of Amul. Here, local daily farmers come and pool their milk. Depending upon the quality of milk, it is segregated and accordingly is supplied ahead to the next tier i.e. district Milk unions.

District Milk Unions

The milk is then brought to the district milk union centres for processing and packaging. Here the quality of the milk is checked and tested, whether it is fit to be delivered to the market or not. Then the milk is graded depending on its properties like fat concentration, water concentration, nutritional value etc.

State Milk Federation

This is the last and the final stage of milk production. Here, the packaged milk arrives, which is distributed to the suppliers for supplying it to the retailers. Here the manufacturing of the other dairy products takes place. And the final product is delivered to the market.

4P’s of Amul Marketing Strategy

1. Product Mix

Amul offers a wide range of products to its customers making it a trustworthy brand among consumers. The cheese and the ice cream segment of the amul are their cash cows. Contributing a significant share in the revenue of the business. Also Amul Ice Cream is among the top 10 ice cream brands in India. Recently amul has also entered the chocolates and lactose-free dairy product segment to cater for the needs of the changing India.

2. Price Mix

The pricing strategies of Amul include a combination of competitive and low-cost pricing. Amul began with the vision to provide the best quality dairy products at affordable prices. The pricing of different products is taken into account by different factors such as the price of raw materials, labour cost, farmer’s profit, transportation cost and storage costs.
Amul is pursuing a low-cost strategy for products commonly used like milk, ghee, butter and so on, where they offer these products at a lower price than their competitors. For products like Amulspray, Prolite, condensed milk and more the company adheres to a competitive pricing strategy, where the price of these products is similar to their competitors.

3. Promotion Mix

Amul is one of the few cooperatives that consistently deliver memorable brand promotions to the audience leaving a long-lasting impact. Like the world-famous Amul girl designed by Mr. Eustace Fernandes or the jingles like utterly buttery delicious Amul! And their iconic tagline the taste of India. The way Amul incorporates the humour of the cartoons in delivering heartfelt messages is commendable.

Their recent cartoon tweet to celebrate the success of Pathan a Shah Rukh film was also catchy.

4. Place Mix

Amul distribution channel takes place through 2 mediums. First is the procurement of the milk. Farmers provide milk to cooperatives, and milk is gathered in bulk and transported to the processing plant. That milk is used to produce the final goods at the production plant. The second channel is In charge of getting the finished product to the end-users. Carrying and forwarding agencies, distributors, dealers, and retailers are all part of the distribution chain.

Sustainability Practices

After its success in the dairy industry, Amul has recently focused on green energy initiatives. Some of its efforts to promote sustainability are:

In 2023, Amul announced that the cooperative has been working towards building a circular economy that will feature the collection of dung from farmers and convert it into biogas, which can be used as a fuel for cooking, automobiles, etc. Moreover, the leftovers from the biogas manufacturing can be used as natural fertilizers, thereby promoting organic farming practices.
3.6 million dairy farmers in Gujarat have been actively participating in the tree plantation campaigns and have planted more than 733 lakh trees between 2007 and 2019. The most amazing feature of the campaign was that it was not limited to the planting of the sapling; rather, the farmer who planted it took responsibility for the tree sapling until it grew into a tree.

Conclusion

Amul’s success story is a testament to the power of cooperative entrepreneurship and innovation. From its humble beginnings as a dairy cooperative in Gujarat to becoming a global leader in dairy products, Amul has revolutionized the industry. Through its efficient supply chain, diverse product range, impactful marketing, and sustainable practices, Amul continues to thrive, benefiting millions of farmers and consumers alike.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
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4	Gillette India Case Study: Business Model, SWOT Analysis, and Financial Overview
5	Colgate Palmolive India Case Study: Business Model, Product Portfolio, And SWOT Anlaysis

FAQs (Frequently Asked Questions)

What is the full form of AMUL?
AMUL stands for Anand Milk Union Limited.
Who is the owner of Amul?
Amul is cooperative and is not owned by any single person.
Which state is associated with Amul?
Amul is a cooperative in association with the Gujarat Government.
Is Amul an Indian Brand?
Yes, Amul is an Indian brand.
How many products does Amul have?
Amul has roughly 2,000 products under its brand name.

September 18, 2023

Mutual Funds: Meaning, Types, Features, Benefits and How They Work.

In the last 10 years, the mutual fund industry in India has experienced a growth of ₹ 40,00,000 crore in the value of AUM (Assets Under Management). It implies that India is unleashing the full potential of mutual funds to grow their money. Investing directly in the stock market can be an overwhelming task. Thus, investing in mutual funds offers a more straightforward way to create long-term wealth.

Understanding What are Mutual Funds

As stated earlier, mutual funds pool the money from small investors and invest them in the securities of other companies listed on the stock exchange. Investment holders share the income earned through these investments of interest and dividends with the capital gains benefits. Thus, a mutual fund is the most suitable form of investment for the common man, as it allows them to diversify and invest in a more professionally managed security basket, without them being actively involved.

Mutual Funds as a concept first originated in Britain in the 19th century but developed in the U.S. in the late 19th and early 20th century at the principal money centres of the North-East. These funds were primarily close-ended and used to finance growth in the U.S.A. after the Civil War. However, the crash of stock markets in 1929 led to the demise of these close-ended funds. In 1940, the U.S. had about 68 funds; currently, there are several thousands of schemes. More significantly, in the year 1965 only 2 to 3% of U.S. households, owned fund shares. Nearly one-fourth of all U.S. households invest today in Mutual Funds.

The Indian mutual fund industry began with the formation of Unit Trust of India (UTI) in 1963 with the introduction of its first biggest scheme ‘Unit Scheme ’64’. The UTI then introduced several schemes for different sections of people. The public sector monolith operated under monopoly conditions and in an over-regulated economy till the mid-eighties. In 1987, commercial banks and insurance companies were also permitted to launch schemes.

Read Also: Types of Mutual Funds in India

Features of Mutual Funds

Professional management

Mutual funds are managed by professional experts, who are experienced in their respective fields. It gives the investor a sense of satisfaction that their hard-earned money is in good hands. These professionals are highly skilled and know when to enter and exit the market and accordingly churn the portfolio depending on the market dynamics.

Diversification

Mutual Funds let you invest in a more diversified portfolio without setting in much time. The main idea behind diversification is the simple reason given by the investor Mr. Warren Buffet, that never put all your eggs in one basket. Diversification helps to lower the risk of the investor. Diversification in mutual funds is done based on the objectives of the investors.

Liquidity

The liquidity of any asset shows how quickly it can be converted into cash. Assets that take less time to convert are highly liquid and the assets which take more time to convert into cash are less liquid. Mutual funds allow the investors to withdraw their money anytime until there are some restrictions by selling them at the current NPV.

Time-Saving

People who want to grow their money but do not have time to be actively indulged in the financial markets invest in mutual funds. Since mutual funds are managed by professionals investors do not have to spend their time researching every single company they want to invest in.

Types of Mutual Funds

There are various types of mutual funds present in the market. A person can invest in diverse mutual funds depending upon their needs. Mutual Funds could be differentiated based on their structure, choice of asset class and financial goals. Let’s try to understand each one of them one by one.

Based on the choice of the asset class

1. Equity Mutual Funds

Equity Mutual Funds are the one wherein the pooled money of the investors are invested in different companies listed on the stock exchange. They are expected to yield more returns as compared to debt and hybrid funds. Therefore, the risk associated with them is also higher. The investment holders earn through dividends and capital gains in Equity mutual funds.

2. Debt Mutual Funds

When the pooled money of the investors is invested in the debt securities of the company they are called debt mutual funds. Debt mutual funds are suitable for investors who do not want to bear high risk and want consistent returns. Investors earn an interest income on them and also capital gains.

3. Hybrid Mutual Funds

Hybrid mutual funds are a mix of both debt and equity funds. The money of the investors is invested in such a way that they could earn higher returns compared to debt funds & the risk involved is less than the equity funds.

Based on the Financial Goal

1. Growth Mutual Funds

When the majority amount of the investor’s money is invested in growth companies or equity funds, they are called growth mutual funds. The investor should have a high-risk tolerance to invest in growth mutual funds.

2. Income Mutual Funds

People who want a consistent stream of passive income generally invest in Income mutual funds. Funds that fall under this category generally invest in securities like bonds, corporate debentures and Government securities.

3. Balance Mutual Funds

Investing in balanced mutual funds provides the best of both worlds. The basic objective of the portfolio manager handling balanced Mutual funds is to provide the investors with a steady income flow along with growth.

Based on their structure

1. Open-ended Mutual funds

Open-ended mutual funds do not have any kind of restrictions over them. Restrictions could be the number of units sold, or having a maturity date. Open-ended funds are very flexible and allow the investors to exit anytime at the given NPV.

2. Close-ended Mutual Funds

Close-ended mutual funds have some restrictions over them like no repurchase facility and a pre-defined maturity period. With all the restrictions they have lost their significance among the investors and now are hardly in any use.

Benefits of investing in Mutual Funds

Convenience

Mutual funds are a convenient form of investing. You can start investing in mutual funds with as little as Rs.500 per month through an SIP investment. You can invest in mutual funds depending upon your convenience. Investing in mutual funds can be done through either SIP or lumpsum investment.

Financial discipline

It is very important to have financial discipline nowadays. Because today life is more unpredictable than ever before. Everyone wants to give a secure future to their loved ones and investing in mutual funds is one way of doing it. Doing early financial planning not only helps oneself but also ensures a secure future for the people who are dependent on you.

Low-cost

Since so many investors pool their money to invest in mutual funds, therefore, the cost of mutual funds per investor comes out to be less. The expense ratio of managing mutual funds is also less as compared to when an investor invests his money directly into the markets.

Reliability

Mutual funds are very reliable as they are watched by the regulatory body SEBI (Security Exchange Board of India). There are various mutual funds present in the market like the ICICI prudential mutual fund, SBI mutual fund, HDFC mutual fund etc.

How do Mutual Funds work?

First, many small investors come together who share a common financial objective. The objective could be, investing in growth funds or having a regular source of passive income.
Then, these small investors pool their funds together.
After that, these funds are transferred to the portfolio manager who will manage these funds.
He will then invest these funds in various financial securities depending upon the financial expectations of the investors.
After investing, the portfolio manager analyses how the investments are performing and accordingly sells and buys the new and existing mutual fund units.
Then, the returns generated on investments are returned to the investors.
Bonus tip mutual fund units are deposited in the investor’s Demat account. Open your Demat account today with Pocketful.

Conclusion

Thus, after reading the above article, you must be clear that investing in mutual funds is a simple and easy way to invest your money in the stock market. Investing in mutual funds lets you experience the massive potential of the stock market without devoting much time to it. But one thing that you should keep in mind is that investing in mutual funds is subject to market risk so invest accordingly. As stock market is highly volatile and reacts aggressively to market news.

FAQs (Frequently Asked Questions)

How to invest in mutual funds?
To invest in a mutual fund, you need to have a demat account. Open your Demat account today using Pocketful.
What is NAV in mutual funds?
NAV stands for Net Asset Value in mutual funds. It tells about the performance of the mutual funds.
What is SIP in Mutual Fund?
SIP in mutual funds is a way of investing in mutual funds. Wherein you invest a small amount regularly in mutual funds.
Can I invest Rs. 2000 in mutual funds?
Yes, you can invest Rs.2000 in mutual funds using SIP.
What are Tax-saving mutual funds?
ELSS is an example of a Tax-saving mutual fund. Tax saving mutual fund is like any other regular mutual fund with added tax advantage.

September 16, 2023

What are ETFs? Are ETFs good for beginner investors?

Recently, Exchange Traded Funds abbreviated as ETFs have gained popularity among investors. For the various benefits they offer. ETFs are a good investment option for beginner investors as they offer a collection of stocks with similar characteristics in one place. Investing in ETFs enables investors to have a diversified portfolio without doing research for individual stocks. ETF helps to minimise the risk of the investor & maximise his return on his portfolio.
By the time you finish reading this article. You will have a clear idea of whether you should invest in ETFs or not.

What are ETFs or Exchange- Traded Funds?

In simpler words understand like, that it is a box filled with many pebbles,& these pebbles are individual stocks or bonds with similar characteristics. An interesting fact is that specific ETFs track the movement of indices like NIFTY50, SENSEX, etc. So, you expect the same returns on your investment as the index’s annual CAGR.

Looking into the history of ETFs in India, we see that. The first ETF in India was launched in 2002 by Nippon India Mutual Fund (erstwhile Benchmark Asset Management Company Ltd). Listed on January 8th 2002, it witnessed a trading of 1.30 crores on the first day. The journey to listing of the 100th ETF on NSE took more than 19 years. The last one-year period has seen a lot of activity in the ETF space, with 21 ETFs getting listed on the NSE. The assets under management of ETFs in India are now at Rs. 3.16 lakh crores (end of May 2021), witnessing more than 13.8 times increase in five years,  compared to Rs. 23,000 crores (end of April 2016).

ETFs offer the best of both worlds, like Mutual Funds, ETFs represent professionally managed collections or baskets of stocks or bonds. And just like individual stocks, they trade on the stock exchanges, which means you can buy and sell them like individual stocks.

Types of ETFs in India

There are different types of exchange-traded funds (ETFs) available in India, offering investors a variety of options to choose from according to their financial goals and risk tolerance.

Equity ETFs : Equity ETFs track stock market indices such as Nifty 50, Sensex, or Nifty Next 50. They provide investors with broad market exposure and are suitable for the long term.
Debt ETFs : Debt ETFs invest in government or corporate bonds, such as Bharat Bond ETFs. These are known for stable income and low risk and are suitable for retirement or capital preservation. Investments in them can generate regular interest income.
Gold ETFs : Gold ETFs track gold prices and give investors an opportunity to invest in gold without buying physical gold. They are suitable for inflation protection and portfolio diversification.
International ETFs : International ETFs track stocks or indexes from foreign markets such as the US, China, etc. They offer global diversification and the opportunity to invest in foreign markets but also carry certain risks.
Smart Beta ETFs : Smart Beta ETFs move away from traditional index tracking and focus on tracking smart beta indices focused on value, growth, etc. They provide investors with an opportunity to earn better risk-adjusted returns.

Investors should consider their investment goals, risk tolerance, and time horizon when choosing among these different types of ETFs. Choosing the right ETF can improve portfolio performance and help achieve financial goals.

What are the pros of investing in ETF?

Investing in ETF has several benefits, some of which are listed below.

1. Diversification:

ETFs enable the investor to diversify their portfolio without the hassle of individually picking out each stock. Investors seeking to invest in a specific type of sector or industry. ETFs are a go-to option for people who do not want to spend their time researching each company individually. They cover most of the asset classes and sectors for the most part.

2. Low expense ratio:

The expense ratio is the operating expense of the Security, divided by the value of that security. In other words, it is the expense that the investor has to bear for the Security. An expense ratio below 1 is good. And ETFs offer an expense ratio below 1.

3. Easily tradeable:

Investors can trade ETFs just like individual stocks, which makes them highly liquid, meaning you can sell and buy them anytime during market hours.

4. Tax-efficiency:

Due to its low turnover, ETF offers tax relief to investors. The investors are charged 15% on short-term equity gains. And 10% on long-term equity hains after the exemption of the first 1 lakh rupees.

5. Transparency:

ETFs typically have the same securities as the index or the benchmark they track. Some ETFs disclose their holdings regularly, while others disclose them on a monthly, or quarterly basis.

What are the cons of investing in ETFs?

Investing in ETF has several disadvantages, some of which are listed below.

1. Low trading volumes:

Even though ETFs have become popular lately, their trading volume is considerably low compared to the other securities listed. Volume is the total buying and selling of a specific security over the trading exchange.

2. Lack of liquidity:

Due to low trading volume, sometimes it becomes hard to sell the ETFs because there is no one willing in the market to buy them at the price you are offering at that time. Therefore, ETFs are not the most liquid asset to hold.

3. Composition risk:

Since ETFs are already tailored-made investment options. Sometimes, they may have some securities in the group that you do not want to hold. Therefore, you do not have a choice for customisation.

4. Issue of control:

ETFs offer less control as the investor does not choose the securities in the ETF by his own will. Also, the portfolio manager swaps or churns the portfolio depending on his expertise.

ETFs vs. Stocks vs. Mutual Funds: Which is Better?

Before starting to invest, it’s important to understand the difference between ETFs, stocks, and mutual funds and which option is suitable for whom.

Feature	ETF (Exchange Traded Fund)	Stocks	Mutual Funds
Risk	Moderate (Diversified portfolio)	High (Investment in a single company)	Low to High (Depends on type of fund)
Returns	Index-based, relatively stable	Can be very high or very low	Depends on fund manager’s performance
Cost	Low (Lower expense ratio)	Brokerage charges	Slightly higher (Includes fund management fee)
Liquidity	High (Traded throughout the day)	High	Lower (Redeemed at NAV, once daily)
Diversification	Yes (Index-based spread across many stocks)	No (Single stock exposure)	Yes (Diversified portfolio by fund manager)
Management	Passive (Tracks an index, no active manager)	Self-managed (Investor makes decisions)	Actively managed (By professional managers)
Ownership	Indirect (Holds a basket of underlying assets)	Direct (Ownership of shares in a company)	Indirect (Units of pooled fund investments)

ETFs are a better choice for those who want low costs and good diversification and are comfortable trading on their own.
Stocks are suitable for active traders and high risk takers.
Mutual funds are for investors who like the convenience of professional management and prefer regular SIPs.

Points to keep in mind before investing in ETFs

First, determine the assets, in which you want to invest. Choose the best possible ETF according to your risk appetite and availability of funds.
Go for those ETFs that offer a low expense ratio. So, you can save on your operating costs.
Invest in ETFs with high liquidity so you can sell them without any hassle whenever you want. Otherwise, it would be a hectic task.
Check the ETF disclosure reports to ensure that your financial goals align with the objectives of that particular ETF.
Lastly, regularly check the performance of the ETFs and take the required measures according.

Conclusion

From the above article, we can conclude that, as a beginner investor, ETFs could be an adequate option to start your investing journey. Keep in mind that everything has pros and cons & the same applies to ETFs. Keeping a check on a few things and investing with patience and discipline can yield lofty returns for investors.

FAQs (Frequently Asked Questions)

What are ETFs in the stock market?
ETFs or exchange-traded funds are financial securities that resemble the characteristics of both Mutual Funds and Stocks. In simpler words, a collection of different stocks to track the performance of a specified index.
How do ETFs work?
ETFs are like common stocks on the stock exchanges. They track the movement of the underlying asset and perform accordingly.
What are the types of ETFs?
Different types of ETFs are present in the market like index ETFs, sector ETFs, and commodity ETFs.
Which are the best-performing ETFs in India?
Kotak PSU Bank ETF, CPSE Exchange Traded Fund, UTI S&P BSE Sensex ETFETF are the top-performing ETF funds for the past year.
What are CPSE ETFs?
CPSE ETF (Central Public Sector Enterprises Exchange-Traded Fund). An investment instrument that allows you to invest in Central Government public sector enterprise.

September 12, 2023

How to use technical analysis on charts

If you are active in the stock market, you must have heard the term technical analysis quite often. Technical analysis is analysing the market movement and catching the trend. Technical analysis is used for short-term trading or investment. Wherein you gain by capturing the small price difference within a short period.

What is technical analysis?

Technical analysis is analysing the market based on historical data, price & volume primarily. The Main objective of technical analysis is to predict future trends & price movements. This objective goes against the past established theories. Like never trying to predict the markets, focusing on the long term, doing fundamental analysis and more, because for all these reasons Relevance of technical analysis gets questioned.

Technical analysis follows the ideology of history repeating itself. Following this principle, various techniques have been developed over the years. Like trading using price action, indicators, chart patterns and more. Patterns get identified using the past historical data of the companies and the indices present. To draw inferences for making the entry-exit decisions in a trade.

How to do technical analysis?

There are a few things you should understand before starting to do a technical analysis which are:

1. Trend:

The direction in which the market moves is called a trend. In the stock market Trends can be of three types. Upward, Downward and Sideways. Let’s understand each one of them:

Upward trend-
The market is in an upward trend when it keeps making new higher highs. And when the market is in an upward trend we say that the market is bullish.
Downward trend-
The market is in a downward trend when it keeps making lower lows. When the market is in a downward trend and keeps falling we call it a bearish sentiment.

Sideways trend–
When the market moves in a fixed range for some duration it is said to be sideways. We often say that the market is consolidating when it moves like this.

2. Price action:

If you are active in the Stock Market you must have heard the term Price Action. So Price Action is the process of analysing the price movement of a security or asset and determining potential entry and exit points for a trade. While trading with Price Action, the main task is correctly identifying the support and resistance levels on the chart.

Let’s briefly understand what support and resistance levels are:

Support –
Support is that level on the chart from where the price is likely to increase or reverse its trend. Support shows the minimum willingness of the buyers to buy the security. To make a support line on a chart you look for a common point from where the price is bouncing back. Support levels on the chart help to identify breakouts.
Resistance-
Resistance is the price level zone on the chart from where the price is likely to decrease or change its trend. Mark the points on the chart, from where the price is reversing. This way, You will see the resistance levels on the chart.

3. Chart patterns:

Chart patterns are the Figures and patterns that form on the chart of an asset. These patterns have been developed over a while, using historical data from the past 100 years. Chart patterns show or predict the price movements considering how the price has redacted in the past. Broadly chart patterns fall into three main categories that are listed below:

A continuous pattern indicates that a trend will continue for some time.
A reversal pattern indicates that the price may change its movement & there will be a price reversal.
A bilateral pattern may show that the market is highly volatile & the price could go either way.

4. Candlesticks:

Candlesticks are a type of price chart used in technical analysis. It is the most popular type of charts used by traders. It shows the High, Low, Open and Close prices.

A green candlestick depicts that the price is moving in an upward direction. The wick shows the maximum price level it had touched in that period. The upper part of the green body shows the closing. The lower part of the green body shows the opening of the price.
A red candlestick depicts that the price is moving in a downward direction. The wick shows the highs and lows it had made. The upper body part of the red candle indicates the price opening & the lower body part shows the closing price.

5. Indicators:

Indicators in the stock market are mathematical tools developed using advanced algorithms and historical data to predict price movements. Different charting platforms provide their users with several indicators to use. Some famous indicators are listed below:

RSI (Relative Strenght Index):
RSI is one of the most popular indicators among traders. It helps in identifying the overbought and oversold stocks. After reaching a saturation point potential exits and entries are forming in the trade.
MACD (Moving average divergence Convergence):
MACD was developed by ‘Gerald Appel’ in the late 1970s. It was designed to reveal changes in the strength, direction, momentum, and duration of a trend in a stock’s price.
VWAP ( Volume Weighted Average Price):
Vwap is a technical indicator that indicates the price movement based on the volume of the security. Volume is the total buying and selling of the financial asset. In case of high buying volume, the price falls. On the other hand higher buying volume, the price increases.

After understanding all these terms like Trend, Price Action, Indicators, and Chart patterns, it depends on the personal preference of the trader and which tools they use for technical analysis.

Five simple steps of technical analysis for any beginner or a seasoned trader

1. Identify the trend:

The first thing in doing technical analysis is to identify the trend in the market. You can use trendlines to identify the Trend. To draw a Trendline join the higher highs or, the lower lows of the candles. Another way of identifying the trend in the market is by using indicators. Many indicators help to capture the Trend. Analyse if the market is in a downtrend. Up trend or sideways.

2. Make support and resistance levels:

After identifying the Trend in the market, make support and resistance levels. Look for the points from where the price is reversing its movement. Again, you can identify the support and resistance level by yourself or with indicators.

3. Look for breakouts:

A breakout indicates a trend movement in the price after breaking the support or the resistance levels. For example, if the resistance breaks, the price may move in a bullish trend for some time. However, if the support breaks, the price may move in a Downward Trend.

4. Identify entry and exit points:

After identifying a Breakout it’s important to determine your entry & exit prices. Sometimes, the markets are so volatile that you can’t get an entry in the trade at the desired price. In that case, you should not run after the Trade but look for another entry.

5. Pre-determining targets and stop loss:

The last and most crucial step is to pre-define your targets and stop loss even before entering the trade. When you enter a Trade & it’s going in your desired direction. It makes you overwhelmed and without a definitive target. You keep on trailing the trade and end up making a loss.

Conclusion

Thus, summarising the above read, we can conclude that Technical Analysis is also an important branch of investing. It helps us to invest and trade in the market in the short-term and medium-term. Doing technical analysis requires precision, perseverance and practice. While investing or trading one must keep their emotions under control to be successful in the market.

FAQs (Frequently Asked Questions)

What is technical analysis in the stock market?
Technical analysis in the stock market is the process of identifying the trends and predicting the price direction.

What are the best books for technical analysis?
There are so many good books in the market for technical analysis. Example Encyclopedia of Chart Patterns, Technical Analysis of the Financial Markets: and many more.
What is the difference between fundamental analysis and technical analysis?
Fundamental analysis assesses the financial health of the company. Technical analysis analyses the share price movement.

What is the Dow Theory of technical analysis?
Dow’s theory was taken from the editorials of Charles H. Dow. According to this theory, a shift in the bullish or bearish trend is confirmed by multiple indices.

September 7, 2023

5 points to be considered before buying or selling any stocks

Choosing the right stock to invest in is a very grinding task and selecting the right Stock at the time is even more gruelling. So many Investors find it hard to decide when to Buy and Sell a stock. Even after doing a thorough analysis of a company or an industry if you fail to enter the investment at the right time, all the research goes in vain. Similarly, not exiting from the Stock at the right time can also result in losses. So, what to do in that case?

5 Points to Consider Before Buying and Selling

Below We have mentioned five such points that could help you to make Buying and Selling decisions timely. So that you could invest in the stock market with ease.

1. Invest in the industry of your interest:

The first step for anybody, when they start investing in the stock market, is choosing the right industry. Choosing the right industry, sector or business is the core foundation for building a strong portfolio.
Legends like Warren Buffet always suggest investing in companies in which you have an interest or you are familiar with their business. It encourages you to regularly update yourself on the company’s performance.

To make an appropriate Buy or Sell decision it is very important to be updated with the company’s performance. When you are familiar with a company, or industry and know how the price reacts to market dynamics, it becomes simple to ignore unnecessary news and stick to your target.
Therefore, it is always suggested to invest in companies that you know well. Who’s business model excites you and you are willing to hold the stock for a longer period?

2. Understanding the Market sentiment:

For example,

We have seen that during COVID-19 the markets were affected badly because of fear among the people. At that time the market had a bearish sentiment, the stocks of so many companies were at a price lower than their actual value. Which was a very good buying opportunity in certain specific sectors like FMCG, Healthcare, etc.

3. Evaluating the financial reports:

Understanding and interpreting the company’s financial reports helps you to have a clear viewpoint on Buying and Selling decisions. The financial reports of the company consist of the balance sheet, profit and loss statement and the cash flow statement.

A Balance Sheet is a concise summary of the company’s current market standing. Showing what all the company’s assets and liabilities are and how are they financing their operations.
The Profit and Loss Statement depicts the performance of the company during a financial year. It shows how effectively the company is using their resources to generate revenue and how much expense they are incurring.

Cash is considered to be the lifeline of any business. Having a positive cash flow is a big green flag for any company. The Cash Flow Statement shows the net flow of cash in the business during a financial year, from the operating, financing and investing activities of the business.
Being able to read and understand the financial reports of the company helps the individual to make optimum buying and selling decisions.

Financial reports provide you with insight into the sales growth, gross and net margins, and profitability of the company which helps you to determine whether the company is making any progress or not.

4. Determining the fair value of the stock:

Evaluating the fair price of the share is very important before buying or selling it. Many financial ratios help you assess that if the share is fairly valued or not, on the stock exchange.

Three Important ratios that you can look at

P/E Ratio
Debt to Equity Ratio
Intrinsic value

Let’s briefly understand each one of them-

P/E Ratio:
The P/E ratio shows the relation between the stock price and the company’s earnings. It is calculated by dividing the current market price of the stock by the earnings per share.

Debt to Equity Ratio:
The debt-to-equity ratio is a financial ratio that is used to assess how much proportion of debt to equity a company is using to finance its assets.
Debt is the creditor or debt holders’ money that is invested in the company against which they receive a payment in the form of interest regularly.

Intrinsic value:
Intrinsic value is the anticipated value of any stock. Based on specific parameters the IV of any stock is calculated. Taking into consideration both tangible and intangible factors.

Intrinsic value = Future cash flows(1+ discount rate)#of periods

5. Investment goal

While investing in the stock market or building your portfolio it is very important to set your financial investment goals. Some Goals are short-term, and some are long-term. It is very important for an individual to correctly pre-define them to make the buy and sell decision at the right time.
Various factors determine one’s investment goals like the need for money in the coming years. A person who might not need his money for a decade can invest in more riskier assets. On the other hand, a person who might need his money in the coming years will invest in more liquid assets.

Conclusion

Summarising the above article We can conclude that while making a Buying and Selling decision we should always consider the market dynamics at the given point. Always try to invest in the industry or sector you are familiar with or are interested in. We have also seen that even at Rs.1000 a stock could be undervalued. Whereas, a stock trading at Rs.50 could be overpriced for what the company is offering.

And remember at the end of the day, investing in the stock market is a very whelming experience and you should always have control over your emotions. Often people get carried away with their emotions and end up making rash decisions and having to bear the consequences over the years.

FAQs (Frequently Asked Questions)

How to start buying and selling stocks?
To start buying and selling stocks, you first need to have a Demat account. There are several brokers present online, so it becomes complicated to choose the right one. Now. you can open a Demat account using Pocketful’s app within a few seconds.
Which are the best apps for buying and selling stocks?
There are many applications present online which facilitate the buying and selling of stocks. It depends on the use case and preference of the customer. Pocketful offers a trading platform for both your investing and trading needs. Simple interface combined with modern technology to make your finance journey smooth.
What are the buying and selling of stocks?
When you buy a stock you are not buying it with the company but the shareholder. Similarly, when you sell a stock the company is not buying it but some other investor.
What points should one consider before buying and selling stocks?
In the above article, five key points are mentioned that you should consider before buying and selling stocks. Never buy a stock in a company or industry, you do not know about. Analyze what the market dynamics are and how other investors are reacting.

September 6, 2023

Top 10 personal finance lessons for self-learning

In a world where money navigates the flow of your life, it is very important to learn about Personal Finance. This article is not only for young individuals who have just started earning but for every person who wants to take charge of their financial decisions and future. We all know that our traditional education system does not teach us about the real financial world. For example, how to file your taxes, how to do retirement planning, what is a credit score, how credit cards work, and more. Once you enter the real world you have to decide on the things that you were never taught about.

Here are 10 personal finance lessons for self-learning –

1. Setting up financial goals:

Having clarity about your financial aspiration Lays a strong foundation for your financial future setting up short-term and long-term goals helps to form a road map to achieve them. The financial goal varies from person to person depending on their situation. Setting up financial goals that are realistic, attainable, and measurable is very important.

Some financial goals could be:

Buying a house in the next 10 years
Buying a car in the next two years

2. Have a budget:

Pen down all your income and expenses on a piece of paper, and see where your money is going. Analyze how could you allocate your income in a better way, so that the utility derived from your income could be maximized. Try to eliminate necessary expenses, fix the budget for every expense and try to stick with it.

3. Pay yourself first:

The first thing you should do when you get your paycheck is to pay yourself first. It means that you should keep a fixed amount aside every month for your future depending upon your financial aspirations. It is important to save for your future because we live in a world full of uncertainties, and believe it or not money may not be the most important thing in life but it affects everything that is.

4. Start investing early:

Investing work on the principle of compounding. Interesting fact that Albert Einstein famously referred to compound interest as the 8th wonder of the world. Compounding is accumulating wealth by allowing returns to generate more returns amplifying the benefits of saving and investing.

Let’s try to understand the benefit of early investing through an example:

Suppose Mr Sam is 30 years old and starts investing 25000 rupees Every month at the rate of 12% p.a. for the next 25 years.
At the age of 55 years, the value of his investment would be 4,70,000 rupees.
But, if Mr Sam had started investing just 5 years ago, i.e. when he was 25 years old then.
At the same age of 55 years, the value of his investment would be roughly around 8,80,000 rupees.

5. Automate your saving:

Saving your money is very important, if you save money in your good time your money will save you in your bad times. Set up automatic Transfer from your paycheck account to a separate savings account. Then slowly and gradually increase the amount you will be stunned to see how rapidly your savings will compound. Automating your savings gives you peace of mind because you know that you are building and saving your funds.

6. Learn about credit cards:

Credit cards can be both a boon and a bane. It just depends on the person and how they use them. If you are someone who can pay their bills on time then believe it, credit cards are a blessing for you.

There are various advantages of using a credit card such as

Helps in building credit history.
Helps you in tracking your expenses.
Used as an emergency fund.
Comes with a lot of rewards.
Convenient pay method.

7. Retirement planning

It is never too early to plan for your retirement since who doesn’t want a comfortable and hassle-free life in their Golden years? so it’s better to start planning for your retirement as soon as possible. First, create a retirement budget and figure out an amount that you think will be enough for you to have your desired lifestyle in your retirement age. Then look for retirement accounts like IRAs or retirement pension plans to start your savings, Apart from this you can also figure out different sources of generating passive sources of income.
For example, invest in real estate by taking a loan from a Bank in your working year and then enjoy the rental income and capital appreciation in the following years.

8. How taxes work:

Learn and have a fair understanding of how taxes work. Learn about Income Tax, wealth tax, rebates, deductions, and credit scores. Identify your tax slabs and understand how to file taxes. ITR is very important if you are looking forward to taking a loan. When you approach the bank for the same they ask you for your tax return filing. Apart from this the government also give various types of relief if you fulfil certain financial obligations. These reliefs can sometimes help you to save a lot of money while making big purchases.

9. Lifestyle inflation:

Lifestyle inflation is a situation when a person starts spending more on their lifestyle than average because their income has increased. As your income grows it is normal to upgrade your lifestyle. But you should be mindful of where your money is going. It is important to distinguish between your needs and wants. However, being mindful of lifestyle inflation and saving a significant portion of increased income can accelerate your progress towards your financial goals.

10. Kept learning:

Understand that learning is a continuous and never-ending process. Everyone at some point in their lives has taken wrong financial decisions. But it is okay because everybody makes mistakes. What matters is how much you have learned from those mistakes. Financial missteps are a part of the learning journey. Cherish your mistakes as learning opportunities. Analyze what went wrong and accordingly adjust your strategy.

Conclusion

Remember that learning about financial independence is a lifelong endeavour. Which takes time. Being disciplined and having patience over the longer term makes achieving your financial goals more easy.
So educate yourself, set your goals, and take productive steps to make your future financially secure. By doing so, you are not just saving your money but investing in a more fulfilling and secure future.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
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2	Debentures: Meaning, Features, Types, Benefits and Risks
3	Explainer On Geopolitical Tensions
4	Intrinsic Value vs Book Value
5	What are Treasury Bills: Meaning, Benefits and How to Buy?

FAQs (Frequently Asked Questions)

What is personal finance?
Personal finance is the management of monetary resources in such a way that you can maximize its utility. And planning to spend your money in such a way that you can fulfil your present needs and also save for your future.
How to save money wisely?
To save your money wisely first identify where your money is going or where you are spending your money. Then distinguish between your needs and wants and accordingly cut your unnecessary expenses.
What is the PYF rule?
According to the PYF pay yourself first rule you first pay yourself out of your paycheck i.e. you keep an amount aside to invest or save for your future. By following this rule you are creating a safety cushion on which you can rely in your hard times.

August 29, 2023

How to invest like Warren Buffett and Charlie Munger?

Investing in the stock market can be a daunting task. People who do not understand investing or the stock markets associate investing in the stock market with gambling. But having the insights of legends like Warren Buffet and Charlie Munger could be a relief. Warren Buffet and Charlie Munger are the iconic duo behind the success of Berkshire Hathway. Both are famous for their unique yet simple style of investing which has resulted in remarkable success.
So we have listed down seven tips or the ideologies followed by these legendary investors.

1. Having a long-term vision:

Warren Buffet always used to say that never invest in companies whose business you do not understand. There is this famous quote that goes like, “Invest in a wonderful company at a fair price than in a fair company at a wonderful price”.
It means that you should not buy the stock of a company just because you are getting it for cheap. Rather invest in a company that you believe in, understand its business, and has strong fundamentals with competitive management.
They say that think like a business owner and not a stakeholder. This mindset encourages you to focus on long-term value creation, aligning your interest with the company’s success. It also discourages short-term trading which often results in losses.

2. Competitive advantage:

The Buffet and Munger duo stresses investing in companies that have a competitive advantage in the market. Identify the company that stands out of the crowd. It could be anything, be it their business model, marketing strategies or technological proprietary. A company with a durable competitive advantage often results in consistent profits, making it an attractive investment opportunity.

Let’s try to understand this with the help of a real-world example. The differentiating factor for the retail giant Walmart is the lowest possible prices of the products they offer, which they have achieved through economies of scale. This is the competitive advantage in the case of Walmart that sets it aside from its competitors in the retail and wholesale business segments.

3. Know your business:

4. Patience is the key:

Patience is the most important ingredient in the recipe for investing. Trust me there is nothing called as overnight success or the get-quick-rich scheme. To see exceptional results in the stock market you need to have patience because great things are not built in one night.
Legendary investors like Warren Buffet and Charlie Munger are known for their patience and waiting for the right investment opportunities.

5. Value Investing:

Value investing refers to investing in the stock market when others are leaving. Buying the stocks of Underappreciated companies with strong fundamentals, and a simple enough business model for you to understand. The same strategy that helped Warren Buffet accumulate such great wealth.
Always try to invest in businesses and companies in your competence circle. Investing in companies whose business you do not understand or you are unfamiliar with can result in horrendous decision-making.

6. Margin of Safety:

This is a principle of investing wherein an investor purchases securities only when their market price is significantly below their intrinsic value. Intrinsic value is the anticipated value of any stock. Based on certain parameters the IV of any stock is computed. Taking into consideration both tangible and intangible factors.

Intrinsic value= Future cash flows(1+ discount rate)#of periods

It is very complicated to calculate the intrinsic value of any stock manually, and individuals can use the stock screeners available online to get the correct IV for any stock.

If IV>current market price then the share is considered to be undervalued.
If IV<current market price then the share is considered to be overvalued.
If IV is almost equal to the market price of the share then we can say that the stock is fairly valued.

Remember, the market swings wildly from day to day and presents large changes in valuation over periods of euphoria and pessimism.

7. Learn from your mistake:

It is not like, that great investors like Warren Buffet and Charlie Munger do not lose money in the market. But the only thing that sets them apart from other investors is that they learn from their mistakes. They acknowledge their errors and view them as learning opportunities. Understand that learning is a continuous and never-ending process and there is no bigger fool than a person who thinks that they know it all.

Conclusion

So, concluding the above article we can say that reciprocating the investing style of Warren Buffet and Charlie Munger requires great discipline and patience. Having a long-term vision, and investing in the companies whose business you understand within the circle of your competence can fetch you the same results that you want.

FAQs (Frequently Asked Questions)

What is the stock market?
The stock market also known as the equity or the financial markets is an aggregation of buyers and sellers of financial securities. A person putting his/her money in the stock market could be a trader or an investor. There is no hard and fast rule to distinguish between the two. An investor is a person who generally holds their holding for more than a period of six months, on the other hand, a trader is someone who does not hold the securities for long.
How did Warren Buffet accumulate his wealth?
Warren Buffet has made a massive fortune by investing in the stock market. He has told in one of his interviews that he started his investing journey at the age of 11. Also, Warren Buffet owns the company Berkshire Hathaway which is an American multinational conglomerate holding company.
Are Warren Buffet and Charlie Munger related?
Charles Thomas Munger is the vice chairman of the American conglomerate Berkshire Hathaway. Whereas, Buffet is the chairman of the company and also the largest stakeholder. Buffet has described Munger as one of his closest friends.

August 29, 2023

How to invest in dividend stocks in India?

We all desire to earn passive income, and investing in dividend stocks provides an excellent opportunity to achieve it. As the Indian markets outpace the returns of other stock exchanges, it becomes crucial to be part of this growth story and reap its benefits. Investing in dividend stocks in India offers a steady income stream & holds the potential for long-term growth. These stocks, often called “cash cows,” allocate a portion of their earnings as dividends to shareholders.

Investing in dividend stocks is as simple as your usual stock investments –

1. Select a Reliable Brokerage: Choose a reputable brokerage firm with the necessary tools and resources for stock trading.

2. Open a Demat Account: Sign up for a trading and Demat account with the chosen brokerage. Provide the required documents and complete the account setup process.

3. Research Dividend: Paying Companies: Identify companies listed on Indian stock exchanges that have a history of paying dividends consistently. Look for stable companies with good financial standing. We’ll be discussing this point in detail.

4. Evaluate Dividend Yield: Review the dividend yield of potential stocks. It can be calculated by dividing the annual dividend per share by the current stock price. This helps gauge the potential income.

5. Consider Qualified Dividends: Understand the concept of qualified dividends and their tax implications. Qualified dividends are usually subject to lower tax rates, making them a tax-efficient choice for investors.

Read Also: What is a Dividend?

6. Place an Order: Once you’ve identified a suitable dividend stock, place an order through your brokerage’s trading platform. Choose between market orders (immediate execution) and limit orders (set a specific price).

7. Monitor Dividend Payment Schedule: Keep track of the company’s dividend payment schedule. Dividends are often paid out quarterly, but the timing can vary. Stay informed to ensure you receive your dividend income.

8. Reinvestment or Payout: Decide whether you want to reinvest your income or receive them as cash payouts. Reinvestment can lead to compounding returns over time.

9. Stay Informed: Continuously monitor the performance and news related to the companies you’ve invested in. Stay informed about any changes in the company’s financial health or dividend policies.

10. Long-Term Perspective: Approach dividend stock investing with a long-term perspective. The goal is to build a portfolio that generates a steady stream of income over time, while potentially benefiting from capital appreciation.

11. Tax Considerations: Be aware of the tax implications of dividend income in India. Understand the applicable tax rates and reporting requirements for dividends received.

12. Diversification: With any investment strategy, diversification is the key. Avoid putting all your funds into a single dividend stock; consider building a diversified portfolio across different sectors.

Now, you’ll be all set to start your journey of investing in dividend stocks in India. The goal is to create a steady income stream and see your investments grow over the long haul.

Factors to see for identifying dividend-paying companies –

1. Financial Performance: Examine the company’s financial statements, including revenue growth, profitability, and cash flow. A strong financial foundation is essential for consistent dividend payments.

2. Dividend History: Check the company’s track record of dividend payments. Look for a history of regular and stable dividends over several years.

3. Dividend Yield: Evaluate the dividend yield, which is the ratio of annual dividends to the current stock price. Compare this yield with industry averages to gauge competitiveness.

4. Payout Ratio: Calculate the payout ratio by dividing dividends per share by earnings. A sustainable payout ratio indicates the company can comfortably afford its dividend commitments.

5. Earnings Growth: Assess the company’s earnings growth trajectory. Companies with steady and increasing earnings are more likely to maintain dividend payments.

6. Debt Levels: Analyze the company’s debt levels and debt-to-equity ratio. Excessive debt could impact its ability to sustain dividend payments during economic downturns.

7. Industry Trends: Consider the industry the company operates. Research industry trends and forecasts to ensure the company’s position is strong and its market share is sustainable.

8. Management and Governance– Evaluate the quality of the company’s management team. Transparent governance practices and a history of shareholder-friendly policies are positive indicators.

9. Competitive Landscape: Compare the company’s performance, dividends, and strategies with its competitors. A company that outperforms its peers is more likely to provide stable dividends.

10. Market Capitalization: Consider the company’s market capitalization. Larger, well-established companies often have the resources to maintain consistent dividends.

11. Future Prospects: Research the company’s growth potential and expansion plans. A company with a clear roadmap for growth is more likely to continue rewarding shareholders.

12. Dividend Growth: Assess the company’s history of increasing dividends over time. Consistent dividend growth demonstrates management’s commitment to shareholders.

13. Analyst Recommendations: Review recommendations from financial analysts and experts. While not definitive, these insights can offer valuable perspectives on the company’s prospects.

14. Industry Regulations: Be aware of any industry-specific regulations that could impact the company’s ability to maintain dividends.

15. News and Developments: Stay updated on recent news, events, and developments related to the company. Changes in leadership, acquisitions, or strategic shifts can influence dividend sustainability.

By following these steps, you can navigate the world of dividend stocks with confidence and make informed investment decisions.

Investment principles to swear by –

1. Focus on Regular Payouts: Look for companies that give out dividends often. They’re like your paycheck but from your investments!

2. Don’t Chase Just High Yields: Sure, big payouts are tempting, but make sure they’re sustainable. Sometimes a struggling company offers high yields, but that might not last.

3. Stability Matters: Pick companies that are strong and steady. You want them to keep making money so they can keep giving you dividends.

4. Diversify: Don’t put all your eggs in one basket. Invest in different companies and industries. If one isn’t doing well, others might make up for it.

5. Long-Term Thinking: Dividend stocks are like slow-cooking investments. Think long-term. Over time, your money can grow nicely.

6. Reinvest or Enjoy: Set your goals beforehand in terms of the yield you are targeting. Decide if you want to buy more shares with your dividends (like planting seeds) or just enjoy the extra cash.

7. Keep Learning: Keep an eye on the news about the companies you invested in. If there are big changes, it could affect your dividends.

8. Know the Tax Rules: Remember, dividends are taxed. Know how much you might need to give back to the government.

9. Look at Dividend Growth: Companies that increase their dividends over time are a good sign. It means they’re getting better at making money.

10. Stay Calm: Don’t freak out if the stock price goes up and down. Focus on the dividends and the company’s overall health.

11. Patience Pays: Think of it like growing a garden. It takes time, but the rewards can be worth it. Hold on for the long haul.

12. Expert Help: If you’re unsure, get advice from experts or professionals. They can guide you based on their experience.

Remember, there’s no one-size-fits-all strategy. Your approach depends on your goals, risk tolerance, and how much you want to be involved. With the right strategy, dividend stocks can be a tasty addition to your investment plate!

How to research dividend-paying Companies?

First off, identifying stocks that pay a good dividend yield is important. This means looking at how much dividend you’d get compared to the stock’s price. Companies that keep their dividend yield high are usually seen as pretty stable investments. The screener can be used for this purpose. When you’re picking these dividend-paying stocks, it’s smart to know about “qualified dividends.” These are dividends that meet certain tax criteria and are usually taxed at a lower rate, which is a good thing for your pocket.

Now, when it comes to actually investing in these stocks, proper research needs to be undertaken. Look for companies that have a track record of sharing profits with their shareholders. They usually pay out dividends regularly, like every quarter. It’s a good idea to keep an eye on when they announce their dividend payouts.

Here’s the deal though: this kind of investing is like the slow-cooking of investing strategies. You’ve got to be in it for the long haul. Even big shots like Warren Buffett say they like to hold onto stocks “forever.” It’s all about being patient and letting your money grow over time.

Conclusion

But hey, remember that dividends in India are taxed. The rate depends on how much you earn, so it’s good to know what you’re in for tax-wise. If you’re not super into picking stocks yourself, no worries. There are mutual funds that focus on these dividend-paying stocks. That way, the experts handle the hard work and you still get the benefits.
The main goal here is to create a source of passive income. By choosing stocks that keep growing their dividends, you could have more cash coming in over the years. So there you go! Investing in dividend stocks in India is a smart way to get some cash flow going and let your investment bloom. Just remember to pick wisely, be patient, and let the magic of compounding do its thing.

Calculate Dividend Yield – Dividend Yield Calculator

FAQs (Frequently Asked Questions)

What are dividend-paying stocks?
The stocks of companies that pay a portion of their profits to their shareholders are called dividend-paying stocks. Investing in dividend-paying stocks acts as a passive source of income.
Which are the best dividend-paying stocks in India?
You can check out this link to find the top fundamentally strong stocks that dividend-paying in 2022 India. click here
Is investing in dividend-paying stocks good?
Yes, investing in dividend-paying stocks is good. Because it not only pays out dividends to its shareholders but the investor also benefits from capital appreciation.

August 29, 2023

How to find and identify undervalued stocks

Undervalued stocks are stocks that are trading at a lower price than their actual fair price. At times the stock price does not fairly represent the true worth of the company. Sometimes small companies get ignored by analysts who are experiencing increased sales and better profit margins and have undervalued share prices. Investors look forward to investing in undervalued stocks because the possibilities are very high that the price of these stocks will increase in future. But, the question that arises here is how to identify these undervalued stocks.

10 parameters that one should consider to decide whether the stock is fairly priced or not –

Read Also: Semiconductor Industry in India

1. P/E ratio

The P/E ratio shows the relation between the stock price and the company’s earnings. It is calculated by dividing the current market price of the stock by the earnings per share.

The ratio can be used to determine whether the stock is undervalued, overvalued or fairly valued.

If the stock P/E is more than the industry P/E we can say that the stock is overvalued.
If the stock P/E is less than the industry P/E we can say that the stock is undervalued.

And lastly, if the stock P/E is nearly equal to the industry P/E then the stock is fairly priced. The P/E ratio is important when determining the true worth of the company.

2. P/B ratio

The P/B ratio shows the relationship between the current stock price and its book value.

There are 3 main steps for computing the P/B ratio of any company.

Step 1- Calculate the book value(company assets minus liabilities ) = assets – liability = book value.
Step 2- Calculate the book value per share = book value. of outstanding shares.
Step 3- Calculate the P/B ratio = current market of the share book value per share.

Any value below 1 is considered desirable by value investors indicating that the stock is undervalued. And a value above 3 is considered that the share is overvalued.

3. P/S Ratio

The P/S ratio or price-to-sales ratio is a financial ratio that shows the relationship between the price of the share and the sales of the company.

P/S ratio = market capitalisationnet annual sales

An ideal P/S ratio can vary from industry to industry or sector to sector. But still, a P/S ratio between 1-2 is considered a good ratio for value investors.
A high P/S ratio may indicate the inefficiency of the management in using the shareholder’s funds to drive more revenue.

Whereas a lower P/S ratio as compared to the industry standards may indicate that the stock is undervalued.

4. Debt-to-equity ratio

The debt-to-equity ratio is a financial ratio that is used to assess how much proportion of debt to equity a company is using to finance its assets. Debt is the creditor or debt holders’ money that is invested in the company against which they receive a payment in the form of interest regularly. Whereas equity funds are the money of the shareholders that is invested in the business.

Having a high debt-to-equity ratio can be a big red flag for any company if the free cash flow of the company is not good. Because then the company will not be able to meet its short debt financing obligations which is not good. This does not mean that having a high debt-to-equity ratio is a bad thing. It generally depends from sector to sector. A sector that requires heavy fixed assets (like automobile or construction) might have a high debt-to-equity ratio as compared to a company that does not require so many fixed assets (like the IT sector).

5. The PEG ratio

The PEG ratio is a financial ratio that shows the relationship between the price and the earnings to the growth of the company. It can be defined as an advanced version of the P/E ratio. Since the P/E ratio does not tell about the price of the stock being fairly valued taking into account only the current earnings of the company and not the forecasted future earnings.

That’s where the PEG ratio comes to the rescue it tells whether the share is being fairly valued or not at the stock exchange taking into consideration the growth rate of the company.

PEG ratio = price/EPS growth

A PEG ratio of more than 1 is considered that the stock may be overvalued and not considered for investing by value investors.
A PEG ratio of less than 1 indicates that the stock is undervalued than its true worth and might be a good option to invest in by value investors.

6. Free cash flow

Free cash flow is the cash left with the company after paying for its operating expenses and capital expenditures. The formula for finding the free cash flow for any company is given below.

Free cash flow cash flow from operations – (operating expenses + capital expenditure).

Having a positive FCF is a major green flag for the company because a positive FCF indicates that earnings are expected to increase in future. Which is a good sign for any value investor. Showing that either the company is experiencing sales growth or better net profit margins and that the company is effectively using their resources.

7. Dividend yield

The dividend yield is a financial ratio that shows what percentage of the share price the company is giving out as dividends to its shareholders.

Dividend yield =annual dividend paid/market price

If a company is giving out high dividends it is a green flag for any value investor and might indicate that the company is undervalued. Because generally in a company with a high dividend payout the shareholders are not only benefited from the capital appreciation but also the dividend payments give them a good annual return on their investment.

8. ROE

Return on equity is a financial ratio expressed in percentage terms indicating a relationship between the company’s net earnings and the shareholder’s equity.

ROE=(Net earnings/ shareholders equity)*100

A 15-20% ROE is considered very good for any company as it shows how effectively the company is using the shareholder’s funds to make more money.
An ROE higher than 20% might indicate that the management is taking a high risk on shareholders’ money to get more business.

9. Intrinsic value

Intrinsic value is the anticipated value of any stock. Based on certain parameters the IV of any stock is calculated. Taking into consideration both tangible and intangible factors.

Intrinsic value = Future cash flows(1+ discount rate)^no. of periods

It is very complicated to calculate the intrinsic value of any stock manually, and individuals can use the stock screeners available online to get the correct IV for any stock.

If IV>current market price then the share is considered to be undervalued.
If IV<current market price then the share is considered to be overvalued.
If IV is almost equal to the market price then we can say that the stock is fairly valued.

10. Pitroski score

Pitroski f- score is a no. between 0-9 which is used to assess the strength of the company’s financials. It is taken into account to decide whether the stock is suitable for investing or not with 9 being the best and 0 being the worst.

The calculation of the Pitroski score is quite complicated if done by hand, there are many stock screeners available online that automatically calculate the Pitroski score for you.

A Pitroski score below 3 is not considered good.
A score between 3-6 is considered good.
And a score above 6 is excellent for investing.

Conclusion

Thus we can conclude that identifying undervalued stocks is not even that hard. You just need to keep a few points in mind before starting your research.

Investing in stocks that you can hold for the long term is a good way to build a strong portfolio. Also, it is important to regularly churn your portfolio on a regular basis so that you can maximize the returns and minimise the risk in your overall portfolio.

S.NO.	Check Out These Interesting Posts You Might Enjoy!
1	LTP in Stock Market: Meaning, Full Form, Strategy and Calculation
2	How to find and identify undervalued stocks
3	Types of ITR: Which One Should You Choose?
4	What is FIRE in Finance? Full Form, Features, Types, and Formula Explained
5	Best Places To Park Your Short Term Money

FAQs (Frequently Asked Questions)

What are undervalued stocks?
Stocks are trading at a lower price in the stock exchanges as compared to their actual fair price. There are various accounting financial ratios that you can use to assess the true value of the stock.
How to find undervalued stocks?
There are different financial ratios you can consider to decide whether the stock is undervalued, overvalued or fairly valued.
Fundamentally strong stocks that are undervalued in 2022 India.
You can check out any stock screener to find the top fundamentally strong stocks that are undervalued in 2022 India.

August 29, 2023

Blog

Why Do We Need To Teach Financial Literacy To Our Kids?

Financial literacy

Why Build a Strong Financial Foundation?

Preparing for Future Financial Challenges

Introducing Financial Concepts to Children As They Grow

Conclusion

FAQs (Frequently Asked Questions)

Why financial literacy is necessary?

How to improve financial literacy?

Why financial literacy is essential for students?

Is it necessary for children to learn how to wisely spend their money?

How to explain investing to a beginner?

All about AMUL

History of Amul

White revolution & AMUL

5 Key Factors That Led to the Success of Amul

1. Amul Girl

2. Decoding the Whole Supply Chain

3. Constant Innovation

4. Diversification

5. Trust Building

Business Model of Amul

Village Dairy Cooperative Society

District Milk Unions

State Milk Federation

4P’s of Amul Marketing Strategy

1. Product Mix

2. Price Mix

3. Promotion Mix

4. Place Mix

Sustainability Practices

Conclusion

FAQs (Frequently Asked Questions)

What is the full form of AMUL?

Who is the owner of Amul?

Which state is associated with Amul?

Is Amul an Indian Brand?

How many products does Amul have?

Understanding What are Mutual Funds

Features of Mutual Funds

Professional management

Diversification

Liquidity

Time-Saving

Types of Mutual Funds

Based on the choice of the asset class

1. Equity Mutual Funds

2. Debt Mutual Funds

3. Hybrid Mutual Funds

Based on the Financial Goal

1. Growth Mutual Funds

2. Income Mutual Funds

3. Balance Mutual Funds

Based on their structure

1. Open-ended Mutual funds

2. Close-ended Mutual Funds

Benefits of investing in Mutual Funds

Convenience

Financial discipline

Low-cost

Reliability

How do Mutual Funds work?

Conclusion

FAQs (Frequently Asked Questions)

How to invest in mutual funds?

What is NAV in mutual funds?

What is SIP in Mutual Fund?

Can I invest Rs. 2000 in mutual funds?

What are Tax-saving mutual funds?

What are ETFs or Exchange- Traded Funds?

Types of ETFs in India

What are the pros of investing in ETF?

1. Diversification:

2. Low expense ratio:

3. Easily tradeable:

4. Tax-efficiency:

5. Transparency:

What are the cons of investing in ETFs?

1. Low trading volumes: