Category: General Investing

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General Investing

HOW A PERSON IN EARLY 20S SHOULD SPEND MONEY?

The early 20s, life is full of fun and friends. Why it should not be, you have a good paying job and you have your freedom that’s all what matters, right.

At the end of every month, that wait for salary kills like anything. Enough of lecture now let us get to business. An individual should start investing from his/her early life. As most of the individuals do not discover this thing early and lose the power of compounding and starting early.

If you spend 2,000 less every month and start investing the same in a diversified mutual fund for just 10 years. Then you will see the power of compounding working for you.

Check this screenshot for a while.

With just 11% of yearly returns, you can almost double your money in 10 years and that too full tax-free. Do note that the returns taken into account are very nominal and one can also get 20% returns over time if his/her investments are planned wisely.

Do not worry too much about the stock market crash or erosion of your wealth. Long-term investing always create wealth and rewards a lot. Short-term investments are often volatile but if investments are planned at an early stage, it can create wonders for you.

Have look at 18 years Nifty 50 chart.

In the last 18 years, Nifty 50 has given a CAGR of 10.9% which is wonderful. We also had a stock market crash in 2008, still, it manages to give that wonderful returns.

One should remember this quote-

Read: Thinking to invest in MF, Open account with FundsIndia

Read: Top performing Mutual Funds from VRO, Crisil

Now some tips

  1. Save as much as you can from an early age.
  2. Start compounding your savings.
  3. Read a lot and invest in yourself.
  4. If your time permits read about basic elements of Investing.

Get these 2 books and I bet you will not regret buying them.

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General Investing

PURCHASING A HOUSE IS NOT ONE OF THE BEST INVESTMENT DECISION

Purchasing a house

I have been thinking to write on this very favourite topic for a long time. Today I will share some facts which can help you make better investment decisions.

When it comes to buying a house most of us think it is an investment purpose and will sacrifice anything for it. Majority of working people take housing loan to buy a house. In the present time, taking a loan and buying a house is in fashion and every working individual is going for it.

Some of the reasons to buy a house are

  1. We think that after taking a housing loan we can get more income tax deductions and our tax will be less.
  2. Housing finance companies promote dream house a must buy for every living human being.
  3. House is an investment which whose value only appreciate with time.
  4. Most of the youngsters face difficulty in getting married just because his to be in-laws think he cannot keep their daughter happily without owning a house.

Buying a house on EMI is just a hoax and it only helps banks or housing finance companies to grow.


Let us take an example of it.

  1. House estimation

House cost: 50L

Interest Rate: 9.5%

Tenure: 30Years

EMI: 42K

Total amount to be paid: 1.5Cr

Purchasing a house

2. Investment estimation

Investment amount: 30K

Average return: 9.5%

Tenure: 30Years

Final amount to be received: 6.8Cr

Purchasing a house

Strange right!!

Now just see what difference an investment and loan can make in your life. The amount of return is just nominal and it could be more if an individual does some research and invest in good performing mutual funds.

My aim is never to discourage buying a house rather educating working professional about bad investment myth which is never clarified. You can always buy a house if you have an surplus money but buying an entire house on loan is never a good idea. It only fills bank or housing finance pockets.

Cons of not buying a house

  1. You have to live in a rented house and pay monthly rent which increases 5-10% every year.
  2. You may have to change house every 3 years as sometimes landlord does not allow to stay beyond 3 years.
  3. You do not have to paint or maintain house every time you move it as it is done free of cost by the house owner.
  4. You do not have to carry a burden of the house if you need to change your job.

When buying a house is good Investment?

As quoted by Warren buffet,

 Price is what you pay. Value is what you get. 

Therefore, it is very much important we should know when purchasing a house could be a good investment. As with every asset class houses also have their earning and cost.

Let us take an example of it. I have mentioned the cost of a 3/4BHK house in a metro city. I have taken rent which is the earning an individual can earn over a year from it.

P/E is a ratio which is calculated by dividing the present price of an asset by its present earning.

With above figures, we can calculate Price/Earning ratio for our house which comes around 40. This 40 ratio shows that we are willing to pay 40 times of the 1 Rs earning of the house. This is extremely very high. But this doesn’t mean that cost of the house will not increase over the year. It can increase as long as people are willing to pay the higher prices to buy new houses. The increase in prices will come with the expansion of P/E and it will increase over time. But at some point when the expansion of P/E ratio is not possible, the house prices will become constant or fall for coming years.

Buying a house is a good investment option when we are able to get a good return on it. In the mentioned example if we are able to get a house at low P/E that definitely it could be a good investment opportunity. There could be another example where if one is able to increase earning on the same house, say by opening a PG or using it for some business purpose then also buying a house is a good investment. In this case, you will get a house at low P/E because your earning has been multiplied or increased.

I hope this post adds some value to your financial life. Purchasing a house is an individual decision and can depend a lot on his/her financial conditions. Do comment if you have any recommendations.

Thinking to buy a Mutual Fund, Learn how to evaluate them

EMI calculator

Return calculator

 

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General Investing Stock Research

The next multibagger: Kellton Tech

 

Company Overview

Kellton Tech is a CMMI Level 5 company and operated in Information services sector. The company build expertise in disruptive technologies like Artificial Intelligence, Cognitive Solutions, Blockchain, Big Data, Analytics, Cloud, Chatbots and Internet of Things among others. Recently, the company acquired Lenmar which will add banking and finance sector under the company hood.

The company has won various awards and accords in the past.

  1. Forbes Asia’s ‘Best under a Billion’, a list of top 200 public-traded companies in Asia-Pacific.
  2. Kellton Tech’s employee-centric work culture, The CEO Magazine has named the organization among “Best Places to Work”.
  3. Kellton Tech wins ‘Best e-Governance Initiative of the Year’ at Digital India Summit 2017.
  4. Kellton Tech ranked 19th & 193rd fastest growing tech company in India & Asia-Pacific.

With more than 1400 people across the globe, of which a significant number comes from the US and Europe, Kellton Tech is fast spreading its presence in Asia-Pacific region. The Lenmar acquisition has afforded the company a deeper presence in Indian
and US markets.  This acquisition will deepen Kellton Tech’s BFSI IT capabilities and support its next phase of growth in existing markets of US, India and Europe and new markets in APAC region.

Management

Mr Krishna Chintam(MD) graduated from Andhra University with a bachelor’s in Electrical and Electronics Engineering. He holds a master’s in Electrical Engineering from Virginia Tech, Virginia, US. He pursued MBA from Kellogg School of Business, Northwestern University, Chicago. Krishna is a seasoned serial entrepreneur with over two decades of experience in information technology, marketing, finance, strategy and operational management.

Mr Karanjit Singh (CEO) has an experience of working with large enterprises and small and medium-sized enterprises on enterprise and consumer internet applications, product development, engineering management, delivery, product management, pre-sales & implementation support and has been responsible for developing and delivering complex, enterprise-class software application.

Mr Niranjan Chintam (CFO, Chairman & Whole time director) Graduated from Wharton Business School with an MBA.
Holds an engineering degree in India. Niranjan spearheaded the expansion drive of Kellton Tech and oversaw a series of acquisitions and capacity- building measures that put Kellton Tech on the global IT map. Under his leadership, Kellton Tech became around 1000 member strong organization and earned a place in top 50 fastest growing IT companies in India.

Renemuration to the directors

Details of remuneration to the directors (Rs. in Lakhs)
Particu
lars		 Executive Directors Non-executive
Mr.
Niranjan
Chintam		 Mr.
Krishna
Chin
tam		 Mr Karan
jit Singh
Salary 30 30 54.71
Total 30 30 54.71

The salary structure of directors is near industry levels.

Global presence of Kellton

Promoter Holding

Institutional Holdings

Currently, no Mutual fund hold Kellton tech.

Credit Ratings

ICRA has assigned long-term credit rating of ICRA A- with a stable outlook and a short-term rating of ICRA A2+ to Kellton Tech Solutions Ltd.

Valuations

Kellton tech trades at extremely low P/E of 8 whereas it peers trades at 25+ levels. The main issue is with the debt of Kellton. Current Debt/Equity ratio is 0.24. Kellton has recently increased its long-term borrowing which is causing an increase in interest and adding a dent in its profit. Its peer does not hold any debt but Kellton does.

Another important thing, Kellton is unable to collect cash from its debtors. Trade receivables have been decreasing in last 2 years but still very high.

The company has done too many acquisitions in past 6years (around 9+). The number of acquisitions puts a bad indication on the ability of the company to grow organically. These Acquisitions also adding debt to the company which will finally eat away profits.

Again last year the company has added debt for recent Lenmar acquisition. For the same reason, promoters have pledged their shares.

Pros

  1. Sales growth is quite significant and regularly showing a good trend.
  2. Management is very competitive and experienced.
  3. Company work in very disruptive areas and have heavily invested in the same. It is visible from their Goodwill and IP expenditure mentioned in the annual sheet.
  4. Company recent acquisition will open new markets for it. It is supposed to bring new clients in banking and finance sector.
  5. The company is providing ESOP to its employees. It is a very good initiative to retain talented and hard-working employees.

Kellton could be a good bet for long-term investing. It is provided that long-term borrowing should come down in future. The company should also decrease it trade receivable which is causing a decrease in free cash flow. If all works well then the stock could shoot up to 150 levels very easily in near future.

Stock performance

This should not be constituted as financial advice. The author has a financial interest in the company. Please consult your advisor before investing.

Read: Dirty secrets of Bitcoins

Read: Why I regret selling this stock?

Interested people can read this thread on valuepicker

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Annual reports

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General Investing Latest Post

2017 IPO PERFORMANCE

In this post, I will be sharing the performances of the mainstream IPO for the year 2017.

Around 36  companies garnered Rs 67,500 crores through primary markets in 2017. Here is the complete list of the IPOs. (updated 21 Dec 2017)

 

2017 IPO Performance

2017 IPO Performance

2017 IPO Performance

Interested to know how to apply for winning IPO Read here.

Read: IPO facts

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General Investing Latest Post

TRADING HOLIDAYS FOR CALANDER YEAR 2018

Here is the list all the trading holidays 2018 applicable for BSE and NSE exchanges in India.

trading holiday 2018

Read: Get a multibagger report

Read: Invest in top performing MFs

Source

BSE website

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General Investing Stock Research Valuation Analysis

MULTIBAGGER REPORT: SHANKARA BUILDING PRODUCTS

Company Overview

Shankara Building Products is among one of the leading organised retailers of home improvement and building products in India based on a number of stores. It operates under the trade name Shankara BuildPro. As on December 06, 2017, the company has operated 124 Shankara BuildPro stores spread across 9 states and 1 union territory in India. Further, the company looks to grow its retail store network by 15-20 every year.  The company cater to a large customer base across various end-user segments in urban and semi-urban markets through its multi-channel sales approach, processing facilities, supply chain and logistics capabilities.

Business

The company is involved in unique kind of business which mainly involves the selling of home improvement and building products.

The company work in 3 different segments

  1. Retail: The company sell a wide range of manufactured products such as structural steel, cement, TMT bars, hollow blocks, pipes and tubes, roofing solutions, welding accessories, primers, solar heaters, plumbing, tiles, sanitary ware, water tanks, plywood, kitchen sinks, lighting and other allied products were offered in different brands (Johnson, Sintex, Uttam Galva, Uttam Value, Futura, APL Apollo, Astral Pipes and Alstone). Some other products include steel pipes, colour coated roofing sheets, bright rods, galvanized strips and cold rolled strips under its own brand CenturyRoof, Ganga, Loha, Taurus and Prince Galva.
  2. Enterprise: The company also offers enterprise sales to large end-users, contractors, and OEMs and also provide customized solutions to enterprise customers through their bespoke steel products such as bus bodies, scaffolding solutions and other allied products.
  3. Channel:  Company is backwards integrated into its processing facilities in select building products like steel pipes, colour coated roofing sheets, bright rods, galvanized strips and cold rolled strips. They sell these products under their own brands like CenturyRoof, Ganga, Loha, Taurus and Prince Galva through their retail and branch network. The company own processing facilities help them to offer customised solutions and meet quality standards as well as timely delivery requirements of their customers.

Distribution Channel

To cater to its customers, the company own a robust logistics network. The company have a warehousing network spread over ~585,000 sqft. Each warehouse has the capacity to serve over 10 stores. This further helps to deliver cluster-based retail strategy in a more
efficient manner. In addition, The company has own fleet of 44 vehicles which enables it to meet timely local delivery requirements. A large part of the company warehousing backbone is owned which ensures the stability of operations. It also helps in catering to the requirements of its retail outlets.

Company processing plants

The company current processing capacities stand at ~324,000 tons operating at a capacity utilization of ~94%. The processing facilities are spread over 12 locations – Hyderabad (two), Bengaluru (four), Hubli, Surat, Chennai, Coimbatore, Pune and Vijayawada. Hyderabad and Bengaluru house the key processing facilities. Most of these facilities can be scaled in a modular fashion with a limited capital
requirement. With little investments and some process and equipment fine-tuning, the company can achieve ~10-20% increase in volumes.

Growth & Investment in the sector

Low interest rate environment coupled with government’s initiatives towards housing through schemes like Smart Cities Mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Pradhan Mantri Awas Yojana (to provide over 2 crore affordable houses by 2022) and interest rate subsidy of 3-4% for middle income groups on housing loans bode well for the building products sector. Home
loans of quantum less than ` 10 lacs have shown a robust annual growth rate of 23% over the last five years. Even more encouraging is the fact that this growth has come without deterioration in asset quality. Maharashtra, Madhya Pradesh, Gujarat, Tamil Nadu and Andhra Pradesh are the top five states with the highest number of loan accounts meant for affordable housing.

The Indian building products industry is estimated to be approximate ` 5 lac crore in size for some of the key identified segments. It is expected to grow at a CAGR of over 8% over the next few years. India has a significant shortage of over 100 million housing
units. Increasing population, young demographic profile, rising affordability with higher income levels, a trend of nuclearisation and increasing frequency of renovations is fuelling the fundamental aspirations of households towards housing and housing upgrades.

The growth outlook for the coming year looks positive with banknote remonetisation nearly complete and a number of government initiatives to boost output, especially in the housing sector. Credit growth in the affordable housing sector has been strong. The political situation domestically looks stable and the fiscal consolidation path is being adhered to. The capital markets are buoyant and the Indian rupee has appreciated in the last few months of the fiscal. Global growth prospects are also improving and should further boost Indian growth prospects.

Financial Statements

Balance Sheet

Profit and Loss

Cashflow statement

Strengths:

  1. Company Profits has been increased over last 3 years with a CAGR of 28%.
  2. The company is able to get money from its customers on time as debtor days have been constant during last 3 years.
  3. The company is consistently increasing its operating margins.
  4. The company is reducing its debt and currently, debt/equity is 0.56.
  5. The company is consistently investing in itself.

Promotor holding

As the company is recently listed, there is not much of information in public domain. Here is a snapshot of the shareholding of 3 quarters of 2017. Since IPO, promotors have not changed their stake in the company, which is a good thing.

Institutional Holdings

A lot MFs have invested heavily in the company. There are very bullish on the stock as given the niche sector in which company works.

IPO response

The company received tremendous response from investors as its IPO was subscribed 41 times.

Valuations

Currently stock hovers around Rs 1800. The stock came down 20% after reaching 52 weeks high of Rs 2270. We see great future prospects of affordable housing and the same has triggered the stock to deliver the maximum of 219% return in less than a year. The stupendous rise in the price of stock difficult to explain with the growth of the company. But the brokers are quite bullish on the stock. Edelweiss has given a buy call with a target of 1575 in 06, Sep 2017. ICICI Direct also has given guy rating with a target of Rs 1725.  The stock is trading with a P/E of 61.22 whereas Industry P/E is 58.28.

It is very important we should know what we are willing to pay for the stock. The company has shown a stagnant sales growth, a net profit less than 3% of sales and a debt/equity of 0.66, there is nothing too exciting about the financial performance.

The stock has already factored in 292% increase in price since IPO. It is very difficult to say where the stock price will span out in future.  I would recommend you to keep an eye on future earnings growth of the company and judge based on that growth.

Also to add, a lot of mutual fund houses has invested in Shankara because of its niche dominance. There are no listed peers in the same space and it is added advanage for this company.

Read: Interested in a Multibagger stock

Stock performance

I hope this article gives you an idea about the company and its future prospects.

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General Investing IPO Fundamentals

HOW CAN A COMPANY BE LISTED ON STOCK EXCHANGE WITHOUT AN IPO?

 

Yes, a company can be listed on the stock exchange without an IPO. It is not necessary for every company to go through the IPO route to get listed on stock exchanges. A company can be listed without IPO under 2 cases

  1.  De-merger from parent company
  2. Start-ups or SME under some condition can get listed

De-Merger from parent company:

There are various companies which got listed as a result of a demerger from the parent company. Their parent company was already listed on stock exchanges, therefore the new entity didn’t go for an IPO. As a part of SEBI guidelines, a public limited company should have at least 25% of the public shareholding. The companies which are fulfilling these criteria before getting listed need not go IPO route. The shareholders of the parent company will also get a shareholding in the newly demerged entity. The allotment of shares of new demerged entity is decided on the basis of the amount of shareholding which is getting diluted by the parent company.

Here are few examples of the companies which got listed without IPO

  1. Reliance Home Finance got listed as part to give additional value to its shareholders.  Link
  2. Sintex Industries can unlock value for its investors
  3. Aditya Birla capital list on bouses
  4. 5 Paisa capital, India’s first trading firm to get listed on exchanges.

Start-ups, SME listing without IPO:

Market regulator, SEBI has approved an amendment of rules to permit Start-ups and SME (small and medium enterprises) to get listed on stock exchanges without going through IPO route. Such companies will be exempted from 25% of the minimum public shareholding.

Read: Do not get trapped in such scams

Few conditions for startups and SME to list are

  1. Investors will be able to invest in the firms with a minimum capital of Rs 10 lakh.
  2. Firms should be incorporated in India and should not be more than 3 years old.
  3. Such companies are listed on ITP (Institutional Trading Platform), therefore will not be allowed to raise capital, but they can continue to make private investments.
  4. Last, if the investment is by an angel fund then it should not be less than Rs. 50 lakh and not more than Rs 5 crore. It is mandatory for the angel fund to be invested for a minimum duration of 3 years.

Reference link

Listing of SME and startups is a wonderful word by the government. It will provide exit opportunities for existing investors and will help for investor participation.

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General Investing Mutual Funds

TOP PERFORMING MUTUAL FUNDS FROM CRISIL, VRO

Top performing Mutual Funds

Selecting a Mutual fund is a very tough call for any investor who is looking for long-term wealth building. With more than 30+ AMC out there, it is very difficult for any investor to even select any Mutual fund.

A mutual fund is a very good financial instrument and an investor could start investing from as low as Rs 500. By default equity, mutual funds returns have always beaten by other financial instruments like PF, Fixed deposits etc. But Equity Mutual are never meant for short-term investment like 1-2 years. Equity Mutual funds always work well with long-term investment.

Today we will discuss how an investor could select a TOP Performing Mutual Fund. While doing any financial planning for future it is advisable to use experts opinion. Experts usually consider many criteria while assigning any rating to Mutual Fund.

There are various ways of ranking mutual funds in India. These are the certain agencies which provide mutual fund ratings: CRISIL, Value Research Online, MoneyControl.

Mutual fund ranking by CRISIL

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. CRISIL ranks the mutual fund using its 3 year NAV history. The performance periods which is used in calculation of ratings are

Equity, Debt, Guilt funds: 3 Years

Liquid, Ultra short-term Debt, short-term income: 1 Year.

Ranking Structure of CRISIL

Rank 1: Very good performance

Rank 2: Good performance

Rank 3: Average performance

Rank 4: Below average performance

Rank 5: Weak performance

Some of the top-rated mutual funds by CRISIL

Read: Evaluate a mutual fund yourself

Mutual Fund ranking by Value Research Online

Value research online ratings use a purely quantitative method of rating without any subjective component. Therefore is measures both returns and the risk involved in the financial instrument. The performance periods which is used in calculation of ratings are

Equity, Hybrid Funds: 2 years

Comparision for Risk rating: 3 and 5 Year

Debt Fund: 18 Month weekly risk-adjusted performance

Rating structure of funds

5 Star: Very good performance

4 Star

3 Star

2 Star

1 Star: Below average performance

Top Mutual funds from Value Research Online

Morningstar Mutual fund rating

Morningstar, Inc. is an investment research and investment management firm. It also provides mutual fund rating and uses the same method for evaluating different mutual funds.

Top Mutual funds from Morningstar

Source:

Morning start

Value research online

Crisil

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Bitcoin General Investing

DO YOU KNOW THE DIRTY SECRETS OF BITCOIN

Dirty secrets of bitcoin

All cryptocurrencies are on fire from last 1 year. Some of them like Litecoin have even doubled investors wealth in just a week. Do not get surprised that the most popular currency, Bitcoin has surged to 2000% in just 1 year. This is a mammoth return on any asset class. But do you think such gains are justified enough and do everyone knows well about these cryptocurrencies. In this post, you will know the dirty secrets of Bitcoin currency.

1.BITCOIN mining is causing power outrage: 

According to Digiconomist, the amount of electricity used to mine Bitcoin all over the world is equivalent to Denmark, Serbia, Oman and Morocco electricity consumption. Bitcoin mining is essential for carrying out its transactions, therefore if Bitcoin becomes more popular then the demand for electricity will also increase. For the countries like China, which is heavily depended on coal-fired powerhouses, the high energy consumption of Bitcoin is leading to high carbon footprint which finally is damaging the environment. If the same growth rate of Bitcoin continues over a couple of years, then it will consume all worlds electricity by Feb 2020.

2. BITCOIN Transaction cannot be reversed

Bitcoin transactions are carried out by its miners. When a transaction is successful then its information is added to the block and attached to the blockchain. A blockchain is a shared public ledger on which entire Bitcoin relies. Therefore once the block has been attached to the blockchain, it cannot be reverted back. So if you or someone else accidentally carried out a transaction from your wallet then it is impossible to reverse it.

3. No Security against any fraud activity

As said earlier, any transaction which is carried out on Bitcoin willingly or as fraud, could not be reversed. There is another issue that all the transaction are carried out using a Bitcoin address which is not directly linked to a person or entity. However, a person’s identity could be associated with Bitcoin address through another means. It is very much necessary that we should double check the Bitcoin address before paying to anybody.

4. If you Lost your private key, Forget your money

Bitcoin wallets keep a secret piece of information known as the private key. This private key is used to sign the transaction which provides a mathematical proof of the owner’s identity. So if you have lost your key, you can never prove your identity while carrying out payment. Even if you forget the key, there is no one who can help you to recover it and your Bitcoin become unspendable.

5. Any harsh rule from RBI (Government) can lead to its collapse

The government of India has declared BITCON as not a legal tender. Therefore you cannot do any transaction as a merchant or seller using Bitcoin in India. At the same time buying Bitcoin as an investment is not illegal yet. But there is a lot of uncertainty from the Government regarding Bitcoin. If RBI takes any strict action against usage of Bitcoin then obviously future of Bitcoin will be jeopardized for India Bitcoin investors. The hard earned money of the investors in this cryptocurrency is in hands of RBI.

Read: Is purchasing Bitcoin worth now?

Currently, Bitcoin is most popular cryptocurrency in the world and account for more than 60% of all cryptocurrencies.

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General Investing

HOW PORTFOLIO MANAGER HEDGE THEIR PORTFOLIO?

Mutual fund Manager occasionally Hedge their portfolio, in order to protect their portfolio from extreme risk. In our life, we also minimize our risks by taking medical, life, or house etc. type of insurances. The same way portfolio Hedging is done by taking an insurance for the portfolio so that any extreme risks could be avoided.

When is hedging required?

Hedging is required whenever markets are anticipating any major event and there is a lot of uncertainty in it. In Indian economy context, we had major events like demonetization, UP elections, bank recapitalization and currently having Gujarat elections. All these events played a crucial role in markets. These type of events make or break Investors confidence thereby markets become bullish or bearish. In case of extreme bearish news, all the profits of the portfolio could be wiped out in a day, therefore hedging is extremely important. It is important for survival in markets.

How to Hedge portfolio?

In order to prevent losses, portfolio or fund managers buy or sell options or futures depending on the strategy they are following.

Here is an example:

Current Market Condition: Nifty: 10000, Major news coming regarding elections and the market are anticipating the current government will win and continue until 2022.

Actions taken by Fund Manager: He brought Nifty put option with a strike price, 9900 (Nifty 9900 PE). If the market goes below 9900, the portfolio will be no profit no loss situation as the purchased option will compensate the loss occurred by your portfolio.

Next days News: Nifty: 9850 Result announced and current government lost in elections. The markets took this as extremely bad condition and most of the investors became pessimistic about the future developments in the country.

Benefits of Hedging: As a result of market crashing, the portfolio is in the loss but portfolio manager had brought Nifty 9900 PE.  Now, the premium or price of Nifty 9900 PE has gone up and overall losses are minimized.

Important point: Any insurance policy comes in coverage or insured amount. Therefore the person who is taking insurance needs to consider all the risk involved and choose correct coverage of insurance policy. The same way a portfolio manager has to decide the amount of hedging required for the portfolio.

The amount of hedging required depends on

  1. The Portfolio size
  2. The degree of uncertainty in the market.

Now comes the important question, How to anticipate such market downfall is coming?

Fund manager needs to keep a watch on global cues, major events and some rumours hovering around markets. Therefore it is a day to day job and needs an attention.

Read: Do you regret selling any stock?

Read: Why do we consider the Stock Market with gambling?

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