Jan

1

Portfolio management for beginners - 2

January 1, 2008 posted by Rajendra |

G. Learning: Before investing in shares, it is better to learn basics in several ways:

1. Read Economic Times or Business Standard or Mint from Tuesday to Saturday;

2. Listen to Hindi pm & English reports on CNBC-TV18, NDTV, IBN channels;

3. Internet sites like moneycontrol.com, sharekhan.com, timesofmoney.com

4. Make a theoretical portfolio of say 4 Co. shares in five sectors = total 20; then monthly decide to sell 4 and buy 4 companies shares and watch the movement in prices over 3 months: then you will know how much you have gained or lost.

5. There is no need to monitor prices daily but watch once a fortnight for half hour and to sell after 12 month holding (at present) to get exemption of income tax on capital gain Analysis of only 2 sources should be studied: then decide to invest in growth sectors, Companies with good governance, lower than industry PE ratio, to obtain gains.

H. Dont INVEST ON “HOT TIPS” FROM FRIEND – COMPANY DIRECTORS / EMPLOYEES AND IN ELECTRONIC MEDIA. Such tips are often given by those who want to sell and invariably you lose money. From 1.4.2005, Govt. of India exempts Income Tax on Capital Gain if the shares are sold AFTER ONE YEAR. Income Tax is 10% on CG if sold BEFORE then. The GOI budget is announced on 28th Feb. and then you know the status of capital gain for Income Tax purpose for the next year.

I. Study Equity Shares / Sectors then take the following steps:

1.Visit one reputed broker: JM Morgan Stanley – DSP Merill Lynch – Prabhudas Lilladher - Motilal Oswal - Kotak Mahindra Sec –Enam Investments- India Bulls etc

Find out the guidance and facilities they extend; select one near home/office to enable communicate instructions, deliver documents in time.

2. T+2 system now in force: it means within 2 days after Trade day there is Pay-in & account settlement; hence cheque for purchase or sale sheet must be submitted on third day before 10.30am– if not shares will be auctioned and loss is likely

3. Indicate choice of sectors & ask for shares to buy. Generally IPO purchase is cheap.

In 2007 there is good scope to invest selectively. The risk is not getting an allotment – as Co.s maximize allotment to small investors: but small no. than that applied for.

Equity Shares can be bought on secondary market, on first day of trading.

Filling of form requires great care and there is adequate time to seek help to submit to broker with cheque.

Selection of first name is important: for ex. if parent is earning he/she can have the shares in second name so that adult children get income; taxable come is low; Adult child cannot dispose of share without parents signature.

4. Where daughters are First shareholder, the shares can be sold to help meet expense of higher education, marriage.

Married daughters after marriage if placed in monetarily well to do families need not disclose holdings to spouse but retain the income flow with parent to meet the expenses in emergency or in case of adversity. If principal fund is not needed then Parent can use income post retirement as long as he/she lives. Later the shares can be passed on to the child who can add name of her husband or child in place of parents name.

Married girls particularly those not employed and/or having independent income, must retain financial independence. Another safety factor is to insist with the in-laws that 25% of her salary earnings will be given to support parents.

5. If IPO is not on horizon then invest in Secondary market ie purchase shares on the Share market: one simple rule is to buy at maximum 25% higher price than last 12 Months Low price and sell when the price reaches 85-90% of last 12 months High.

If 12MLo is Rs 100 do not buy <125;

if 12MHi is Rs 500 do not wait to sell after 480. High and Low prices are shown in press from Tuesday to Saturday.
From June 04 to Feb.07 there has been an unprecedented rise of stock market and the High’s are ever increasing: yet the formula has relevance.

On Saturday, Sunday Share market is closed so the next days papers don’t show prices,. From Oct. 04 on each transaction there is Securities Transaction Tax of 0.15%; brokerage is 0.5% on both buy, sell.

6. For IT savvy investors. Use financial services Sharekhan.com, moneycontrol.com, timesofmoney.com on internet portfolio and save it on your computer.

The computer will daily give you the value of your total portfolio. There is no need to give /take cheque for each transaction by having an account with the broker..

7. Share broker will help you to sign the papers per stock exchange regulations to open the Depository account for holding your shares. Contract note for transaction, is received on next day by courier.

You will note that date, hour, minute, of your own transaction is recorded.

Be very clear on telephonic instructions of the Co.s names as error is likely on similar sounding names like “BALCO or NALCO” “IDBI or IDBI Bank” “HDFC or HDFC Bank”.

Always have the recipient of instructions repeat what you have told for the sake of clarity.

8. Proforma of Broker registration, Depository registration, Contract Note, Sale Sheet, Monthly Statement will be shown personally. Similarly samples of personal record on computer including plan of the sale date and price will be shown.

Keep the ET 500, BT 500 annual issues for study of sectors, Co.s, the growth segments.

continued…


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2 Comments so far

  1. RAHUL VAHITRA on January 11, 2008 3:14 pm

    It was very good article for the beginner’s - i was impressed from the same.

    I am working in J M FInancial (RISK MGMT.)

  2. Dr(Mrs) Naresh Kohli on February 1, 2008 11:25 am

    Wants to open my portfolio so that daily position of my MF & shares can be seen.

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