5 Mistakes Small Investor Should Avoid As Market At Top

Date:- 17/03/2015
The Indian stock market has been in a bull phase since Dec 2011. Nifty had touched a low of 4531 on Dec 20 ‘11, and rose to touch a lifetime high of 9119 on Mar 4 ‘15 – doubling in a little over 3 years.

Can the market rise even higher? Sure it can. Can it double again in the next 3 years? Anything is possible in the stock market – but the probability will be low because of the higher base.

So, expectations of making windfall gains should be moderated. Does that mean that there are no multibaggers left in the market? The market always provides opportunities – but investors need to be patient rather than chase after the ‘next Infosys’ or the ‘next L&T’.

Making huge gains is what motivates small investors to enter the stock market. But more important than making huge gains is preserving capital. The best way to do that is to avoid some common mistakes small investors make near a market top.

Here are five of them:

1. Looking at the Sensex and Nifty levels on a daily basis

Sensex and Nifty should be looked at for determining the long-term trend in the market. An easy way to do that is to look at an index chart with the 200 day EMA superimposed on it. A rising 200 day EMA with the index trading above it indicates a bull market. A falling 200 day EMA with the index trading below it represents a bear market.

Unless you own the 30 Sensex stocks or the 50 Nifty stocks, knowing the precise levels of Sensex and Nifty are not of much consequence and induces needless greed or fear. It is the performance of your portfolio that you need to monitor. Your asset allocation plan should tell you which assets you should buy or sell or hold.

Don’t have an asset allocation plan? Better make one – otherwise your investment decisions will be based on hearsay and gut-feel, which are sure tickets for disaster!

2. Selling in a panic if the market corrects 5-10%

There is a tendency for stock markets to correct when indices hit levels with several zeros in them, e.g. Sensex at 30000 or Nifty at 9000. Many traders (and investors) prefer to sell (or buy) at such levels. Note how call and put options are written at 7600 or 8800 – never at 7562 or 8793!

Corrections are part and parcel of a bull market. Corrections of 5-10% are quite common. These should be taken in stride, and in fact, welcomed as opportunities to add more. If you sell off in a panic, you may either miss the next leg of the up move, or re-enter at higher levels.

3. Getting swayed by economic and/or political news

Various economic and political news – which may or may not affect the stock market – flow into the market on a daily basis. Some companies win a few coal blocks in the auction – their stock prices go up. The IIP number is lower than expectations, the market falls.

The trick to avoid getting influenced by news is to realise that the effect of most news lasts 2 to 3 days at most. Things return to normal soon. It is the actual performance of the companies you own (yes, you own a small ‘share’ of the company whose stock you purchase) that matter over the longer term.

4. Buying ‘cheap’ stocks because the good stocks are ‘too expensive’

Regardless of when you enter the market, good stocks will typically trade at a premium. This is more so near a market top. If a stock is trading at a ‘cheap’ valuation, there is usually a very good reason for it to do so. Remember that ‘cheap’ stocks have a tendency to get even ‘cheaper’ – often just after you buy a large chunk of it!

If you are not an expert stock picker, and are confused about which stocks to buy during the ongoing correction in the market, choose a good diversified equity fund or a balanced fund. And keep investing your surplus savings in the fund regularly. After a few years, you will be amazed at the fortune you have generated with very little effort.

5. Holding on to your losers in the hope of getting back your ‘buy price’

If your portfolio has losers – don’t feel ashamed or blame your luck. Despite careful selection processes, stocks fail to perform as per expectations or lose money.

The big mistake – and this is perhaps the biggest cause of loss for most small investors – is to keep holding on to the losers in the hope of getting back your ‘buy price’. If a stock is losing money near a market top, it is unlikely it will ever make any money. Remember that the market doesn't care about your ‘buy price’.

The best time to get rid of your losers is near a market top – when you may still find a buyer for them!

How To Manage & Maintain Investment Documents and Financial Papers

what problem the family faces when somebody dies without keeping any records of his/her investments? How to recover them etc. Now, we will know what are the documents required for each type of investing or saving, what document the company provides to you, how to keep the documents and give access to your family, etc. What are the common documents required for Saving and Investing?

PAN CARD – This is the first most important and almost mandatory document required for investing in any asset class in India. PAN number is frequently required for travelling abroad, buying Gold, Car, and property or opening a bank account, applying for a passport apart from normal investments. Remember, two-three things are very important here - Name, Date of Birth and your signature. The name should be correctly spelled else chances are everywhere your name will be wrong. Check the date of birth as it is a valid document for your age proof. Put in the same signature as you put elsewhere while applying PAN Cad as it also used as your signature proof. Needless to mention your father name should also be correct. Please note these informations are printed on the PAN Card. You should also give correct and complete address while applying PAN CARD as your INCOME Tax refunds are sent to this address only even if you give different address while submitting IT returns. Remember, the address is not printed on the PAN Card. In case of you find any details as wrong, do not worry as you can get them rectified by filing up the rectification form and submit with the proof of what you want to change – download fromhttp://www.incometaxindia.gov.in/Archive/ChangeForm.pdf.. You can also verify the details of your PAN athttps://incometaxindiaefiling.gov.in/portal/knowpan.do On-line applications can also be made athttps://tin.tin.nsdl.com/pan/index.html and/ or athttp://www.utitsl.co.in/utitsl/uti/newapp/newpanapplication.jsp

PASSPORT – This is another important document used commonly as you proof of identity, Date of Birth and address.

TELEPHONE (LANDLINE) & ELECTRICITY BILL – These are commonly used as your address proof while applying for PAN Card and Passport or open a bank account 

BANK ACCOUNT – These days in India, every investment requires your bank account details. The less number of bank accounts you have the better it is. Commonly asked document is your Cancelled cheque copy and photocopy of your bank statement or bank pass book. Nowadays, all maturity payments, redemptions, interest and dividends are directly credited to your bank account. Therefore, I suggest that you select one bank account for all your investments so that you can track what is coming and what is not?

KYC – This is another document which is a pre-requisite for investing in Mutual Funds. For doing a KYC your photograph, address and identity proof is required. A Mutual Fund Advisor will do the needful. However the status of same can be viewed at http://www.cvlkra.com/kycpaninquiry.aspx. KYC is also required for opening a share trading account but that is done separately while opening the account and it is built-in inside the account opening form.

IT RETURN COPY – After Submitting your Income Tax Return you get this acknowledgment copy which needs to be kept safely as these are frequently required for large value transactions, your foreign travels, sending your kids overseas for higher education and seeking personal, Home or education Loans. COMPUTATION OF YOUR INCOME/NETWORTH – Again, this is mandatory along with wherever your IT return copy is required. Without this you can not apply for Home, personal, educational or business loan. Now, let us discuss what documents do you get against which investment?

LIFE INSURANCE POLICY – A policy Bond/ document wherein a complete detail of the policy terms along with policy number, Nominee name etc. is printed. This document is very important as the original is needed in case of a claim or maturity.

GENERAL INSURANCE (example – Mediclaim, Car etc.) – A Policy certificate is issued by the company which is normally valid for one year. You get a new certificate each time you renew else the policy gets lapsed. Along with this you will also get a Card with your photo and insurer details for showing to the hospital. 

MUTUAL FUND – Here you don’t get a Bond instead you get an Account Statement which has a FolioNo. or Account No. Each Mutual Fund Company gives a different Folio number as per their system. Therefore if you have invested across 15 schemes of different companies then you will have minimum 15 statements. However, this can be reduced by maintaining multiple schemes of each company under one folio.

PUBLIC PROVIDENT FUND (PPF)– You should get the passbook updated at the beginning of each financial year (FY) – this gives you a complete picture of total contribution made in the entire FY including interest credited and the total balance lying at the end of the FY. Income Tax rebate can be claimed under section 80C (for the amount contributed during the FY – maximum contribution one can make is 100,000 per FY) by submitting a copy of this passbook.  

POST OFFICE SCHEMES – Like PPF, here also you get passbooks which need to be updated annually for the same reason as PPF. Some schemes do offer IT rebate therefore, you need to account them.

BANK ACCOUNTS – you either get a Quarterly or monthly statement or a passbook. This needs to be preserved for future and past references and in some transactions providing 6-12 months bank statement is mandatory. Needless to mention you also get the cheque book. Here, apart from the account number two more informations are very important – MICR CODE NO. this is a 9 digit number printed alongside the cheque no. and IFSC/RTGS Code, this is a 11 digit number printed on top of the cheque or on the first page of the cheque book. Remember these numbers are used frequently for on-line transactions as well as getting direct credits in your account.     

SHARE TRADING AND DEMAT ACCOUNT – Though you provide lot of documents here, but you only get the trading account code and demat account details from the Broker. You should insist and obtain a photocopy or scan of the entire set of documents or check with your broker as some provide links for downloading the documents from their websites. Now, we will discuss how to preserve or protect these documents? This is very simple but commonly avoided or neglected by investors and most of the time we do find them when required due to improper maintenance of records. Here, we have to use common sense. Each person might think differently in protecting or tracking them, but here are some simple ways – keep original copy of all the receipts scanned or photocopy in a file or folder. I suggest, for each policy one should maintain one file/ folder as you are supposed to keep all renewal receipts. You can keep the scan copies in separate folder in your computer. For each investment a seperate file should be maintained. Keep the Life Insurance policy Bond in your Bank Locker as you will not require them before maturity or claim  Keep all Passbooks and cheque books in one place under lock and key. Do not keep and blank signed cheque. Keep your Demat account book also under lock and key as these are like blank cheque and required when you sell some shares. Remember, not to keep the book with you broker Mediclaim policy card should be kept in a place where it can be accessed instantly during an emergency. If you do not provide the details during emergency/ admission in the hospital you will not be able to claim the medical expenses. Now, most important – Keep every details maintained in an excel file wherein monthly/ quarterly/ half-yearly/ Annual payments of Insurance premium and others should be maintained. Those not using excel should maintain all the details in a register. Those who are very familiar using computers and internet the best way is to scan all the documents and keep them in separate folders and put it in cloud using www. dropbox.com - Dropbox is a free service that lets you bring all your photos, docs, and videos anywhere. This means that any file you save to your Dropbox will automatically save to all your computers, phones and even the Dropbox website. Dropbox also makes it super easy to share with others, whether you're a student or professional, parent or grandparent. Even if you accidentally spill a latte on your laptop, have no fear! You can relax knowing that Dropbox always has you covered, and none of your stuff will ever be lost. Now, the last thing and the most important purpose for which this whole article is written. Share  the details with your family. I am not saying you give access of everything to every one! At least your spouse or your grown up children (on whom you depend or confide in) should know this. I think, we all invest or save and protect our families only, so what is the harm if they know? Let them not get horrified or face a horror story in case you are not there. 

Gold Loses the Shine in 2015.. What next in 2015 ?

The new year may see a further decline in gold prices as metal loses inflation-hedge appeal Gold is considered a physical store of wealth, as it gives an opportunity to investors to diversify the investment portfolio and acts as an inflation and currency hedge. Let’s assess how it fared in 2014 and what’s  in store. Year in review Spot gold prices started 2014 around the $1,200/oz mark, then headed higher towards $1,400 in mid-March. Russia’s military intervention in Ukraine, rising gold investor index and physical demand from China in the first quarter led the rally towards $1,400. After briefly touching $1,390 in mid-March, prices started to decline and, then, corrected downward towards $1,250 in June. From there on, prices started to rally again, touching $1,350 in mid-July. However, they lost steam from July onwards and corrected to the extent of $1,130 in the first half of November. A combination of factors contributed to this — consistent growth in the US economy, strength in the dollar index, waning demand and geo-political tensions. Declining inflationary trends on the back of falling crude dragged gold prices further. Outlook for 2015 Since oil prices have fallen to unsustainably low levels, the main cause of concern across the globe now is deflation. ECB is battling to revive the economy and the worry is whether cheap oil would send the euro zone into outright deflation. Japan is already printing money to prop its economy. However, the US economy is on a mend as the third quarter GDP growth came in at 5%, the strongest in 11 years. The US Fed has already tightened its monetary stance and the US economy is likely to be on track to raising interest rates sometime in 2015. The price trajectory would be dependent on the diverging policies of central banks across the globe. Investment demand with SPDR gold holdings is waning and is at a six-year low. While falling crude bodes well for the global economy, a falling inflationary scenario, reduces gold’s appeal as an inflation hedge. The growth in the US economy, falling inflation hedge appeal and strength in the dollar index at large will be the major factor for gold prices to head lower in 2015. For 2015, the upside potential for spot gold prices (CMP: $1175/oz) can be $1,340/oz while the downside can be seen at $1,090/oz. In the Indian markets, MCX gold futures (CMP: R26,602/10 gm) can move higher towards R30,000/10 gm while lower side can be seen at R24,400/10 gm. What should retail investors do? One should put 10-12% of the corpus in gold. The advice to retail investors would be to buy on every dip, taking into consideration the risk appetite, along with the complex set of factors revolving around the metal. Physical gold is worth holding because it’s a universal finite currency. On the other hand, it involves a number of costs. The advice would be to wisely allocate money in this commodity as over-exposure might hamper the overall return of the portfolio. By Naveen Mathur The writer is associate director, Commodities & Currencies, Angel Broking (from ONE Browser)

Are you NRI ? Keep This Point In Mind Before Making Any Investment In India

Real estate is the only sector that always snares the attention of non residents. With the deterioration of rupee value, India became as a conspicuous investment destination for NRI’s. Whether the realty market is hot or cool, NRI’s like to invest in India as the Indian realty market provides lucrative investment opportunities to non residents who want to invest in India. In addition, Indian Government is also coming up with new schemes to lure investors’ interest.

Nonetheless, the rules and regulations are a little bit complicated. The reason behind this is only to ensure genuine flow of money and to evade illegal transaction. Here are the few things that NRI’s ought to keep in mind before investing in Indian real estate market.

Confirm whether you come under NRI Category: The foremost thing that every Non-resident investor should do is to affirm whether he/she categorizes as a Non Resident Indian or not. Taking into account the residential status, the Indian Income Tax Act classified individuals in to two categories Residents and Non-Residents. Further, residents classified into ROR (Ordinary Residents) and Non Ordinarily-Resident (RNOR).

As per the Foreign Exchange Management Act (FEMA), a person of Indian origin will be considered as NRI, if the person He/she stays in India for a period of less than 182 days amid the preceding year (April to March) or stayed in abroad for more than 182 days for education, employment, business and other purposes.

Even if the individual is a foreign citizen, the person can also be treated on par with NRIs by considering as a person of Indian origin if he/she has an Indian passport or any of your family members like spouse, grandparents, and parents were Indian citizens.  The residents of Bangladesh and Pakistan are not qualified to be as NRIs.

Review the market situation: Due to the recession and economic down turn, many Indians working in abroad become anxious about their job security and financial stability. Do thorough research on financial situation and property rates to invest in India-home country. Consider exchange rates and tax associated with investment. The Indian realty market is performing great from last few decades, even in sluggish conditions also one can invest in India for better returns. Due to the sudden growth of the population, in Indian cities outskirt localities are also emerging as best performing areas.

Investment Destination: Once reviewed the market condition decide the investment destination where to invest by doing research online. Better to choose a property close to relatives and friends homes as this will make certain that a sale deed can be registered effortlessly. Furthermore, they will look over the property in the absence.

Home loans: Now a day, NRI can obtain a home loan for any type of property whether it is ready to move, under construction, property development on owned plot and renovations to existing property. To avail home loan Educational background plays a major role as only graduates can apply for Home loan. When choosing the bank consider maximum mount range. Some banks also allow equated monthly installments. Document requirements differ from bank to bank. Choose the bank which offers less interest rate.

Choose which bank Account to Repay: To attract the customers, many banks and financial institutions offers alluring offers and interest rates. To repay the loan amount choosing the type of account is important. For NRI’s there are three accounts, namely NRE, NRO and FCNR.

NRE (Non Residential External): In this account, funds in foreign currency are transformed into Indian Rupees. The exchange rate in the time of transaction will be used for conversion. The principal amount can be transferred easily to a foreign account.

NRO (Non Resident Ordinary): This type of account allows NRI to transfer Indian earnings and to deposit foreign funds. The interest income earned on the principal is subject to an income tax deduction in India. Tax deducted at source @ 30 percent with education cess and applicable surcharge. Funds in this account can’t be deported abroad.

FCNR (Foreign Currency Non-Repatriable): This FCNR account is a fixed deposit account in foreign currency and not a saving account.
Tax implications for both NRI and Indian Residents are very similar.

Points to Note: NRI can make an investment in any type of property except agricultural land without any limitations, but there are a few drawbacks. Any type of investment made by a non-resident in India is led by FEMA.  To secure the deal, NRI should consider the following factors.

- Property name ought to be clear without any issue and ensure that the owner has a right to sell the property.
- Ensure that there is no pending electricity and water bills, better to obtain no due certificate from the seller while purchasing.
- Make sure that the purchase agreement is filled with foreign particulars.
- NRI shouldn’t hold a property with another resident (Indian or foreign)
- NRI only can sell the property after completion of three year lock in period from the date of procurement.
- Returns obtained from investment cannot be repatriated to India as dividends.

Buying a residential property in the home-land is a dream for many NRI’s. Keep in mind and consider all the points for safe investment.