Benjamin Grahams principles to Invest

The famous investment guru, Benjamin Graham, once said, ‘Investment is most intelligent when it is most businesslike.’ Yet, if one were to take a look at the profile of an average investor in the equity markets, there emerges a very capable businessman who has gained success in his own business but has operated in the markets with complete disregard of all sound business principles of business. In this regard, let us take a look at some of these principles that have been completely violated in the markets, but if followed with discipline, would result into investors earning adequate returns.

The first of these principles, as given by Graham, is to ‘know what you are doing.’ This is similar to knowing your business. In the investing sense, this means that an investor should not try to make business profits out of his investments. More simplistically, this means that he should not try to earn returns in excess of normal interest and dividend income, unless he knows as much about his investments’ values as he would know about the value of his business. If he defies this basic principle, he is not an investor, but a speculator who is betting on his intuition without the adequate knowledge to back the same.

The second principle is ‘not letting anyone else run your business’ (stock market investment, in this sense) unless one is pretty sure of the integrity and ability (the management of a company or a mutual fund). This rule would help investors determine the conditions under which he entrusts his money for someone else to manage.

The third principle is for the investor to ‘undertake an investment only when a reliable calculation indicates that there is a fair chance for a reasonable return on the investment.’ More simply, based on this principle, an investor’s strategy for earning profits should be based on careful calculations and research rather than plain optimism. Not following this principle is equivalent to putting your principal to a considerable risk.

And finally, the most important principle is to ‘have the courage of knowledge and experience.’ This is to say that once you have arrived at a conclusion from the facts and careful calculations, you need to act on the same caring not much about what everyone else is doing (or betting on). This is discipline, the most important rule at the root of sound investing.

By following these principles and not giving in to greed/fear that rising/falling markets bring with them, you can ensure that the consequences of your mistakes would never be disastrous. And more importantly, you will not blame the stock markets for your losses. When that happens, no matter what the markets throw at you, you will always be able to say with much confidence.

Source : Equitymaster

8 investing tips ....

Equities: 8 investing tips

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on

Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-popping returns, it must be noted that these stocks have the potential to wipe out almost the entire invested capital. Another way greed affects investor behaviour is when they buy/hold stocks above the price justified by its fundamentals. Similarly, in a vice-versa scenario (bear market), investors must control their fear when stock markets turn unfavourable and stock prices collapse. Panic selling would serve no purpose and if the company has strong fundamentals, the stock is more than likely to bounce back.
It is apt to note here what Warren Buffet, the legendary investor, had to say when he was asked about his abstinence from the software sector during the tech boom, “It means we miss a lot of very big winners but it also means we have very few big losers…. We’re perfectly willing to trade away a big payoff for a certain payoff”.

Avoid trading/timing the market: This is one factor, which many experts/investors claim to have understood but are more often wrong than right. We believe that it is rather impossible to time the market on a day-to-day basis and by adopting such an approach, an investor would most probably be at the losers’ end at the end of the day. In fact, investors should take advantage of the huge volatility that is witnessed in the markets time and again. In Benjamin Graham’s (pioneer of value investing and the person who influenced Warren Buffet) words, “Basically, price fluctuations have only one significant meaning for the ‘true’ investor. They provide him an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times, he will do better if he forgets about the stock market”.

Avoid actions based on rumours/sentiments: Rumours are a part and parcel of stock markets, which do influence investor sentiments to some extent. However, investing on the basis of this could prove to be detrimental to an investors’ portfolio, as these largely originate from sources with vested interests, which more often than not, turn out to be false. This then leads to carnage in the related stock(s) leaving retail investors in the lurch. However, if we consider this from another point of view, when sentiments turn sour but fundamentals remain intact, investors could take the opportunity to build a fundamentally strong portfolio. This scenario is aptly described by Warren Buffet, “Be fearful when others are greedy and be greedy when others are fearful”.

Avoid emotional attachment/averaging: It is very much possible that the company you have invested in fails to perform as per your expectations. This consequently gets reflected on the stock price. However, in such a scenario, it would not be wise to continue to hold onto the stock/buy more at lower levels on the back of expectations that the company’s performance may improve for the better and the stock would provide an opportunity to exit at higher levels. Here it is advisable to switch to some other stock, which has promising prospects. In Warren Buffet’s words, “Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks”.

Avoid over-leveraging: This behaviour is typical in times of a bullrun when investors invest more than what they can manage with the hope of making smart returns on the borrowed money. Though this move may sound intelligent, it is smart only till the time markets display a unidirectional move (i.e. northwards). However, things take a scary turn when the markets reverse direction or move sideways for a long time. This is because it leads to additional margin calls by the lender, which might force the investor to book losses in order to meet the margin requirements. In a graver situation, a stock market fall could severely distort the asset allocation scenario of the investor putting his other finances at risk.

Keep Margin of Safety: In Benjamin Graham’s words, “For ordinary stocks, the margin of safety lies in an expected ‘earning power’ considerably above the interest rates on debt instruments”. However, having a stock with a high margin of safety is no guarantee that the investor would not face losses in the future. Businesses are subject to various internal and external risks, which may affect the earnings growth prospects of a company over the long-term. But if a portfolio of stocks is selected with adequate margin of safety, the chances of losses over the long term are minimised. He further points out, “while losing some money is an inevitable part of investing, to be an ‘intelligent investor,’ you must take responsibility for ensuring that you never lose most or all of your money.”

Follow research: The upswing in the stock markets attracts many retail investors into investing into equities. However, picking fundamentally strong stocks is not an easy task. In fact, it is even more difficult to identify a stock in a bullish market, when much of the positives are already factored into the stock price, making them an expensive buy. It is very important to understand here that owning a stock is in effect, owning a part of the company. Hence, a detailed and thorough research of the financial and business prospects of the company is a must. Given the fact that on most occasions, research is influenced by vested interests, the need of the hour is unbiased research. Information is power and investors need to understand that unless impartially represented (in the form of research) it could be misleading and detrimental in the long run.

Invest for the long-term: Short-term stock price movements are affected by various factors including rumours, sentiments, market perception, liquidity, etc, however, in the long-term, stock price tends to align themselves with its fundamentals. Here it must be noted what Benjamin Graham once said, “…in the short term, the market is a ‘voting’ machine (whereon countless individuals register choices that are product partly of reason and partly of emotion), however in the long-term, the market is a ‘weighing’ machine (on which the value of each issue (business) is recorded by an exact and impersonal mechanism).”
Of course, it must be noted that the above list is not exhaustive and there may be many more points that an investor needs to understand and follow in order to be a successful investor. Further, the above points are not just a read but needs to be practiced on a consistent basis. While making wealth in the stock markets was never an effortless exercise, it becomes all the more difficult when stock markets/stock prices are at newer highs.

Source : Equitymaster.com

Stock split ...... What's that?

Sure does sound funky. But a stock split happens quite often.
And, what it means is rather direct. Your stock actually gets split.
To understand what a stock split is and how it impacts you, read on.

• First understand what a share is

Any business has a lot of assets: machinery, buildings, land, furniture, stocks, cash, investments. It will also have liabilities. This is what the company owes other people. Bank loans, money owed to people from whom things have been bought on credit, are examples of liabilities. Take away the liabilities from the total assets, and you are left with the capital. Assets - Liabilities = CapitalCapital is the amount that the owner has in the business. As the business grows and makes profits, it adds to its capital. This capital is subdivided into shares.
So if a company's capital is Rs 10 crore (Rs 100 million), that could be divided into 1 crore (10 million) shares of Rs 10 each. So, if you own 100 shares of Gujarat Ambuja Cement, for example, you own a very small part -- since Gujarat Ambuja has millions of shares -- of the company. You own a share of its assets, its liabilities, its profits, its losses, and so on.

• How is this share valued?

If the company has divided its capital into shares of Rs 10 each, then Rs 10 is called the face value of the share.
When the share is traded in the stock market, however, this value may go up or down depending on supply and demand for the stock. So the price of Company X shares will go up and down depending on the demand for Company X stock.
If everyone wants to buy the shares, the price will go up. If nobody wants to buy them, and many want to sell the shares, the price will fall.
The value of a share in the market at any point of time is called the price of the share or the market value of a stock. So the share with a face value of Rs 10, may be quoted at Rs 55 (higher than the face value), or even Rs 9 (lower than the face value).
If the number of shares in a company is multiplied by its market value, the result is market capitalisation.

• Now you will understand what a stock split is

The face value of a company's shares may be Rs 100.The company may want to change the face value. So it will take one share of Rs 100 and make it two. So now, the face value of each share is Rs 50. If you owned one share, you will now own two. So basically, the number of shares have increased. But, the number of shareholders have not. The number of shareholders are the same. It is just that the number of shares they own has doubled.

• Who will get the additional shares?

The company announces the split ratio on a particular date called the record date. All shareholders whose names appear on the company's records as on the record date will be eligible for the additional shares. A few weeks later, the shares will start trading ex-split on the stock exchanges.

• How is it different from a bonus?

Earlier I had mentioned that cash reserves form part of the company's assets. Now when these reserves get large, the company may decide to convert it into shares. These shares are then given free of cost to the investors. So when you get a bonus, the number of shares you own increases at no cost to you.
A stock split is somewhat like a bonus in the sense that, when a Rs 10 stock is split into two Rs 5 shares, the number of shares you hold doubles at no cost to you. But that is where the similarity ends. A bonus is a free additional share. A stock split is the same share split into two.In a stock split, the number of shares increases but the face value drops (the face value never changes for a bonus shares). So a stock split is just a technical change in the face value of the stock. There is no other change in the company.

• How does this impact you?

In one way, nothing has changed. It's like cutting an 8-inch pizza into 12 slices from four slices before. But, if you want to buy the shares of a company which are frightfully expensive, you can now buy them for less.
For example, the face value of the shares of Rs 100 will now be Rs 50 (above example). So, if the share was quoting at Rs 200 (when face value was Rs 100), it will now quote at Rs 100 (since the face value is now Rs 50).So, those who could not afford to buy the shares at Rs 200, may now be able to buy it at Rs 100. But this is just in theory. Chances are that instead of the stock quoting at Rs 100, it may quote at Rs 120. Sometimes, the stock price of a company goes up after a stock split because demand for those shares increase. More investors may want that stock since they can afford it. For instance, JB Chemicals & Pharma split the face vaue of its stock from Rs 10 to Rs 2, by a four for one split April 5. So for every one stock you held, investors got four new ones. What happened to the price of the stock? It was Rs 451 before the split and adjusted to Rs 90 after the split. The stock did go up, however, from around the Rs 400 level to Rs 451 before the split. Balrampur Chini's split the face value of its stock from Rs 10 to Rs 1 on March 23, sending its stock down from Rs 681 before the split to Rs 68 after it. The stock had moved up from Rs 637 to Rs 668 in the month before the split.The Gammon India stock split on March 15 led to the face value of the stock going down from Rs 10 to Rs 2. The stock was Rs 1,235 before the split, coming down to Rs 247 afterwards. It had moved up from around the Rs 870 level to Rs 1,235 a month before the split.
So do note, if you are an investor in the company, you have reason to celebrate when you get a bonus. No reason to celebrate when your stock is split.
But, if you want to buy more shares, then it is good news because now you will be able to afford them or at least get them cheaper.

2011 BUDGET HIGHLIGHTS

* Fiscal deficit for FY11 at 5.1% ; FY12 seen at 4.6%
* Personal income tax exemption limit for individual tax payers raised to Rs 1.8 lakh from Rs 1.6 lakh.
* Tax exemption limit for senior citizens increased to Rs 2.5 lakh from Rs 2.4 lakh
* Eligibile age for senior citizens reduced to 60 years against 65 years
* No new tax exemption limits for women
* Tax exemption limit for ‘very senior’ citizens over 80 years at Rs.5 lakh
* SEZ to come under MAT.
* MAT raised to 18.5% v/s 18%
* Corporate surcharge reduced to 5% from 7.5%
* FY11 Fiscal deficit at 5.1%; F12 at 4.6%
* AC restaurants serving liquor to pay service tax
* Direct Tax Code (DTC) to be effective from April 01, 2012
* Divestment target at Rs.40,000 crore for FY12
* SEBI registered mutual funds permitted to accept subscription from foreign investors
* FII limit for investment in corporate bonds in infrastructure sector raised from US$20 bln to US$40bln
* SIDBI to create India Microfinance Equity Fund of Rs. 100 crore
* Special incentives for hybrid vehicle makers if Made in India
* Health Check-Ups in Private hospitals to become expensive
* Rs 52,057 cr for education sector
* Rs 58,000 cr to Bharat Nirman projects
* Social projects spending outlay up 17%
* 24% increase in educational allocations
* Rs 30K crore tax free bonds for railways, NHAI
* To tax life insurance service providers
* Servcie tax on hotel accommodation above Rs 1,000 per day
* Domestic travel to pay Rs 50 service tax, Rs 250 on international travel
* AC hospitals with more than 25 beds under service tax
* Import duty on gypsum and coal from 5% to 2.5%
* Fertiliser sector to get infrastructure status
* 7 Mega clusters for leather products to be set up
* Rs.200 crore for cleaning of rivers
* 7 Mega clusters for leather products to be set up
* 23.3% increase in allocation for infrastructure

How To Invest in Mutual Funds ?

Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.

Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.

Non-Resident Indians (NRI) can also invest in mutual funds. Normally, necessary details in this respect are given in the offer documents of the schemes.

Mutual Funds Performance

The performance of a Mutual Fund is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place


The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.

The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.

Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.

Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.

On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme

Types of Mutual Funds

Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund

An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund

A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Fund according to Investment Objective:

A scheme can also be classified as growth fund, income fund, or balanced fund considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

CAPM - Capital Asset Pricing Model

CAPM FORMULA

The linear relationship between the return required on an investment (whether in stock market securities or in business operations) and its systematic risk is represented by the CAPM formula.

Formulae Sheet:

E(ri) = Rf + βi(E(rm) - Rf)

E(ri) = return required on financial asset i

Rf = risk-free rate of return

βi = beta value for financial asset i

E(rm) = average return on the capital market

The CAPM is an important area of financial management. In fact, it has even been suggested that finance only became ‘a fully-fledged, scientific discipline’ when William Sharpe published his derivation of the CAPM in 1986

Financial Statement Analysis:

Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account.

There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis.

Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements.

Tools and Techniques of Financial Statement Analysis:

Following are the most important tools and techniques of financial statement analysis:

Horizontal and Vertical Analysis

Ratios Analysis

1. Horizontal and Vertical Analysis:

Horizontal Analysis or Trend Analysis:

Comparison of two or more year's financial data is known as horizontal analysis, or trend analysis. Horizontal analysis is facilitated by showing changes between years in both dollar and percentage form.

Trend Percentage:

Horizontal analysis of financial statements can also be carried out by computing trend percentages. Trend percentage states several years' financial data in terms of a base year. The base year equals 100%, with all other years stated in some percentage of this base

Vertical Analysis:

Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as well as in dollar form. Each item is stated as a percentage of some total of which that item is a part. Key financial changes and trends can be highlighted by the use of common size statements.

2. Ratios Analysis:

Accounting Ratios Definition, Advantages, Classification and Limitations:

The ratios analysis is the most powerful tool of financial statement analysis. Ratios simply means one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another.

Profitability Ratios:

Profitability ratios measure the results of business operations or overall performance and effectiveness of the firm. Some of the most popular profitability ratios are as under:

Gross profit ratio

Net profit ratio

Operating ratio

Expense ratio

Return on shareholders investment or net worth

Return on equity capital

Return on capital employed (ROCE) Ratio

Dividend yield ratio

Dividend payout ratio

Earnings Per Share (EPS) Ratio

Price earning ratio

Liquidity Ratios:

Liquidity ratios measure the short term solvency of financial position of a firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm's ability to meet its current obligations. Following are the most important liquidity ratios.

Current ratio

Liquid / Acid test / Quick ratio

Activity Ratios:

Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios are also called turnover ratios because they indicate the speed with which assets are being turned over into sales. Following are the most important activity ratios:

Inventory / Stock turnover ratio

Debtors / Receivables turnover ratio

Average collection period

Creditors / Payable turnover ratio

Working capital turnover ratio

Fixed assets turnover ratio

Over and under trading

Long Term Solvency or Leverage Ratios:

Long term solvency or leverage ratios convey a firm's ability to meet the interest costs and payment schedules of its long term obligations. Following are some of the most important long term solvency or leverage ratios.

Debt-to-equity ratio

Proprietary or Equity ratio

Ratio of fixed assets to shareholders funds

Ratio of current assets to shareholders funds

Interest coverage ratio

Capital gearing ratio

Over and under capitalization

Financial-Accounting- Ratios Formulas:
A collection of financial ratios formulas which can help you calculate financial ratios in a given problem

Limitations of Financial Statement Analysis:

Although financial statement analysis is highly useful tool, it has two limitations. These two limitations involve the comparability of financial data between companies and the need to look beyond ratios.

Advantages of Financial Statement Analysis:

There are various advantages of financial statements analysis. The major benefit is that the investors get enough idea to decide about the investments of their funds in the specific company. Secondly, regulatory authorities like International Accounting Standards Board can ensure whether the company is following accounting standards or not. Thirdly, financial statements analysis can help the government agencies to analyze the taxation due to the company. Moreover, company can analyze its own performance over the period of time through financial statements analysis.

EPF can make you a crorepati

Don't you hate it when you look at your salary slip and find that sundry deductions have pared it down. But believe us, you should actually feel happy about one of these deductions-the monthly contribution to the Employees' Provident Fund (EPF). The 12% of your basic salary that flows into the EPF every month has the potential to make you a crorepati when you retire.

Sounds unbelievable? After all, the investment seems too small and the interest rate offered doesn't seem too high. But don't forget that a matching contribution comes from your employer every month. Don't also underestimate the power of compounding and what it can do to your retirement savings over the long term. As the graphic above shows, the 8.5% interest earned on the EPF can help a person with a basic salary of Rs 25,000 a month accumulate a gargantuan Rs 1.65 crore in 35 years.

The Direct Taxes Code had initially proposed that new contributions to the EPF be taxed on withdrawal. However, the revised draft has once again made EPF fully exempt. This makes it the best debt option available in the market.

In fact, the EPF can single-handedly account for the debt portion of your financial portfolio. You need not invest in tax inefficient fixed deposits or worry about which debt fund to invest in. All you need to ensure is that you don't ever withdraw from your EPF account till you hang up your boots. If at any stage you find that your debt portion is lagging, you can add more through a voluntary increases in your contribution.

However, few people are able to reach even the Rs 1 crore milestone in their careers. EPF rules allow encashment of the accumulated corpus when a person quits a job and it's not uncommon for people to withdraw their PF at that stage.

This is despite the fact that the government discourages you from withdrawing the money. The withdrawals from the EPF within five years of joining are taxable. The tax will be minimal if the person is jobless and has no significant income from other sources but he won't completely escape the tax net. "When you withdraw you do not let the power of compounding to come into play," cautions Suresh Sadagopan, a Mumbai-based financial planner.

Transfer, don't withdraw - Instead of withdrawing money from the EPF on switching jobs, one should transfer the balance to the new account with the new employer. This does not happen automatically. You need to fill a ‘Form 13' and deposit it with the EPFO. Financial advisers recommend that you put this down among the list of priorities at the new workplace. "You should take up the matter with new organization as soon as you join. With passage of time you might get busy. Also, if your previous organization has lost the records, you could face a hard time looking for your PF details," adds Sadogapan.

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What if you don't transfer - Till now, there was no compelling reason to transfer the money from an old account to a new one. Even if you stopped putting money in your account, the balance kept earning interest till the time of withdrawal. This will stop from April 2011. After three years of inactivity, the balance will stop earning interest.

Even otherwise, multiple accounts can be a pain. They only add to your paperwork because you need to keep records of different accounts. Also, you will need to fill up separate forms to withdraw the money from the accounts. The process gets more cumbersome if accounts are located in different cities. "Transferring the balance not only makes it easy to transact, but also gives the subscriber a better idea of how much he has in his account.

In future the social security number, which is in progress, would make EPF portable. "Once this number is allotted to members, they need not switch the funds. The new employer would make the contributions into that account. It will be completely independent of the workplace," he adds

Understanding Balance Sheet

A balance sheet, also known as a "statement of financial position", reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements. If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.

How the Balance Sheet Works

The balance sheet is divided into two parts that, based on the following equation, must equal (or balance out) each other. The main formula behind balance sheets is:

assets = liabilities + shareholders' equity

This means that assets, or the means used to operate the company, are balanced by a company's financial obligations along with the equity investment brought into the company and its retained earnings.

Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owners' equity, referred to as shareholders' equity in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings, and it represents a source of funding for the business.

It is important to note, that a balance sheet is a snapshot of the company’s financial position at a single point in time.

Know the Types of Assets

Current Assets

Current assets have a life span of one year or less, meaning they can be converted easily into cash. Such assets classes are: cash and cash equivalents, accounts receivable and inventory. Cash, the most fundamental of current assets, also includes non-restricted bank accounts and checks. Cash equivalents are very safe assets that can be are readily converted into cash such as Treasuries. Accounts receivable consists of the short-term obligations owed to the company by its clients. Companies often sell products or services to customers on credit, which then are held in this account until they are paid off by the clients. Lastly, inventory represents the raw materials, work-in-progress goods and the company’s finished goods. Depending on the company, the exact makeup of the inventory account will differ. For example, a manufacturing firm will carry a large amount of raw materials, while a retail firm caries none. The makeup of a retailers inventory typically consists of goods purchased from manufacturers and wholesalers.

Non-Current Assets

Non-current assets, are those assets that are not turned into cash easily, expected to be turned into cash within a year and/or have a life-span of over a year. They can refer to tangible assets such as machinery, computers, buildings and land. Non-current assets also can be intangible assets, such as goodwill, patents or copyright. While these assets are not physical in nature, they are often the resources that can make or break a company - the value of a brand name, for instance, should not be underestimated.

Depreciation is calculated and deducted from most of these assets, which represents the economic cost of the asset over its useful life.

Learn the Different Liabilities

On the other side of the balance sheet are the liabilities. These are the financial obligations a company owes to outside parties. Like assets, they can be both current and long-term. Long-term liabilities are debts and other non-debt financial obligations, which are due after a period of at least one year from the date of the balance sheet. Current liabilities are the company’s liabilities which will come due, or must be paid, within one year. This is comprised of both shorter term borrowings, such as accounts payables, along with the current portion of longer term borrowing, such as the latest interest payment on a 10-year loan.

Shareholders' Equity

Shareholders' equity is the initial amount of money invested into a business. If, at the end of the fiscal year, a company decides to reinvest its net earnings into the company (after taxes), these retained earnings will be transferred from the income statement onto the balance sheet into the shareholder’s equity account. This account represents a company's total net worth. In order for the balance sheet to balance, total assets on one side have to equal total liabilities plus shareholders' equity on the other.

Another interesting aspect of the balance sheet is how it is organized. The assets and liabilities sections of the balance sheet are organized by how current the account is. So for the asset side, the accounts are classified typically from most liquid to least liquid. For the liabilities side, the accounts are organized from short to long-term borrowings and other obligations.

Analyze the Balance Sheet with Ratios

With a greater understanding of the balance sheet and how it is constructed, we can look now at some techniques used to analyze the information contained within the balance sheet. The main way this is done is through financial ratio analysis.

Financial ratio analysis uses formulas to gain insight into the company and its operations. For the balance sheet, using financial ratios (like the debt-to-equity ratio) can show you a better idea of the company’s financial condition along with its operational efficiency. It is important to note that some ratios will need information from more than one financial statement, such as from the balance sheet and the income statement.

Time for Tax Planning

It is now the time of the year when one should start the tax planning process. With four months in hand, you have sufficient time to properly plan out your needs. Of particular relevance to tax payers are the different options provided under Section 80C of the Income Tax Act. The section contains various instruments which can be invested in by the taxpayer in order to save on tax.

However, it is to be noted that there are certain conditions and limits subject to which the investments can be made.

Further, the income form these instruments my further be or not be taxable. Accordingly, the choice would be different for different tax payers. Evaluate the various governing factors before taking a decision.

DO not choose the instruments blindly

While doing the tax planning exercise, it is important to note that one does not choose the instruments blindly. One should also keep in mind factors like rate of return, lock in period, taxability of the income earned on the instruments, flexibility of withdrawal in case of need, tenure, inflation rate and so on.

In some cases, one may save on tax in present terms, but in the long term, may erode capital in terms of inflation. In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act.

Investments made under such schemes come under section 80C. Under this section, one can invest a maximum of Rs l lakh. In case one is in the highest tax bracket of 30%, you save a tax of Rs 30,000. Click NEXT to know the various investment options under this section.Welcome to Indian Share MarketYour Desire to EarnResearched Stocks Free Technical Charts Readers Our Target Demat A/C Opening Contact us (Posted date - 08 Dec 2010)Home page Get Free Advice Useful Sites Free Subscription Public

Provident Fund, Provident Fund and Voluntary Provident Fund

An account with a nationalized bank or post office offers a tax-free interest of 8% and the maturity period is 15 years. The minimum contribution is Rs 500 and the maximum is Rs 70,000. The interest is tax free.

Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments.

You can also contribute additional amounts through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free.

Life insurance premium

Any amount that you pay towards life insurance premium for yourself, your spouse or your children can be included in section 80C deduction. If you are paying premium for more than one insurance policy, all the premiums can be included.

Besides this, investments in unit-linked insurance plans (ULIPs) that offer life insurance with benefits of equity investments are also eligible for deduction.

Five-year bank fixed deposit, National Savings Certificate

Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are also entitled for section 80C deduction.

These are six-year small savings instrument, where the rate of interest is 8%, compounded half-yearly. The interest accrued every year is also deemed to be reinvested and thus eligible for section 80C deduction.

Equity-linked savings scheme, Home loan principal repayment

Mutual funds offer you specially-created tax saving funds called ELSS. These schemes invest your money in equities and hence, return is not guaranteed. Money invested is locked for a period of three years.

The principal portion of the EMI qualifies for deduction under Section 80C. Stamp duty and registration charges The amount you pay as stamp duty when you buy a house and the amount you pay for registration of the house can be claimed as deduction under section 80C. However, this can be done only in the year of purchase of the house. Children’s education expenses

These can be claimed as deductions under Section 80C. One would need to keep the receipts to claim the same.

Infrastructure bonds

In addition to the Rs 1 lakh limit, one can also claim an additional deduction of Rs 20,000 by investing in infrastructure bonds issued by specified financial institutions.

The interest earned on these bonds is subject to tax.

NHPC IPO Allotment Status

The NHPC IPO allotment is done.
Please check the NHPC IPO allotment status here.

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Rallis India

Rallis India, a Tata Enterprise, is one of India’s leading agrochemical player with 13% share in domestic market. Company is engaged in manufacture, trading and export of pesticides, plant growth nutrients (PGN) & seeds and seeds chemicals in India and internationally. Rallis is known for its quality agrochemicals, branding, marketing expertise and its strong and comprehensive product portfolio catering to a wide variety of crops. Its biggest strength is connection with farmers. Company has excellent manufacturing capabilities and ability to develop new processes and formulations supported by capability to register new products. On institutional side, Rallis provides technical and bulk of various molecules to leading companies like Bayer, Syngenta, Excel, UPL, Gharda, Cheminova, Dhanuka, Nagarjuna and other Agrochemical manufacturer.ñ Shortage of area under cultivation, increasing population, higher demand from emerging markets, usage of land to produce biofuels and feeds for animals etc. has led to food shortage. To improve food output, there will be increased focus on improving crop nutrition as well as crop protection. Moreover as food prices continue to remain high, farmers will invest more in fertilisers and agrochemicals. Agrochem industry, which is ~ Rs.4,000 crore, has good scope to grow. Rallis has taken a number of initiatives for sizeable growth in domestic as well as export sales of agrochemicals and high margin seeds / PGN segments and is all set to take advantage of emerging opportunities in growing agrochem industry.ñ In line with its thrust on new product development, Rallis has introduced 3-4 new products every year since last 3-4 years. In FY08, company launched 5 new products including Takumi, Sedan, Ishaan, Royal and Tebuconazole which were well received. New products constituted 30% of FY 2008 turnover. Company has obtained registration for 5 new products, of which 4 has been commercialised. 3 dossiers have been submitted for registration. Several products are at various stages of development and improvement plans for exiting products are also underway to improve company’s competitiveness.

It has entered into strategic long term alliances with research based MNC agrochemical companies and Japanese companies like FMC, Nihon Nohyaku, DuPont, Syngenta, Makhteshim Chemical Works and Bayer India, Borax International for bringing in new molecules and new formulation technologies for commercialization in India. Going ahead Rallis will continue to focus on growing and building its existing alliances which will enable it to continuously enrich its product offering based on changing market needs and enhancing value of its service to customers.

Company has around 25-28% stake in Advinus Therapeutics Pvt. Limited, a TATA group company engaged in Pharma and Agro Chemicals R&D. Advinus will be undertaking business of Drug Discovery and Pharmaceutical Development Services. There are major products under development.ñ To de-risk its domestic business, Rallis is focusing on growing its international business and aims to invest in registrations, which will bring more scalability. In FY 08, Rallis broke new grounds and obtained a joint registration for one of its key product in the US market. In FY 2008 exports were Rs 160 crore (Rs 153 crore) which represents ~23% of Net Sales. In next 5 years, Rallis aims to increase exports to ~50% of sales. Further company is strengthening its international presence and establishing new capacities for contract manufacturing.ñ Company is planning to set up formulations unit in Jammu & Kashmir @ capex of Rs. 20-30 crore and agrochemical facility in Dahej. This is a big project where Rallis plans to manufacture pesticide intermediates. New facility at Dahej may also act as a contract manufacturer for overseas agrochemical makers as well as for manufacturing pharmaceutical ingredients.ñ Rallis is planning to enter household pest control market, estimated at Rs 1,600 crore, and is dominated by companies like Godrej Sara Lee, Reckitt Benckiser, SC Johnson and Jyothi Laboratories. Earlier, company use to market insecticides under “Tik20” brand. Now it has stopped selling Tik20 and Moosh Moosh, rodent controller in the market. However, it does contract manufacturing for leading house hold pest control companies and recently launched Termex (insecticide for white ants control), Sentry (for mosquito control) and Ralli Gell (for cockroaches) catering to government institutions. Company has posted fantastic results for FY 2008. Net sales increased by 7.6% to Rs. 692.15 crore. OPM% improved significantly to 11.5% (5.8%) driven by higher volumes of its key brands during the year along with continued focus on value creating processes. Higher Sales, improved margins coupled with lower interest cost of Rs.3.66 crore, led to 300.2% spurt in PBT (before extraordinary items) of Rs 63.79 crore. After accounting for higher exceptional income (net of accelerated depreciation) due to profit on sale of land of Rs. 82.38 crore (Rs.39.07 crore), PAT zoomed to Rs.125.19 crore.

Punj Lloyd (PLL)

PLL is the 2nd largest Engineering and Construction (E&C) company in India providing integrated design, engineering, procurement, construction and project management services for energy and infrastructure sector projects with operations spread across many regions in Middle East, Caspian, Asia Pacific, Africa and South Asia. Its services include laying pipelines, building roads, construction of refineries & tankages, power plants and other infrastructure facilities. PLL is aggressively expanding its business offerings and spreading its reach in newer markets thru inorganic and organic route. Further a vibrant domestic infrastructure, ongoing global energy capes and rising industrial capex poise for higher growth.

In FY 2007, PLL acquired 100% stake in Sembawang Engineering & Construction (SEC) - Singapore, to scale up its global presence as well as expertise in upstream oil & gas, airports, jetties, MRT / LRT and tunneling amongst others, in infrastructure domain, pre-qualifying PLL for larger and more complex project bids. Simon Carves (SC) is 100% subsidiary of SEC specializing in design, engineering and construction of manufacturing plants for Pharma, Petrochemicals downstream products and Industrial chemicals such as Sulphuric Acid, etc.

PLL has also entered into joint ventures with Saudi Arabia (for on shore & off shore projects), Germany (developing innovative insulation solutions) and with Swissport International (for foraying into aviation sector in India), all of which will further enhance its scale and competitive position globally.

Company has acquired 22.23% stake in Pipavav Shipyard. As PLL also works as EPC contractor in exploration & production of oil & gas area, it would gain access to facilities at Pipavav Shipyard for fabrication of vessels for petrochemicals and refineries. Growth in shipyard industry is expected to be over 30% p.a. in next few years. To finance this acquisition, company has placed 2.96 crore shares at Rs 275/- each with private equity funds aggregating Rs 814 crore. Post placement, equity capital has increased to Rs 58.18 crore (Rs 52.25 crore).

It has also signed MOU with Ramprastha group for development of large real estate projects in National Capital Region, where it can leverage Sembawang’s expertise in master planning, design and construction of residential complexes & townships and use advanced integrated pre-cast systems for faster project execution.

In FY 2008, Punj Lloyd Upstream (PLUL) was incorporated for providing on-shore integrated drilling services to exploration & production companies in domestic oil & gas sector. Drilling requirements under NELP coupled with high crude oil prices have resulted in substantial increase in requirements of Integrated Drilling Services (IDS). The new subsidiary will address huge demand : supply gap with deployment of two onshore drillings rigs by early 2008 and fleet shall be periodically increased for PLUL to become a significant player in IDS space.© Punj has acquired 74% stake in UK firm Technodyne International, a specialist engineering, design and consultancy company specializing in large scale cryogenic and high pressure tanks. With projects executed across the world, Technodyne carries out basic design & detailed engineering for complete steel and steel plus concrete tanks including associated piping, instrumentation and electrical systems. Technodyne also has track record in designing of test rigs. Acquired capabilities enable Punj Group to provide end-to-end solutions for complete delivery of complex cryogenic, high pressure LNG, LPG, ethylene, ammonia and other similar storage tanks, significant growth area in Oil & Gas sector. The capabilities will also be leveraged for design of refinery and petrochemical projects.For FY 2008, consolidated turnover was Rs 7,753 crore (+ 51.2%). OPM% expanded to 8.26% (7.3%). Consequently, PAT shot up by 82% to Rs 358.42 crore. Going ahead outlook continues to be strong driven by robust order book at Rs 19,596 crore as on May 30, 2008 and group’s strong presence in key geographies especially Asia and Middle East.