A low P/E does not mean that the share is cheap
Mr. Chaturvedi is a businessman and also takes keen interest in the stock markets. He has a varied portfolio of stocks which he tracks in his free time. He gets most of the investment tips by reading financial newspapers and through business news TV channels. Last week, there was a sudden dip in the stock index owing to which shares of a few known companies were available at a lower market price. One of the industry experts on one of the TV channels recommended a few shares for investment as they had a low P/E and were trading at a discount due to the market correction. Satisfied with the explanation and glad to have been able to time the market effectively, Mr. Chaturvedi promptly invested in the recommended shares.
Was he right in doing this or should he have done more research? Let us analyse this.
Ensuring a smooth intergenerational transfer
Life is uncertain, and one is always worried about leaving behind enough to ensure financial security for the family in case he or she is not around to take care of them. Apart from ensuring that one is adequately covered with life insurance and planning investments and savings for the future, it is also important to ensure smooth transition of finances and benefits to the family in the event of an untimely demise of the primary earning family member.
Some lesser known facts about PPF
The Public Provident Fund (PPF) is one of the most popular long term investment options in the fixed income category due to its attractive features like income tax rebate of up to Rs 1 lakh of investment per year u/s 80 C, tax –free interest of 8 % pa and the maturity amount being tax free u/s 10 ((10) D).While these are the commonly known facts about the PPF, here are some lesser known features you should be aware of –
What happens if you put all your eggs in one basket
“Don’t put all your eggs in one basket”
This is an old proverb which has been used over the years in all contexts including investments. Its applicability to your investments is not just about diversifying your portfolio by investing in various asset classes. What is more significant is the fact that these asset classes are not perfectly positively co-related to each other and their volatility and returns are driven by different market factors.
To understand this better let us consider the four main asset classes an investor usually invests in-
Equity, Debt, Gold and Real Estate
Equity and Gold – They are known to be negatively co-related to each other. During the secular downtrend in equity markets during the period 2007 – 2009, most equity investors lost money on their equity investments but gold prices went up significantly. Hence an investor with an exposure to both equity and gold in this period would have fared much better than someone who invested only in equity.
Equity and Debt – Though in the long run an equity market’s growth represents the country’s economic growth, they tend to be volatile in the short term, while debt markets even out this risk with their steady and consistent returns. Historically there have been periods where equity and debt have had an inverse relationship. When the dotcom bubble burst and the stock markets hit an all time low in 2000-2001,interest rates in India were on the higher side – in the range of 11%-13 % p.a.
Real Estate – Real estate has a very low co-relation with stocks and hence is an important avenue for diversification after the required exposure to stocks. Real estate has an inverse relationship with interest rates. Low interest rates in the economy boosts real estate investments. Hence during such periods, an investor who is mainly exposed to debt may not be able to beat inflation, but an investor who has invested in both will witness a rise in the value of his real estate investments which will compensate for his low yielding debt portfolio.
Hence not putting all your eggs in one basket and prudently distributing your investments among these asset classes ensures that whatever be the economic scenario, you will never end up with a situation of all your investments performing poorly.
These credit card transactions could cost you dearly!
Ease of transaction and increase in purchasing power are two of the main reasons for the growing popularity of credit cards today. This, coupled with the aggressive marketing by the credit card issuers with all of them competing with each other to issue cards with attractive offers like no joining and annual fee and other freebies have ensured that most people own at least one. While credit cards sure make our life easier, the following credit card transactions could prove to be expensive-
Why women should take active interest in their families’ finances
Mr. and Mrs. Sharma are senior citizens leading a peaceful retired life. Their children are all well settled with families of their own. Mr. Sharma, being a Chartered Accountant takes full care of the family’s finances. Then, all of a sudden he passes away after a brief illness. This leaves Mrs. Sharma in a very difficult situation. Not only does she have to deal with the emotional trauma of losing her life partner at this stage of life, she also has to deal with all their investments and finances. Mr. Sharma being an investment savvy person, has a diversified portfolio consisting of stocks, Mutual Funds, Pension Plans, Insurance, Bonds etc. Knowing her husband to be professionally more qualified, Mrs. Sharma left all the investment decisions to her husband and now has no clue how to go about handling these herself.
Such situations are not uncommon in occurrence. Most of us would have seen it happening to either our friends, acquaintances, relatives and few of us would have even gone through it personally.
Isn’t it ironical that women today are educated and handle almost all the day to day finances of the family including paying the regular household bills, kids’ school fees and other household expenses ; yet very few of them participate in the key investment decisions or are even aware of them ?
Why this happens –
Finance and investments in India traditionally has been a male dominated field. Men still prefer to take the major investment decisions themselves, either because they feel the woman will not understand, or they do not want to burden their spouses who already have their hands full taking care of the house and children. Sometimes, this is also supported by the woman who is more than happy to let her husband handle it.
To stress upon the need for women to be in the know of the families’ finances, here are some statistics:
- Women live longer than men. One out of every four women are on their own by the age of 65, either by widowhood or legal separation from their spouses.
- Eight out of every ten women are forced to manage their own finances at some point in their lives.
- Women are either home makers or they earn less that their husbands and have to rely on their husbands’ pension or their children during their retirement years.
- Women face equal risk of health related illnesses as men, which have to be provided for.
What should be done –
Apart from taking active interest in the families’ investment decisions, women should save a small sum regularly every month from their monthly surplus in a disciplined manner. This applies as much for home makers as it does for working women. This helps them create a nest egg for themselves and secure their financial future.
In conclusion , a happy and successful marriage is one where the husband and wife work together as a team in perfect co-ordination sharing all the responsibilities and jointly taking all decisions right from going on a holiday to raising their children . The same should hold true for the investment decisions too, right ?
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