When is the best time to invest?

When the stock market is volatile, it can be very tempting to move out. For example, if you think that the market is likely to fall even more, you might consider selling investments so that you can buy them back when they are cheaper. This may sound like a good strategy in theory, but in practice it is extremely difficult. Even expert fund managers who spend all their time watching the market cannot tell for certain when prices have reached either their top point, when it might be good to sell, or their lowest point, when it would be good to buy. The problem is compounded by the fact that markets tend to rise very soon after they fall, and the rises are often concentrated into short periods of time. For example, on 13th October 2008, in the midst of the recent market upheavals, the BSE Sensex leapt by 781 points – one of the biggest one-day rises it had recorded to that point. If you try to time the markets, it is all too easy to miss days like that. Of course, you should always remember that the value of investments can go down as well as up, so you may not get back as much as you invest.

Think about time, not timing

Because it is difficult, if not impossible, to predict how the stock market will move from day to day, Fidelity believes it is time, not timing, that is the key to investment success. By this we mean that the longer you stay invested, the more opportunity you will have to benefit from the stock market’s potential for impressive long term growth. If you put off making an investment because you think prices have further to fall, there is a risk that you will miss out on the significant rises that often occur in the early days of an upward trend. Conversely, if you sell an investment because the markets are falling and the news is full of gloomy predictions about the economy, you may find you have come out of the market at exactly the wrong time, just before the start of a recovery. It is worth remembering that markets tend to move in advance of the economy. In other words, share prices can start recovering before the economy shows signs of emerging from the doldrums. The best course is to choose investments that you feel confident about and take a long term view, accepting that there will almost certainly be difficult times along the way.

Strategies For Successful Investing

Ensure that your investments are right for you

Different investments suit different people at different stages in their lives. And each one has its own level of risk and reward. The basic rule of thumb? The greater the risk, the greater the potential reward. And vice versa.

It is also important to think about your own temperament – if you find it too worrying that your investment might occasionally go down in value, you should perhaps weight your portfolio towards more secure holdings. Here is a broad description of some investment options:

Gold and Real Estate are traditional investments and due to their 'physical' nature are not liquid. PF, PPF, NSCs and Post Office Savings are long term national savings avenues that help you save for retirement besides offering tax benefits. But when it comes to true blue financial investments, there are three main asset classes: Cash, Bonds and Equities.

■ Cash is good for an emergency fund or a short term goal like a holiday, but you may find the returns disappointing over the long term, and you need to remember that their value will be eroded by inflation.

■ Bonds (or loans issued by the government and large companies) can provide better returns than bank accounts but cannot offer the same level of security. Although bond funds do not have as much growth potential as stock market investments, they tend to be less volatile. Investors often opt for bonds when they need to reduce risk – perhaps in the years leading up to their retirement.

■ Equities offer the most growth potential over the long term, but you need to accept that there may be periods when the value of your investment falls sharply.

As the years go by, it is important to check your portfolio regularly to make sure that it still suits your long term strategy. If an investment has done particularly well, you may find that it now accounts for a disproportionate share of your overall portfolio and you need to do some rebalancing. In addition, you will probably need to adjust the weights of your investments from time to time – for example, reduce the amount of risk you are exposed to as you get nearer to retirement.

Keep calm
If you are confident about your long term strategy , you do not need to react to short term movements in the market. You will know that your investments have time to ride out the storm and perhaps even go on to take advantage of any further growth. It is important to be patient with the stock market and to avoid knee-jerk reactions and rash decisions in response to worrying news.

“The worst mistake a private investor can make is to be sucked into markets when they are high and the prevailing mood is the most optimistic, only to then get shaken out at times like this when prices are falling and the outlook is uncertain. It normally takes many years to recover from this experience.”

Read: When is the Best Time to Invest? >>

A place for cash

It is always a good idea to have some money set aside in case of emergencies. Enough to cover three months’ living expenses is often a rough guide to how much you may need. And for most of us a bank account is a safe place to keep cash. It is also useful for short term savings – putting money aside for a new car,a holiday or the deposit on a house. However, with a long term investment, the security of cash has to be balanced against the risk that it will not generate the level of returns you are hoping for.

The spectre of inflation
A potentially more serious threat to your bank account is the damage that inflation can cause. Rising prices could mean that the real return on your savings is very small. For instance, if your account pays 8% but inflation is 6%, you are only making 2% in real terms. You then have to take tax into account – for an investor in the highest tax bracket, this will result in a negative real return. If inflation is higher than 6%, as it is at the moment, the effect on your real returns will be even worse. A reduction in interest rates would also cut into the returns on your savings.

Read: Strategies for successful investing>>

Investing can be rewarding but is often uncomfortable!!!

“Nothing ventured, nothing gained” applies just as much to the stock market as it does to other aspects of life. Most investors realize this in theory, but may not feel so sure about it when they have to face the reality of a falling market. This is only human – when markets are buoyant and your portfolio is going up in value, you probably feel you have made a good choice. But that won’t stop you questioning your investment decisions when things are more volatile and you see your investment fluctuate in value.

When stock markets are going through one of their inevitable periods of turmoil, it can be reassuring to take a long term perspective and remember that you are investing for years, rather than days or months. This may remind you that there is plenty of time for the markets to recover from any temporary setbacks. And you will see that the only way to benefit from the stock market’s potential for significant long term growth is to endure periods when things look a bit more worrying.

Another benefit of taking a long term view is seeing for yourself that the general trend in stock markets has been positive, even though there have been sharp falls. The Indian market has grown since 1979, when the BSE Sensex was launched. It is interesting to note that the largest fall in the Indian stock market - on 6th March 1986 - barely registers as a blip, even though the market fell by more than 13% on a single day. This is because it recovered in a matter of weeks.

The market decline of 2000–03, which is when the tech bubble burst is clearly visible on the chart. However, when seen in the context of a 28-year view, the boom of the 1990s seem to be a distortion, after which market performance corrected itself and then returned to the long term upward trend.

The real value of investing for the long term

Research by Fidelity shows that over the last 28 years, the probability of investors losing money over a one-year or three-year period would have been relatively high - 30% and 15% respectively - if they had invested in a fund tracking the Indian stock market. However, the probability of losing money on a similar investment over ten years would have been as low as one percent - this has also been true for most international investments. The message is that the longer you invest for, the more likely it is that you will benefit from the long term growth potential of the stock market.
Read A place for cash>>

Market Fall - How To Recover Losses?

THE market's blows are only getting harder. The bad news is that the worst may not be over yet. Amidst all this turbulence, only one thing can save you: The right advice.
Here’s how you can limit the damage, straight from wealth's experts.

Scenario 1: I invested in the markets for the short term; what should I do now?

Right now, the markets are driven by global sentiment. And, financial planners reckon that it may take up to the fourth quarter of 2009 for the global market to pull up. On the domestic front too, things may look brighter only in the third or fourth quarter of 2009. "This is mainly because of the huge input costs and high interest rates as of now, " they say.

In such a scenario, you have 2 options:

Option 1: If you are hard pressed for money, you have no choice but to withdraw. PV Subramanyam, financial domain trainer, says, “If you need money soon, say in a year or two, it is better to sell now even if that means booking losses. There’s no way of predicting how the markets would behave.”

Option 2: Sandeep Shanbhag, investment expert and Director, Wonderland Consultants, says, “If you initially invested for the short term but can weather the storm, then wait, provided you have fundamentally good stocks. However, if you need funds, then exit as early as possible and treat this as a mistake not to be repeated.”

Caution: Do not play the markets on a short term basis simply because of the looming uncertainty.

Scenario 2: I am a long term investor: What to do now?

To begin with, relax. If you have invested, you should continue doing so. India has a number of things going in its favour:

-- Among all emerging economies, our export to GDP ratio is the lowest. Consequently, even a full blown US recession will shave only around 40 to 60 basis points off our GDP growth rate, which was a healthy 7.9 per cent for the first quarter. Our economy is fundamentally strong; the situation right now is nothing but a slowdown and it will recover soon.

-- Commodity prices have started to decline, with oil last being traded at USD 90 per barrel. So, going forward, inflation will not be a big threat.

-- Our regulators, SEBI and RBI are proactively taking measures to control the situation and ease capital flows into India.

Long term investors need not worry. In fact, it’s a good time to invest since stocks, expensive at one time, are now available at huge discounts.

Strategy: You can file away a proportion of your money for the long-term through SIPs. If you are single and salaried, put 70 per cent of your money in large cap stocks and the remaining 30 per cent in mid cap stocks. Shabhag suggests that this is an ideal time to average out and make piecemeal investments on every fall. "You can invest around 20 per cent of investible funds into equity / equity MFs. Another 20 to 25 per cent of your surplus can be invested in gold through gold exchange traded funds (ETFs)."

There’s a simple theory behind investing: You invest your way up, and you invest your way down.

What NOT to do?
-- Don't enter the market for a quick buck.

-- Don't look at borrowings for a while, since interest rates are quite high. Especially stay away from borrowing to invest in volatile assets like equities or even property.

-- Avoid investing in Unit Linked Insurance Plans (ULIPs) if you do not understand the scheme in detail.

-- Don't invest in lump sum.

-- Don't stop your systematic investment plans (SIPs), because market fluctuations can average out your losses with SIPs.

Tata Capital NCD: Should you invest?

GIVEN the continuing downturn in the economy on the back of what is gradually transpiring into a worldwide recession, safety of capital has become of paramount importance. However, the government on it's part, in a bid to encourage growth, has been releasing massive amounts of liquidity in the economy through its monetary policy. This has resulted in the returns on popular fixed income investments like bank FDs etc steadily dwindling.

In such a scenario, Tata Capital Ltd.’s Non Convertible Debenture (NCD) issue that offers an effective rate of return between 11.5 to 12 per cent pa (depending upon the option chosen) is a very attractive opportunity for investors seeking regular income along with safety.

About the issue

- The issue is open from February 2 to February 24, 2009.

- The issue is open only to resident Indians and NRIs cannot apply.

- These NCDs are issued in demat form only, so you need to have an active demat account.

- The minimum amount that you can invest is Rs 1 lakh in the case of monthly interest option and for the remaining it is Rs 10,000.

- There will be no tax deduction at source (TDS) on the interest earned.

- The debentures are offered in four options: monthly, quarterly, annual and cumulative interest

The rate of return and other features of the issue are detailed in the table below.

Is there a lock-in?

Though the NCDs have a tenure of five years, they do have a liquidity feature in terms of a put and call option as pointed out in the table. (‘Put’ refers to the right of the investor for early redemption whereas ‘call’ refers to the right of the company to call for premature redemption).

The instruments can also be traded on the exchange and the market price would be the cum-interest price as on the date when you sell it.

Taxation

The interest will be taxable in the usual course. That is, the interest that you receive monthly, quarterly or cumulatively on maturity will be taxed as other income, that is, added to your total income and taxed thereof.

If you decide to sell at the stock exchange, it will be treated as a long-term capital asset if held for more than 12 months immediately preceding the date of sale.

The long-term capital gains tax will be taxed at 10 per cent without indexation of cost. And if you sell within 12 months, short-term capital gains will be applicable in accordance with the Income Tax Act at your regular tax slab.

Safety

The safety aspect is what sets NCD apart from its other fixed income counterparts. In legal terms, they constitute direct and secured obligations of Tata Capital Ltd. and shall rank pari passu and with all their other existing direct and secured borrowings. Consequently, the claims of NCD holders will be superior to the claims of other unsecured creditors and other investors. That means,if the company were to wind up, NCD holders will rank above all unsecured creditors and other investors.

You may know that other fixed income investments such as bank or company FDs do not offer such security. Bank FDs are insured for a maximum of Rs 1 lakh whereas a company FD is an altogether unsecured debt. In other words, if the company were to default, the FD holders do not have a legal right on the assets of the company. A relevant example is the fixed deposit of coincidentally another Tata Group entity - Tata Motors.

Though the interest rate is more or less comparable, what makes the NCD score over the FD issue (notwithstanding that both issues are from the same group) is the risk-return factor. In this case, the NCD issue is secure whereas the security of the FD issue depends upon the health of the automobile industry in general and Tata Motors in particular.

EquiTipz Site Disclaimer

Disclaimer:
EquiTipz Blog (www.EquiTipz.com) is for information purpose only. EquiTipz is an independent publisher of Trading and Investment advice for young investors who are new to the world of Stocks Investment and Trading. EquiTipz indexes consolidated information gathered from various sources in the media and the Internet. EquiTipz does not claim any copyrights over the indexed content. It is listed here only for the convenience of the readers to avoid going to each and every website and getting the content under one roof only.

The information and views contained on this blog are believed to be reliable, but no responsibility (or liability) is accepted for errors in fact or opinion. Any action investors choose to take in the markets their own responsibility.

EquiTipz will not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information. This information is neither an offer to sell nor solicitation to buy any of the securities mentioned herein. www.equitipz.com does not accept any liability arising out of use of the above information/article as it is provided for informative use only.

The analysis is the author's opinion on the stock based on the available data and tips on the various financial service portals like www.MoneyControl.com and www.Money.Rediff.com and again we have no copyrights on the listed content. Investors are strongly advised to do their own research or consult with certified advisors before taking any positions in the stocks mentioned in the blog.

Privacy Policy for www.EquiTipz.com

EquiTipz (www.equitipz.com) is strongly committed to your right to privacy and to keeping your personal information secure. At EquiTipz, the privacy of our visitors is of extreme importance to us. This privacy policy document outlines the types of personal information is received and collected by www.equitipz.com and how it is used.

Your email address is saved with our feed manager http://www.feedburner.com. You can get the new posts directly in your inbox and we will also keep you updated on any developments and the new postings on this blog.

You can also at anytime choose to unsubscribe.

In future, we plan to have third-party advertising companies (Google AdSense) to serve ads when you visit our website. These companies may use information (not including your name, address, email address, or telephone number) about your visits to this and other websites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here.

This Privacy Policy applies exclusively to information practices related to our website, www.equitipz.com Although this website contains links to other websites and lists the views expressed there, please be aware that we are not responsible for the privacy practices of those, or any other sites. If you follow a link to another website you should carefully read their privacy policy.

Personal Information Collected on this Website
No personally-identifiable information is collected on this website from consumers that browse the website for information or use the opt-out service.

The only personally-identifiable information collected on this website is gathered on our "Contact Us" page, where fields are provided so that you can provide your name, email address and phone contact information. We collect this information so that we can respond to the comments that you send to us via that form.

EquiTipz is the sole owner of all information collected on this site. EquiTipz will not rent, sell or share any personally-identifiable information about you with third parties for any reason except when required to assist in resolving an issue you raise with us or as required by law.

We do not merge any of the personally-identifiable information collected via our contact form with other anonymous data collected on our website.

Log Files
Like many other Web sites, EquiTipz makes use of log files. The information inside the log files includes internet protocol ( IP ) addresses, type of browser, Internet Service Provider ( ISP ), date/time stamp, referring/exit pages, and number of clicks to analyze trends, administer the site, track user's movement around the site, and gather demographic information. IP addresses and other such information are not linked to any information that is personally identifiable.

Anonymous Information Collected on this Website
We record anonymous data such as traffic logs, number of visits or clicks on a given page, pages viewed or links to our site, using (Google Analytics). We use IP addresses and cookies for gathering website statistics.

We aggregate this anonymous data as part of managing, maintaining and reporting on use of our website. We do not rent, sell or share any anonymous data collected on this website with third parties for marketing purposes. None of this anonymous data is linked to personally-identifiable information and we make no attempt to link IP addresses to the individuals who visit this site.

Cookies and Web Beacons
EquiTipz does use cookies to store information about visitor's preferences, record user-specific information on which pages the user access or visit, customize Web page content based on visitors browser type or other information that the visitor sends via their browser.

Cookies are small chunks of data created by a web server, delivered through a web browser, and stored on your computer. They provide a means for websites that you visit to keep track of your online patterns and preferences, as well as identify you as a return visitor. Cookies make the personalization of your web experiences possible, so that you do not need to re-enter your information from scratch upon each visit to a given website. No personally-identifiable information is collected by or linked to any of the cookies delivered on our site.

You have the ability to manage the use of cookies on your computer using controls in your web-browser. To learn more about how to manage cookies, visit http://www.allaboutcookies.org/.

DoubleClick DART Cookie

Specifically, for Google's advertising Program AdSense, users please take note of the following:

• Google, as a third party vendor, uses cookies to serve ads on EquiTipz.
• Google's use of the DART cookie enables it to serve ads to the users based on their visit to this EquiTipz and other sites on the Internet.
• Users may opt out of the use of the DART cookie by visiting the Google ad and content network privacy policy.
• Please read Privacy Policy for Google ads as well as the DoubleClick Privacy Policy.

Our other advertising partners include:

Adbrite
Kontera

The third-party ad servers or ad networks use technology to the advertisements and links that appear on www.equitipz.com send directly to your browsers. They automatically receive your IP address when this occurs. Other technologies (such as cookies, JavaScript, or Web Beacons) may also be used by the third-party ad networks to measure the effectiveness of their advertisements and / or to personalize the advertising content that you see.

EquiTipz has no access to or control over these cookies that are used by third-party advertisers.

You should consult the respective privacy policies of these third-party ad servers for more detailed information on their practices as well as for instructions about how to opt-out of certain practices. Equitipz's privacy policy does not apply to, and we cannot control the activities of, such other advertisers or web sites.

If you wish to disable cookies, you may do so through your individual browser options. More detailed information about cookie management with specific web browsers can be found at the browsers' respective websites.

Changes to Our Privacy Policy

EquiTipz is a budding Website providing free tips and advice to its readers. We are still in the growing phase. As our organization, membership and services evolve, this Privacy Policy may be revised to reflect those changes, where applicable. We therefore reserve the right to amend this Privacy Policy at any time, for any reason. Users are encouraged to check our site frequently to review the current Privacy Policy in effect.

Questions?
Please contact us with any questions about this website Privacy Policy.

Sold the Shares; Do I have to Pay Tax???

INCOMES such as salary, rent and business income are regular and recurring. However, these do not cover all sources of income.

Income can arise out of the sale of capital assets such as shares and mutual funds. You will have to pay a capital gains tax on the profits made on the sale of shares/ mutual funds.

What is short term capital gain and long term capital gain?
If you sell a share or a mutual fund within one year of buying it, the profit is called short term capital gain. If you sell it after one year, it is long term capital gain. This distinction is necessary because the tax treatment is different for each of these.

Tax laws are usually stricter for short term capital gains because the government wants to encourage you to stay invested in equities and mutual funds for the long term.

How are the gains taxed?
-- Short-term capital gains tax
In case of equity shares and equity mutual funds, short-term capital gains are taxed at a flat rate of 15 per cent.

In case of debt mutual funds, the short term capital gain is added to your total income and tax is calculated on that total.

Long-term capital gains
-- In its bid to encourage long term investments in equities, the government has abolished long term capital gain tax on equity shares and equity mutual funds.

-- In case of debt mutual funds, long-term capital gains are taxed at a flat rate of 20 per cent irrespective of your income slab. You also have an option to forego the benefit of indexation and pay long-term capital gain tax at 10 per cent instead of 20 per cent. The option that is more beneficial can be determined on a case-to-case basis.

Contact Form