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We all know about P/E Ratio, but what is this PEG Ratio and what does it mean?

The PEG ratio or Price/Earnings to Growth ratio is one of the most popular valuation ratio calculated for determining the relative trade-off between the price of a stock, the earnings per share (EPS), and the company's expected growth rate. This was popularized by Peter Lynch, who wrote "The P/E ratio of any company that's fairly priced will equal its growth rate", i.e., a fairly valued company will have its PEG equal to 1.

Basic formula:

PEG = (P/E) / (projected growth in earnings).
For example, a stock with a P/E of 30 and projected earnings growth next year of 15% would have a PEG of 30 / 15 = 2. A lower ratio is 'better' (cheaper) and a higher ratio is 'worse' (expensive).

What does PEG tell us?

PEG, which is derived from P/E ratio, is generally higher for a company with a higher growth rate. Using just the P/E ratio would make high-growth companies overvalued relative to others. PEG is a popular indicator of a stock's correct value. Similar to PE ratios, a lower PEG means that the stock is undervalued more.

It is preferred than P/E ratio because it also accounts for growth. If a company is growing at 30% a year, then the stock's P/E could be 30 to have a PEG of 1. The PEG ratio of 1 is sometimes said to represent a fair trade-off between the values of cost and the values of growth, indicating that a stock is reasonably valued given the expected growth.

Investors may prefer the PEG ratio because it explicitly puts a value on the expected growth in earnings of a company. The PEG ratio can offer a suggestion of whether a company's high P/E ratio reflects an excessively high stock price or is a reflection of promising growth prospects for the company.

On the flip-side, the PEG ratio is less reliable for measuring companies with low growth rates. Large, well-established companies for instance may offer dependable dividend income but little opportunity for growth.A company's growth rate is an estimate. It is subject to the limitations of projecting future events. Future growth of a company can change due to number of factors like market conditions, expansion setbacks and hype of investors.

To conclude, we can say that though there are certain advantages of using the PEG ratio like, it accounts for growth and easy to calculate. But,it has certain disadvantages, like it can be an misleading indicator at times. Thus it should be used with utmost care and only in those situations, along with other parameters, where it shows the right picture. Well, Investing is not that easy ! Right ?

Deciding to invest in a small business can be a wise financial decision if your research is done carefully and thoroughly. Smart and savvy financial advice for any investment is to never invest more than you can afford to lose. Use discretionary funds in order to minimize your risk and maximize your potential for return. Any investment is a risk, but there are ways to ensure that you are making a wise investment.

If you do intend on investing larger sums of money, it can be more profitable to invest small amounts with several companies. If a few of the investments do turn out to be losses, they can be offset by a few highly successful investments. No matter what investment strategy you end up taking, it is important to remember not to invest more than you can afford to lose.

Professional venture capitalists will tell you there are no magic formulas for deciding where or how to invest your money, but there are basic elements that are important to consider first. Investigate how long a potential business venture has been established, whether it is a new company or if it has recently expanded and how deep in debt they are. You should also take a close look at the management of the company. You should also determine if the company has enough business working capital to maintain a positive cash flow. If the management deals unfairly with investors, has a high employee turn around or if the management receives bonuses out of proportion to the stage of the business's development, these can all be signs of a high-risk investment and can signal problems in the future. It is always wise to investigate a company thoroughly before investing.

Once you decide you are ready to invest in a particular company, the next step is to decide how to invest. There are many ways in which an individual can invest in a small business. One way is to offer bad credit business loans to a company you believe can be successful if they have enough business working capital available, but do not qualify for a traditional bank loan. Part of the terms of the loan can be a percentage of ownership or a certain number of shares. Bad credit business loans can be high risk, but even the best venture offerings pose some risk. Bad credit loans can also demand a higher interest rate.

Investing in a small business can be a wise financial decision if you exercise caution, investigate before you invest and do not be pressured into making a fast decision. Take your time, there are plenty of opportunities available and plenty of small businesses that will welcome your money.

Byline: This is a guest post by Sara Mackey.

Many people are hesitant to invest, even when the market would be in their favor, because they see investment as a dangerous, “high risk” gamble, rather than as an opportunity to grow their wealth.Granted, there is some inherent risk in investing, but it isn’t as wild as some think it is, and more importantly it is a risk that can be managed, if handled correctly.

Diversify Your Holdings

To the lay investor, diversification is an earful, and probably sounds technically intimidating, but diversification is actually one of the simpler, and most effective, ways to minimize investment risk. Simply put, diversification is not putting all your eggs in one basket. That is to say that you shouldn’t over-invest in one stock or fund, because, while it may be exciting when it is performing well, if the value drops, it will be devastating.

Conversely, if you divide your risk across several stocks, you will get multiplied benefits when they are all performing well, and won’t be crushed if one of them plummets.

Average Your Dollar Costs

Part of what makes investing difficult is the dimension of time. Timing, as they, is everything. But as it turns out, timing isn’t necessarily everything, and there is a smart way to invest that takes much of the guesswork out, and leaves you with more predictable gains, no matter how the market is performing. This strategy is called dollar cost averaging.

Essentially, dollar cost averaging means that you are consistently adding to your investment, regardless of what is happening with your stocks. By investing a fixed amount on a regular schedule, you are able to capitalize on the fact that the market fluctuates. Instead of buying a lot when the prices are low and not buying at all when prices are high, you have a set amount that you use to buy shares every month – $100 for example and you just distribute that and buy as many shares as you can with it each month. In the end, your average cost will be much lower than it would be when you try to outsmart the market.

Consider your goals when investing, and ask yourself if dollar cost averaging and diversification are good strategies for you.

Byline:

This is a guest post from Jacelyn Thomas. Jacelyn writes about identity theft protection and she can be reached at jacelyn.thomas@gmail.com.

We all know mutual funds, but what are inverse mutual funds all about?

They are a special type of funds in which the value goes up when the stock market comes down. They are nothing but "short funds" or funds having short positions of the index or stocks. By investing in this fund investors/traders can take advantage of fall in the markets.

The main objective of the inverse mutual fund is to provide investors with an alternative during market-decline and in the case where they cannot short sell the index. This type of fund is generally linked to the market index such as the S&P 500 or any other benchmark index. The value of such funds change similar to the traditional funds, on a daily basis, say if the index declines by 1 percent in a day, the fund value increases by 1 percent for that day.

In what other ways these funds differ from the traditional funds?

While a traditional mutual fund purchases shares of index or stocks, which is income generating in the form dividends, the inverse mutual funds do not purchase the stocks themselves. Instead, they may short sell the index or stocks or even buy put options on the index or the stocks. Hence, these funds make money only if the particular index or stock falls.

How does these funds benefit retail investors or traders?

Many investors,rather traders, can make use of this type of fund as a hedge against market conditions.Hedging is method that can be used to protect your investments in case of a market fall. During market corrections, investors/traders could buy some shares of an inverse fund in order to protect their long positions in other funds or stocks. This way, even if the market does go down, they will be able to recoup some of their losses on their long positions with the inverse fund.

Disadvantages:

Unlike the traditional funds, there are no dividends in these type of funds. The costs involves are also high since frequent churning of positions required on a day to day basis. They also involve high risks and needs constant monitoring of the fund value and the market direction.

Conclusion:

Firstly, investors should only purchase an Inverse Mutual Fund if they completely understand the risks associated with shorting and the returns associated with it. These funds can work as a hedge only and investors will not benefit from investing a large amount of money into it, since stock markets have performed well in the long-term. This can be used as short-term strategy only and not as a long-term one. Hence, Inverse Mutual Funds are complicated instruments than traditional mutual funds and it should only be used by sophisticated investors and traders.

There are many such funds in developed markets and there aren't any such funds in emerging markets like India. Hope some fund house would take some cue from this and launch an inverse fund soon.

A stock split is sometimes confused with bonus shares, however it is different from bonus shares. So, what is the difference between these two and which one is better for the investors?

To start with some basics - all publicly-traded companies have a set number of shares that are outstanding on the stock market. These shares are nothing but sub division of capital. So if a company's capital is 100 m divided into 10m shares of 10 each, then this 10 is called the face value of the share.

Stock Split:

A stock split is usually done by companies if their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The move is generally seen to improve the liquidity of scrip since more investors participate due to the smaller ticket size.

A stock split is done to increase the number of shares that are outstanding by issuing more shares to current shareholders. For example, in a 2-for-1 stock split:

• Two shares for  one share.
• Face value reduces by the split ratio, i.e., if earlier the face value was 10, after  the split it will reduce to 5 per share.
• The market price is  affected by a stock split and it will reduce by similar ratio, e.g.,  200 per share becomes 100.
• The market cap does not change, since the outstanding shares are same.

Important point to note here is there is no financial impact on the stock, due to stock split. Recent stock split done by companies include Titan Industries, VIP Industries and Crisil.

Bonus Shares:

Bonus shares, are given free of cost to the investors. So when you get a bonus share, the number of shares you own increases at no cost to you. A stock split is also like a bonus, but that is where the similarity ends. A bonus is a free additional share whereas a stock split is the same share split into different number of shares.For example, if a company was to issue a 1:1 bonus share:

• It would increase the amount of shares by 100% (1 share for every 1 share owned).If there are 1 million shares in a company, this would translate into an additional 1 million shares.
• Face value does not change.
• The market price changes and the price would reduce by half.
• The market cap increases, since the outstanding shares increase.

The bottom line is that a stock split is used primarily by companies to provide greater marketability and liquidity in the market. Whereas bonus shares are issued with the intent of rewarding the investor and the  financial effect of bonus share is that it increases the number of shares outstanding and reduces the earnings per share accordingly. Companies like Karur Vysya Bank, Infosys Technologies have rewarded investors with  consistent bonus issues and have performed well on the enhanced equity too.

The buzz word in the investing world is now - GOLD. Nowadays, there are many ways to invest in gold, other than buying physical gold and they are Gold ETFs and Gold Funds. There is a lot of confusion among retail investors about understanding and investing these products and we are quite sure this article would clarify things better.

To make things clear, both Gold ETFs and Gold Funds are mutual fund products — only the mode of purchase differs. The Gold Funds are fund of funds, which invest in their own fund house ETFs, for e.g., HDFC Gold Fund invests in HDFC Gold ETF.

Similar funds have been launched by Reliance mutual fund, Quantum mutual fund and Kotak mutual fund. Investors can get details of these funds from their respective websites.

Gold ETFs:

• ETFs are exchange traded funds launched by leading mutual funds which are traded in stock exchanges like Nse and Bse.
• You need a Dmat account and a trading account with your stock broker, to buy and sell these ETFs.
• Charges involved are brokerage charges and Dmat charges.
• They can be bought and sold over the exchange through a broker on a daily basis during trading hours. Gold ETFs provide an opportunity to benefit from changes in price movements of gold as the prices of gold ETF reflect the value of the underlying gold on real time basis.
• SIP is not possible, since it involves manual purchase by the investor every month.

Gold Funds:

• Gold Funds are fund of funds launched by mutual funds, which can be bought and sold through mutual fund agents or through online websites offered by the fund houses.
• You don't need a Dmat account or trading account.
• Charges involved - no entry load, but exit load of about 1 - 2%, if sold before one year from the date of purchase.
• Can be bought and sold on any working day, but the NAV of the fund at which the fund sells the units is based on the closing NAV calculated based on price of the gold on the previous day.
• SIP can be done, which is a good positive thing, since investing a fixed sum of money every month ensures you better average cost of purchase.

To sum it up, investing in Gold Funds are for those investors who want to invest in a simple and systematic method, involving lower costs. Whereas ETFs are for those active investors and traders, involving high costs and continuous monitoring of buying and selling.

With the emergence of smart phones, mobile applications have completely transformed how we live our lives. Applications make activities that we were once only able to perform in a stationary environment into something that we can do anywhere, anytime. Of the millions of activities, like banking, shopping, and more, that have now been made mobile, even stock trading is now made that much easier thanks to mobile apps. Here are some of the best ones out there:

1.Bloomberg
Bloomberg, the media and financial services behemoth, has always been a one-stop shop for information about the markets. Now, Bloomberg is available on a nifty app, so that you can have real-time stock information, market news, and more right in the palm of your hand.

2.E*Trade Mobile Pro
If you use E*Trade to buy stocks, then its mobile app is especially helpful, since you can use it to buy and sell stocks, transfer money from any financial institution, and monitor the markets with comprehensive charts and live stock quotes.

3.Virtual Stock Market Lite
Virtual Stock Market Lite is a great app especially if you are relatively new to the markets. When you download and begin using this particular app, you are given $100,000 in virtual cash to invest as you please. The app uses real stock prices and real markets, so using this app is wonderfully accurate, not to mention, fun, way to practice trading!

4.Stock Twits
Stock Twits has all the benefits of apps like Bloomberg in terms of information and news about markets. The one aspect of Stock Twits that makes it unique, however, is that it serves also as a social network for traders. You can follow traders who invest the same way you do, discuss different strategies, and generally become part of an entire community of like-minded investors.

Trading and investing has never been a walk in the park. It takes time and energy, business savvy, and of course, a little bit of luck. Using some of these apps, however, will enable you to access an enormous amount of data and expertise so that you can make the best investment decisions, any time and any place.

Author Bio:
This is a guest post by Nadia Jones who blogs at accredited online colleges about education, college, student, teacher, money saving, movie related topics. You can reach her at nadia.jones5 at gmail.com.

Investing your money can be a great way to ensure your financial future. With the right investment choices, you can be sure to have money for emergencies, to put towards the education of your children, and to have available when the time comes for you to retire. There is a key word in the preceding phrase however- “right”. If you make the wrong investment choices, you may just end up where you started or worse than that.Most people who invest wisely by making the right decisions with their money, follow the same basic investment pattern, although they may define it by another name. The following are simple but valuable investing rules, which have withstood the test of time and by following these, one can be successful in their investing venture.

S&P 500 and Dow Jones Industrial Average(DJIA ) indices are two of the world's most followed indices and are considered as the barometers of us markets. These indices have displayed historic resilience in holistically capturing the movements of the US markets. NSE is introducing rupee denominated future contracts on S&P 500 and DJIA indices. This is the first time in the world that futures contracts on S&P 500 index are being introduced and listed on an exchange outside USA.


S&P 500 is a free-float capitalization-weighted index 500 leading companies of the us economy and widely regarded as the best single gauge of the us equities market. Dow Jones Industrial Average (DJIA) is a price weighted index having 30 large and liquid blue chip stocks traded on U.S. exchanges.

Contract Details:

The contract size for the S&P 500 is 250 units and DJIA is 25 units, which approximately works out to 2.5 lakhs per contract. There are four quarterly expiry contracts in the mar-jun-sep-dec cycle and will be traded during Indian market time.

For whom?

Indian investors are currently permitted to invest in foreign assets subject to the limits stipulated by the Reserve Bank of India. Futures on S&P 500 and DJIA, currently being introduced by NSE shall enable traders desirous of taking exposures to us market to do so, without taking any foreign currency risk as they are rupee denominated contracts.

These contracts enable those invested in the us markets to hedge their equity exposure. Also, they can also be used as hedging tool by investors having a high exposure to stocks in sectors whose financial performance depends significantly on the prospect of the U.S. economy.

Other than the above mentioned investors/traders, market participants who can understand the dynamics of the U.S. markets can have directional views on the movement of the indices. As far as small investors  are concerned, this would be a avoid in the better interest of them.

6 Simple Tips for Better Money Management While Investing

Investing is always scary, especially for beginners. Investing during a global recession can be downright terrifying. That’s why using common sense is more important than ever.

In this article, we will share 6 easy tips for better money management for investors. Many of these hints are also recommended by CNN, Fortune, and Money.

1.Invest on a schedule.

Sticking to a schedule is good advice for many of life’s pursuits. Every month, put the same amount into a mutual fund. You will be able to keep track of your money better. Plus, this allows you to pick up more shares while they are cheap and fewer when they are expensive.

2.Take multiple investments.

Your mother probably told you not to put all your eggs in one basket, and she was right. Diversification cuts back your risk. Of course, you can never totally get rid of risk, but mixing up your portfolio helps.

Please don’t invest solely in company stock. If the company takes a dive, so does your retirement plan. Company stock should be only 10% of your portfolio, no matter how much faith you have in your business.

3.Buy foreign stocks.

This fits in nicely with the second tip on our list. Yes, the global recession has hit the entire planet, but buying overseas stocks is still a smart move. You should invest 20% of your money abroad, at the least.

4.Spend time with other investors.

It’s always smart to pick up advice from other players in the game. If you network with other investors, you can hear about new opportunities early through the grapevine. Even if you live in a remote area, you can join online investing forums, such as OnlineTradersForum.com.

5.Feed your 401k.

Place as much money as you can into your 401k. Your company might match it dollar to dollar, at least to a certain point. Or, they might match 50 cents on the dollar and a percentage of your salary. Either way, you’re getting free money to fund your future retirement.

And please don’t cash out when you leave your job. You’ll cough up a 10% penalty as well as income taxes. Plus, you’ll miss out on tax-free growth later.

6.Don’t make any investments you don’t understand!

It’s sad to think of how many people buy investments or take out credit cards without finding out any of the important details first.

Don’t allow a financial planner, broker, friend, or agent pressure you into buying an investment that doesn’t make sense to you. Ask them focused questions and take notes. If you just don’t get it, skip that investment.

This applies to just about anything, from credit cards to home mortgages. After all, a credit card is a financial investment also, so read the fine print. Do you know the APR?  Do you understand how the rewards program works? Good money management is all about staying informed.

Yes, many of the above tips are pretty obvious, but as French author Voltaire famously said, “Common sense is not so common.” Sometimes good investors make bad money management decisions because they’re pressured by other people, in a bad financial position, or just misinformed.

Thanks to Sierra Dawson for sharing some simple tips for better money management.  She says your common sense is one of the most powerful money management in your arsenal, so don’t underestimate it!

For more information better read Fisher Investments press to gather great advises on future investment.

L&T Finance Holdings has come out with an IPO of via issue of equity shares of Rs. 10 each priced between Rs. 51 to Rs. 59 per share. The company is promoted by Larsen & Toubro Ltd, one of the leading bluechip companies in India, with wide range of interests in engineering, construction, electrical and electronics manufacturing and services, information technology and financial services. L&T Finance Holdings has a strong retail reach with more than 800 points-of-presence spread across 23 states.

The company is a subsidiary of L&T Limited, which holds 95% and it is the holding company for the following three businesses conducted via wholly-owned subsidiaries:

1. L&T Finance – retail and corporate finance lending.
2. L&T Infra – infrastructure financing.
3. L&T Investment Management with a mutual fund business.

Details of the issue:
Issue Size: Rs. 1,245.00 Crore.
Issue Open: Jul 27, 2011 - Jul 29, 2011.
Issue Price: Rs. 51 - Rs. 59 Per Equity Share.
Market Lot: 100 Shares, to be listed at BSE and NSE.
Rs. 120 crore of the issue size is reserved for L&T shareholders and they can apply through a separate application form.

Valuations:
The book value stands at about Rs.25 and at the upper band of Rs. 59 per share, shares are being offered at a price-to-book value (PBV) of 2.23 x times. The other listed companies in this space, like Shriram Transport Finance,IDFC,M&M Financial Services are currently trading at slightly higher valuations than L&TFH.

L&TFH owns close to a 5 per cent stake in Federal Bank and City Union Bank. It also owns L&T Mutual Fund which has an asset base of Rs 5,200 crore as of June 2011 and all these stakes could add further boost to the valuations.L&TFH is having diversified and high quality loan book, superior interest spreads and sustainable demand in various segments of presence. All these features make long term investors comfortable in investing in this IPO.

This is an update of the earlier article on Historical Sensex Returns, which gives complete details about Sensex's yearly returns. In this article we analyze the monthly and yearly returns of the Sensex in the last 10 years. As we can seen from the table below, except for the year 2008 and earlier couple of years, the returns from the index have been well over 15% and the returns were as high as 73%. Also one can see after the fall of over 50% in the year 2008, the following year's returns were about 81%.



As we can note from the above table, the average returns for the past 10 years is around 18.3%. Hence if an investor is investing in an index fund or ETFs like Nifty Bees , over a longer time frame of 5-7 years, the returns are spectacular. The important point to note here is that, though the index has almost regained its previous peak of 21000 in 2008,  many of the individual stocks are still languishing around 2008 levels. This again emphasis the fact the investing in diversified mutual funds, like HDFC Top 200 or Index ETFs is safer and better, than investing in individual stocks,  to get better returns from the markets.

Be a wise investor !

The National Stock Exchange (NSE) will launch interest rate futures on the 91-day treasury bills from July 4. So, what is this interest rate futures is all about? Interest rate futures (IRF) is a standardised interest rate derivative contract traded on a stock exchange to buy or sell an interest bearing instrument at a specified future date, at a price determined at the time of the contract.

Why are they issued?

These Money market instruments are issued to finance the short term requirements of the Government of India and they are issued at a discount to face value (Rs 100). The return is the difference between the par value and issue price There are different types of T-bills based on the maturity period like 91 days, 182 days and 364 days. Such instruments are very helpful for banks and mutual funds to hedge their exposure.

How are they quoted?

Quote Price = 100 minus futures discount yield.
E.g. For a futures discount yield of 7% p.a, the quote price would be 100 – 7 = Rs 93.00.

How are they settled?

The interest rate futures would be cash settled. In case of the 91-day treasury bill, the final settlement price of the futures contract is based on the weighted average price/ yield obtained in the weekly auction of the 91-day treasury bills on the date of expiry of the contract.

Advantages?

There is no Securities Transaction Tax (STT) and lower margins as compared to other forms of trading. This gives an easier and cheaper access to interest rates trading.

To put it in a nutshell, the interest rate futures can be used to take a directional call on the interest rates or for hedging their existing position. One can enter into an 91 DTB futures contract based on your interest rates view. If your anticipation is rise in interest rates you can create a short position in interest rates futures and vice-versa.

In continuation of earlier article about the basics of Exchange Traded Funds (ETFs) and pros and cons of investing in ETFs, let us look at the list of ETFs available in India. With regard to Equity ETFs, there are a few Index funds, couple of banking sector funds and an international index like Hangseng Bees.

Similarly in the Commodity ETFs,there are a quite a number of Gold ETFs, which has attracted a large number of investors, of late. Interestingly there aren't any Silver ETFs and one can expect such an ETF soon.

The following is the list of ETFs available in India and traded in National Stock Exchange of India. The list shows the Fund house, name of the scheme and the NSE symbol.


Equity ETFs:

Benchmark Mutual Fund:
Banking Index Benchmark Exchange Traded Scheme - Bankbees .
Hang Seng Benchmark Exchange Traded Scheme Hangsangbees.
Infrastructure Benchmark Exchange Traded Scheme -Infrabees.
Nifty Benchmark Exchange Traded Scheme- Niftybees.
Nifty Junior Benchmark Exchange Traded Scheme Juniorbees.
Psu Bank Benchmark Exchange Traded Scheme - Psubnkbees.
Shariah Index- Shariabees.

ICICI Prudential Mutual Fund - Sensex Fund -Spice.
Kotak Mahindra Mutual Fund:
Kotak Nifty ETF - Kotaknifty.
Kotak PSU Bank ETF - Kotakpsubk.
Kotak Sensex ETF.

Motilal Oswal Mutual Fund:
Most Shares - M100.
Most Shares - M50.
Most Shares NASDAQ-100 - N100.
Quantum Mutual Fund Quantum Index Fund -Qnifty.
Reliance Mutual Fund - Reliance Banking Exchange Traded Fund - Relbank.

Gold ETFs:

Axis Mutual Fund - Axis Gold ETF - Axisgold.
Benchmark Mutual Fund - Gold Benchmark Exchange Traded Scheme - Goldbees.
Birla Sun Life Mutual Fund - Birla Sun Life Gold ETF - Bslgoldetf.
HDFC Mutual Fund - HDFC Gold Exchange Traded Fund - Hdfcmfgetf.
ICICI Prudential Mutual Fund -ICICI Prudential Gold Exchange Traded Fund - Ipgetf.
Kotak Mahindra Mutual Fund - KOTAK Gold Etf- Kotakgold.

Quantum Mutual Fund - Quantum Gold Fund - Qgold.
Reliance Mutual Fund - Reliance Gold Exchange Traded Fund - Relgold.
Religare Mutual Fund - Religare Gold Exchange Traded Fund - Religarego.
SBI Mutual Fund - SBI Gold Exchange Traded Fund - Sbigets.
UTI Mutual Fund - UTI Gold Exchange Traded Fund - Goldshare.

Invest wisely !

In this second part of the series about Exchange Traded Funds (ETFs), we look at the advantages and disadvantages of ETFs. As we have seen earlier in Part 1 , ETFs trade like shares while providing the diversification of managed funds.

Though they are similar to mutual funds, they differ in their diversification like index, commodities and different sectors. Their performance closely tracks the investment returns of the shares making up the index or the commodity they are invested into.


Benefits of investing in ETFs:

1. ETFs are passively managed, have low distribution costs and minimal administrative charges. Hence most ETFs have lower expense ratios than conventional Mutual Funds.
2. Not dependent on the fund manager, the ETF just tracks the index.
3. Like an index fund, they are very transparent.
4.Convenient to buy and sell as it can be bought/sold on the stock exchange at any time of the day when the market is open.
5.One can short sell an ETF or buy even purchase one unit, which is not possible with index-funds/conventional Mutual Funds.

Currently, Inflation is the buzz word and let us take a look how inflation affects stocks markets and stock prices. To put it in simple words, Inflation is - your money loses purchasing power and as a result you buy less with the money you have than before. When the inflation rates start to rise, investors get very nervous anticipating the potentially negative consequences.

Many industries wait for the response of the Central Bankers or the Reserve Bank of India (RBI)  for their measures combating inflation. One of the measures is to increase interest rates, which the RBI is currently doing in its monetary policy.

However, the rising prices and the higher interest rates don't lead to positive effects on the investment portfolios of investors. When the interest rates are increased it becomes more expensive for the companies to borrow money and their borrowing costs is increased, and expansion plans are slowed down.

Since the revenues and earnings of companies tend to rise at the same pace as inflation, stocks can provide protection to inflation to a significant extent, but only when rising prices can be transferred to consumers. However, if the rising prices are transferred to the consumers this may lead to loss of market share due to competitiveness of companies.

Inflation has another negative impact, namely the prices rise but no additional value is added.  Since revenues and earnings of companies rise at the same pace as inflation, their financials are overstated, since no additional value is created. However, when the inflation starts to fall to its normal levels, the overstated earnings and revenues will decline as well. These ups and downs lead to blurring the actual state of value. Hence, we can say that lesser the firm is able to pass the inflation to its consumers lesser is its value and the more it can pass inflation higher is its value.

To conclude, the companies cannot pass whole inflation to consumers due to increase in competition and With the increase in inflation, cost of borrowing is generally increased due to increase in interest rates. As a result companies have to slowdown their expansion plans and their growth is reduced which reduces their valuation. Hence stocks provide a hedge against inflation, only when the company can pass that inflation to the consumers, which inturn would reflect in their earnings.

An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks,commodities and bonds. Most ETFs track an index, such as the S&P 500 or NIFTY. They first came into existence in the USA in 1993. It took several years for them to attract public interest. Over the last few years more than $120 billion is invested in about 230 ETFs. About 60% of trading volumes on the American Stock Exchange are from ETFs.

The most popular ETFs are QQQs (Cubes) based on the Nasdaq-100 Index, SPDRs (Spiders) based on the S&P 500 Index, iSHARES based on MSCI Indices and TRAHK (Tracks) based on the Hang Seng Index. In India , Nifty Bees is the first index fund which tracks the S&P CNX Nifty.

Let us take a look at  different types of ETFs.

Index ETFs : Most ETFs are index funds that hold securities and attempt to replicate the performance of a stock market index. An index fund seeks to track the performance of an index by holding in its portfolio either the contents of the index or a representative sample of the securities in the index.

Commodity ETFs : Commodity ETFs invest in commodities, such as precious metals and futures. Among the first commodity ETFs were gold exchange-traded funds, which have been offered in a number of countries.

Bond ETFs : Exchange-traded funds that invest in bonds are known as bond ETFs.

Currency ETFs : These funds are total return products where the investor gets access to the FX spot change, local institutional interest rates and a collateral yield.

While similar to an index mutual fund, ETFs differ from mutual funds in significant ways, because of their low costs, tax efficiency, and stock-like features. To know more about ETFs,  watch out for the Part 2, in which we discuss about advantages and disadvantages of investing in ETFs and details about various ETFs available in India...stay tuned !

When it comes to investing in stock markets, an investor is exposed to two kinds of risks - systematic risk and unsystematic risk. Systematic risk is due to macroeconomic movements and it affects the whole market, while unsystematic risks are company specific risks.

When we buy a stock of a single company we are exposed to both systematic risks (market risk) and unsystematic risks( company risk. But when we buy a diversified mutual fund or a portfolio we are exposed only to systematic risks and there is no unsystematic risks due to proper diversification by the mutual funds.

Let us take a look at some of the major advantages of mutual fund over stocks :

A mutual fund gives diversification :

If you have only 1,000 to 5,000 to invest, the money will not buy many shares of a single stock, and it will certainly not buy many different stocks. By putting your money in only two or three stocks, you are exposed to the possibility that one of them will plummet in price, wiping out much of your invested capital.

Instead, when you put your 1,000 or 5,000 in a mutual fund, your money buys into a portfolio that may comprise of 50 or 100 different stocks. If one or two stocks in the portfolio get hit hard, your losses will be much more limited because many of the other stocks will probably be going up at the same time.

A professional skilled manager chooses stocks for you :

Managers of stock mutual funds have instant access to information about every stock around the world at the push of a few computer keys. They work in companies where teams of research analysts who study corporate annual reports and these analysts visit company executives and factories to evaluate the firms’ prospects first hand. But individual investors have limited access to such information, like these fund managers.

The only disadvantage in investing in a mutual funds is that you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected.

Anyway. buying a mutual fund can substantially reduce our long-term market risk and result in a higher net return if they are used for longer term horizons and they take all the worries which are associated with managing stocks and provide proper diversification. In general that mutual funds are always better than individual stocks, since they involve lower risks, less money and but safe returns, as we have seen in HDFC Top 200 .

Jubilant Foodworks is flying all around the place and hit an all-time-high of Rs.807, recently. The company came out with an IPO at Rs.145 in 2010, later listed around Rs.200 and it is currently trading at Rs.800. What's buzzing around ? Is it just the momentum or is there any extra flavor to this stock?

The company, known for its popular brand Dominos Pizza, has more than 50% single store cities. In 4QFY11 it entered new cities such as Patna, Bhubaneswar etc. These regions present huge opportunity for penetration-led growth, success of the product in these cities would be a key factor to watch out for in FY2012E. Currently 65% of sales are contributed by top seven cities and 50% of stores are located in Maharashtra, New Delhi and Karnataka.

The company currently trades at more than 50 x 2012E Eps of Rs.15 , which is on the higher side.The company's business model is good and there is huge growth opportunities for the company driven by changing demographic and socio-economic factors. Despite the strong near-term earnings forecast and favorable view, the current valuation of the company (PE of 50X FY2012E), the stock is expensive and one could book profits at current levels. Though, the momentum could take it higher, it would not be in the taste of retail investors to buy at these prices.

The country's premier commodity exchange Multi Commodity Exchange of India Ltd (MCX) has launched 1 gram gold contract namely Gold Petal futures contract, which is primarily launched targeting small traders. Already there are many such contracts developed by MCX like Gold (1 Kg), Gold Mini (100 grams) and Gold Guinea (8 grams).

The trading unit of the gold contract is 1 gram and the initial margin required to trade will be 4%, which would be around Rs.100, based on current market price of Rs.2100. The delivery of contract is possible in dematerialised or physical form, but the minimum quantity has to 8 gm.The physical delivery is available in multiples of eight gram coins with London Bullion Manufacturers Association (LBMA) certified 999 purity. The delivery centers are G4 Securitas at Mumbai, and other major cities.

There are many Gold ETFs like Gold Bees by Benchmark funds and many other ETFs by various fund houses like Reliance, HDFC available. Small investors can take the route of ETFs rather than the current product by MCX, since this would lead them to margin trading. This is because many are unaware of the risks involved in margin trading and their consequences of it.

Hence it is better to buy gold only through ETFs. Be a wise investor !

The country's premier stock exchange NSE (National Stock Exchange), has launched a new website in the interest of small investors to spread awareness and benefits of buying gold exchange traded funds (ETFs).In 2007, there was only one Asset Management Company (AMC), Benchmark Fund offering Gold ETF,(Gold Bees) in the market. As on date, there are more than 10 AMCs offering Gold ETFs and investing in them is getting more and more popular and easier.

Gold ETF is gold in an electronic form and it is just like buying shares of any company through a broker. Through Gold ETFs, one can even buy just one gram or half a gram of gold at a time. Gold prices had risen more than 20 per cent compounded annual growth rate (CAGR) since April 2007. While 10 gm of gold cost Rs. 9,357 in April 2007, it is now priced at over Rs 20,000.

To know more about Gold ETFs, you can read it here at Gold ETFs and Nse's website NseGold.

Crude Oil has shot past 100$ barrel mark and currently trading above that for quite sometime now. So where is crude oil heading towards? Crude oil prices are influenced by various factors but demand and supply remain the most crucial among them. Inventory data provides a useful snapshot of supply and demand balance.

Globally, crude oil traders take cue from the U.S. weekly surveys hence monitoring this data is of significant prominence. Also, crude oil is an international commodity so international crude data is important to follow. With US being the biggest consumer of crude oil in the world, one can draw some conclusions from its inventory levels, which impact the crude oil price movement.

For the week ended 18 March 2011. U.S. crude inventories rose 2.13 Mn bbls (W-o-W, as against market expectations 1.6 Mn bbls) and 1.5 mn bbls (Y-o-Y) to 352.8 Mn bbls, as imports rose. As we can see Crude oil inventories are at historically high levels.

Despite high inventories in US, crude oil price is trading at substantially high levels mainly due to geo-political issues like Libya etc. Hence over medium to long term,  there is enough data to believe that the crude will come down substantially, once the geopolitical issues get settled.

Reliance Mutual Fund is launching Reliance Gold Savings Fund which intends to invest in units of Reliance ETF. We know about many Gold ETFs and what is this Reliance Gold Savings Fund all about?
This is a fund which invests in already existing Reliance Gold ETF to the extent of at least 95% of the corpus size, and becomes a fund of funds which is first in its kind in India.

The Fund allows the investors to invest in Gold the through physical mode and thus makes it convenient for investors who do not have a broking account or a demat account. The fund seeks to make the investment in gold in a more convenient manner by allowing investment through systematic investment and transfer plans.The fund focuses on providing the returns as provided by Reliance ETF, which invests 99.5% of its portfolio in bullion.

NFO Features:
Open Ended Fund of Funds.
Issue open:14 February, 2011 -28 February, 2011.
NFO Offer Price: Rs.10 per unit.
Minimum Application Amount : Rs.5,000.
Entry Load: Nil.
Exit Load: 2% - if redeemed 1 year from the date of allotment of units.
Options: 1.Growth 2.Dividend (Dividend Pay-out and Dividend Re-Investment)
Also :SIP/STP/SWP/Auto switch/ Trigger facility available.

Gold prices are in an upswing in the recent times and in the year 2010 gold prices were noticed to have touched it highest in the last two decades.For the tenth year in a row, gold prices gave positive returns in 2010. Investors across the globe have started investing in gold in order to hedge against inflation and currency risk, apart from investing in gold as a separate asset class. Hence one can invest in this fund but with a limited exposure of not more than 5-10% of one's portfolio.