Category: Investments

In going through the Suggest a Topic comments I came across Chintak Dholakia‘s comment and it reminded me of a similar comment when the market began rising a few months ago.

Here is his comment:

Chintak Dholakia January 14, 2013 at 6:19 pm [edit]

I wrote about the SBI RGESS fund and IDBI RGESS fund some time ago, and one thing that I wasn’t clear about is whether existing funds that satisfy the RGESS criteria will make their investors eligible for deduction or if there is any condition that prevents them from being eligible.

Nothing I read said they were ineligible, but I was wondering about this since I felt there is no reason for mutual funds to issue new funds when existing funds serve the exact same purpose (other than perhaps publicity that new fund attracts).

Rahul Chindaliya shared a link which explains how many existing mutual funds are eligible for RGESS exemption, and I also found that Religare has a page that lists out their RGESS eligible funds, and their Nifty ETF is listed there.

This should imply that all other Nifty ETFs (Also see: Comprehensive list of all Nifty Index funds and ETFs)  are also eligible for RGESS exemption, and if you so desire you invest in one of the existing ones instead of going for a brand new fund. This also means that existing funds that invest in other RGESS compliant securities are eligible as well.

I also came across an article in Livemint today which states that the government can expand the scope of RGESS and include more than just first time investors. If they were to do that in the next few days then that will mean that the scheme suddenly becomes interesting to a lot more people.

If you have been investing in Nifty ETFs or any of the other RGESS eligible securities this fiscal and you are a relatively new investor then I’d suggest you keep a track on this space because you might suddenly find that there is an exemption that you can take advantage of that didn’t exist before.

Harinee asked me to share some thoughts on analyzing stocks, and I told her that my ideas would probably disappoint her because they are so simple but in any case, I’m writing some thoughts on the first step of investing which is akin to generating leads or just finding out which stocks should be researched further to see if they make a good case for a long or a short.

I would say there are five main ways that I discover which stocks to invest in, and I’m listing them here.

1. Great products: In the long run, behind every great stock, there is a great company that’s selling great products or services so whenever I see a product that wows me I try to find out if the company that makes it is listed and how big is this product to their revenues. Sometimes others give you the hint like when your sister in law yells at you for buying the wrong brand of glue. That should surely pique your interest to see if Pidilite is the one making it, and are they any good at making other great products that bring in profits.

2. An interesting theme: While the first point was about bottom up investing, this one is about top down investing. I’m a big fan of 3D printing and am always very interested to see if there are any companies in this space that can be invested in. So, this is an example where you think of themes or sectors first and then see if there are listed companies in those sectors. Drones is another theme I’m currently interested in as the Obama administration seems to have shown that they are the way to go and I feel other countries are going to catch up on this. I don’t think there are any companies that you can invest on based on this theme today, but that might change tomorrow.

3. Twitter: In recent times, Twitter has been a good source of lead generation for me because I follow a lot of people who are a lot smarter than I am, and in looking through their conversations you discover stocks that you wouldn’t have otherwise thought about.

4. Non stock market business magazines: I feel that business magazines that don’t focus on stocks do a great job of showcasing small companies that are doing well, and magazines like Business India, Business Today and Business World are very useful to do this in the Indian context.

5. Looking at what fund managers are buying: I do this a lot and while I admit that this is a lazy way and hasn’t worked all that well for me, somehow it is very tempting to invest in shares that bigger investors are investing in because it feels like they have spent so much time and money on it – how can they be wrong? They are of course wrong most of the time.

These are some thoughts that I had, and while it is easy to get carried away in the current market environment, if you are interested in directly investing in shares you should definitely read my post on the big risk on investing in stocks directly or more importantly read the comments on that post.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Certain things look a little complicated till they are done for the first time. Investing in stocks of foreign companies, like Apple, Google or Facebook, is one of those. It seems very complicated but it is not so.

A few days back Manshu had written a post on how NRIs can invest in the Indian stock market. CA Karan Batra wanted to have a similar post on how Indians can invest in shares listed on NYSE.

Here is what he had to say:

Hi Manshu

Very informative post on how NRI’s can invest in India.

I would highly appreciate if you could author another post on How Indian’s can invest in Shares listed on the New York Stock Exchange. I heard that its possible for Indians to invest in Shares listed on NYSE but not sure about how to invest..

These days, every other financial advisor advises his/her clients to diversify across asset classes and across markets. Some investors in an attempt to diversify their portfolios do not mind to experiment and desire to have information regarding the procedure.

So, here is my attempt to share the required information with our readers.

Open a trading account

Like you open a trading account here in India with a broking company to invest in shares listed on NSE or BSE or any other stock exchange, you are required to follow a similar process to open a trading account with an Indian broking house to invest in shares of some foreign companies listed on the stock exchanges of their respective countries.

How do I open a trading account to invest in International Capital Markets?

To facilitate you to do the same, an Indian stock broker enters into a tie-up with a foreign broking partner who has the license to act as an intermediary and execute the trades on your behalf in the foreign markets.

The Indian stock broker will act as an introducing intermediary between you and the foreign broking house. The Indian stock broker will also help you in getting your account opened and completing the formalities of Know Your Customer (KYC) applicable for that country.

You just need to fill an application form and provide your identity proof such as passport or PAN card and residential address proof such as Voters ID card or latest bank statement as the documents required to open an account.

Once your necessary details are registered, you will be provided the bank account details of the foreign broker to which funds are to be transferred. You will also get the contact details of the account executive who will take care of your account in case you require any kind of assistance.

Funds Transfer – Pay-In/Pay-Out Process

As per the remittance norms of the Reserve Bank of India (RBI), an Indian citizen can remit a maximum of USD 2,00,000 in a financial year, from any of the authorised banks in India, including for investments in international capital markets.

To remit funds to the foreign broker’s bank account, you will be required to visit your bank branch, duly fill Form A2 and submit it there along with your PAN card copy.

The foreign brokers accept funds originating from your bank account only and will reject any third party fund transfer. Also, they do not accept bankers drafts, cheques or cash deposits either.

To get your money back, you need to fill “Bank Transfer Request” (BTR) form online and send it to the foreign broker. Once the payout request is acknowledged, the amount will be credited to your bank account.

It takes around 24 to 48 hours to remit money from your bank account to your trading account with the foreign broker and around 48 to 72 hours from your trading account to your bank account.

You may remit funds in one of the many global currencies from your bank account to your trading account but you need to decide the base currency in which you want to settle your transactions. So, if you set USD as the base currency in your account, then all stock exchanges which accept payments in USD will settle your transactions in USD automatically.

For your trades on other exchanges, which do not accept payments in USD, the foreign broker will convert your base currency, USD in this case, to the currency of that exchange at the market rate to execute the transaction.

Once your account is opened and funds are transferred, you will be provided a client Login ID and password to have an immediate access to the foreign broker’s trading platform to buy and sell shares of the listed foreign companies. All dealings like trading, delivery of shares/funds etc. will be done directly with the foreign broker without any involvement of the Indian stock broker.

Demat Account

Unlike here in the domestic markets, where your bought shares get transferred into your demat account in T+2 days, when you buy shares in the foreign markets the shares remain in a pool account with the broker’s custodian but start reflecting in your trading account immediately after buying.

Unlike with most Indian brokers, margin trading and short selling will not be allowed with a foreign broker. You will be able to buy shares only when there is sufficient cash in your account and sell shares only when you already hold them.

You can have the access to all your transactions, account history and ledger balance on the trading platform. You will also get the contract notes for your executed trades in your mailbox.

Which brokers are providing this facility here in India?

Only a few Indian broking companies like Kotak Securities, ICICI Direct, India Infoline, Reliance Money and Religare, are offering these trading services to Indian investors.

In 2007, ICICI Securities became the first company to have a tie-up with US-based broking firm, Penson Financial Services, for its overseas trading platform with access to NYSE Euronext and Nasdaq.

While Kotak Securities has a strategic agreement with Singapore’s Saxo Capital Markets, the capital markets arm of Denmark-based Saxo Bank, India Infoline has such relationship with US-based Interactive Brokers, LLC. Reliance Money also has such an arrangement with US-based optionsXpress.

Kotak Securities provides access to 24 international stock exchanges through its trading platform “Kotak Trader”. These exchanges cover all the big markets and almost all the big stock exchanges including New York Stock Exchange (NYSE), Nasdaq, London Stock Exchange (LSE), Australian Stock Exchange (ASX), Hong Kong Stock Exchange (HKEX) and Singapore Exchange (SGX) among others. Here is the link to check the markets you can trade in with Kotak Trader.

You can transact on over 80 international stock exchanges with India Infoline whereas, ICICI Securities and Reliance Money facilitate you to transact only in the US markets.

Kotak Trader offers trading in equity markets, ETFs, ADRs, GDRs and REITs through 100% cash and carry system. But, this service is available only for individuals. Partnership firms, HUFs, trusts, NRIs, corporates etc. are not allowed to open an account with Kotak Securities for their overseas investments.

Different companies require different minimum amount to open a trading account. Kotak Securities require you to make an initial deposit of USD 10,000 or INR 5,00,000, whichever is higher, within a period of 3 months from the date of account opening. With India Infoline also, this amount is USD 10,000 but ICICI Direct and Reliance Money allow you to trade with a minimum initial deposit of USD 1,000.

Kotak Securities charges Rs. 750 to open such an account and 0.75% of the trade value as the brokerage, while ICICI has an account opening fee of Rs. 999 and the transaction charges of USD 9 or 0.75% of the trade value, whichever is higher. India Infoline does not have any account opening charges.

As your overseas investments will be made in some foreign currency, your investment gain or loss will also be linked to the movement of that currency. So, if you invest in some stocks in USD and USD appreciates in value, then it would add to your gains or lower your losses. e.g. Suppose you paid Rs. 50 per USD at the time of investment and liquidate your investment when the USD appreciates to Rs. 55, you will get back Rs. 55 per USD.

The process of transacting in equity markets overseas is not that complicated, but you need to understand the dynamics of global equities. You can understand the revenue sources for Bharti Airtel in India but it is difficult to do so for SingTel in Singapore.

There are some other ways also in which you can invest in overseas markets; I will do another post to cover those options.

I wrote about how the mutual fund return numbers from Moneycontrol were a bit different from those of Value Research and Morningstar yesterday, and that I wasn’t sure why that’s the case.

Invest Mutual who had helped with the post yesterday, researched some more and found that it was just because of different dates. He looked at the 1 year returns and found that and then I fiddled a little bit with moving a day back or a day forward and found that the difference of a day or two has caused this variance between the two sites.

Here is the table that shows the data.

	Moneycontrol	ValueResearch
1 year	October 25 2011	October 28 2011
Historic NAV	12.8103	13.0741
Latest NAV 10/26/2012	15.6493	15.6493
Gain	22.16%	19.70%
	MC	VR
3 year	October 27 2011 (Tuesday)	October 26 2011(Monday)
Historic NAV	11.4648	11.8601
Latest NAV 10/26/2012 (Friday)	15.6493	15.6493
Absolute Gain	36.50%	31.95%
Annualized	10.93%	9.68%
	MC	VR
5 year	October 25 2007 (Monday)	October 26 2007 (Friday)
Historic NAV	13.893	13.7028
Latest NAV 10/26/2012 (Friday)	15.6493	15.6493
Absolute Gain	12.64%	14.21%
Annualized	2.41%	2.69%

Once again, thanks a lot to Invest Mutual for their help, this is not the first time, and I certainly recommend that you follow him on Twitter.

I wrote about promoter pledges being a red flag yesterday and I wanted to do a quick post on how to find this information for a particular stock today.

The first step is to go to the NSE website as that’s the place where you can easily find this information on any listed stock in India. Type in the name of the company in the “Get Quote” text box near the upper middle part of the screen and hit “Get Quote”.

In the resulting page, click on “Company Information” which is the second tab towards the center of the screen. This will open up a section that shows the following 4 blocks of information:

1. Corporate Announcements
2. Financial Result / Shareholding Pattern
3. Board Meetings
4. Corporate Actions

You are interested in “Shareholding Pattern”, click on that section. This will show you categories of shareholders and how much percentage they hold. Towards the end of this section, you will see a hyperlink labeled “View Details >”.

Click on this link and you will see a big list appearing on a new screen. Click on the first line and this will open a pop up window. You will see “Main Shareholding” as one of the hyperlinks on this popup and when you click that – a new screen will appear that shows you results of which category owns how much and what percentage of their shares are pledged.

This information used to be accessible a lot easier in the older version of the NSE website, but I don’t know why they changed the format to make it so hard to reach. I can add screenshots to this post if people are finding it difficult to follow the post but right now I’m in a bit of a hurry so just writing the post. Please leave a comment with any questions, or if you know of a better way to get this information.

On Monday I wrote about debt recast, and one the two companies mentioned in the original comment requesting the post was Suzlon which reminded me of another post I had done more than one and a half years ago.

That post was about three things you should look at if you want to analyze individual companies, and share pledges was one of the three factors.

Promoters have to declare if they have pledged their shares and borrowed money against it, and this information is publicly available. This is a good thing to keep track of because you’d imagine that for a promoter, their shares are the last thing they want to borrow money against.

The way borrowing against shares works is that if you have shares worth Rs. 1,000, a lender may give you 30% of that value, and you have to maintain that margin which means if the shares fall in value then you have to either pledge more of them or come up with more money. If you fail to do that then you can even lose control of your company because the lender will seize your shares, and that’s a terrible situation to be in.

That’s why I consider a high promoter pledge a red flag, and if you combine that with low promoter stakes in the company then to me, that’s an even bigger red flag.

I did a list of shares with promoter pledges back in 2009 and Suzlon features there along with around 400 other companies. Suzlon is there with about 25% which is a high number and their share price today which has gone down about 50% in the last year which given the broader market is a fairly bad performance.

One factor alone doesn’t give you a conclusive answer on whether or not you should invest in a company, but if you want to invest in stocks then promoter pledges is certainly an important factor to keep in mind.

A couple of days ago the Economic Times published an article by Shiv, and it is a different kind of article in the sense that it was really a financial plan that Shiv made for Mr. Gopalan who is 47 years old, married with a child, and has assets of about Rs. 1 crore.

I thought this was a very good article go gain ideas about how to go about your own financial plan and the type of things to consider.

The thing that struck me most about this was how Mr. Gopalan or anyone reacts when they say they have assets of Rs. 1 crore which is not a trivial amount, and then hear from the planner that well, you need to do a lot better.

If you see the article, then the recommendation to diversify is really obvious, but I was a bit surprised to see that even with these assets, and what looked like a modest level of expenses, they weren’t on track to meet their goals, and will have to make a few changes to achieve what look like fairly simple goals that perhaps every family has.

You can read the whole article here:  Family finances: Gopalans need to diversify to get financial plan back on track

The Finance Minister recently approved the operational features of the Rajiv Gandhi Equity Savings Scheme (RGESS), and I felt it was a surprisingly complicated scheme which really doesn’t offer any great benefit to investors.

Who is eligible for RGESS?

The intent of this scheme is to bring new people into equities and that means if you have ever bought any shares or traded in derivatives then you are ineligible for the tax benefits under this scheme.

They are going to look at new investors on the basis of the PAN number so you are only eligible in this scheme if there have been no prior equity or derivative transactions in the Demat account linked to your PAN number.

Your taxable income should also be less than Rs. 10 lakhs in order to be eligible for this scheme. If your taxable income is more than that then you don’t qualify for this scheme.

How do you get the tax RGESS benefit?

In order to get the tax benefit, you have to invest in one or more of the following:

1. Stocks listed under the BSE 100 or the CNX 100
2. PSUs that are categorized as Maharatnas, Navratnas or Miniratnas
3. FPO of PSUs mentioned above.
4. IPO of PSUs whose turnover is not less than Rs. 4,000 crores in the last three financial years.
5. ETFs and mutual funds who have RGESS securities as their underlying.

The maximum that you can invest for the purpose of this tax benefit is Rs. 50,000 and you can do so in installments in the financial year.

What is the tax benefit under RGESS?

You get to deduct half of the money invested under RGESS from your taxable income and thereby reduce your tax liability. So, if you invested Rs. 50,000 in eligible securities under this scheme then you can deduct half of that – Rs. 25,000 from your taxable income, and if your tax rate is 20% then you save Rs. 5,000 (20% of Rs. 25,000) from your taxes.

Is there a lock in period under RGESS?

There is a three year lock in period under RGESS which is further broken out into an initial blanket lock in period of 1 years which means you can’t trade in your RGESS securities within one year of claiming the tax benefit.

After the initial one year, you can trade in your securities provided you maintain a certain investment level. This investment level is dependent on the value of your shares at the time of the sale.

So, say you invested Rs. 50,000 at the beginning, and at the time of the first sale, the value of your investment is still Rs. 50,000 then you will need to show investments worth Rs. 50,000 in 270 days out of the 365 or 366 calendar days.

However, if your investment was worth only Rs. 25,000 when you initiated the sale then this is the amount you will need to maintain for the 270 days.

If your investment appreciated and is now worth Rs. 1,00,000 then you will only need to maintain investments worth Rs. 50,000 to be compliant with the scheme.

If you fail to do any of this then the tax benefit will be withdrawn however I’m not quite sure how they are going to implement this or even the initial blanket lock in period for that matter.

As you can see this is a fairly complicated scheme which won’t be useful for many people and wherever applicable will offer limited benefits. I’ll be really surprised if it does well.