how to buy a mutual fund and how to tell when to sell

If you need to know what you are putting your head into, you must have read Parts 1 and 2 of this 3-part series on investing in Indian Mutual funds. This is Part 3, and quite consolingly, the last part.

How to buy ?

There are 3 ways to do this :

1. Download the application form online, take a print out, attach a draft as specified and courier it across to the address mentioned.

(Note: You are going to have an advantage in this option. Mutual funds usually have something called an Entry Load, usually 2.25%. Means, if you invest Rs.5000/- you may get units worth only Rs.4887/- the rest goes as some kind of "handling charges/commission". If you send your application directly to the company and not through a broker/distributor, you will be exempted from this and you will get units for all of Rs.5000/-). Many agents do not, naturally, mention this to their customers. Also, don't think that a downloaded applicable is not good enough, because it does not have a pre-printed application no. like the one from the broker. Application no. is good, but not mandatory. Broker is good too :), but not mandatory.

2. You can approach the nearest mutual fund distributor and ask for a form, attach a draft and submit it to him. No Cash. Ensure you fill the form yourself or is filled in your presence and verified by you.

3. If you have an online account in which mutual fund investments are enabled (like ICICI Bank 3-in-1 account or HDFC bank), you can invest online. This is the easiest and hassle-free method, involving little paperwork and felling fewer trees. :) :) But, note that, in methods 2 and 3, you are not exempt from entry loads.

I have tried all three a bit, and of late, settled for the third option. You call it laziness, I call it concern for the environment.

SIP : Systematic Investment Plan : This is similar to the Recurring Deposits in banks. You can opt to invest a smaller amount every month on a given date. Works for small-time salaried guys whom the FM regularly targets, you know. You have to issue post-dated cheques for the specified amount and it will be collected from your bank account and the units will be bought in the scheme. Monthly instalments mostly start from Rs.1000/- per month, there are couple of funds where the monthly instalment is Rs.500/- . This is considered, an easier and a healthy option to invest. While you should also know that a SIP does not mean better returns, it may sometimes have some merits like Cost Averaging. Also, it brings some discipline to your investing and puts it on autopilot. Someone has even come up with a Daily SIP !!

How long should I stay invested in a scheme ?

No one knows, actually. But they say (who?), a minimum 3-5 years is a good period to leave your investments untouched. If your fund is doing reasonably well and is well-placed among its peers, one should leave it at that, even if it's not right on top. It's good to review your schemes once in 6 months, and if they are dismally lagging, then probably consider a switch to another fund. No, I won't go on more on this, I don't know how the machine works. I will get back on this after 7 years :) :) . I do hope this blog will be around, and you, the loyal reader will be around too, but I can't assure whether your money will still be around.

How to Sell :

Why to sell ? :) :) Okay, you've decided to sell or redeem. If you've invested online, click-click-click. If you polluted the environment by investing in paper form, then you would have received your account statement with a portfolio number on it. Somewhat like an account number. That statement copy will also have a tearable portion below where you can place instructions of sale or change of address or whatever and sign. If you haven't stayed with the same bank account, you can specify the new bank account. And send it across to the MF company or give it to the broker. Your money should reach in less than a couple of weeks, since there is a nice stipulation that mutual fund service requests be fulfilled within a few business days of receipt. Also, know that dividends from all mutual fund investments are exempt from tax in the hands of the investor. Only because they are already sufficienty (t)axed. Sale within one year will attract short-term capital gains tax.

Also, contrary to insistence by some dealers, the form is not sacrosanct. Photocopy will do. Or even a signed letter on plain paper giving all information will do. If they are denying your request (for example, a nomination request), they will also send you the appropriate form.

What if you are disorganized like me and lost the account statement ? I hope you will also be partially organised like me and noted the folio number and scheme name somewhere. That should do. Also, remember to enter your email address while applying. There will be "Save Trees" checkbox, by which you can opt to receive account statements by email. :) If you do that, and if the scheme is one of those serviced by CamsOnline.com, then you don't even need to remember the folio no. (Why am I giving tips to become more disorganized ?). If you just mention your email, they can send you statements for all your investments in MF companies on their service list. The site doesn't require registration, yes it's all legit, they are the guys servicing many mutual fund companies on paper work, and, of course, you will be asked to specify a password of your choice, with which they will encrypt the PDF and send it to your mailbox. Cool !!

My picks ? :

Oh, why should it always lead to this ? I have just advocated data impersonalisation and now, this ? Okay, here it goes, but only if you promise me that you won't listen to me:
HDFC Equity, SBI Magnum Contra, SBI Magnum Balanced, Sundaram Select Midcap, Sundaram India Leadership, Reliance Vision, Franklin India Prima Plus and Birla Sunlife Index.

You must have guessed it right by now, a beginner's guide often means, that the writer is a beginner, not the reader. And if you haven't figured that out, you are probably a beginner in figuring out things for what they are worth.

Happy interesting investing.

How to choose a mutual fund lazily and hazily

Didn't they teach you at school that you shouldn't be lazy ? Anyway, it's your decision to be lazy and, entirely your decision to invest in a mutual fund, but if you want to do both together, then you are not alone and you have come to the right blog.

This is the 2nd part of a 3-part guide to investing in Indian Mutual funds. The other parts are linked from here.

Time period of investment :

Unlike bank deposits, you don't "contract" a mutual fund investment for a particular pre-defined period. (Except in cases where there is a lock-in period like 3 years). You put money whenever you want, this is called "buying a certain number of units in a mutual fund scheme". You can take your money out whenever you want. That is called "Redemption of units" or "Selling of units of a mutual fund scheme". Usually speaking, the longer you stay invested in a scheme, the better it would be for you. (That is, assuming, the scheme is doing reasonably well than its peers). Because the main returns potential of equity lies in the long term.

The Million Dollar Question:
Is my money safe, will I atleast get back the principal ?

No, It's gone forever to charity. Jus kidding. :) :) Yes, it's pretty safe, as safe as it can get these days in these parts of the universe. There is an element of risk on how a scheme will perform and there is this usual disclaimer of "past performance not indicative of future returns, consult the offer document and don't consult a blog before investing". But there is nothing phoney or hush-hush about it, nor is there guarantee promises of sky-high returns. But if you are an average-risk-taking youngster with an eye on long-term, reasonable wealth creation, then it's meant for you. Also, no one will deny the money due to you except in case of national financial calamities (Just threw that word, I don't even know what it is). At the least, whatever is the current market value of your investment will be given to you. Of course, the basic assumption is that everything is dependent on the stock markets and more specifically, on the stocks that your scheme has bought. The market value of your fund on any given day, is derived from the market value of the stocks that it has invested in. Heheheh, the stock market is itself dependent on a million parameters, including the flap of a butterfly in Timbuktu. :) It's not much different, for example, from investing in gold or in real estate as an investment option.

How to choose a mutual fund :

There are many ways ranging from a lot of work to a lazy click. Since laziness is relative and changes behaviour according to the observer, It's better I'll explain what I usually do at my level of laziness. I like to keep choices simple, without going into detailed statistical analysis. And as far as possible, I want to keep it "impersonal", that is I would rather look at data than fall for someone's marketing speech. If a distributor tries to talk me into a new fund offering, why do I get that faint suspicion :) :) that he has no clue how the scheme is going to perform and his eye is on the 6% commission. How so mean of me! Aren't they humans too and don't they have families to support ?

I usually go to Value Research Online, they have rated the funds as 5-star, 4-star, 3-star and so on. Have a look at the 5-star or 4-star funds. In fact, keep looking at it from time to time, to spot and register names in memory over a period of time. I usually go in only for the equity funds. So I just pick one of them and invest. And try to pick a different fund house or a different scheme every time. Of course, this is anything but time-tested, since I am pretty young in the investing arena, just 3 years. And this is put right in the middle, because it applies to the whole article. This is not professional financial advice and if by any stroke of imagination, you thought it is, then you need professional counselling, psychiatric. If you haven't read the save-skin disclaimer, you haven't read anything at all. :) :) And hello, I am in no way connected to the owners of any of the links, except for the fact that we all share the same vast, wide, internet.

But, you don't have to go by that one site. There are other sites, which my friends find useful. Like PersonalFn , MyIris and mutualfunds.moneycontrol.com. I am also a fan of CRISIL's Quarterly ranking of mutual funds. Rediff Money , Yahoo Finance India and LiveMint also seem to do a good job in data presentation and tutorials on the various aspects but they do a simple ranking based purely on returns. The one good thing that attracted me to ValueResearch and CRISIL, is that their rating is based on risk-adjusted return, means, they prick the returns generated with the risk it has taken and then rank them. You should also know that such a rating methodology might itself be a subject of criticism. There is also this Association of Mutual Funds website, more of an official kind.

Net Asset Value :
It shows the value of your money on a given day. It's declared every day for most schemes. If you had bought some scheme for Rs.200 per unit, last year same day and it's net asset value today is Rs.230 then your investment has grown at 15% p.a. This calculation applies only for the Growth Option, we'll skip other options for later.

What's about this Growth option or Dividend option :

There are three options when you are buying any scheme. In dividend option, the you get dividends on your investment, from time to time, as and when dividends are declared. Growth option, is somewhat like a Cumulative Interest Fixed Deposit, when you choose to sell, you get your "grown-up-value" of your investment. There is a third option called "Reinvest Dividends", that means, dividends will be declared, but for that amount, units of the same scheme will automatically be bought at that day's rate. Usually, dividends suit elders who are dependent on periodic income. Youngsters are better off with the Growth option.

Can anyone invest in mutual funds ? What will I need ?

If you want to invest more than Rs.50000 in a single go, you need a PAN. In fact, even otherwise, you are better off having a PAN, because I think they might make it mandatory for a lot of other things shortly, like sneezing in front of a bank :) or marrying a banker. You would also need to mention your bank account number and probably attach a copy of a cancelled blank cheque leaf bearing your account number. When you sell, they'll give you a cheque for the proceeds and you will be allowed to deposit that cheque only in this bank account. Of course, in the meanwhile, if you change your bank, you can intimate them.

Investments above Rs.50000 also require you to get something called a "KYC Clearance for Mutual Funds". (Know Your Client). It's a one-time thing like PAN and it's pretty simple procedure.

Every scheme has a minimum investment amount. Most equity funds require you to invest a minimum of Rs.5000/-. Some funds also have something called an Exit Load (something like handling charges for exit). Means, if your units are worth Rs.5000 and the exit load is 1% , you get only units worth Rs.4950/-

You won't need a proof of address. For investments below Rs.50000/- Id proof is not required. (Please note that this rule may change after this web page is published)

What range of returns can one expect ?

God knows. But if you want some information from lesser beings, some of the best diversified equity funds fetched between 13-18% p.a. if you look at the last 3 years and between 30-35% if you look at the last five years. Obviously, I have a way of presenting whichever data is presentable and giving a limited picture of the unlimited chaos. Also, depending on where you stand, this might be the wrong time or the right time to look at how the market has performed. As someone put it, the sensex is back to where it all began, at 13000. You should have seen my face when it touched 21000. Anyway, look at data for the last 5 years, impersonally, here.

No, you want to quit, without reading Part 3. Because you may not emerge with your wallet intact. Thats okay, looking at that much data makes me dizzy too, but, by now you must have realized, the whole point of this guide is the wry humour and poor jokes that are embedded here and there.

Look for those in Part 3, that explains : How to buy and how to sell.

A beginner's guide to Investing in Indian Mutual Funds - Part 1

This is the first part of a 3-part guide to investing in Indian Mutual Funds. The other parts are linked at the bottom of this post.

Let's assume you already know about what a mutual fund is. Let's also assume I don't know much :) , and, in fact, I mix up things a lot, but yet I might want to share whatever I mix up. Let's also assume you read disclaimers diligently, even if they are not there and fully understand the implications of asking the half-baked guys about your hard-baked money. Now if thats some average behaviour you come across in life and average information is quite okay with you, join hands, let's get in.

Mutual Fund companies (also called Asset Management Companies or AMC) run different schemes. Investors invest money in one or more of these schemes belonging to the AMC. Ex: HDFC Mutual Fund is an AMC that has schemes like HDFC Top 200, HDFC Tax Saver and so on. Sundaram Mutual Fund, for example, has its own tax-saving scheme called Sundaram Tax Saver.

There are many kinds of Mutual Fund schemes. Let's focus on a few major categories, assuming we intend to generate a substantially higher return, in the long run, than we do from, say, bank deposits.

1. Equity funds - that invest all of their money in stocks of companies - considered relatively higher risk than the other two.
2. Debt funds - that invest in other types of investment instruments, for example, in bonds and fixed income instruments. Considered relatively lower risk among the three. Of course, return potential will accordingly be lower.
3. Balanced funds - A kind of hybrid, investing a portion of the money in equity and the rest in debt. The proportion varies from scheme to scheme. Considered medium risk compared to the other two.

There are such organisms called gilt funds, liquid funds, monthly income plans etc. We'll skip those and reserve for a later lesson.

Among the three, we'll mainly handle equity funds of different subcategories. Why only equity funds, are they not high risk ? Okay, thats relative to the other types of funds. Also, among the three, equity funds are the only ones capable of generating higher returns in the long run, than all other forms of investment. As this rediff page says:

If you look at the market over 25-30 years, the average annual return would be around 15-18 per cent. Data on global markets will indicate that equity will deliver around 12 per cent.

These categories are based on the objectives, restrictions and approach of the scheme as stated in the scheme's prospectus. For example, we have this Banking Sector Fund, which announces that it would be investing only in bank stocks. Are you someone, who believes that the financial services is poised for a growth run in the next 3 to 5 years ? Then thats for you.

Equity Funds

1a. Sectoral Funds : Funds that proclaim to invest in companies in a particular sector, for example, the power sector, the financial services sector or the Oil-Gas-Petrol sector. Among the subcategories of equity funds, considered high risk. Why ? Because, it seeks to put all eggs in a single basket, that is from a single sector. If that sector goes phut, you know what. Of course, if that sector booms, it can outperform other categories. High risk, high potential for return. You have to be like Mark Twain, keep all your eggs in one basket, but keep a watch on it.

1b. Diversified Equity Funds : These are 'Go Anywhere' funds. Means their prospectus doesn't restrict them from buying or selling X or Y types of companies of A or B size. They can buy the stocks of small companies or blue-chip companies or somewhere in the middle. They can buy stocks from different sectors in whichever proportion they want. Discretion is left to the fund manager. Relatively low risk. Why ? Because the investment is spread across different sectors and different companies. Some may do well at some times and others at different times. So the risk is said to be "diversified".

BTW, Diversification would indeed be one of the basic lessons in Personal Finance. Even within a person's money bag of investments, ideally, one should have, some in Fixed Deposits, some in property, some in gold, some in debt funds, some in equity funds and so on.

1c. Size-based funds : You typically come across names like Midcap funds, Smallcap funds, Blue-chip or Large-cap funds and so on. Cap here means market capitalisation, not as in 'Topi Daalna' :). It roughly indicates the size of the company. You can see the exact definition here. So companies like Tata Consultancy Services, Infosys and Airtel and considered huge, some like Lakshmi Machine Works and Balaram Chini Mills are considered Mid-cap and Bachcha companies like Balaji Telefilms and Gitanjali Gems are considered small-cap.

Again, large-cap companies are considered low-risk, mid-cap companies are of slightly higher risk and small-cap companies are considered high-risk. Why ? Because of a word called "Liquidity". Liquidity roughly means 'en-cash-ability' : If you suddenly want cash and want to sell a company's stock, will many people be available to bid and buy ? Large-cap company stocks are traded all the time, there are more buyers and sellers, so their liquidity is higher. We'll leave it at that for the moment. If we have the knack to spot that potential small-cap company of today, which has got the performance drive to become the giant large-cap company of tomorrow, you have just spotted the next Google or the next Infosys. If you had invested just Rs.10000 in Infosys in the year 1994, that Rs.10000 would have been worth Rs.1.5 crore in 2007. Juicy, no ? Have some pickle to contrast the fascination , mitigate the enthusiasm and understand the risk and patience involved.

1d. Lifesytle-based or Thematic Funds : Some like Sundaram Rural India Fund, Kotak LIfestyle fund etc. come up with unique differentiating objectives and seek to find good performance in such investing styles.

1e. Index funds : My latest fad. These are funds that invest according to a particular index. For example, Birla Sunlife Index fund, invests, in all the X number of stocks comprising the sensex, in the same proportion in which they comprise the sensex. So sensex goes up, your money goes up that much, sensex comes down, it comes down as much. Considered low-risk for three reasons : 1. Unlikely a fund manager will mess it up for you, because his is a passive role. Also the fund management fees are lower. 2. These indices usually comprise of large-cap or liquid stocks and are automatically diversified across sectors. 3. For a small investor, if you put Rs.5000, you get to invest in all those big companies (somewhat like that) and mirror their collective performance.

1f. Tax-saving funds: These are funds that are similar to diversified equity funds in terms of investing style. But they have a 3-year lock-in period. Means, you can't take your money out for three years. The merit is, if you are looking to save tax, this is one of the avenues to do so.

Balanced Funds:

For a beginner, these are a nice place to start. They invest only a portion of funds in equity and the rest in debt instruments, so they have a mix of low risk and slightly higher risk. Their returns are also slightly reduced than that of equity, but as a beginner, if you want to start small with something, you can choose one of these. My first investment was for Rs.1000 in SBI Magnum Balanced Fund in December 2005. It has given an average annual return of 12% till now. Even 1000 rupees can cause a lot of pride, you see. I don't want to take it out for atleast 10 years, just want to see what on earth would happen. It can't go into minus and they can't fine me for investing, right ? :)

Do you get similar ideas ? Then read on for the next part, Part 2 that covers :
How to choose a mutual fund without having to revise your lessons on standard deviation.

If you still haven't given up on me and decided to part with your dough, I won't stop you from going on to Part 3 : on How to buy and how to sell.

Munnabhai goes to the market

There are certain topics you should not discuss during a riverside walk.
Like office work, unless you have an office that overlooks the river.
Bomb blasts, unless you are patrolling on the riverside, not just strolling. Otherwise, you will be patrolled upon.
Windows vs. Linux, because the river can change course and wreak havoc.
And Stock markets, never, even if you work for... err..had till recently worked for... Merill Lynch.

But Bablu is not sensitive to these things. Munna bumps into Bablu on the riverside often, but they come from opposite directions for opposite kinds of reflections. Munna comes to reflect and discuss with himself, because all day he spends discussing with others. Bablu comes because he spends all day discussing with himself and Munna is the only guy who is ready to discuss anything at all with him.

Whatever, Bablu brought it up. Why does he do it all in reverse ? When the whole world is pessimistic, he brings up an optimistic 'thinko' assertion, When the whole world is optimistic, he sees through it all and reflects on their transcience. The sub-prime crisis has just worsened, well, it worsens freshly everyday. The market sentiments are on a low. Aha, what a phrase to denote about being sentimental about the market. And somehow Bablu thought of asking Munna about investing in stock markets. Not that Munna is all wisdom, though he often gives such a picture, unintentionally. Not that Bablu is all naive, but he puts up a show of naivety, intentionally, whenever someone puts up a show of wisdom. Munna had just stepped into the market in a small way, but you know Munna, he thinks he is a deep thinker. On what ? Well, pretty much on anything you ask him to think.

'I just want to beat the Post Office Returns Rate by 5%', began Bablu, 'Say 20% p.a. returns in the long term, of 7 to 10 years. I am not a trader, I want to be a long-term investor'. 'Munna noticed the data mismatch, but he knew that Poet Bablu was never good at quants, so he let it go. A professional financial advisor would ask you about your financial objectives and then about your risk profile or capability. Now that Bablu had spelt out the former, Munna asked him about the latter. 'Oh, I don't rebalance my portfolio according to my risk, I rebalance my risk according to the portfolio', replied Bablu. Munna never understood what that meant, but he knew this must be one of Bablu's eccentricities of doing things in reverse. 'I should learn this way of thinking from Bablu', he thought, 'it might help me become more creative'.

Neways, Munna went on to explain how he went about investing in the markets. 'I have pretty much the same expectation, I would bet on 12% instead, based on international data for the last 30 years', he began. 'Wow, everything about Munna is international, except the river', thought Bablu.

Munna always wanted to minimize research or studying companies or regular monitoring. This trait comes from his school days, where he always crammed on the day before the exam. We carry the same traits wherever we run. You carry your Shani, even if you run to Kashi.

Munna is also slightly inclined against timing the market. Spend time in the market instead of timing the market was his central belief. Besides, He knew Bablu falls for such puns. Also, if Munna advised Bablu to buy low and sell high, you know what Bablu will do.

Munna preferred investing little amounts regularly. Ironic, since he used to be inclined against this some time ago. But did he require permission, even to contradict himself ?

There is a slight paradox here, though. Don't want to study the companies, don't want to time the market, in other words, don't want to move your muscle, this goes against "standard" practices. But it best fits a lazy investor. Munna has a faint thought that investing without studying the companies will take a toll sometime or other, but he expected to reap some merits purely by diversification and more merits by investing in the long term. Moreover, he was always at a loss to understand Profit and Loss statements, Balance Sheets imbalanced him and his dismal performance at the Accounts courses had been meticulously documented at his university. Diversification is one good practice he happened to believe in. Thank God, he agreed atleast on one thing with the society.

Munna also avoided a few other common practices :

1. Asking Bablu where to put his money. He was sure Bablu will go reverse on this. Bablu felt like jumping into the river, but his Guru Bhakthi prevented him from responding to such humiliation in his very presence. Besides, this genre of rivers were suitable for jogging or blogging but not for drowning.

2. Asking a broker. You would have to first establish evidence enough that he is better informed, not just more informed. If you are smart enough to figure that out, you wont need one anyway.

3. Buy low and sell off high. When it comes to timing the market, Munna often remembers this old joke where a car driver asks a village kid to look out for hitting the wall, while he reverses the vehicle. The kid keeps saying ok, ok as the driver reverses and finally when the car hits the wall, he says, 'Yeah sir, now it has hit the wall'. Trying to time the market is like that. You know it after it has just gone past you.

4. Believing about some "inside" information which is not published and we think are unique in having. Munna believes that market efficiency beats insider wisdom.

5. Keep a target profit and sell. Bablu raised eyebrows, after all, what are we here for ? But Munna explained that he still had a target loss, err... a Stop Loss price, at which he would sell to minimize damage. May be Minus 25% in a year ? Whatever, but don't hug a sick donkey forever.

6. General opinion like XYZ stock is "good", or, now is the time, go go, buy that horse.

7. Reading, reacting and getting worried about everyday information about the stocks you have invested. Munna liked to look only at the "strategic" type of news. Somewhat like Lehman falls, Merrill sold and AIG totters.

Munna thinks that pretty much no one, repeat no one, has actually figured out how the machine works. We can always use hindsight to say that worked or this worked, but he didn't think someone figured it out before the machine worked, atleast at the level of the individual investor. He even asked a question on this at The Simple Dollar blog, but the answer seemed to confirm his own opinion. People who study trends and spot potential winners, like the ones who made it rich just by investing, were a different kind though. They worked like people who own a company while buying, not like people who trade a company. When it's time to sell, they work like they never owned the company and they were here just to trade it. But, we were just Post-Office-Plus-5-percent guys.

Since Munna defied some common practices and seemed pretty heavy-headed, there was quite a probability that he might get into a soup. And he knew it. If he failed, he wanted to go down in history, as the one who fully documented the soup and then went into it. He also wanted to make sure he goes into a soup based on his own decisions, good or for bad, instead of blaming some Bablu, Bujji or Broker. If he succeeded, of course, there would be enough people around to document someone's success.

Moreover, the money he put in stocks was a small percentage of his total savings, so he thought he was stoically prepared for consequences. Whether he will have same preparedness when the consequences actually reach, well, he hoped so. As they say in Karma theory, you don't have to be prepared specially, the consequences will anyway reach you. :) :) , prepared or not. It wouldn't be the first time that he leaned on Vedanta to understand his misery, he had done that before. He always fantasised himself to be like King Janaka and can invest in stocks online with the Artham Anartham verse playing in the background. Why does he always bring up that Verse 30 of Bhaja Govindam, every time he discussed stock markets ?

Munna also avoids all blue-chip stocks, since he preferred to invest in them through a diversified mutual fund. Being a fan of The Simple Dollar blog, he always preferred an index mutual fund to invest in index stocks. In countries like the US, they had funds that mirrored a 500 index and diversify across all companies forming it, but in India, you have a similar index, but not a similar fund that diversifies across all those companies. Our funds usually mirror a smaller index or draw a few stocks from the index and churn within the superset, like the HDFC Top 200. Whatever, Munna believed in his principles, but he can't shift to the US for that sake. So he chose whatever diversification the indian index funds offered.

In all, Munna did a quick one-hour "research" from the Economic Times indices. Went to their ET indices page, onwards to the page listing each of the indexes, saved the page as html, took the data to excel and onwards into Access. Then ran a couple of queries to know which are those companies that fall in most indices. With a sort by market-cap, for liquidity. Some like Nestle and Hero Honda came right on top. Then he went about picking up some stocks which he "felt" like, avoiding all Sensex stocks. Partly random, partly brand recall and partly hunch. To start with, he picked just these 12 stocks, one each from a different sector for an identical investment (small) amount in each. And he hoped to repeat the same buy, periodically. May be he'll add 2/3 more stocks to the master kitty later, like steel/cement which he had left out in the initial round. No smallcaps. Most of his picks came either from the ET 100 Growth, ET Midcap Growth or ET Midcap Value indices, but he believed, some day, 'Saara Desh isko Munna Index bulayega'.

If you thought, Munna handpicked his nuts analytically, then here is more disclosure on his sentiments:

Nestle and Airtel, though part of Sensex, still find a place, because Munna loves chocolates and hates BSNL.
Munna feels off about himself as a responsible global cooling netizen, so he wanted to have a green stock. Hence Suzlon.
Bank of Baroda is there because he vowed to buy it someday, after he wrote this blog post.
He is also reluctant to buy too many stocks from the same business group, like all of Reliance or all of Tatas. One each would do.

Munna decided that he will not spend any more extra time on research but he was ready to share the fruits of his one-hour work to Bablu and give the file to him.

'See you after 7 years', said Bablu, 'I mean, we can have a discussion on the same topic only after 7 years, right? Only then we will know whether Munna was right or wrong. '. And shot off across the bridge into his rustic village.
'How about 30 years', shouted back Munna, 'it takes that long for a big recession procession to pass by!!'. And went back to the Blogger's Bench by the riverside.

Why do most discussions abruptly finish with the conclusion "It depends", "Wait and watch" or "Only time can tell" ? . Next time, why don't you begin the discussion with the same phrase, so that you can save time by not discussing at all ? :)

Munna wasn't sure about what Bablu will do with the file, let alone what he is going to do with his money. Who knows, Bablu might even share it (the file, not the money) to people who email Bablu at his blog. And he was sure, Bablu is going to find a way to use the database in some odd eccentric reverse way. He only hoped, he would share it before spoiling it by reversing the sort. At the least, Munna was relieved that Bablu won't bother him on this particular topic, of all things, during a riverside walk.

Happy Investing.

What goes up, up and further up..... has to be suspended for one hour when it comes down....

I have always thought, a certain amount of stoicism about the markets is a healthy habit to develop. Recently, when the Indian Sensex fell intra-day around 1700 points hitting what they call a 10% lower-circuit, SEBI suspended trading for an hour, probably to cool it off. (For novices like me, I think the phrase 10% lower circuit roughly means that Sensex fell 10% in a single session). I wonder why they didn't do such a restrictive thing when the markets went up, up and up too ? Going up is okay, coming down is not, is it ? Or they should have allowed the free fall under gravity, come what may, so that the market finds its own realistic evaluation bottoms, whatever that might be and rest comfortably on the sofa. If indeed it is overvalued, then a prick of the balloon might actually have been helpful in knowing the solid stuff within. Looks like: It's somehow okay for the market to pick a large number of points spread over a week or so, although such pace is far different from earlier acceleration levels and not reflect fundamental strengths .... but it's somehow not okay when it falls. :). It's okay to make unusual gains when they are spread over a week but not okay to lose such gains on a single day however unusual the gains may have been.

I wonder how the free market enthusiasts would like to look at this : Is this financial systems regulation or interfering with free markets ? Another blog of Ramnath, Free Markets India, tries to keep a log of the various forces pulling and pushing, for or against the pursuit of free markets. I can understand corporate or political lobbying for exclusive economic privileges can be categorised as a pull or a push, but i think it's difficult to categorize regulatory actions. It's tough to draw a line between what is healthy regulation, developing robust financial systems, putting market infrastructure in place etc and what is just ad-hoc damage control. That day, even FM intervened to make a statement, which I thought was a little extra. Of course, I haven't researched to write this post, but I wonder if there is such a thing called breaking a 10% higher circuit, in the SEBI regulations, just like the 10% lower circuit. Asked an economics friend about whether such a thing is of importance to the free markets discussion. He said, in real life, there are a lot of constraints to free markets and these constraints are to be handled first in the pursuit of free markets. I might have to read up Raghuram Rajan to understand what these are.

I tend to subscribe more to the long term value addition approach. I think if one can:
park and wait in good (intrisically value adding) stocks/funds, stoically,
remember a bit of Shankara's references to Economics in Verse 30 of Bhaja Govindam, :) :) ,
be not worried about the everyday ups and downs,
keep cool without looking for reassurance from the FM to heave a sigh of relief,
sit on the eggs and wait for them to hatch for five or ten years,
then equity has the scope to fetch far better returns than other forms of investment in an equivalent period. Of course, this doesnt apply if one is sitting on a donkey fund or a dead stock or special disasters. Otherwise, A little peep, now and then, to just see the eggs are fine should do.

Quite possible, I am over-simplifying here what the Finance guys read across a few semesters. I have seen the non-tech guys trying to figure out a simplistic understanding of the tech abracadabra, and succeed in achieving a functional understanding and the non-finance guys try to do the same thing to finance subjects. When I was first unsuspectingly "exposed" to the verbal weapons called Debit and Credit, when the duo mockingly stared at me from the blackboard, Drawing a T-shaped organism to tally numbers used to cause nightmares and make me sit up and draw the Holy Cross on my chest. I used to cheer myself up with the Lakshmi Ashtothram, try to ignore those two words as mere hallucinations and think of it as just Inflow and Outflow. As if water flowing into a tank would be Debit and water flowing out of the tap, then, must be certainly Credit. Or is it the reverse ? :) . Well, depends on whether we are talking about the tank or about the bucket. Closing the tap and measuring the water must be.... wait, is it Balance Sheet ?. Whateva. Something is better than nothing. Of course, Everything is even better, if you can handle it. There is no powerful substitute to in-depth research into a subject.