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Wednesday, January 7, 2009

Investing mistakes by investors

There are some intelligent actions required any investor to lead his investment to a big success. But, majority of investors are losing there entire money through investments. What is the reason behind such huge failure? Below is the list of 30 common mistakes most of the investors make frequently. As an investor, knowing these mistakes will give you more success.

1. Start investing without any goal or plan.

2. Investing without proper research or study

3. Buying stocks at the time of selling and selling at the time of buying.

4. Short term trading by greed instead of long term investing by patience.

5. Following the actions of big famous investors, FII's (Foreign Institutional Investors) or fund houses

6. Following the public blindly

7. Investing in penny stocks

8. Taking advice from Uncle Sam for investing or taking advises from a wrong, non-qualified adviser.

9. Believing tips, analyst reports blindly

10. Investing on market rumors

11. Greed

12. Not having good understanding on the company, business, before investing in a stock.

13. Ignorance of necessary valuation methods to analyze a stock or analyze performance of a company.

14. Investing without discipline and patience

15. Ignorance of the basics. I.e. meaning of investing, what is a stock, how stock market working etc.

16. Ignorance of factors that capable to lead a market to bear phase or bull phase

17. Buying through IPO's only

18. Unable to evaluate a stock to identify to buy or sell

19. Investing only on hot sectors or companies from a fast booming sector like internet, real estate etc.

20. Marrying stocks with emotional attachment

21. Borrowing money for investing in stocks

22. Using credit cards for investing

23. Being panic when fluctuations happening

24. Monitoring the portfolio multiple times in a day or week

25. Not knowing portfolio diversification

26. Over diversification by 'n' number of stocks

27. Selling good stocks to meet temporary money requirements.

28. Over enthusiasm and expectations

29. Overconfidence

30. Investing only to avoid tax

Hope the above list will help an investor to take a self assessment as well as help to avoid such mistakes in the future. Be an intelligent investor.

Warren Buffett quotes on common sense investing

No doubt, Warren Buffet is the most intelligent and successful investor today. He made his destiny using common sense. You don't required to have an extra brain to understand this secrets. It is very simple.

Here are some quotes from this legend investor to help anyone to be succeeded... have a look.

1. Buffett on investing on business not in stocks

"Whenever we buy common stocks for Berkshire's insurance companies (leaving aside arbitrage purchases), we approach the transaction as if we were buying into a private business. We look at the economic prospects of the business, the people in charge of running it, and the price we must pay"

2. Understand the business prior to invest

"Did we foresee thirty years ago what would transpire in the television manufacturing or computer industries? Of course not. Why, then, should Charlie and I now think we can predict the future of other rapidly evolving business? We'll stick instead with the easy cases. Why search for a needle buried in a haystack when one is sitting in plain sight?"

3. Don't invest on "franchise" business

"As Peter Lynch says, stocks of companies selling commodity-like products should come with a warning label: 'Competition may prove hazardous to human wealth"

4. Be a long term investor than a short term trader

"We are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate . . . we do not sell our holdings just because they have appreciated or because we have held them for a long time"

5. How to deal with price volatility

"Charlie and I let our marketable equities tell us by their operating results not by their daily, or even yearly, price quotations whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it"

6. Buy good business when people are fearful

"If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they feel elated when stock prices rise and depressed when they fall. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices"

7. He is against short term trading

"Indeed, we believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic"

8. His words against over diversification

"If you are a know-something investor, able to understand business economics and to find five to ten sensibly priced companies that possess important long-term competitive advantage, conventional diversification makes no sense for you"

Sunday, January 4, 2009

Take advantage of your tax deductions

Taxes are inevitable and it is our social responsibility to pay them. So how about adding a new year resolution to do your homework on various tax deductions available and take full advantage of them.

That way you can save your hard-earned money and avoid paying additional taxes.

I understand taxes are burdensome for all taxpayers. But tax deductions act as a tool to cool all the itching and burning.

Fortunately, there are legally permissible ways to reduce taxes and retain more of your hard-earned money in your piggy bank.

Everyone wants to claim tax deductions and there’s no doubt that saving money in taxes is high on everybody’s list of financial priorities.

But considering the complicated income-tax law, how many people really know about them or take full advantage of them.

Surely, you could be missing a few of them. That’s why it is worthwhile to be aware of the tax deductions which can save your moolah.Let’s look at some commonly overlooked tax deductions.

Home sweet Home

Your home is not only your living shelter but also your tax shelter. If you live in a rental apartment and are a salaried person then you can claim house rent allowance. If not, you can claim deduction of the rent paid in excess of 10% of the total income subject to certain specified limits/ conditions.

If you own your home you can claim the benefit of deduction in respect of the interest paid on loan from a financial institution. Many people often restrict this amount to Rs 1,50,000.

However, it is pertinent to note that this restriction applies only for property considered as self occupied in nature and does not apply in cases where the property is let out or deemed to be let out.

Further, expenses like stamp duty, registration fees and other expenses incurred during transfer of the house property for purchasing a house can be considered for the purpose of determining the benefit of tax deduction in respect of repayment of the loan installment.


Today the cost of education is scorching high which adds to the financial burden.

In this respect, in case you avail of a loan for higher education of your child or your spouse, then you can claim a deduction of the interest paid on such loan.

Health is Wealth

The deduction on medical insurance though of a small quantum of Rs 15,000 is often left out to be claimed. A bonanza is available in the form of an additional deduction of Rs 15,000 towards medical insurance premium paid for your parents.

Further, in case you have paid any amount for the medical treatment of any disabled person dependent on you then again you are entitled to a deduction in the range of Rs.40,000 to Rs.75,000.

Various deductions viz. life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares, tuition fees, house loan repayment, etc are all covered under a single basket of availing deduction upto Rs 1,00,000.

However, one tends to generally forget that all these are restricted under this cap.

At the end of it, just remember what’s one of the most important questions you need to ask every time you pay cash or write a cheque for payment or investment — Can I claim this as a tax deduction?

Saturday, January 5, 2008

Do you know how to make 2008 a financial success?

You were pretty confident about the investments you made at the beginning of 2007. But when the year closed you made nothing much from them.
Be it stocks, mutual funds, real estate or insurance. All or many of your bets fell through.
You bought stocks but at a higher price. The price went up still higher but the uncle next door bought another stock and made stupendous returns on his investments. Or you bought a share on some tip passed on to you by your cousin's uncle's friend's neighbour who got the same piece of information from a shady stock market operator. But the share price plummeted after you bought it.

Or are you the one who bought mutual funds just because your financial advisor promised you the moon? He told you about the past performance of a mutual fund scheme and you bought his logic that mutual fund unit prices move only one way: up, up, up.
Or maybe your insurance agent pushed one policy after another, of companies and various products like ULIPs, money back and endowment plans but forgot to mention the term insurance plan.

Here's the story of our reader Krishna Bhukya, 27, a Delhi-based software consultant, who bought a ULIP policy instead of buying a term insurance as he later realised.

got married in the summer of 2000. By January 2007 we were blessed with a baby girl and with a boy abd were also able to purchase a 2 bed room flat on the outskirts of Delhi. Since I had taken a loan and had dependants now I wanted to buy an insurance policy that would take care of my family in case of any unfortunate event.

I called up my insurance agent and asked him to come out with the best option that would take care of my requirement. He visited my house two days later and advised me to buy a unit linked insurance programme, ULIP. He told me how ULIPs will help me invest as well as take care of my insurance needs.

He explained all the benefits of investing in ULIPs -- the option of not paying annual premiums after three years without any impact on my sum assured, my premiums getting invested into the share market and buying units for me etc. I gave in to his persistent pitch without thinking too much about the pros and cons of such a policy.

Though the stock market has gained stratospheric heights my units are still not fetching me enough returns. This is because the premiums in the first three years that you pay towards your ULIP policy goes towards a bevy of charges like administration costs, mortality charges and lot other things, my insurance agent said like a sage.

He told me that as time goes by these charges will decrease and more of ULIP premiums will go towards investments in the share market thereby increasing my returns. Also, the sum assured on my ULIP policy is Rs 25,00,000 for which I am paying an annual premium of Rs 30,000.
A friend of mine told me that a term insurance plan would have got me the same sum assured at a much lower annual premium. He told me that I could get a sum assured of Rs 25,00,000 by buying a term insurance at an annual premium of not more than Rs 10,000. He told me I could myself invest the remaining amount -- Rs 15,000 I will save if I switched from the ULIP plan to term insurance -- in diversified equity mutual funds and get better returns than ULIPs over a time horizon of 15 years.

When I hired a professional financial consultant he too agreed with my friend and has asked me to stop paying ULIP premiums after three years and buy a term insurance policy immediately.
Now that I have realised my investment/insurance blooper I bought a term insurance plan and feel much happy that I could insure myself at a fraction of a cost and invest the rest of my money into mutual funds.

Moral of the story:

~ Don't take your insurance agent at face value; cross-check whatever s/he says with a couple of professionals before you make a decision.

~ Always seek professional help for making important financial/investment decisions in your life.

~ Study all the advice -- even if it comes from your professional financial advisor -- before you put your hard earned money.

~ Never make any investment be it in stocks, mutual funds, real estate or insurance unless you are pretty certain about what you are doing.

~ And once you board the ship expect the best and be prepared for the worst.

Did you make such mistakes in 2007? What caused you to make these mistakes? How could you have avoided them? Would you like to inform people about such investment bloopers so that they make wiser investment decisions in 2008?

How are you planning investments in 2008 so that the year ends for you on a happy note?

Buy ELSS funds, make money and save tax

Do you want to 'kill two birds with one stone' through smart investment-cum-tax planning?
If yes, then you should consider investing a part of your investible income in equity linked savings scheme (ELSS) of mutual funds. ELSS is an efficient investment tool that offers the twin-advantage of healthy capital appreciation and reduced tax burden. In our work-a-day life, we exert ourselves utmost to save every penny but are exasperated when taxes eat into our savings.

In order to save on tax, we have the option to invest a maximum of Rs 1,00,000 in various tax saving instruments under Section 80C of the Income Tax Act.

The eligible investments for availing Section 80C benefits include contribution to Provident Fund or Public Provident Fund (PPF), payment towards life insurance premium, investment in pension plans/ specified government infrastructure bonds/ National Savings Certificates (NSC)/ Equity Linked Savings schemes (ELSS) of mutual funds, payment towards principal repayment of housing loan (also any registration fee /stamp duty paid), and payments towards tuition fees for children to any school or college or university or similar institution (only for 2 children).
If you do a cost-benefit analysis of ELSS, PPF and NSC, then you will find that ELSS offers you manifold advantages/ benefits as compared to the other two tax savings instruments.

ELSS has a lock-in of only three years, whereas PPF and NSC have a longer lock-in period of 15 years and six years respectively. PPF and NSC fetch you a return at a compounded annual growth rate (CAGR) of 8 per cent while the average returns over three years in ELSS, which allows investors to participate in the India growth story by investing its money in shares, for the top five schemes as on November 30, 2007 is in the region of 50 per cent.
It would not be out of place at this point to slip in a caveat emptor that in the case of mutual fund investments past performance may not be sustained in future as equity markets are affected by events, global as well as domestic.

The maximum investment an individual can make in PPF under Section 80C is Rs 70,000, whereas it is Rs1,00,000 in the case of NSC and ELSS. When it comes to reaping taxation benefits, ELSS scores over PPF and NSC. As per current tax laws if you invest in ELSS, then dividend and capital gains are tax-free. While interest received in the case of PPF is tax-free, the same is not true in the case of NSC.

How to start an ELSS account?
There are two ways to invest in ELSS.

~ Invest a fixed amount every month through systematic investment plan (SIP) in ELSS and reduce the burden of large investment towards the end of financial year.
~ Invest lump sum at any point of time.

Why SIP route for ELSS?

One of the best ways to invest is to save and invest on a regular basis through SIPs. SIP is a planned investment programme, whereby an investor invests small amounts of his/her savings in mutual funds at regular intervals.

SIP helps an investor take advantage of the fluctuations in the stock markets by rupee cost averaging (in a rising equity market an investor gets fewer MF units but when the market is sliding he/she gets more MF units) and also helps him/ her reap the benefits of compounding.
A SIP in ELSS offers an investor the best combination of investments -- tax-savings and capital appreciation -- available to investors. The minimum investment in an ELSS through the SIP route can be as small as Rs 500.

By investing regularly in ELSS, the problems of wrong timing, wrong stock selection and burden towards the end of financial year is reduced substantially.

Since ELSS has a lock-in of three years, the fund manager does not face any redemption pressure. This is important as the manager has the elbow-room to allow the stocks in his/her portfolio to mature. He/ she is not under undue pressure to sell stocks which are expected to fetch good returns over a two-three year horizon.

In sharp contrast, open-ended schemes can be likened to an expressway which has an exit every 500 meters. So, when investors in an open-ended scheme go for redemption, the fund manager has no choice but to sell stocks which have the potential to grow over a two-three year period.
While choosing ELSS an investor would do well to keep in mind the size, experience, quality and consistency of fund houses over a period of time. If you are building a nest-egg and are conservative, then you should consider channeling your precious resources into ELSS even as you apportion a small part of your savings to PPF and NSC.