Three pillars of STOCK

Are you an avid investor in stock market ???

If yes , have you tried using any one of the below three pillars of financial statement before buying an stock  !!!

1. Balance sheet
2. Profit & Loss Statement
3. Cash Flow Statement

Nope..... !!! would be an ideal answer from majority of our folks.....

These are not a business jargons.... and Lets see this in simple terms....

During our school days we used to have exams at an regular interval with an terminology : quarterly exams, mid-term exams & final exams  etc... 


Also these exams were followed up with an report card issued by the class teacher....


These report cards displayed our performance in each and every subject from beginning of the academic year to end of the academic year.


And based on this data, our parents & teachers used to give us extra-coaching for subjects in which we lagged & enlightened us in subjects which we performed well. Subsequently driving us for continuous improvement.....


Thus report cards were used for evaluating each & every student and the best amongst the class was rewarded as topper !!!


The above said theory is just apt for an company too...
and as an long term investor in stocks , one must use all the evaluation tools available for identifying an value company.Rather than buying stocks based on recommendations.

A brief delineation about the pillars of financial statements are given below:

• Balance sheet                 : It displays how much a company owns, owes & what is left for shareholders                                                                                                                                       
• Profit & Loss Statement  : It displays how much money a company has made or lost.
• Cash Flow Statement      : It displays where the money is spent

In the impending articles lets see what parameters we need to see in identifying value stocks based on the above three financial statements....

Pillars make home , Statements make wealth !!!

PERCEPTION OF STOCKS

The Fantasy created by the word "STOCK" thrills most of them.

Lets see what this perception lead to.....

• Is it all about making money in an gambling environment !
• Is it a place to get swindled of all your money deposits !
• Is it a place to showcase your strategy skills !
• Is it a place to learn the trading skills !

Well such comments like above keep flaunting everywhere

until the expertise gained by our peers are not shared with the newcomers entering into the share market.


Hence an amateur investor is unaware about the various do's & don'ts of investing in a stock market.


So Lets explore them.


1) Understand the difference between trading & investing.

2) Trading is frequent buying and selling of shares, commodities, F&O etc…

3) Investing is buying value stocks of growth companies & holding them over a period of time.

4) Avoid trying your hand in F&O (Futures and options) segment unless you are in a sound frame of mind. Since the risk of depleting your saved or earned money is higher in F&O segment.

5) Avoid Intra day trading based on random speculation as announced in open forum. Also with intraday trading ,continuous monitoring of scrip price has to be followed which would increase your mental stress……

6) Avoid Commodity trading unless you are strong in essential goods speculation.

7) Avoid margin trading; it is like taking loan from your brokerage firm for buying shares more than your prescribed limit.

8) Do your home work before investing in a particular stock such as studying and analyzing the balance sheet, profit & loss statement and cash flow statement.



The fine-print of investing in share market is to create wealth over a long-term and not to lose money overnight by falling in the trap of trading.


Thus Stocks are assets which can exponentially add to your wealth creation !!!

BASIC REQUIREMENTS FOR INVESTING IN STOCK MARKETS

Savings Bank account:

This is the fundamental account from where you will transfer your money to brokerage firm for buying the stocks and receive the dividend amount or settlement amount from the stocks you buy.

Trading account :

For buying or selling stocks you need to go thro' a broker only.
And these brokers from the brokerage firms offer a platform for online trading.

To use this online trading account, an user ID and password will be provided.

In simple terms this a/c is just like logging into an email account, by using a user ID & password....


Demat account :

When shares are bought, it needs to be stored in electronic format. For this purpose demat account is used. This is abbreviated as DE-MATerialised account

This account is similar to savings bank account. The only difference is that, shares get credited and debited instead of money.

PAN CARD:

Permanent account number (PAN) is a must for all financial transactions that occur in INDIA. This is to ensure that every individual or a firm pays the tax diligently for the growth of the country.


Once you have the above requirements, you can go for the investment in stocks!!!






• Demat a/c are provided by most of the banks. But you can’t buy or sell shares without trading account. Since trading account is offered by brokerage firms & very few banks offer trading a/c such as ICICI & HDFC.

• But all brokerage firms offer Demat & trading account. The advantage of this is lesser cost for maintaining two accounts. Hence lesser brokerage.

• And few banks have a tie-up with brokerage firms, there by having a flexibility of easy transfer of money from S/B a.c to trading a.c . and storage of shares in the Demat a.c.

• Ex: Axisbank has tie-up with Geojit but cost associated with such tie-ups are higher & hence the cost of broking & maintenance is little higher when compared to its peers.

Hence it is wise to choose a broking firm / bank having the features of safe & convenient online transactions.

HIDDEN TAX SAVING INSTRUMENT

With every financial year end or at the beginning, we are flooded with lot of tax saving instruments under various sections.....


But we don't realise that we are saving 12% of annual basic salary under sec 80C without our knowledge and without any physical investment by us.


haven't you got it ?


Itz Provident Fund ,which is deducted from your salary every month.


PF is a composition that is resulted by combing 12 percent of basic salary and Dearness allowance.


The amount saved is a direct saving under SEC 80C.


Hence when you plan to invest 1 Lac (100%) under SEC 80C which is the limit .
just pause & re-think.... weather to invest 100% or 88%......


Lets see how it works :-


Illustration:


Suppose the basic salary is Rs 10,000 pm & DA is Rs 2,000 pm.
& Group insurance deducted by company is approx Rs 50 pm.


The PF contribution at the end of the financial year would be Rs 17,280
along with this group insurance would be is Rs 600


The above two aggregates an total approximately Rs 18,000


Hence 0nly balance Rs 82,000 needs to be planned for investment under SEC 80C.


Thus amount saved is amount gained for other Investment !!!

Higher Earnings thro' Savings Bank Interest

Whenever we see our account statement for the quarterly interest paid, the amount would be paltry and we think why is the amount very negligible inspite of having considerable amount deposited in the Savings bank account....

But now the Reserve Bank Of India has changed the methodology of interest calculation for Savings bank (SB) account.

The hard earned money in SB account will earn double interest from April 1, 2010.

Lets see how it works:

Until 31st March 2010, the interest was calculated for the minimum balance available in SB account from 10th to 31st of the month @ 3.5% p.a.

But now , from 1st April 2010 the interest will be paid for daily balance available in SB account @ 3.5% p.a.

Effectively giving double returns....

Illustration:

As per earlier calculations: Minimum balance between 10th & 31st is Rs 10000, The interest earned for that month would be Rs 30.

But with the new calculation method, The Interest earned would be Rs 51....

Thus even Idle money works for you !!!

HOW TO USE CREDIT CARD EFFECTIVELY!

We always wonder weather possessing a credit card is an added advantage or a potential threat that we carry in our wallets.

But the fact is u can make the credit card work for you than against you, if utilized smartly.

Let’s assume your credit card has a billing cycle for every 30 days, which would fall on 1st of every month and the credit card company gives you 50 days to pay back the money.

1. Try to pay all your utility bills such as Landline bill, Mobile phones bills and electricity bills, restaurant bills using your credit card.
2. Pay all your insurance premium thro’ your credit card
3. Buy all your grocery requirements on 1st of the month depending on your billing cycle.
4. If any home appliances, jewelry are to be purchased then try to use your card for the same.
5. Try to avoid transacting thro’ cash or debit card & instead use your card wherever it is feasible.
6. These all transactions increase your liquidity position.
7. You must pre calculate or estimate the amount you would be paying by using your card for all the above transactions.
8. Deposit this amount in fixed deposit for 49 days period on 1st of the month. The average interest would be 3.5% for this period (49 days). This extra money is your earned money & pay the due using the invested amount.
9. Points earned on all these transactions are to be consolidated at the end of the year & redeem them for the gift vouchers that can be used to buy clothes, apparel at discounted prices etc...
10. And NEVER withdraw cash using credit card.
11. Finally have a tab on all your transactions & make sure you have enough cash to pay them on due date and never default on your payment.

Illustration of the FD deposit:

If your bill is dated 1st January 2010, then you would have to pay the money by 20 February 2010

Let’s assume your estimated expenditure that would be on your credit card, is Rs 10,000.

If this amount is invested in FD for 49 days, on 1st of the month then the interest earned would be Rs 47 which would mature along with the principal amount Rs 10,000 on 19th February 2010. Pay the credit card due using the invested amount next day.

Assume if you would have transacted Rs 2 Lac on your credit card annually, the interest earned would be Rs 940, along with redeemed gift vouchers. This is extra revenue from your expenses isn’t it……….

Be sensible, swipe smartly!!!

Personal finance - 3 must haves !!!

We are generally stalked by many insurance agents with the latest product that are launched in the market as "HIGHEST RETURN" & so on ....

But the fundamental fact is, insurance is not an investment for returns but a path to secure your future for self or dependants....

A person needs to have three basic investments for a secured life.

namely TERM , MEDICAL & PENSION

Term insurance : Its just an pure risk cover type of insurance, were the person needs to invest approx Rs 3,000 per annum for a cover of Rs 10 Lac . There are various term products available in the market covering for 20-30 years.

Medical insurance :Take an medical insurance with an aprox Rs 1,500 per annum for an cover of Rs 3 Lac .

Pension: Go for the ULIP style one, which is provided by various companies.

With the above three basic investment , it can be rest assured for a cool life.