Investing in equities SIP by SIP

Chaiwallah of Dalal Street 

answers 5 questions about SIPs

Whenever a financial planner or a stock broker talks to an investor about putting in some money in the stock market, they generally end up saying "Sir, aap SIP kyun nahi kar lete?"

There is quite a lot of confusion about what this SIP is - is it beneficial and if I put my hard earned money in this, how should I go about it?

So here are 5 questions you wanted to ask about SIPs but didn't know who to ask?

What is SIP?

SIP is short for Systematic Investment Plan. To simplify it, you can consider it to be the opposite of an EMI; With an EMI you pay a certain amount of money every month to clear your loan, while with an SIP you pay a certain amount of money to buy some mutual fund units.

What is mutual fund then?

Remember as a kid when we used to play galli cricket, we'd all chip in some rupees and buy a few balls so that we could all play and not worry if 1-2 balls got lost.

Keep this in mind and tweak the idea slightly. 

Now, we all give some of our money to the  fund manager, who then buys the shares of the companies that he thinks will give the best return to us. So by paying smaller amounts, we have access to a large number of shares (just like by paying a few rupees we had access to a larger supply of balls).

So we can invest in SIPs to invest in Mutual Funds?

In a way yes, but that's not the correct way to say it. SIPs are a vehicle to invest in Mutual Funds. 

With things being so expensive nowadays it is difficult for most people to save or invest large sums of money every month. So what you can do is to fix a certain amount per month (starting from as low at Rs. 500) that you will invest in Mutual funds. When you give the order to your bank to release a fixed amount per month (just like EMI) towards a mutual fund, this is called a SIP. 

But I think stock market is just a gamble; it's very risky.

Hmm, ok, I can see why you would think that. But SIPs can be made for mutual funds that invest in debt instruments (like bonds and deposits) - which are much less volatile compared to equities. Also, there are Balanced Mutual Funds (which invest in equities and bonds/deposits) as well as Gold Mutual Funds. So you can use SIPs to invest in these funds as well.

Why is everyone promoting SIPs? Is it really that important to an investor's financial portfolio?

SIPs allow the investor to invest small amounts every month. This helps the investor be disciplined in his investing and also helps him reap the benefits of the same. 

The values of shares in the stock market are constantly changing. By regularly investing, the investor averages out the good & bad days on the stock market rather than investing and hoping/praying that the market goes up only. 

So yes, SIPs are very beneficial to an investor's portfolio.

SIPs can now be started online, so it is almost hassle free. Here's a link to an article about starting an SIP online.

Any more queries about SIP? Write to me in the comments section and I'll try and solve them to the best of my ability.

You can also visit this link for a very helpful investor education initiative called SIP Day undertaken by Kotak Mutual Fund & ET Now.

Most importantly:

We spend most of our day working hard to earn money - so please take a few hours a month to learn about how to best invest that money.

It might be tough and confusing in the beginning, but so was your first job, and look how far you've come in that.

So please read up about SIPs, Mutual Funds and investing and talk to your financial advisor before you invest your hard earned money.

 

Why do companies buy back their shares? - Simplifying the jargon

Chaiwallah of Dalal Street 

I'm starting a series of blog posts that will aim to simplify the stock market jargon. Basically convert the big heavy concepts into simpler sounding words for the layman investor - something that the chaiwallah at Dalal Street would be able to understand & explain to others.

Let's start with share buy backs:

While the stock markets are beating records all around, you might have noticed the recent offers by companies to buy back their shares from shareholders. 

Like you, I was also curious about why companies go in for a buy back of their shares. How does it benefit them? Does it benefit the shareholders as well? Many more questions were swimming around in my head. So I pulled out my trusty mobile phone and did a few Google searches and this is what I found out...

1) Just because a company is initiating a buy back of its shares doesn't mean its a good or a bad thing. You need to see the reasons & the prevailing situations behind it.

2) When a company buys backs its shares, it basically reduces the number of shares in the market. This leads to a rise in the Earnings Per Share (EPS). Quite simply put, if there are fewer shares, that means each share gets a larger portion of the company's profit. So this is a positive move for share holders.

3) Companies usually buy back their shares at a price which is higher that the current market price. So the shareholder selling his share back to the company makes more money. Again, a positive move for share holders.

4) Many a times the company's performance is below par and so buying shares back helps boost the performance on the stock markets, since shareholders can see that the company has confidence in itself and its future performance. At this time, a shareholder has to consider whether s/he believes in the long term prospects of the company and so can stay away from the buy back also hoping to reap better gains in the years to come. This is a neutral point; it'll be positive or negative depending on what the shareholder's view point is about the company.

5) Sometimes companies buy back shares because they have surplus cash which they cannot use anywhere else. It's a way in which companies reward their shareholders.

6) And finally, tax advantage, something that we all try to achieve in multiple ways. Companies in India have to pay a 15% dividend distribution tax. Plus, if the shareholder has an income of more than Rs.10 Lakhs from dividends, then s/he has to pay 10% extra tax. By going in for a buy back, the company is able to transfer benefits to the shareholder without any tax burden (since long term gains are tax free in India). Tax saving is always a positive in anyone's eyes.


So next time a company that you own shares of goes for a buy back, consider all the above points before you decide to be a part of the sale or not.
But remember, whether you're the chaiwallah of Dalal Street or the Big Bull, you need to do some of your own homework (research), weigh all the pros & cons and discuss with your financial planner before you finally decide whether to be a part of the buyback or not.
Because remember, there are never any free lunches!!


I hope this post was helpful. Do share your thoughts in the comments section. Thanks.

When I read "Scion Of Ikshvaku" By Amish Tripathi

If you've read & loved the Shiva Trilogy by Amish, then you've probably already read the Scion Of Ikshvaku, or at least already have a copy lying in your bag or next to your bed. So this review is not for you, my fellow fan of this new age indian mythology. I say "new age indian mythology" because over the last many years, Indian mythology of today has undergone a change and is different from the Sunday stories that our parents and grandparents grew up with. 

The Scion of Ikshvaku sticks to the age old tale of glory, duty, sacrifice, virtue and honesty - the Ramayana. It begins with Raavan kidnapping Sita from the jungle where Sita, Ram and Lakshman were spending 14 years, having been banished by King  Dashrath from Ayodhya and moves into flashback from a time just before Ram's birth.

But there are some twists in the tale, which the reader will not expect, and which hooks you onto the book. E.g. Dashrath battles with Raavan on the day that Ram is born and loses.

There are parts where the book gets too detailed and lumbers on and the reader is tempted to skip a few pages. E.g. Ram's discussion with a motley crew of people at different stages of the book on dharma, the law, etc.

All in all a decent book to read, but if you've read the Shiva Trilogy and expect the same level of story telling, you will be slightly disappointed.

Will I read the sequel? Maybe, maybe not.

When I read "The Hundred-Year-Old Man Who Climbed Out the Window and Disappeared" By Jonas Jonasson

Every once in a while a book comes along that is engrossing and un-put-downable but rarely does a book come along that has those 2 qualities and is also humourous. 

"The Hundred-Year-Old Man Who Climbed Out the Window and Disappeared" fits in the latter category. It tells the story of Alan Karlsson, who has just turned 100 years old but who is fed up of the life that he leads in the old age home and runs (figuratively) away. 

We follow Alan as he travels across Sweden making friends and experiencing adventures that you wouldn't associate with a centerenian. E.g. riding on a rail inspection trolley with a corpse while disguising it to look alive, travelling with a circus elephant, and not to forget an event that pretty much started the mad adventures - stealing 50 million kroner from a goon.

Along the journey, Jonas Jonasson takes us into Alan's past to discover that this demolition expert has been an involuntary part of some of modern history's pivotal moments and met the men and women that have scripted the world as we know it. From Mao to Truman, from Churchill to Lenin, DeGaulle to Reagan and many more in between.

Besides enjoying his outlandish life story, you take back much more than giggles and guffaws. Alan's a laid back kind of guy who believes in taking life as it comes. He makes no plans for the future and just deals with what life doles out to him; something that this generation of micro managing & over planning individuals would frown upon from behind their smart phones screens.

It's a must read for anyone looking for a laugh. The incredulous adventures of Alan Karlsson will have you smirking all through the book.

Highly recommended.

When I read " How to read a book - The classic guide to intelligent reading"

How to read a book - The classic guide to intelligent reading
By Mortimer J. Adler & Charles Van Doren.

'A living classic' - a phrase that stands out on the back cover of this book. Originally written in 1940 and revised and updated in 1972 this book talks about the importance of reading correctly and how that can be achieved.

The main aim behind writing this book was that as children we are taught how to read only till we've reached the 5th or 6th grade, post which the focus of our schooling shifts to other topics like geography, science, economics, etc.

The book divides reading into 4 types - elementary, inspectional, analytical and syntopical - in ascending order, being cumulative as they go along.
Elementary being basic reading, inspectional being skimming, analytical being understanding and syntopical being the ability to read multiple texts on the same subject simultaneously.

While the book starts off well, it tends to become too wordy and lengthy as you progress. Being a guide to improve your reading, the book ends with some practical exercises which entail reading small passages from the biographies of some classic authors, which if you are interested in history, will be quite captivating.

There are some interesting take home pointers, about the importance of scanning the table of contents, the publishers blurb, the authors introductory note before picking up a book to devote your precious reading time to.

Another good point made is that reading is of 2 types - for information and for understanding.
Reading for information is when you read something that you have some prior knowledge about, but it is when you read to understand that you stretch your limits by reading passages that require rereading and contemplation before you grasp the author's point of view.

At 426 pages, I have to be honest and say that I did not read each and every word on every page. But as the authors point out "Race through even the hardest book. You will then be prepared to read it well the second time."
Somehow, I don't think I will be giving this one a 2nd read.

When I read "Around India in 80 trains" by Monisha Rajesh

If the title doesn't pique your curiosity, the well designed cover will. I came across the book while browsing through Amazon.in for books to buy. A fan of travelogs, I picked this book which is inspired in a way by Jules Verne's epic novel, Around the world in 80 days.
Monisha steps into the shoes of Phileas Fogg as she and her friend, conveniently referred to as Passportout, traverse India on board 80 trains.
An idea which takes root in her head on a cold winter day, takes Monisha from her home in London and puts her smack in the middle of the chaos that one might associate with train travel in India.

A journey that takes her from Kanyakumari, the southern most tip of India to Udhampur in the north and Ledo in the east to Mumbai in the west; a journey that has her spend a few nights in luxury on board the Indian Maharaja - Deccan Odyssey to Passepartout sleeping in the linen closet since they didn't have confirmed seats on the Pune Nizamuddin Duronto Express, with a trip on the famous Darjeeling toy train thrown in for good measure.

All through the journey, Monisha discovers India and Indians at the grass root levels, their idiosyncrasies, their way of life, their thoughts and their aspirations while also discovering a bit of herself.

Fleeting mentions of Indian cuisine partaken (chicken lollipop, aloo parathas, murukkus) sights visited & experiences undertaken (rat temple (karni mata temple at Deshnok, Rajasthan), wagah border, Vipassana) its an easy and fun read that let's you explore India in a different way.

Lemon tea at the Queen of England’s caterer

Arriving in Bangalore (arrghh, I mean Bengaluru) for an office shoot, I met up with a colleague of mine post the shoot. It was a free evening for both of us and we got together to have a boys night out. Although Ashwin was working with me in our Mumbai office, he’s originally from Bangalore (ok, I give up) and was back home on a 2 week leave. Considering he sees enough of the office folk in Mumbai on a daily basis it was kind of him to don the guide’s hat and show me the sights of Bangalore.

The benefit of having a night out on a Monday in Bangalore is that the streets, pubs and restaurants are devoid of crowds and relatively empty compared to Fridays, Saturdays and Wednesdays (Wednesday is a major ‘getting rid of midweek blues’ day in Bangalore). As Ashwin explained, it’s a matter of simple logic. Wednesday is generally a slow day for pubs, so ‘ladies night’ was introduced, where the women get in for free, get a free drink, or other incentives for women are on offer. Now if the ladies come, the men will follow. Bangalorean pub owners are laughing all the way to the bank on the basis of this simple logic.

We began the evening with a light dinner at Truffles, a small eatery off St. Marks road. My chicken burger was a tad rubbery and I spent the better part of the meal eyeing Ashwin’s pasta arrabiata, wishing I’d ordered the same. We then sped off on Ashwin’s Yamaha bike to an old style café. The orange neon signing proudly proclaimed this british era café to be Parade café, but my guide tells me that this “irani café with a colonial hangover” is more famously known as Koshy’s. Started in 1940, the café shifted to its current location in 1952-53. Besides a mix of bangaloreans who frequent it, Koshy’s has also played host to dignitaries like Former PMs Nehru, Indira Gandhi and even Queen Elizabeth II of England.

The haunt of bangalore’s creative junta, the tables have a mix of youngsters and graying men eating, chatting and indulging in fervent discussions. 2 tables from us was the celebrated cartoonist Ponnappa, digging into his biryani. We order 2 cups of the famous lemon tea. Ashwin insists on serving it in ‘the correct way’, which involves him putting 2 scoops of sugar in the tea strainer and squeezing half a lemon on it. He then proceeds to pour the hot tea over it. Watching the sugar melt, I can’t help but think that this is actually a better way to pour tea rather than adding sugar after pouring the tea and then stirring.

Here’s where we decided to let Ashwin’s trusted speedy demon rest, while we transversed the neighbourhood on foot.

A tip for non-indians, any road that bears the name of the father of the nation (Mahatma Gandhi) is definitely in the centre of the commercial district of that particular city/town. So that gives you some idea of the location of Koshy’s and the other restaurants, given that M. G. Road is 100 feet away. Besides numerous pubs and restaurants, the neighbourhood also houses the offices of Times of India, Deccan Herald (leading English dailies) and Times now, a news channel.

Depending on your music preference you can choose your watering hole, whether its old classic rock, Jazz or Blues.

But a must visit is Peco’s (Brigade road), allegedly the oldest pub in Bangalore. Don’t let the peeling wallpaint and filthy exterior fool you. Peco’s is the place to hang out at. Posters of groups from the yesteryears adorn the walls and a metallic spiral staircase serves as a connector between the 2 levels and terrace that Peco’s is spread over. But the crown jewel is the wall behind the DJ console, which has shelves filled with music cassettes. In an age of CDs and mp3 Pecos still offers you music from cassettes. A heady mix of the past and the present.