Avoid Temptation Foods and Compact Disc India - Fraud, Fake companies

Temptation Foods - Amazing valuation

I was shocked when I found a company with the balance sheet of temptation foods selling so low - almost close to its EPS. Although it is possible to find several stocks current market which are 'value for money' a company which has such a decent growth as Temptation Foods and which is selling at a P/E of around 1.2 - makes me feel suspicious. Ok, let me be honest, this time, I was less suspicious and more excited at first about the investment opportunity. However, as I continued finding our more about Temptation Foods - I have decided to stay away from this stock. Here are two quick reasons:

1. Temptation Foods had manipulated it balance sheet to show that it holds 11% stake in Kohinoor Foods, when it actually held 5% stake. A SEBI notice regarding this sent the stock plummeting to hit the lower circuit. Consequently all FII's have dumped this stock, and rightly so.
2. The company now wants to double the equity by issuing warrants at Rs. 36. The EPS of the company is Rs. 25. There is no way the management can justify a price as low as Rs. 36. This is clearly a dubious money-making attempt of the management of Temptation Foods India.

I would like to add a note that probably Temptation Foods is not a fake company. Which means it seems to actually have products in the market (unlike Compact Disc India mentioned below). However, with the given management, it is a wise decision to avoid investing in this stock. Remember, a fraudulent management can really leave the investors in a shock (remember what Satyam's managers did to that company?). You will hear a lot of things about Temptation Foods - for e.g. it being the next possible acquisition target for Nestle etc. While this may or may not be true- with this kind of managers, I would get rid of this stock - NOW!.

Compact Disc India - a step further in Fraud

Compact disc india looks even a bigger fraud than Temptation Foods. From what I read, this looks like a completely fake company !

The promoter of this company - Suresh Kumar has a dubious record. Mumbai police has written to SEBI about Suresh Kumar floating fake companies to make money. The details are summarized very well in Tarkeshwar's blog. So I won't elaborate further.

Please avoid Compact disc india if you love your hard earned money !

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Best Dividend Paying Stocks in India - highest dividend payout ratio

Dividend yield versus Dividend payout ratio.

In this post I will list some of the best stocks in india which have highest dividend payout ratio. Whenever a company earns profit, it distributes part of the profit as dividend to stock holders.
The amount of dividend paid out by the company is best measured by "Dividend Payout Ratio" which is defined as the ratio of dividend distributed by the company to PAT - the total profit earned (after tax). Companies with a dividend payout ratio of over 50% can be considered as those who distribute the dividend generously.

However, there is an alternative way of measuring how much dividend you get on a stock - called the "Dividend Yield". This is nothing but the amount of dividend you get per stock divided by the price you pay. Note that dividend yield changes as the price of the stock changes. A dividend yield of a stock can be high, either because the company has a high dividend payout ratio, or simply because its price is very low.

Best Dividend Paying stocks with highest dividend yield

In any case, if what matters to you is how much dividend you get per amount of money invested, then you should look at 'Dividend yield'. Here are some good stocks which have good dividend yields as of July 2010. I have also made sure that the stocks have some good fundamentals like ROE of 15%+, high interest cover, and good future prospects.

Dividend yields, at the time of writing this post (july 2010). I will update this list every quarter.

Name of the Company / Stock	Dividend Yield
SRF Ltd.	6%
HCL Infosystems	4.6%
NIIT Technologies	4%
Tamil Nadu Newsprint and papers	4%
J K Lakshmi Cement	3.9%
Ballarpur Chini Mills	3.5%
Graphite India	3%
Castrol India	2.9%
Tata Steel	2.8%
GE Shipping	2.8%

My personal choice (also considering the future growth prospects of the company, and not just dividend yield)

1. Graphite India
2. Tamil Nadu Newsprint and Paper ltd.
3. NIIT Technologies (this stock will be risky if debt crisis in Europe worsens).
   

List of best, highest dividend paying stocks in India with not just highest dividend payout ratio, but strong fundamentals

As mentioned above, Dividend yield is price dependent, and you must check the latest price to get correct idea of dividend yield in the above list. However, a dividend payout ratio is something which is price independent and reflects the policy of the company in paying dividends. Below is a list of stocks with high dividend payout ratio.

In compiling the list below, I have not just focused on the dividend payout ratio, but also on other key financial ratios which ensure that the company is sound and safe, and has good growth prospects. Here are some of the factors that have been considered.

1. Dividend payout ratio of at least 30%. This is the ratio of dividend distributed by the company to the total amount of profit after tax earned.
   
2. Market capitalization of 500 crore+
   
3. Interest cover of 3 or above.
4. ROE of 15% or above.
5. Qualitative factors which focus on future growth and prospects for the company.
   

So here is the list. I think these stocks really make a good investment option.

Typically, well established FMCG companies top the list of high dividend paying stocks, as can be seen in the list below. However the list of good dividend paying stocks mentioned below also includes companies from other sectors like Pharma, IT, consumer durables, Power/Energy, etc.

1. Hindustan Unilever (HUL) - This is the biggest FMCG company in India. It has a dividend pay out ratio of about 65% - 85% ! one of the highest in the industry. Other positives for this stock include - less sensitive to economic downturns, low debt, highest ROE (over 120% - indicating a highly efficient business model), and decent growth. However, note that recently HUL has been losing market share to Godrej Consumer Products, especially in rural areas. So although I wouldn't put all my money on this stock, this is definitely a stock you want to have in your portfolio if you are focusing on dividend.
2. Tata tea - Again, one of the good FMCG stocks to have in your portfolio. Dividend payout ratio of over 75%.
3. Castrol India - This is a debt free company with a dividend payout ratio of over 75% on average. Other attractive numbers - ROE of over 70%, almost debt free. The company has been growing at modest pace of 10% in the past 3 years (due to recession), however bottom line has grown by over 30%.
4. Nestle India - Again, a good FMCG stock with average dividend payout ratio of over 70%.
   
5. Godrej Consumer Products Limited (GPCL) - Godrej has better growth prospects than Hindustan Unilever, I think. It is also a good dividend paying stock, with dividend payout ratio of over 65%.
6. ITC - Indian Tobacco Company - average dividend payout ratio of about 65%, in 2009, it was 94%!.
7. Glaxo Smithkline Pharma (GLAXO) - a good pharmaceutical company, with dividend payout ratio of over 60%. I had mentioned this stock in the list of best stocks to invest in 2009, and it has indeed given over 2 times the index returns.
   
8. HCL Technologies - A good IT stock. Dividend payout ratio of over 60%. However, note that IT stocks are in general vulnerable to slowdown in Europe, US.
9. Clariant Chemicals - This is also a good value stock. Dividend payout ratio of over 60%.
   
10. Alstom Projects India - This is one stock I am planning to put my money on, not just for its high dividend payout ratio of 35%-40%, but also because this is one company which is going to benefit by the possible 'nuclear energy boom' in the country. With the Indo-US nuclear deal passed, India will see lot of investments in building Nuclear reactors. Alstom is one (of the several other) players to be benefited by this.
    
11. CRISIL - Crisil is the leading credit rating agency in India with a market share of over 60%. Crisil has a dividend payout ratio of around 45%. Must have stock in your portfolio.
12. Blue Star - Blue star is the market leader in India in commercial air conditioner business. It has a dividend payout ratio of over 35% and a highly efficient business model with ROE of nearly 50%. Moreover, with increasing summer temperatures throughout india, Air conditioners is something you can bet a portion of your money on.
    

The above is not an analysis or recommendation to buy the stocks, but it is certainly a good list from which you can pick your 'best dividend paying stocks'. I myself own several of the above stocks. Especially the last 3 stocks in the list are not exactly 'best dividend paying', but they are good dividend paying stocks which have one of the best growth prospects.

List of Best Stocks by category : Best Dividend Paying Stocks Best Small Cap stocks (coming soon!) Best MidCap Stocks (coming soon!). Best Stocks across all categories (coming soon!). Posts related to the theme "Best Stocks to Buy Now" (2010) Suzlon Energy - Best Wind Energy Stock for 3-5 yr investment. Crisil - Best Stock for Long term Investment Titan Industries - Best Consumer Durables Stock for long term Investment Apollo Hospitals - Good Stock to buy for Long term investment. Godrej Consumer Products - Best FMCG stock to Invest Now Stocks which were "Best Stocks to Invest" for year 2009, but now, the analysis may or may not apply, as prospects for the current year have changed. Best Stocks to buy in 2009. Glaxo - Best Pharma Stock Cipla - Good Pharma Stock Tata Tea- Best FMCG Stock Hero Honda - Best Auto Stock for 2009. Hindustan Unilever - Safe FMCG stock Posts on Investment Basics Understanding the P/E Ratio Return on Equity (ROE), ROCE and Shareholder's Equity Consolidated results vs. Standalone Results. Topline Growth vs Bottomline Growth

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Suzlon Energy and RePower - Best Wind Energy Stock - detailed Analysis

Wind Energy

I am bullish on Wind Energy - and other green energies like those from Biofuels. There are several reasons for this and some of them are discussed in my earlier post on Investing in Wind Energy Stocks. No doubt, other forms of energies like Nuclear energy will also play an increasing role. However, there are strong reasons why I think that we will soon see a period where there will be a 'boom' in wind energy, with several companies trying to set up their own wind farms and wind turbines to satisfy their energy requirements. In this post I am going to analyze a Wind Turbine manufacturing company 'Suzlon Wind Power' (together with Repower, its subsidiary) and explain why at current valuations, this company offers the best investment opportunity, with a time frame of 3 to 5 years. Even if you are not located in India, you can buy stocks of Indian companies, for e.g. by registering with Interactive Brokers.

Suzlon Wind Energy and Repower- best Wind Energy Stock

Suzlon owns 90% of the Repower, and Suzlon Repower combine are the third largest wind turbine manufacturers by market share. Suzlon acquired Repower in 2009, by aggressively outbidding Areva. Read more about Suzlon acquires Repower. Here is the general business overview of Suzlon and Repower.

1. Suzlon manufactures wind turbines in the range of upto 2.1 MW capacity and targets developing and emerging economies like India, China, Latin America, etc. In 2009, Suzlon held a market share of 53% in India. See Suzlon Products Portfolio on Suzlon's homepage.
   
2. Repower manufactures turbines in from 2.5 MW to 6.15 MW capacity and mainly targets developed nations like Europe, UK, US, etc. Repower 6.15 MW turbines are highly suitable for offshore wind farms, something we will see more in the coming years - as building large wind farms in the sea becomes more economically viable option than using up the expensive land area. See Repower products Portfolio on Repower's homepage.
   

Although the above is only a rough guideline, note that Suzlon also has sold several wind turbines in developed world e.g. U.S., Australia, etc. To dig deeper into Suzlon's business model, i recommend reading Suzlon's Investor Presentation.

Note on REPOWER wind energy stock : Note that REPOWER stock can be bought separately (but not in India, in German stock exchanges). Since the offshore wind farms are expected to see a 'boom', Repower alone also in my opinion is one of the best wind energy stocks available at the moment. This is given the fact that Repower margins are expected to improve because of the advantage of Suzlon's marketing network.

Suzlon Wind Energy stock - financials

1. Suzlon's current Debt equity ratio is about 1.5.
   
2. ROE for the years 2005 to 2008 has been 38%, 29%, 28%, 20%. From 2008 to 2010 Suzlon has not had a profitable year.
3. Exepected topline growth is about 20% in Wind industry, once the global economy recovers.
4. EBITDA margins during 2005-2008 were about 8% to 10%. In 2008, and 2009, margins have dropped to less than 4% due to various reasons like lower volumes, recall of some of its problematic blades, etc.
   

EBITDA margins are expected to grow as volumes increase (at least this is what Suzlon Wind Energy claims in one of its presentation). Suzlon is doing a lot for managing its debt, it has achieved a 24% reduction in debt in the previous financial year by sale of 35% stake in Hannsen Gearbox. In the financial year 2010-2011, it has launched a 2:15 rights issue, which again it plans to use to reduce its debt.

Suzlon Wind Energy stock - Positives

1. Suzulon's products are nearly 20%-25% cheaper than other leading wind turbine manufacturers. Since initial cost for setting up wind farms is quite significant, this is a great advantage.
2. Suzlon is a vertically integrated company, and can leverage its network to increase sales of Repower products too.
3. Suzlon held a 53% market share in India, a fast growing market for Wind turbines.
4. Management of Suzlon has been very aggressive in expansion of the company. The company started with merely 3 employees in 1995 and went on to become the third largest in the industry by 2009.
5. Several governments have and are likely to provide tax incentives to encourage clean energy options like Wind Energy.

Suzlon Wind Energy stock - Risks, Negatives.

1. There is extremely high competition in the industry with several different players.
2. Suzlons blades have been a major problem in the past with almost all blades supplied to the US developing cracks. These had to be replaced costing Suzlon over Rs. 2000 crore.
3. Suzlon has serious debt problems. It has $500 million in zero coupon FCCB (foreign currency convertible bonds) due on June 2012 and Oct 2012. Suzlon has managed to bring down the floor price of this bond. However, if the company does not do well by June 2012, and these bonds do not get converted, then the company is in deep trouble in paying back the money. Moreover, even if all the FCCB get converted, there will be about 20% equity dilution.
   
4. Any slowdown in China, US and Europe will impact sales.

In all, it is worth investing in Suzlon only if you understand these risks.

Suzlon Wind Energy stock- summary

Concerns about the quality of its blades and high debt remain the main risk factors in investing Suzlon Wind Energy stock. However one should note that recalls and problems with products is something which has been experienced by other large companies, - remember the largest car company Toyota recalled more than 8 million vehicles worldwide?. That does not necessarily mean the company cannot overcome the problem. Moreover, at current valuations (1.6 times Book Value), Suzlon Wind energy stock is attractively priced and I think of this as the Best Stock available and makes a great investment opportunity.

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HR 5623 - Home buyer tax credit extension till Oct. 2010 likely !

H.R. 5623 and tax credit extension

H.R. 5623 is a bill which the Congress has come up with extend the Home buyer tax credit by further 90 days (till 01 October 2010) and consequently stop the further deterioration of the housing market in United States. For details of the bill visit Tax credit extension - October 2010. This bill has indeed been passed by the house - read US House backs 2010 tax credit extension. It has to be still passed by the senate. However, it is expected to be passed by the Senate today.

H.R. 5623: Homebuyer Assistance and Improvement Act - Legislative Digest - GOP.gov

H.R. 5623 would extend the home-buyer tax credit of up to $8,000 for the purchase of a principal residence before October 1, 2010. The current benefits apply to cover buyers who enter into contracts before April 30 and close by June 30. This bill would extend the closing date to September 30, 2010.

The bill would provide any home-buyer who entered into a contract on a home by April 30, 2010, but have been unable to go to closing within the required 60 days; the provision would extend the closing date for an additional 90 days. This provision is estimated to cost $140 million.
....

For knowing more about the Home buyer tax credit, read my detailed post on Tax credit and its extension.

Federal Tax Breaks, IRS Tax Credits, Tax Rebates in 2009 Economic Stimulus Package that maybe of interest to you H.R. 5623 - Extension of Housing Tax credit to October 2010. Cash for Clunkers - Is it Useful? Will there be a Second Stimulus Plan in 2009 or 2010? 2009 Obama Stimulus Package details explained. New Car Purchase Auto Stimulus details explained- Excise and Sales Tax deduction for new purchase of new vehicles. Cars- Cash for Clunkers - Car tax credit when you trade your old fuel inefficient car for a new one and get a rebate of $3500 or $4500. $8000 First Time Home Buyer Tax Credit details- 2009 Housing Stimulus Bill in Economic Plan proposed by Obama. $800 Making work pay tax credit stimulus- details explained ($400 working tax credit for individuals and $800 tax credit for married taxpayers). $250 Social Security Stimulus Check in 2009 Economic Stimulus Package. 2009 Cobra Stimulus Package 65% Reduction in Cobra Health Insurance Premium for qualifying individuals. 2009 Stimulus Checks? Economic Stimulus Payment $1000 Child Tax Credit, Dependent Tax Credit 2009 extension. FAQ: Can you claim your $8000 first time home buyer tax credit in 2008 tax return itself or do you have to wait till you file 2009 tax return? The law allows any qualified purchases made in 2009 to be treated as if the purchase was made on December 31 2008. You can claim the $8000 first time home buyer tax credit in 2008 tax return itself by filing form 5405 according to the latest IRS ruling. Thus you can get the benefit of $8000 in 2008 tax return itself. Income Tax tip for first time home-buyers: If you know you qualify for the $8000 home buyer credit there is no need to wait to file your 2009 tax return in order to get benefit of this housing stimulus. First time home buyers are actually permitted to reduce their income tax withholding by the amount equal to housing credit, i.e. $8000. You can then use this 'extra cash' got by increase in your take home pay for down-payment. Quick Answers to common queries: Question: When will the $8000 home buyer tax credit end? Answer: April 30, 2010 for general public and April 30 2011 for Government employees in Military, Foreign Service and Intelligence Community. Question: Can I purchase a house from my parents or relative and still qualify for the tax credit? Answer: No. please read the 7 important points in detail. Question: I am married and filing separately and I have not owned a principal residence in last three years. Do I qualify? Answer: For married people, whether filing jointly or separately, both the partners have to be 'first time home buyers' according to the definition mentioned in 7 important points.

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The Future of Wind Power - invest in Wind Energy stocks

Wind energy - The best green, renewable energy of the future

The Wind Industry has been growing at the rate of about 20% annually in the past few years (at least if you exclude the years of global recession). One can try to expect similar growth figures in the future. But what this article does is to present (with rigorous support of facts) that there will much greater growth in wind industry by 2015-2020. In other words, the coming decade will witness a BOOM in wind energy. Is Wind power 'the next Big thing?'. Continue reading the post and if you have any more insight to offer, please share it in a comment with the readers.

Fossil Fuels - A predictable end

The addiction of Human kind to Fossil Fuels is very disturbing. There are two problems with Fossil Fuels. First, it is highly polluting, environmentally damaging - and as oil companies dig deeper and deeper for more oil reserves, the chances of devastating oil spills like the one caused by BP in the Gulf of Mexico will increase. However there is also another big problem with Fossil Fuels and Oil - they are simply not going to last !. If you look at current oil reserves , you will notice how most oil reserves will last only for the next 50-100 years. Of course, new reserves are being found and there are also some even more environmentally damaging alternatives like heavy crude oil. But clearly, all these are not enough to meet the growing requirements of the world economy. Currently more than 50% of the worlds power is generated by Fossil Fuels (including coal). These non-renewable energy sources, although may not get 'finished' very soon, will become more and more expensive. A glimpse of this was seen at the end of 2007, when oil prices reached $140 per barrel. Thus Fossil Fuels are heading towards a very predictable end - slowly they will get more and more expensive and there will be a 'tipping point' when investments in alternative energy sources like wind energy, solar energy, bio fuels will attract a lot of attention. Fossil Fuels are supposed to remain dominant until 2030, but slowly their importance will be reduced.

Wind Energy Facts

Wind energy is one of the best, abundantly available renewable energy source on this planet. Here is a list of Wind Energy Facts which will convince you why this is the best green energy that human kind should start investing in.

1. According to a wind study done in 2005, the total quantity of wind energy on earth is roughly five times our total energy requirement ! Wind energy is abundant, convinced?
   
2. Energy required to construct and install wind energy equipments (like turbines, towers etc.) is paid off back in less than 9 months of time. Thus this is truly a green energy.
   
3. The current wind power usage (as of 2009) shows that the wind energy accounts for only 2% of the total power generated in this world. Thus plenty of room for a 'big boom' in wind energy.
   

Before explaining how to financially benefit from this possible future boom of wind energy, let me first list some of the advantages and disadvantages of wind energy.

Wind Energy - Pros and Cons

Wind energy advantages -

1. Renewable, plentiful available energy source.
2. Wind turbines operate 24/7, unlike solar energy which can only produce power during the day.
   
3. Zero pollution - completely environmentally friendly, green energy.
4. Wind farms can also be built in the sea (offshore wind farms).
   

Wind energy disadvantages -

1. Building large on shore wind farms may require a lot of land, thus it is usually not economically viable to build wind farms near big cities.
   
2. Visibility- some people complain that wind farms do not look very pleasant (minor disadvantage - from my viewpoint).
3. Wind farms, wind turbines, occasionally kill birds when they pass through the blades. (but the number of birds killed by fossil fuel pollution is much greater than this)
   

In the next post, I will list some of the best wind energy stocks, along with their analysis.

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TTitan Industries - best stock in Consumer Durables for long term

Titan Industries - best stock to buy now

This article plans to convince the reader with facts that Titan industries is one of the best stock available in Consumer durables, (or even when compared to stocks in other sectors). This stock was listed as the Best stock to buy in 2009, and since Jan 2009 (when that post was written) the stock has gained over 150% (as compared to 80% returns given by the index over the same period). The core business of Titan Industries is manufacturing and retailing of wrist watches and Gold jewelry (Tanishq). Titan is also emerging as an important player in Eye-wear retailing (Titan Eye Plus). Below is a review of Titan Industries (including comments about its subsidiaries Tanishq and Titan Eye +), its financials, risk and business outlook.

Titan World - Wrist Watches

The current core business of Titan Industries, Titan Watches is expected to grow at the rate of 20%-25% in the coming few years. One biggest plus point of Titan, is that being a market leader, it enjoys a competitive advantage. Moreover, the management takes continuous efforts to maintain/increase market share, for example:

1. Titan Releases one stylish watch design every month.
   
2. Titan, with the recent launch of Titan Zoop has aggressive plans in place to capture the currently untapped market for kids watches.

Tanishq - Gold and other Jewelery

Tanishq is a fully owned subsidiary of Titan Industries. Tanishq expects its topline to grow by 30% to 40% in the coming few years, faster than the watch segment. The market for Jewelery in India is evergreen and growing and although there is high competition in this segment, Tanishq is the only player selling branded products.

Titan Eye +

Titan was again quick to realize that the market for Eye-wear - frames, glasses and lenses, also lacks branded items. Titan Eye + or Titan Eye plus is a fully owned subsidiary of Titan Industries and being an extremely new player has more scope for growth. Titan Eye plus currently has 85 stores across 42 cities. It plans to expand this to 300 stores in the next 3-4 years. I expect margins to significantly improve in the coming 3 for years, so the bottomline will grow faster than the topline.

Titan Industries - Financial ratios, Risks and drawbacks

Here are the key financial ratios of Titan industries.

1. ROE of about 30%, consistently in the past 5 years.
   
2. Long term debt equity ratio of 0.2.
3. Operating Profit Margins have been slightly above 8% which is not bad as compared to other retail industries.
   
4. P/E ratio of about 39 (At the current Market price of 2200). This is a bit high and thus the stock may not be an excellent buy from short term or medium term perspective.
   

Thus the meaning of "BEST Stock" in the title should be understood as Best stock for Long term investment (3 to 5 years or more). It is best to 'accumulate' this stock, i.e. buy on every dips in small portions, rather than buy lump-some.

Titan Industries - overseas expansion plans

Titan watches have a strong market presence in South East Asia and Middle East and some African countries like Kenya. About 10% of its revenues from watch segment come from outside. However recently Titan has clarified that it has put its plans to expand overseas on hold (read Titan news ). Its attempt to launch brand Tanishq in United States has failed to obtain the desired response and hence the stores have been closed. Although currently Titan is focused on the Indian Market, since it is constantly looking for growth opportunities, may think of overseas acquisition or expansion plans especially in China and Russia. In any case, this is the kind of stock that I like to buy and hold, without worrying too much about market movements (after I have bought the stock). Disclosure- I have started buying this stock in small portions. I plan to buy a big chunk if the price falls below Rs. 2000.

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How much money should I invest in Mutual Funds?

Every person should invest in Mutual Funds, except..

Mutual Fund investments are one of the best options for a beginner or even most advanced investors for investing in stock market. Although I pick and buy stocks of good companies myself, I also invest a portion of my money in Mutual Funds, and overall in my past years experience there is nothing I have found to regret about my investment strategy. In spite of all the talk on global recession, subprime etc. my investments made before the recession have earned good positive returns. If you are a beginning investor, I recommend reading the article Riding the Equity Wave for you. Having said this, the first step in investing is to decide how much to invest in mutual funds or stock markets. In my opinion every person should invest in Mutual Funds or stock markets except those who do not have any risk appetite. And here's a simple recipe to find your 'monthly risk appetite'.

Determining your monthly risk appetite

No matter, how many success stories you hear, mutual fund or stock market investments are always risky, especially in the short term. In other words, the principal you invest is at a 'risk'. For e.g. Rs. 1Lac invested on Dec 2007 in most Mutual funds was less than Rs. 50K a year after that (but now it is more than Rs. 1Lac again). Thus you simply cannot invest money from your salary that you need in the near future (say 5 years). Use the following simple formula.

Monthly Risk appetite = portion of your monthly income you can you set aside for the next 5 years

Let me give you my example. My current monthly salary is Rs. 45K. Including expenses for me and my wife, plus a monthly support i give to my parents, my expenses are around 15-20K. Apart from this my wife and I are expecting a baby in the coming year and we also plan to buy a car. For this, in addition to the savings I already have, I am saving at the rate of 5K per month. This takes out about 25K from my salary. For emergencies, add an additional 5K-10K per month. So I am left with around 10K from my monthly salary which I will not need in the coming 3 to 5 years. So my monthly risk appetite is around 10K. Note that I already have enough savings to support me and my family for 2 years,

In similar manner above, you should first determine a monthly amount you can set aside for the next 5 years. Remember to take into account all possible emergencies and also save at least 10-20% of your salary in safe investing options like fixed deposits or bonds. So after reading this paragraph, we assume you can now calculate your monthly risk appetite. lets move on to the next step.

Keeping a margin for stock market collapse

An obvious choice would be to invest all the money you have set aside in the above step in mutual funds or stock markets. I however recommend that you keep aside some portion of it (say 10% - 25%) further for investing when the stock market crashes. Remember that money invested in stock market crash gives much more returns than investments made when the stock market is at its peak (obviously). I follow the simple rule that whenever the stock market falls below 15% from its peak value, I invest about 20-25% of the money I have set aside for stock market crash.

Start an SIP - Systematic Investment Plan

It is best (risk-minimizing) to make small investments every month rather than large lump-some investments in Mutual Funds. Lump-some investments are also great if they are made when the stock markets crash. Thus from the above two step you now know how much to invest in Mutual Funds every month - simply

Monthly Mutual Fund investments = You 'monthly risk appetite' x 0.8

Start an SIP once you determine your risk appetite. The 20% of the cash you set aside from your monthly risk appetite can be set aside and kept in a bank and invested only if the stock market crashes. This simple strategy can work wonders if followed for a stretch of 5 to 10 years.

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Crisil Mutual Funds CPR Ratings - what they tell us

Crisil - Credit ratings agency

Crisil is a credit rating agency which rates various companies for their ability to repay back debt. You can read about more about Credit rating agencies here. In addition to this, Crisil also rates mutual funds. Crisil is a well known and reputed company and is a market leader in India (followed by ICRA). Thus the ratings assigned by CRISIL can be taken seriously.

CRISIL CPR ratings

The ratings assigned to Mutual Funds by Crisil are CPR1, CPR2, ... with CPR1 being the topmost rating - for the Best Mutual Fund, according to predetermined criterion used by Crisil. Crisil uses the following criterion to rate a mutual fund.

1. Past Performance of the Mutual Fund as compared to its peers in the past 2 years - (75% weightage)
2. Sector concentration of the portfolio of that Mutual Fund
   
3. Industry concentration
   
4. Liquidity

Note that the rating is not merely on the basis of past performance. Thus a BEST Mutual Fund according to CRISIL CPR ratings may not be the best performing mutual fund. However the other factors considered in the rating are criterion are also important as they are 'risk-minimizing factors'. It is best to split your investments in 2 to 5 mutual funds to further minimize risk (all having CPR 1 ratings). I highly recommend investing in Mutual Funds with CPR 1 ratings, unless you know what you are doing.

To find out the best rated Mutual Funds by CRISIL, click on CRISIL CPR ratings.

Choosing the best from different Fund Families

Crisil groups mutual funds into different categories, Large Cap, Equity Diversified, Small and Midcap, and assigns ratings within each category. if you do not know what category to choose, it is always best to choose "Equity Diversified" (unless you are doing it for a tax saving purpose, in which case you should go for Tax Saving ELSS funds). If you have a larger investment appetite, then I recommend investing in 2 to 3 Equity Diversified Mutual Funds and one Midcap/Small cap Fund.

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DSP BLackRock Micro Cap Fund Review and latest news

DSP BlackRock Micro Cap - Introduction

DSP BlackRock Micro Cap Fund is the best mutual fund in 'equities diversified' category (best as per according to NSE MF Tracker. Note that this rating 'best' is only based on the past performance of the mutual fund, unlike CRISIL CPR ratings which not only take into account not just performance but also other risk minimizing factors like sector concentration, industry concentration and liquidity. However, DSP BlackRock Micro Cap Fund is not rated by Crisil yet. In any case, I personally think that this is the one of the best mutual funds to invest in (especially SIP - Systematic Investment Plan) in the coming years. Moreover, this mutual fund makes an even more attractive investment options in view of the latest news (see below) which says that DSP Blackrock Micro Cap Fund will now be converted into an open ended scheme. Earlier SIP in this scheme was not possible. Below are some of the highlights of this micro cap mutual fund scheme.

Highlights and key points of DSP BlackRock Micro Cap Fund

1. Open Ended scheme - with no entry and exit load. An exit load of 0.25% will be charged if units are redeemed before 7 days.
   
2. Investment idea - Micro Cap Stocks - DSP Blackrock Micro Cap Fund invests company's which are 'small' in the sense that these companies do not belong to the top 300 companies by market capitalization. Let us call these stocks as micro cap stocks. According to information on Blackrock page, 65%-100% of the portfolio will consist of micro cap stocks while 0-35% of the portfolio may consists of other equities. Click on DSP BLackrock micro cap portfolio to check out its portfolio at various available dates in the past.
3. Fund Recurring expenses - The fund recurring expenses are about 2.5% (annual).
4. Mutual fund Past performance - Click on DSP BlackRock Micro Cap NAV and past performance to find out more.
   

DSP Blackrock Micro Cap Fund now an open ended scheme from June 15 2010 - latest news

The following is an announcement directly on DSP blackrock funds page.

DSP Merrill Lynch Mutual Fund News

DSP BlackRock Mutual Fund has announced that DSP BlackRock Fund, which is currently a close ended scheme, will be converted into an open ended scheme. The change will be effective from 15th June, 2010. The scheme will offer regular and institutional plan with growth option. The minimum application amount under regular plan is Rs. 1000 and for institutional Rs.5 crore. The scheme will be managed by Mr. Apoorva Shah and Mr. Vinit Sambre. The scheme will charge 0.25 per cent exit load, if units are redeemed within 7 days from the date of allotment. Investors, who do not agree to the revision, have an option to redeem or switch their units on or before 14th June, 2010 without paying any exit load.

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Understanding ROE, ROCE and Shareholder's Equity

Return on Equity (Return on Net worth)

Return on Equity (ROE), also called as Return on Net Worth, is one of the key financial ratios which indicates how well the management has been efficient in managing the company's assets. In my early days in the investing world, this is the ratio which confused me the most. Return on Equity is defined by the following formula


What is confusing in the above formula for beginners is the meaning of 'Shareholder's equity'. Shareholder's equity should not be confused with 'total value of all the equities, i.e. shares'. The later is called market capitalization of the company. Shareholder's equity is defined by

Shareholder's equity = Total Assets - Total Liability

In other words, Shareholder's equity is nothing but the amount of money that the company would be worth if it were to go bankrupt at this very moment. This is also called as book value.

How to calculate ROE?

In order to calculate ROE, Return on Equity, lookup any financial portal or the company's annual report for the following

1. EPS - the earning per share of the company.
2. Book Value - The book value of the company per share (i.e. shareholder's equity divided by the number of shares).

Then to calculate ROE you simply divide EPS by Book Value. ROE is typically expressed as a percentage (i.e. multiply by 100 and put a "%" sign).

Example of Return on Equity : Let us say a company earns Rs. 100 per share and the book value of the company is Rs. 300. Then the Return on equity is 33.3%.

Typical values of Return on Equity and what it means

As a general rule of thumb, you should be careful while investing in any company whose ROE is less than 10%. I personally prefer stocks which give a return on equity of at least 20% or more. Obviously return on equity is a direct measure of how well the company is generating cash with the amount of 'shareholder's money' it has. There is one more thing which ROE tells you and which most financial websites don't mention. ROE also tells you how easy it is for the company to profitably expand its business. For example, let us take a situation where the company does not have any debt. Then an ROE of 25% means that the company is producing Rs. 25 for every Rs. 100 of assets it has. Thus if the company were to expand its business, then for every Rs. 100 spent on expansion, it would earn Rs. 25, which is greater than the usual interest rates. If ROE is roughly the same as the bank interest rates, then it means that even if the company expands, it will take a long time for it to make its investments in expansion profitable.

Variations: Return on Average Equity

The Book Value of a company can significantly change during a given year. In these circumstances, one can calculate the average book value (average of the book value in the beginning of the year and at the end of the year) and use it to calculate ROE.

What ROE does not tell you

ROE, like any other financial ratio is very far from being perfect. For example, ROE does not tell you anything about the debt of the company. As explained before it does say something about the potential of the company to expand its business, but does not actually tell you anything about the possible or expected growth of the company. Nevertheless, ROE is a very basic ratio, and used in addition with few other indicators like topline growth and financial ratios like P/E, Debt/Equity and profit margins can give a reasonable good and quick overview of the company.

ROE versus ROCE

A related ratio to Return on Equity is Return on Capital Employed (ROCE) or also called by the name of Return on Capital Invested (ROCI). ROCE is defined to be

ROCE = Operating Profit / Capital Employed.

Operating Profit means profit before tax, depreciation, interest and exceptional items. While Capital Employed is the cash (& assets) that was actually used to do the business in that year. The formula for calculating Capital Employed is

Capital Employed = Total Assets - Current Liabilities

Note that Current Liabilities are those liabilities which the company has to meet immediately (in the coming year). ROCE can sometimes give a slightly accurate picture than ROE, but I have found that overall if you look at the values of ROE for the past 5 years, you get roughly the same picture of the company as you would get by looking at values of ROCE. Moreover, ROE is easier to calculate.

Related Posts on Financial concepts and Investment Basics Understanding the P/E Ratio Return on Equity (ROE), ROCE and Shareholder's Equity Consolidated results vs. Standalone Results. Topline Growth vs Bottomline Growth

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Topline vs BottomLine Growth - what is a better indicator? Investment Basics)

Topline vs Bottom Line Growth

(Anticipated) Growth of a company is an extremely important parameter in deciding the valuation of the company's stock. When a company grows, there are however various parameters which 'grow' when a company 'grows'. Among the most important of these are

1. Growth of a company's sales - This is called as Topline Growth for the simple reason that in accounting the sales of a company are written on the first line 'top line'.
   
2. Growth of company's net profit - This is called as Bottomline Growth, for the simple reason that Net profit of a company is written at the bottom, after writing figures of sales, expenditures, revenues, interest, depreciation, tax, etc.
   

Topline vs bottomline - simple example

Topline growth, or growth in sales represents the potential for the business to grow. Bottomline growth or growth in net profit, however can be caused either by increase in sales, or decrease in expenditure/raw material or various combinations including exceptional items (i.e. items which are one-time expenditures/income). Let us take the example of a steel company. If its sales grow by 25%, then topline growth is 25%. It show that the demand for steel, the basic output of that company is growing by 25%. However, it could happen that at the same time, prices for raw material, in this case coal or iron ore also go up by 15%. Other factors remaining same, the increase in net profit will be much less than 25%.

What number to look at while analyzing a stock - topline or bototmline ?

As far as getting an idea of how the company is growing, i think it is a good idea to look at topline growth. Various factors which come into play while calculating bottomline growth (e.g. raw material costs, etc.) are also important, but in my experience i have found it very convenient to analyze them by looking at financial ratios like operating profit margins (or ebitda margins) or net profit margins.

Related Posts on Financial concepts and Investment Basics Understanding the P/E Ratio Return on Equity (ROE), ROCE and Shareholder's Equity Consolidated results vs. Standalone Results. Topline Growth vs Bottomline Growth

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How to buy stocks in USA, China or overseas from India?

Indian Investors looking to invest in stock markets abroad

Have you been looking for investing opportunities beyond the Indian Stock markets (NSE, BSE)? For e.g. investing in Oil ETFs, or other mutual funds exclusively available in select developed countries like United States or Europe, UK, etc? Or thinking of buying stocks in China? Read on.. the answer to these questions is much simpler than what one would have imagined.

RBI allows $25000 foreign investment per annum

RBI has several restrictions on buying and selling rupee. For example, you are still not allowed to trade forex in india, unless it is for hedging purpose. However, fortunately, RBI has allowed every indian to invest up to $25000 overseas. This means you can use this much money to either buy real estate, stocks, mutual funds, or simply put that money in a savings account in USA, China or any other country (this last option does not make economical sense, because interest rates in India are higher). Thus trading in stocks in world markets either in USA, Japan, China, Europe, or any other country is now extremely Easy. All you do is start by registering with an online broker who allows you to trade in world markets of your choice.

Registering with an Online broker

An example of such an online broker is Interactive Brokers. This is just one example. There are several other online brokers which allow you to trade in world wide markets from India. Even ICICI Direct allows you to invest in stocks in USA or other countries. Google a little or keep your eye on advertisements. Good brokers usually advertise aggressively highlighting their plus points. The following things need to be kept in mind.

1. Trading in world markets may require a larger appetite. For example when you open an account with Interactive brokers, you have to start with $5000 for investing in world markets like NYSE.
2. There is a verification procedure when you open your account where you may have to submit/post some documents. The overall approval procedure may take a couple of days or more.
3. The money you invest in foreign stocks is kept in dollars (or other currency). Thus apart from stock market fluctuations you are also exposed to the risk of currency fluctuations.

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