Dear Son,take care of your tomorrow. Review on Investing in India

Savings and investments may be a dull word among the youth but it is a fact that the earlier one learns it, better it is. .

Fortunately, Indians have a better sense and believe in saving. In fact their saving rate is lower only to the Chinese . The Indians tend to save 30 percent of what they earn.

The problem is where to save? The plethora of financial advisers makes it tough esp when one sees a friend making moolah in stocks . The articles are vague, saying save this much percent here -makes no practical sense and one gets lost in the jargon.

With 33 years of saving experience, 21 of it in stock market, I thought of making a gist of what works best in practical terms. I also add that I have seen 3 major crashes in the stock market, leading of suicides  .     So here goes

1. START TODAY- The worst enemy of a plan is procrastination.The saving must start with the 1st salary.

2.INVEST MONTHLY-thanks to the Internet banking, one can leave instructions, see them being followed and keep track.Just leave instructions. It will be a passive action after that. No saying'have to meet my accountant to put away money'.

3. CORE INVESTMENTS-should always be in government instruments. Fin advisers will say follow the formula'100 minus age' meaning put only 20 percent of savings in government agency if you are 20years old and 80 percent in equity. NO .You are saving 1st for a rainy day. When it pours nuclear bombs, only the government will pay your dues.

Ask the migrants from Pakistan in 1947. All their property, gold, cattle, cash, were left behind in Pakistan. Only those who had post office deposits got exactly what they had, with no delay. Similarly, when Iraq invaded Kuwait or Sikhs were forced to flee in 1984, all valuables were looted, left behind, except the bank deposits and money instruments.

So always start with

a. P.P.F. - this provident fund will always earn 3 percent more than the inflation rate. At present it pays 8 percent interest, tax free.If you earn 10 k per month, put 1000 rs monthly in P.P.F. Keep increasing in same proportion. Maximum 70 thousand can be invested in 1 year. The power of compounding gives very high returns when you require them.

b. INSURANCE-  This should be the second priority. Do not be confused by the jargon . Take an insurance which makes sure your kin gets a reasonable amount in case of death. Ask for a rider for critical illness, whereas as soon as you are hospitalised, the company pays a lump sum to pay bills. Also go for a payback/endowment plan so if you survive the policy period you get back all that you paid plus interest earned on it, all tax free. Private insurers are safe but if you are less of a risk taker, go for L.I.C. It has very good plans. Again you can pay monthly or annually. Ask the agent for plans but ask him what the administrative charges are. Go for a plan with least admin charges.

4. INVESTING FOR BETTER RETURNS

These are what every one wants to know about. They carry higher risk but also higher returns.They have a thrill and sometimes give better returns than even gambling.

a. PROPERTY-this is the hot favourite. Never count your primary residence as as asset. If you do not have inherited property, make this your top priority. For investment look at second property. At present values are overpriced and only investments in 3rd tier cities should be made. It also involves lot of cumbersome procedures in buying/selling.

b. GOLD- traditionally the best hedge against natural calamities. One must always keep investing in gold whenever prices fall and one has spare cash. One caveat is that do not invest in jewellery. Buy gold biscuits and coins, available at ICICI, HDFC banks and carry no making charges and can be sold with no deduction. At present, gold is 650 dollars per oz. It has seen highs up to 740 dollars. Buy whenever it dips to below 600 dollars per oz. You can buy in 5 gms/10 gms/20 gms biscuits.This will keep rising in value and never fall even if there is world war. Further it can be used to exchange for ornaments at time of kids' marriages.

c. MUTUAL FUNDS-These must form part of the portfolio. They will always give solid returns. In the last 4 years of bull run, some funds like SBI Magnum Global have given 380 percent absolute returns in 5 years. Reliance vision fund has given 1400 percent returns in 10 years, the highest in the world. Must keep investing in diversified equity funds or balanced funds. Here again invest monthly. It is called S.I.P. Systemic investment assures that you get average of price correct even when stock market rises or falls.

d. STOCKS- This is most dicey. A couple of hints

1. TIPS-hear them and ignore them. tips are placed by motivated individuals and always lead to losses.

   
   




2. LIMIT TO 10 STOCKS.- you can never keep track of 80 companies. Just have a portfolio of 10 good, blue chip cos and keep adding on dips. Forget what people may say. This will make life easier.

   
   




3. avoid trading-buying and selling frequently only makes your broker richer.It is a waste of time and money. Buy with a horizon of 1 to 3 years and even longer for your kids.

   
   




4. BE CONTRARIAN- to make money, buy when markets are down and sell when markets are high. Sell when you have achieved the target profit. 20 percent is a good margin.

   
   

*SUMMARY

*1. invest early

1. invest monthly

   
   




2. build a safe corpus of PPF and insurance.

   
   




3. include property in risky investments. do not count own house as assets.

   
   




4. take advantage of stock market, primarily through mutual funds and blue chip stocks.

   
   




5. gold must be part of defensive savings.

   
   




6. keep booking profits and using the money for vacations, luxury items and charity.

   
   

*CHARITY

*   The more you give, more you get. Always make it a point to give 10 percent of profits to charity-to handicapped, schooling poor, even your less fortunate relatives. Donate during floods, natural calamities and accidents.

RESEARCH

Do your own research also. Visit valueresearconline for mutual funds and moneycontrol.com for stocks.

CURRENT HOT FAVOURITES

*     My recommendations are

* MUTUAL FUNDS- 1. SBI MAGNUM CONTRA

1. SBI MAGNUM GLOBAL

   
   




2. DSP ML TIGER

   
   

4.ICICI SERVICES INDUSTRY FUND

1. TATA INFRASTRUCTURE FUND

   
   




2. HDFC TOP 100 EQUITY FUND.

   
   

STOCKS

1. HINDUSTAN ZINC-BUY AT LEVELS OF 650 RS AND BELOW.

2.ADITYA BIRLA NUVO- BUY AT BELOW 1000 RS

*DIVERSIFICATION

*           Diamond solitaires and art are also good investments for high networth individuals but to be looked at only after a 1 crore portfolio is built up along above lines.