Category: Investments for Defense

28 May 2014
Common Equity Investing Mistakes -

Common Equity Investing Mistakes

With the new NDA government coming to power, many investment experts believe that India is on the threshold of a long term secular bull market. While it is certainly easier to make money in bull markets, it is also easy to make mistakes in bull markets. Mistakes cost investors money and therefore must be avoided. We should clarify that this article is addressed to investors. Here are eight common equity investing mistakes in bull markets.

1. Trying to time investments at the start of a bull market: Retail investors wait too long trying to time the market. Most retail investors are not able to spot a bull market when it is taking off. When the market runs up significantly, retail investors realize that they have missed the bus. Timing the market is incredibly difficult. Even experienced professional investors often do not get their timing correct. Equity investing should be goal based, not timing based. Set investment goals and invest for the long term. Timing does not matter if you have a long time horizon.

2. Ignoring asset allocation: In bull markets hot stocks and mutual funds are always in news. It is important to select great stocks or mutual funds to get higher returns. But investors do not realize that a much bigger portion of portfolio return is attributable to asset allocation and only small portion of returns can be attributed to stock or fund selection. For example, even if you select a great mutual fund that gives you 25% compounded annual returns, if 90% of your portfolio is invested in fixed income assets yielding 6% post tax returns, your overall portfolio returns is less than 7%. You should pay more attention to your asset allocation and consult with your financial adviser to get appropriate guidance on the right asset allocation mix.

3. Adopting trading strategies in bull markets: Investors should understand the difference between trading and investing. Traders are usually professionals and aim to generate profit over a short time horizon, ranging from a day to a few weeks. Investors, on the other hand, aim to create wealth by investing over a long time horizon. Trading and investing require very different strategies. Retail investors in bull markets, seeing market rise sharply, switch to trading strategies. Investors may even be able to make decent intraday or positional trading profits in bull markets. But investors should not think that they are expert traders just because they have made trading profits. Trading is extremely technical in nature and requires considerable expertise and experience which most retail investors do not have. Investors should especially avoid taking leveraged positions using derivatives like futures and options because they can incur big financial losses, if the market or the stock moves in the opposite direction of their trade.

4. Blindly investing in hot midcap tips: Midcap stocks get beaten more than large cap stocks in bear markets. Consequently some of these stocks rally sharply in bull markets, when valuations of large cap stocks seem stretched. Often in bull market rallies, midcap stocks outperform large cap stocks. But in case of a lot of midcap scrips, the up moves are essentially momentum moves and not backed by strong fundamentals. Picking quality midcap stocks requires considerable skills and experience. If you are not an expert stock picker, it is always advisable to invest in midcap funds instead of directly buying midcap stocks.

5. Paying too much attention to monthly economic data: The media goes on overdrive over daily, monthly or quarterly economic data, be it exchange rate, index of industrial production (IIP), inflation statistics, CRR, repo rate etc. It is true that the market reacts to these numbers. But they are not relevant for long term investors. You should stick to your investment strategy and not react to these numbers. The best investment strategy is to get your asset allocation right, and invest in high quality stocks or mutual funds with great track record, and let their investment compound.

6. Panicking in sharp corrections: In a bull market, stock prices rise sharply but they can also fall sharply. In a secular bull market, sometimes these corrections are prolonged and may last several days or weeks. Investors, who cannot handle volatility, cash out during market corrections. But by cashing out during bull market corrections, investors are compromising on their long term financial goals. Investors should remember that such corrections are always of shorter duration than the periods during which the market rise. Over the last 20 years, the market went through many sharp corrections and yet the Sensex is many times higher. Therefore investors should stay invested through the periods of volatility. Their investments will grow in value once the uptrend resumes.

7. Turning off SIPs during a downturn: Successful investors have made money in the market by buying stocks when everyone else was selling. Retail investors often find it difficult to handle volatile markets and stop the Systematic Investment Plan payments during a market downturn. This is a mistake. SIPs enable the investors to buy equities at a low cost in market downturns. SIPs work on the principle of “Rupee cost averaging”. By investing a fixed amount, every month or at any other regular frequency you can buy more units when the prices are low and less units when the prices are high. SIPs ensure good return on your investment and help you meet your long term investment objectives.

8. Hanging on to underperforming stocks or funds: While investors should have a long time horizon for their investment, they should make sure that they do not hang on to underperforming stocks or funds. Even if the investors have performed adequate diligence in selecting stocks or funds, it is possible that some stocks or funds may not perform well. Retail investors often hang on to underperforming stocks or funds, especially if they are making losses in these stocks or funds. Sometime investors buy additional units of underperforming stocks or funds, to average the purchase cost or NAV. While this strategy may sometimes work in trading, this is a wrong investing strategy. Investors should monitor their investments on a regular basis. If there are stocks or funds in your portfolio which are underperforming relative to the benchmark for 2 – 3 years, then you should exit from these stocks or funds, and switch to stocks or funds that have been performing well. Even if this entails booking losses, investors should not hesitate in exiting underperforming stocks or funds


Investors should avoid these common mistakes when investing in equities. Equities are essentially long term investments. By selecting good stocks or mutual funds, and remaining invested in them over a long period of time, investors can create wealth in the long term by leveraging benefits of compounding. There is always a lot of surround sound in the media with regards to equity markets. Investors should cancel the noise in the surround sound and stick to a disciplined approach to investing.

(Source: Dwaipayan Bose,, 28 May 2014)

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15 May 2014
Verdict 2014 The Way Forward For

Verdict 2014: The Way Forward For Investors

Hardly 24 hours remain for the world to know who is going to occupy 7, Race Course Road, the official residence of the Prime Minister of India. All of us are waiting with bated breath to know if Narendra Modi as predicted by the exit polls will win the elections or will the Indian electorate throw up a surprise tomorrow. The exit polls have already given thumbs up to NaMo and team but history shows that we cannot blindly follow these numbers. In this scenario, the question that plagues most investors is what should be their plan of action for May 16, 2014. I have tried to answer this question by putting down three scenarios that can emerge tomorrow and what investors need to do if any of them becomes a reality.

Plan of Action for May 16, 2014

Scenario 1:

Narendra Modi led BJP comes to power, finally ending the decade long rule of the dynasty. This is going to be music to the ears of our investors who have been waiting patiently to see some action on the ground which in turn will positively impact their portfolios. In such a scenario, investors should just relax over the weekend and start slowly entering the market via the different options available to them like SIPs or STPs. They should not consider investing their surplus into the market on either May 16 or in the coming days. If Modi comes to power, we need to remember that he cannot make a vibrant India in a few months’ time. The euphoria that we have been seeing in the market for some time is not based on any fundamentals. It is on the hope that if the BJP is able to put forth a stable government then it will be possible for them to implement a lot of policies which their predecessors were unable to. UPA government was known for its policy paralysis and finally rating agencies had to threaten India to get it into action. This is inspite of the fact that this coalition was headed by an economist turned PM who in 1991 brought about economic reforms which changed the face of India in the global markets. Hence, if NaMo gets a majority mandate, then we believe that the next 5 years should be good for investors. In such a scenario some of the categories of funds which we have been betting on since their downfall like mid & small caps, banking and infrastructure will see a revival. Hence, investors who have been taking an exposure into the same on the basis of our advice will have something to cheer in the coming years.

Scenario 2:

India gets a hung parliament and in this scenario, what will happen to markets is only a foregone conclusion. The immediate reaction of investors will be to get out of the market as soon as possible and switch their existing surplus into liquid funds. However, do investors really need to punish themselves and start thinking from their heart while taking investment decisions? Hence, my advice is that if there is a correction, then consider it as an appropriate time to enter the market aggressively. The reason behind this recommendation is the macro-fundamentals of the Indian economy. At this juncture a majority of our macro indicators are not in a great shape: India is growing at less than 5% which can be gauged from the GDP estimates; IIP is as always volatile and currently is in the negative territory; both the inflation indicators that is WPI and CPI are moving upwards; RBI is not showing any inclination for reducing the policy rates; the list goes on. This is a clear indication that the economy needs a quick cure, or else things will spiral out of control. Hence, even if an unstable government is formed, they will do everything in the book to get India to recover from the current slowdown in growth momentum. This definitely will take time, but we can confidently say that if the macro-economic indicators improve, investors will only stand to gain in the long run.

Scenario 3:

India decides to give a third chance to UPA and here although the market would react negatively, investors need not worry too much. This is because the incumbents have already learnt the lesson of waking up late and trying to do the impossible in a short span of time. Hence, a third chance means that they will consider this term seriously and rectify the errors of the last 5 years.

In short, my advice to investors is not to get carried away by the chaos in the market but to stay invested till their goals are achieved. During this time, there will be several months when their portfolios will be in red but over a period of time market is known to reward patient investors.

(Source: iFast Financials article dated 15 May 2014)

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02 May 2014
Three Smart ways to Invest in Gold this Akshaya Tritiya

Three Smart ways to Invest in Gold this Akshaya Tritiya Week

Indians have always considered Gold as a safer option to invest vis-a-vis other investment opportunities like equities, fixed income, real estate etc. Gold’s ability to act as a hedge in times of financial emergencies is one of the main reasons for the yellow metal to find a favour with Indians. Gold is also believed to be auspicious and in addition to this has proved to be a prudent investment option for a long time now.

In the last few years, we have been seeing a trend wherein young and savvy investors are looking at gold as more of an investment instrument rather than a commodity to be passed onto posterity. Hence, they prefer to invest their surplus into gold via instruments which are hassle-free and are more viable than investing in physical Gold. The mutual fund industry offers multiple alternatives to physical gold if investors wish to take an exposure into the yellow metal.

Gold Exchange Traded Funds (ETF): Currently, Gold ETFs is one of the most popular investment options among investors and this is evident from the AUM of Gold ETFs which stands at Rs. 6414 crore as of March 2014. Gold ETFs directly invest into physical gold and track the spot price of gold. Gold ETFs can be traded on the exchanges and this flexibility makes it a popular instrument. Demat account is compulsory for taking an exposure into Gold ETFs. The only drawback of Gold ETFs is that they have to be bought in lumpsum as a Systematic Investment Plan (SIP) is not available.

Gold Fund of Funds: Fund Houses have launched Gold Fund of Funds for those investors who wish to invest into gold but do not have a demat account. This option invests into Gold ETFs and enables an investor to buy and sell units like any other fund in the industry. One of the biggest advantages of investing in gold Fund of Funds is that it allows an investment via the SIP route which means that the investor can invest in these funds on a regular basis without timing the markets. The SIP investment amount can be as small as Rs. 100 per month.

Gold Equity Funds: Many investors mistake this for a fund which invests into physical gold. However, the truth is that Gold Equity Funds invest into shares of companies which are engaged in extraction, processing and marketing of gold. Currently, there are only 2 funds in the industry which fall into this category and they are DSP BlackRock World Gold Fund and PineBridge World Gold Fund. Since these funds invest into stocks of gold mining companies it is not necessary that whenever there is a rise in gold prices these funds will also move upwards. Although the profits of these companies will be dependent on gold prices, those can be offset by factors like operational issues, labour problems and even regulations. Hence, only investors who have a risk appetite should think of investing into these funds.


To conclude, investors who wish to take an exposure into the yellow metal as a part of their asset allocation should consider Gold ETFs and Gold Fund of Funds. On the other hand, investors who are interested to invest into global funds may consider Gold Equity Funds.

(Source: iFast Financials’ monthly report for May 2014)


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18 May 2012
Investment Advice for army, armed forces officers

Hope You do not Fall Prey to these Investment Myths

As a Financial Planner and an Investment Advisory firm, we come across quite a few biases over-and-over again while dealing with people from all walks of life. Sometimes it is quite surprising that many of the people know more about the state of nation’s and USA’s finances than their own! Investment myths abound, leading to mis-purchasing and misdirected savings. Due to this many investors burn their fingers and then swear to stay away from perfectly healthy investment avenues, only because they actually did not understand what they were getting into, in the first place. Here we present to you four very common investment myths.


Myth 01: I have made my Tax Saving Investments, so My Job is Done.

Fact 01: People who want to invest but are not too serious about it belong to this category. This is a common mistake made by investors. Saving on taxes is a good way to save money but it is not the end of investing – just a small part of it. There are many more things to be looked at while investing apart from just saving taxes. We should leave the habit of waiting till February or March for seeking tax deductions; instead we should plan all your investments from the very beginning of financial year (April) keeping tax deductions as just one more factor in mind.


Myth 02: Investing Should Be Exciting! I should Diversify As Much As Possible!

Fact 02: It is good to have a well diversified portfolio (debt, equity and gold) but within certain limits. Many investors get so wrapped up with diversification that they include every new product that hits the market in their portfolio and then, 1-2 years later wonder why their returns are only in the range of 2-3%, or maybe even negative. You do need a level of diversification across equity, debt, gold and maybe, real estate. Equity will beat inflation over the long term. Debt will protect your capital and give you steadier returns. Gold and real-estate will hedge against inflation. However, keep in mind that over-diversification can actually hurt you. Stick with well chosen equity mutual funds for diversification across companies, sensible fixed income products like PPF, FDs and liquid funds for your cash needs, and gold by way of ETFs / Gold MFs.


Myth 03: Plan for my retirement? I’ve got plenty of time for that!

Fact 03: You don’t. Any salaried person who does not have a retirement plan is inviting disaster. Life and the world’s economy are two things which should never be trusted for steady longevity! Plan for your retirement now and forget delaying it. As little as Rs 2,000 per month at an average returns rate of around 15% will fetch you nearly Rs 36 Lakhs by the time you are 60 if you are currently in your early or mid-20s.

Let’s take an example: Suppose in your post-retirement years you want to be able to spend today’s equivalent of Rs 75,000 on household expenses and Rs 25,000 per month on discretionary expenses, medical care, and any other expense you would like to consider. That’s Rs 75,000 per month plus Rs. 3,00,000 per year by today’s rates. You are currently 35 years old and would like to retire at 60. Taking inflation at 8% per annum, a life expectancy of 85 years, and post retirement returns at 8% as well (to keep things simple), you’re going to need Rs 20.54 crores to retire in peace and maintain your standard of living!! Even if you are going to get a pension from your employer, there is still a sufficiently large amount you would need to build up if you do not want your post-retirement standard of living to be maintained.


Myth 04: I can do this on my own; I don’t need a Financial Planner. They’re too expensive.

Fact 04: You must have heard that ‘A half-truth is far more dangerous than an outright lie’. Getting free financial advice or no advice at all, will be much costlier than the fee you would pay your Planner. A financial planner is important because you need someone who’s going to give you unbiased advice for not just what you want but what you need the most.



While investors are smarter today, they also have more to deal with more information, more products, more options (and therefore a surfeit of choice), more demands on their time and money, and more demands from themselves. You need someone who can sit down with you and create an over-arching financial plan that will help you overcome the financial myths, clear the financial fog, simplify your financial life, and help you gain complete control over it.

[This article has been adapted from an email article sent by Quantum Information Services Pvt Ltd (]


With regards,


CEO, Hum Fauji Initiatives,
Your Long-term Partner for Wealth Creation
9999 022 033, 011 – 4054 5977 (Off),


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07 Apr 2012


Errors Investors Repeatedly Make in Choice of Investment and Timing

Behavioural Finance is a very interesting field of psychology. It studies and analyses the reaction of people and their bias when faced with investment decisions. Please read the instances given below – do you relate yourself to any one or more of them?

You have your investments in various stock-related instruments – equity and equity-diversified mutual funds. Some of these are in profit while some are in loss currently. You need some money urgently. You sell the profit making ones.

  • Effectively you have sold the ones doing well since you keep hoping that you will ‘recover back your loss’! This explains why people realize the gains of winning stocks too soon. The flip side of the coin is people hold on to losing stocks for too long; unfortunately, many of the losing stocks never recover, and the losses incurred continued to mount, with often disastrous results.

You have some money to invest. You can either invest it in Real-estate where it is likely to double, or in equity-diversified mutual funds which will give you 15% returns per annum over a period of Five years. You go ahead and invest in real-estate since it looks like a better deal.

  • Actually both returns are the very same – only money seen in bulk rather than in percentage terms ‘seems’ a better deal. As such, real-estate being a physical, ‘holdable’ investment, gives more comfort than a paper investment even though, compared to stocks or mutual funds, it has a lot of hassles!

Question 1 – You have Rs 1 lakhs and you must pick one of the following choices:
Choice A: You have a 50% chance of gaining Rs 1 lakhs and a 50% chance of gaining nothing.
Choice B: You have a 100% chance of gaining Rs 50,000.

Question 2 – You have Rs 2 lakhs and you must pick one of the following choices:
Choice A: You have a 50% chance of losing Rs 1 lakhs and 50% of losing nothing.
Choice B: You have a 100% chance of losing Rs 50,000.
Take your pick of the two questions above

Majority of people choose “B” for question 1 and “A” for question 2. People are willing to settle for a reasonable level of gains (even if they have a reasonable chance of earning more), but are willing to engage in risk-seeking behaviour where they can limit their losses. In other words, losses are weighted more heavily than an equivalent amount of gains.

You’re shopping for cars and you’re down to a final choice between a Honda City and Verna. Both have distinct advantages and you finally choose one model. Next time, if you have to buy a car or to recommend one to somebody else, you recommend the same model that you have bought.

  • You will remember the advantages of the alternative you selected and not the advantages of the one you didn’t choose. This bias affects future buying decisions, which is why we often get into a “rut” of buying the same product type over and over again. When we go to make a selection, it is much easier to recall the positive attributes of the product we purchased rather than the product we didn’t purchase. Same bias is reflected in investment decisions too – a person investing in Provident Fund or another one in stocks will continue to do so without doing a fresh review for every purchase.

You find that the stock of a company, which you believed to be good, has fallen considerably in a very short amount of time. You go ahead and purchase a large amount of it believing that the drop in price provides an opportunity to buy the stock at a discount, without conducting any further research.

  • It is true that the fickleness of the overall market can cause some stocks to drop substantially in value, allowing people to take advantage of this short- term volatility. However, stocks quite often also decline in value due to changes in their underlying fundamentals. For instance, suppose XYZ stock had very strong revenue last year, causing its share price to shoot up from Rs 25 to Rs 80. Unfortunately, one of the company’s major customers, who contributed to 50% of XYZ’s revenue, decided not to renew its purchasing agreement with XYZ. This change of events causes a drop in XYZ’s share price from Rs 80 to Rs 40. Investor erroneously believes that XYZ is undervalued. Keep in mind that XYZ is not being sold at a discount; instead the drop in share value is attributed to a change to XYZ’s fundamentals (loss of revenue from a big customer).


Some other documented Investor Behaviour

  • People are often impatient to sell a good stock.
  • People often make a distinction between money easily made from investments, savings or tax refunds and their ‘hard-earned’ salary – money‘easily’ earned is more readily spent or wasted.
  • People feel the loss of a Rupee to a far greater extent than they enjoy gaining a Rupee.
  • Investment in stocks and mutual funds are often thought of as pieces of paper rather than as part ownership of a company. That’s why investments in Gold and real-estate (the physical investments) are always valued more than paper investments.
  • People tend to think in extremes – the highly probable news is considered certain, while the improbable is considered impossible.
  • People often take a short-term viewpoint. Recent market losses lead to suspicion and caution, while recent gains lead to action. Long-term losses or gains get forgotten, even if they are of a greater magnitude.
  • Most people will avoid risk when there is the chance of a certain gain. But faced with a certain loss, they become big risk takers.
  • People often assume that lack of market or price movement represents stability, while volatility represents instability.
  • People follow the crowd, and are heavily influenced by other people or compelling news; they fail to check out the real facts themselves.


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With regards,


CEO, Hum Fauji Initiatives,
Your long-term partner for wealth creation

9999 022 033, 011 – 4054 5977 (Off),