Author: Ho KhinwaiKhin Wai is a Year 3 Banking and Financial Services student from the School of Business Management (SBM). He started his foray in finance in 2011 and has his roots in value investing. Archives
December 2013
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Why Do We Invest?28/12/2013 Adapted from & Inspired by Adam Khoo. The author does not own any original ideas presented in this post. As you are reading this post, hundreds of thousands of people around the world are currently taking their first board on the 'Investing' train. New investors and traders have sprung up in the markets over the recent years, due to increased awareness about financial management (not to mention the ease and availability of financial resources over the net). There are hundreds of books written about investment and trading. And, many of these books will highlight how to make fortunes from the markets by following their strategies, buying into expensive software programs and attending their supplementary workshops. These programs boast supernormal returns that seem justified with their strategies, and give readers the impression that there is a PROVEN way to make money out of the markets by following them. The result: many people get hooked onto the idea that investing/trading is a GUARANTEED money-making SYSTEM that will reap them easy profits. If, out of the tens of thousands of investors and traders in Singapore, one guy was picked out and asked the question "Why do you invest/trade?", the answer would likely be like this, "To make money, of course". So you see, their motivation for investing is almost always PROFIT-DRIVEN. This is the worst mindset any investor and trader can have, and if you are one of these people, pay attention to what I'm going to share with you next. Their desire and GOAL to accumulate Money through trading or investing is set-up right from the beginning, and that will affect any investment decision the person is going to make. With such a hunger for hoarding cash, he will look for the QUICKEST, EASIEST and FASTEST way to make money, and that may potentially result in him making the wrong decisions because of a thing called GREED. As with any good goal, there must be a proper target. "Making money" is not a viable target as it does not reveal WHY you have to make the money. The goal is much more personal and subtle, and this subtlety is what distinguishes long-term successful investors, and unsuccessful folks who believe in the get-rich-quick ideology. The real goal of investing is about making a positive change in your life, about enriching your personal experiences using the extra income made from investments, and ultimately, about being able to live without financial burden and worries and being able to afford the things you want and living the life you desire. This is what is meant by being financially free. Now the focus is shifted from HOW to make money by investing, to WHY you want to make money through investing. This is the mentality that every investor or trader should have before starting. "Why do you invest?" "To create a more comfortable life for me and my family" "How?" "By making money through investing/trading" Once we get this idea in our minds, we can begin to see investing and trading in a whole new light, rather than just two systems of MAKING MONEY. Remember: Money is a means to an end, and not an end in itself".
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Introduction to Exchange Traded Funds15/10/2013 Exchange Traded Funds (ETFs) in Singapore have come a long way since their first inception in 2002, when the first local ETF, STI ETF (formerly known as streetTRACKS STI ETF) made its debut on the Singapore Exchange. ETFs are a type of security that mimics an index's movement, such as the Straits Times Index (STI) in Singapore, and is traded on SGX along with other common stocks. By buying into an ETF such as the STI ETF, the investor gets a wide and diversified exposure into a basket of Singapore stocks that make up the STI. With an ETF, an investor can be said to own ALL 30 of the Singapore blue-chip stocks that make up the STI, without directly investing into each stock individually! Advantages 1. Information readily available If you have ever heard of a unit trust (or mutual fund), you would know that the trading prices are not shown for each minute or hour. Trading prices of unit trusts, which are termed as NAVs(Net Asset Values) are only updated at the end of the day, and they only reflect the prices from the previous day of trading. ETFs work in the same way as unit trusts, in that their underlying assets are a basket of assets that seek to mimic a particular industry or index. However, the main difference is that as they are traded on an exchange like SGX, investors can see price changes immediately, trading volumes and price charts of the ETF at the click of a mouse button! As you can see, ETFs are much superior to unit trusts in terms of liquidity. 2. Lower expense ratio As ETFs trade like stocks on SGX, they only incur trading costs like a normal stock would (GST, broker fees, clearing fees...) which are much lower than a unit trust's fees. Unit trusts are actively managed as compared to ETFs, which are passively managed, which means managers don't actively trade to raise the fund's performance and take a relatively laissez-faire approach to management. Hence, unit trusts incur fees such as management fees, loading (commissions), administrative fees, trustee fees and so on... As you now realize, it is much profitable to be investing in an ETF than a unit trust. 3. Diversification As mentioned, underlying assets of ETFs include a basket of assets that seek to track an index or some other benchmark. In an STI ETF for example, you actually hold an underlying of 30 blue-chip stocks from all types of industries in STI! This provides the investor with diversification benefits that allow the investor to spread his risk across the underlying portfolio. For example, if the commodities market in Singapore tumbles due to sudden news, STI will not be significantly affected, as the stocks from other industries (such as Financial) will offset or minimize the impact from commodity stocks like Olam and Noble. Types of ETFs In Singapore, there are 3 classes of ETFs for investors to choose from - Equities, Bonds and Commodities. Equity ETFs track a stock index such as the STI (STI ETF), bond ETFs track a bond index (eg. ABF Singapore Bond Index Fund) and Commodities ETFs track a particular commodity index (eg. SPDR Gold Trust) There are also other kinds of ETFs that track a particular country's or region's index. Some of the common examples are: Lyxor ETF MSCI India (tracks India's index), CIMB FTSE ASEAN 40 ETF (tracks the ASEAN index). Other interesting ETFs that have appeared on the SGX are money market(CASH) ETFs (eg. DBX SINGAPORE CS) and inverse ETFs which has prices go the opposite direction of the particular index direction (eg. DBX S&P500 SH; shorting S&P 500 index). Risks in ETFs While I may have painted a slightly fancy picture of ETFs as an asset class, do note that there are also risks involved in investing in ETFs. Firstly, you may lose all or part of your invested capital in ETFs as they are not guaranteed products like Fixed Deposits. Secondly, ETFs may not be able to exactly replicate the performance of the particular index due to fees, timing differences and other factors. Favorable price changes in the index may thus not result in a similar movement in the ETF. Third, investors who invest in ETFs that track overseas indexes or assets that are denominated in a different currency must be aware of the Foreign exchange risks involved. Currency fluctuations may hence eat up part or all of your gains! Lastly, investors who favor exotic ETFs (eg. ETFs that track index of a country like Bolivia, maybe?) may face liquidity risks as they may not be able to find a buyer or seller to enter or exit the transaction at the price you want. The bottom line is that ETFs are a revolutionary financial product that can be of enormous benefit to the so-called average investor. In my opinion, no portfolio should be without at least one or two ETFs.
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Quote of the Day15/10/2013 Owning stocks is like having children - don't get involved with more than you can handle ~ Peter Lynch
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We, as humans, have come a long way since the old Stone Ages. We have evolved remarkably, disposing of our wooden branches and hunting abilities and invented technologies and built efficient infrastructures for the growth of mankind. However, our innate primal instincts and certain habits have unfortunately, not been lost. Some of these habits have prevented, and will, again and again, prevent us from reaching our maximum potential and being successful in the stock market (or any other markets). It is important to know some of these common human characteristics and traits so that you can have a better chance of catching yourself before you make an investment or trading mistake, and possibly avoid such future occurrences. Impatience Investing or trading is somewhat similar to fishing. Besides being able to look out for good, undervalued stocks (if you are using Fundamentals) or a stock that happens to be breaking out of a trend or pattern (if you are using Technical Analysis), you also have to have the patience to wait it out, if you cannot find a good stock to invest in, or if your stock price is still pacing around a trading range and hasn't hit your target price. Most beginners end up selling their stock too early below their take profit price or whenever they see some profit. While most traders and investors do make good money, they are not maximizing the full potential of their strategy, and may lose out in terms of additional potential profit. Greed Most beginner (and some professional) investors and traders face this faceless monster countless times in their investing journey and succumb to it each time. Beginner investors are the ones most likely to succumb to greed as early as in their first few trades. A phenomena called "Beginner's Luck" sets in as most beginners will likely to do well for the first few trades. Some investors will see an uptrend in the market and they then make a mistake by increasing their positions or buying into more stocks which they feel will profit. Then, a market correction comes and they immediately sell off their entire portfolio, incurring a loss. This is why having a strategy is important. Always stick to your strategy. Fear "Fear" is the best friend of "Greed". The two go hand in hand to destroy all your plans on being a successful investor or trader. Why? It's possibly human nature to be afraid and be greedy when money is at stake. External factors such as family concepts of money, and the emphasis money has on society also plays a big subconscious role in the way you manage your money, especially when you cannot see where your cash is going to. The fear of losing money is the number one factor that drives certain human decisions. A famous study was conducted with a group of people on risk. Each individual in the group had $1000 and they had the option to either (A) take $50 and leave the room with a total of $1050, or (B) put their $1000 as stake for a potential chance to walk away with a total of $2000. The findings were that most people in the group chose option (A). As we can see from the case here, fear is not necessarily a bad thing. Fear can help us safeguard our money in a very conservative approach. People like to know that their cash is safe, while still growing. That is why Fixed Deposits are still so popular in the investment arena, albeit not yielding high returns. However, fear is definitely not RATIONAL. When markets move against an investor's position, panic will set in. Alarm bells will go off in his head and he will be contemplating whether to cut loss or hold on. Cutting loss is not a bad idea, but a better option will be to assess the situation & probability of a reversal, go back to your strategy, and make any adjustments to your stop loss position before deciding to exit a trade. Inertia (Stubbornness) Alright, you have a nice trading strategy that has been back-tested and working for you. Odds may be a 90% probability of winning in a trade, but don't forget that 10% of loss that is still as important, if not more important, to take note. There will bound to be times when your trades turn out wrong, or that you have invested in a stock with failing fundamentals. Do not be stubborn and think that your price will come back up again. If you notice that you may have made a mistake, accept it, and immediately do the necessary action to limit your losses. Do not "hope" that the market will do some miracle and raise your stock prices up to where it had been before, because the odds are too slim, as proven historically. Some traders or investors have a stubborn habit of being a "hybrid" investor. That is to say, taking a short-term and long-term perspective on a particular counter at the same time of trading. For example, a stock a trader has just bought has dropped in price. He has analysed TA on the stock, and has set his take profit exit at exactly one week from now. As the stock falls in price, the trader thinks, "Oh, it's probably just a correction, I'll buy more to AVERAGE DOWN my costs." In this way, he has taken a longer-term view on the stock, which is now incongruent with the initial objective of why he bought the stock (to speculate). Sometimes, the stock successfully rises to hit his target price. But many other times, the prices just tumble and it may be months or years before the price rises to the same level again! Averaging down is not a bad thing to do, when you have a strategy in place WHEN you bought the stock. If it's something you have decided at the point when the stock price goes into a continuous fall, then it might be better to just cut losses. Herd Mentality (Crowd-Following) Herd Mentality is when an investor jumps on the bandwagon and invests along with the crowd, which usually is very optimistic about the market. Everyone seems to be buying stocks in that point in time and you're thinking, "I shouldn't lose out in this wonderful opportunity. Everyone is in the market now and prices are trending up!" One golden rule by Warren Buffett is, "Be fearful when others are greedy, be greedy when others are fearful". Such optimism and continuous "BUY" calls on almost every broker's research report signals that the uptrend is nearing its end, and it is time to get out of the market. One book puts it this way, "When the majority of investors have committed all their surplus money in the stock market, where else can one find more cash to fuel the demand in the stock market?" Investing with the big boys If you have already owned a trading account, you would notice that your brokers will send you constant research reports and hot alerts about a particular stock. Some investors may also look into what big, institutional players in the market are buying (eg. Temasek Holdings, GIC, DBS, OCBC). It is safe to say that these big players have sufficiently analysed their own investments and have the potential to see share prices grow. But, the major risk in following big players is that they may go on a sudden sell-off and profit taking, hence plummeting the share price quickly. As a retail investor, you do not have the information the big players have. Your trading systems may also not be as fast and high-tech as theirs. Hence, it is best to do your own homework before you start buying any securities.
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Are you discombobulated by FOREX?5/10/2013 The foreign exchange market, or Forex / FX in short, is something most (if not all) traders and investors would’ve heard of at some point or another. Most business and financial newsprints in Singapore and around the world carry FX connotations in many of their macroeconomic articles, or what is commonly titled as “World News”. The Forex market is a platform where currencies are being traded on an international scale every single day. It is THE market where the largest transactions are being made – over US$4.9 trillion per day, according to the Bank for International Settlements (BIS) as of August 2012. There is no central exchange as compared to the stock market, with SGX being our local exchange. Instead, currencies are traded electronically OTC (over-the-counter) all over the world. FX is hot topic in any professional trader’s conversations. By far, it can be the most lucrative and fastest money-making market as compared to other investments and assets. FX is hot, no doubt about it, but it can also be the place where big money is being lost, and as fast as in a split second. If You Are Dying to Learn FX Trading… Trading FX can be a very daunting task to a new trader who isn’t too sure where to start, with so much FX trading material floating around the internet and libraries. There are thousands of Forex education sites that you can go through and never really find anything of substance. However, you are likely to find a lot of hype and big promises on most of these sites, so it's necessary to know the best way to go about learning to trade Forex, so that you don't waste your time and money. It’s All about Strategy! In NYP Investment Club, you may find that some of us may be interested in day trading in the FX market. Most of them would tell you that it is their TRADING STRATEGY that makes all the difference between a profit and a loss. Therefore, in any kind of trading in any market, be sure you are armed with the necessary tools and knowledge before you jump in to catch those gains! You Don’t Need Advanced $10,000 FX Trading Software Robots! Having quite familiarized myself with the investment and trading scene in Singapore, I have noticed that there are many FX trading manuals, seminars and workshops that generate quite a big hype over their trading programmes. You might see something like, “FX Trader Makes $5,000 per hour!” or “Most Advanced, Precise FX Trading Software in the Market!” These seminars, programmes, workshops or even books tell you that to make money in FX trading, you need to use highly-complex, Technical Analysis algorithms that take years to learn and master. The “Masters” too, are claimed to have graduated from a prestigious college with a Masters or PhD in Financial Technical Analysis or some similar field. Then, the observant person might realize that they will subtly imbue into you the idea that their FX trading step-by-step programme or software can cut all of that learning-work into a 3-day lesson. “Great!”, you say. Then, you slowly get bought into the idea that their exorbitant $10,000 three-day course will greatly benefit your FX trading career. While I’m not one to be overly-critical about such activities (each trader / investor needs to take responsibility for his own trading / investing journey, and not let a computer software do it for them), I do want to mention that not ALL programmes are like that. Some FX workshops actually do impart some veritable and useful trading strategies and knowledge for a considerably affordable price or even for FREE. In fact, some of the most robust trading strategies and systems use simplest and most basic Technical Analysis methods and actually work. The minute you find that you are being drawn into an FX trading system that you don’t understand, don’t make common sense or are too good to be true, get out of the room immediately. Know Your Charts and Patterns I couldn’t stress this enough. As an investor coming from a long-term perspective and mindset, I do not know many of the advanced Technical Analysis charts and Patterns such as Elliot Waves and Fibonacci Retracements. However, I have to say that I do know the basics of Technical Analysis, like how to draw a trend line or how to spot signals in common indicators such as Moving Averages. Focus on mastering the basics of TA, in tandem with your trading strategy. Practice, and practice and practice! Get out a daily chart from Google Finance or Yahoo Finance or DailyFX and practice buying and selling virtual cash or just writing down imaginary transactions on paper! With prior experience and effort, you can be sure that confidence and practice is going to yield some good returns. Trading Psychology New traders who do short-term transactions will almost always be overcome by typical psychological trading follies and barriers. These include selling out too quickly, going astray from your strategy, trading with “GUT” feel, or just feel their heart beating quicker with each drop in price they see (or the number of “reds” they see). Experienced traders know this; they understand that the human brain is wired that way to alert us when something seems wrong, and that we supposedly have to ACT. Experienced (and profitable) traders have understood the effects of psychological follies and have overcome them to make large amounts of profits. If you are a beginner in FX trading, or are contemplating to be one, make sure to also know some of the behavioral follies that we make in trading or investing, and learn not to get affected by them through practice. Coming Out On Top! FX traders should have heard about “the man who broke the Bank of England”, George Soros. In 1992 on Black Wednesday, the business magnate shorted more than $10 billion in pounds, after believing that the UK government’s indecisiveness to raise interest rates to be on par with a European level will cause the pound to plunge. In the end, UK didn’t want to conform to the Level and the pound devalued, earning George Soros over US$1 billion. From this short example, we could see that Mr. Soros had huge faith in his position and trusted his trading strategies. And, once you have sharpened your craft and begin to have confidence in your own strategies, you too could generate unthinkable amounts of profits.
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In our first-ever in-house article here at NYPIC’s website, we talked about what stocks actually are. We mentioned that they are more than just “trading counters” that you buy and sell at whim. Behind every stock counter, there is a business that operates every single working day, generating revenue and profit. As a person who focuses mainly on growth and value investing, you may realize that many of my articles are skewed towards understanding the business fundamentals behind each stock, instead of looking at indicators and trading strategies. However, I am not going to leave hardcore supporters of trading and technical analysis aside. In this article, both supporters of Fundamental Analysis and Technical Analysis can benefit from what I have to share with you today. We know how the stock market can run up and down every single day. We also know that these market fluctuations are fundamentally caused by the forces of demand and supply. If there are more people who wants to buy a particular stock than there are people who are selling the stock (Demand>Supply), the stock price will go up. And, the opposite is also true. But, have you ever thought of what goes on in the minds of these investors who buy stocks at that particular time, and those who dump stocks at the same time? Have you also thought about how some very few people are able to make tons of money from the stock market, while many others see their invested capital being flushed down the abyss of nothingness? One differentiator about the successful investors and traders is that they stick to their strategies like how a screw is driven into a wall. They stay calm and collective, and don’t get flustered over market movements. They understand the emotional impact a market movement can do to them, and they simply do what needs to be done (or don’t do anything at all), in alignment with their investing strategy. The stock market kind of like a battlefield that really tests your hardiness and mental strength, and those who do not waver amidst crises stay on top of the game. Once you understand that you will certainly face some psychological weaknesses during your investing journey, you can then move on to overcoming them. To overcome your weaknesses, you need to have FAITH in your strategies, and BE HUMBLE ENOUGH TO LEARN FROM YOUR MISTAKES if you realize something is not working or you aren’t getting the results you expected. “Well,” you say. “That seems easier said than done.” Exactly. This is the part where money is being made, and it does involve quite a bit of mental work. This is the turning point that differentiates successful investors and traders from the rest of the herd. Warren Buffett once quipped, “Success in investing doesn't correlate with IQ once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” I am personally invested in the stock market at this point in writing this article. I, too, have been dealt with the psychological effects that stock market gyrations bring about, and I succumbed to it. As a result of this folly, I have lost out in a few potential gains. The process of facing your weaknesses head-on is scary at first, but it is a necessary step to take if you want to be successful in investing. And, you can't complete it in one day. It is a learning process that takes time, effort, and staying invested in the stock market. It’s something that all investors must go through, as the value of what I say here will not be lasting until you truly experience it for yourself. Sometimes, you can actually avoid many of these follies made by investors in the past by understanding some of them in a field of study known as Behavioral Finance. We will be touching on some of these follies studied in behavioral finance in our upcoming articles, so stay tuned. Well, it has been a long article. As some say, with every experience comes a little bit of gold to take away. We hope you will have the unshakable faith to stick to your investing guns and know that you can either let market fluctuations break you, or make you stronger.
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Understanding Stock Market Lingo20/9/2013 Have you ever been on a stock trading platform or on SGX.com and found that there are some pretty confusing stock terminology that you stop to think for a moment about why you even bother to invest in the first place? You’re not alone. Entering the stock market can be a daunting task, with quite a steep learning curve. If you’re blindly invested without having sufficient knowledge about investing, you could potentially be burned by your mistakes – and you may not even know it. Warren Buffett gives us a piece of wisdom, “Only when the tide goes out do you discover who’s been swimming naked”. NCPS NCPS stands for Non-Cumulative, Non-Convertible Preference Shares. You may be wondering what this means. As with all technical jargon, let’s break it down. Preference Shares are shares which carry a higher priority and standing over normal shareholders. Preferred shareholders who have these shares get the right of dividend payment during the lifetime of the company, if anytime the company decides to issue dividends. If the company winds up (hopefully not), preferred shareholders will receive their part of the liquidation amounts before normal shareholders. Also, preferred shares usually have a fixed rate of dividend. So what this means is that you can consider preference shares as a bond, which pays you periodically, and at a fixed rate. Non-Convertible basically means that the holders of the preferred shares are barred from any additional rights to CONVERT their preference shares into ordinary (normal) shares. As you might have guessed, CONVERTIBLE preferred shares will receive this extra option. As such, convertible preference shares will most likely be priced higher than non-convertibles. This is as convertibles give the investor BOTH the (1) assurance of a fixed rate of dividend, plus (2) the opportunity for capital appreciation, while non-convertibles only provide the investor with (1). Non-Cumulative indicates that the shareholder is not entitled to any arrears of dividends (the dividends that are “owed” by the company to the investor, for the years the company did not pay out dividends – hence it accumulates). This means that if the company did not pay dividends in 2013, NCPS investors will not get dividends as well for that year. Again, cumulative shares tend to be pricier. So now we have explained the whole term, you might be wondering “Is this type of equity available in our Singapore market?” The answer is yes! One of our more familiar NCPS is: OCBC Bank’s 5.1%NCPS 100 (Ticker: F4B.SI). 5.1% indicates the fixed rate of dividend per annum (year). The 100 at the end indicates trading size of 100 shares. This means the minimum buying of 1 lot will be equivalent to owning 100 NCPS shares of the company. There are also other variations of preference shares like Hyflux’s CPS. (Hyflux 6%CPS 10). You may have guessed it – CPS stands for Cumulative (Non-Convertible) Preferred Shares. Preference shares also vary in terms of redeemable/irredeemable, participating/non-participating, classes, lot size, maturity, voting rights, etc… CD/XD This is a more commonly seen remark on stock screens. Let’s take a closer look… A CD is not your old circular disk that contains your files and documents. CD in stock market lingo stands for Cum-Dividend. A stock with a “CD” sign in the next column of your stock screener means that that stock is entitled to receive a dividend that has been declared, but not paid out yet. So, if you buy a stock with a CD, you will receive the dividends that they have declared for that period. A little language nugget here – “cum” basically means “with” in Latin. XD comes right after a CD period. XD stands for Ex-Dividend. XD is the cut-off date that the company sets to end the entitlement of dividends to shareholders for that period. This means anyone who owns the shares before the XD date will be entitled to the dividends, while investors who have just bought on or after the XD date will not receive the dividends. ADR ADR stands for American Depository Receipts. ADRs are basically stocks that trade in the United States, but the companies of these stocks are not incorporated in America. Let’s take Baidu for example (Baidu is a Chinese web-services company incorporated in China). If Americans wanted to trade Baidu shares, they would have to go to China and open a trading account with them to buy the shares. This ridiculous process is simplified with ADRs, where Americans can now buy a bundle of Baidu shares (as one lot), using their own American trading accounts and paying with their own currency. In Singapore, this process is the same. One such ADR listed on SGX is from Baidu. BIDU ADR 10US$+ (Ticker: K3SD.SI). BIDU represents the name of the company – Baidu. For example, if Baidu is trading at US$150 per share, one ADR would cost US$150 X 10 = US$1500. 10 refer to 10 shares of Baidu that equal one lot. US$ refers to the trading currency of the ADR. + refers to single-listed ADRs. This means that the Baidu ADR stock is only listed on the US stock exchange, NASDAQ, and no other stock exchange. ------------------------- So, now you know three of the many jargons and abbreviations used in the stock market! Understanding some of these lingoes will definitely help you in your investing journey by broadening your knowledge on the different types of equity. Came across any other terminologies not listed here? Leave a comment down below, and we might answer it on our next article!
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Quote Of The Day19/9/2013 A little satirical cartoon to lighten up your Friday! - by Daniel Kurtzman
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Quote Of The Day17/9/2013 A business that makes nothing but money is a poor business. ~Henry Ford
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Author: riyarai The financial market is bubbling with opportunities for investors to invest their money in. People turn towards various means of investment instruments such as bonds, debentures, equity shares, mutual funds and fixed deposits for their investments. However, the most sought after method of investment remains mutual funds; which are also one of the most lucrative methods of gaining returns. A mutual fund is the collective pool of money from many investors in bonds, stocks and other assets; which belong to different industries as well as regions of the world. It is a diversified portfolio of securities and which raise their money by selling the different units to the public or even a section of the public. They are also known to help save on tax, having a number of tax exemptions that are allowed on different units of the funds. There are many different types of mutual funds and may be classified under different categories: by structure, geographical classification, by nature and by investment objectives. By structure, they are classified as open-ended, close-ended and interval schemes. The open-ended type refers to all those which do not limit the number of units or shares that are issued by the fund. There is no restriction on them and investors can buy and sell whenever they want to. On the other hand, closed-ended ones have a limited number of shares. They do not redeem their units and are traded in the securities market. They are available only for a specific period of time. Interval schemes combine both the features of open-ended as well as closed-ended funds. Another popular classification is made by geographical location. There are generally two different types of classifications: domestic and offshore. Domestic funds refer to those which are mobilised within the country. The market area is limited only to the boundaries of the nation. Offshore ones are those which can be cross-traded across the border. They permit open-domestic capital market to international investors. By nature, mutual funds can be classified as equity funds. Equity funds refer to all those funds which are invested primarily in equity shares of different companies. They may be of different types such as large cap, mid cap, equity linked savings scheme, sector and index funds. Mutual funds can also be classified depending on their investment objectives. They may be growth schemes, income schemes, balanced fund schemes, money market schemes and index schemes. Growth schemes refer to those funds which aim at generating wealth for long term investors. Income schemes are opportunities for those people to invest in the market, where investments are primarily made in debt instruments. Balanced transfer refers to those funds which aim at investing in both debt as well as equity instruments in equal proportion. They aim at balancing the safety of capital, capital appreciation and income. Money market schemes are the ones which are invested in short term investments. They provide a high amount of liquidity. Article Source: http://www.articlesbase.com/investing-articles/making-money-in-a-volatile-market-mutual-funds-6757081.html |