Technical Analysis - Intro

Team CrawFin/ Harshal Jawale, CFP^CM

Technical analysis is usually followed by traders to catch short term movements in the financial markets. Focus is on supply and demand of asset class i.e. more the supply of shares price will move lower and vice versa.

Let us take a real life recent example of Gold to explain the logic behind.

Gold moved up from 2300/gm to 2900/gm (July 2011 to Mid Aug 2011)

Gold accumulated at 2000-2200 level for almost 7 months and rise in price was due on cards as economic situation in west was in stress. While almost everyone missed the rally in Gold was talking about frenzy rise to continue. My obvious question was “Who would buy gold at 3000/gm after seeing such phenomenal rise in short time?” Besides it was a time for those who accumulated gold over many months to book profits. So there will be more supply of gold in the market while there will be lesser number of buyers, result expected price will fall.

Gold consolidated at 2800-2900/gm (Mid Aug – Mid Sept 2011)

We saw why I should not be buying gold but about booking profits at 2900 level, easy to say but how would one decide whether 2900 is the right level. What if Gold continues its rally? Is another difficult scenario needs to address. In such times it is always better to wait for consolidation to happen to take any buy/sell decision. As you can see Gold consolidated for enough time for us to realize that 2900 is the level where supply has clearly overtaken demand. So it was right time to sell and wait for buy.

Gold seen fall from 2900/gm to 2600/gm (Since Mid Sept)

As we can see gold prices have fallen from 2900, meaning whoever was ready to buy gold at 2900 have already bought and supply pressure still exists. Where will this fall stop? Nobody knows. At some time the situation will arise where there will be more buyers than sellers. Say 2500/gm is the price where seller feels gold has fallen too much i.e. from 2900 to 2500 so he should not sell rather wait for higher price to come, similarly buyer would feel that gold will not fall too much from here. But will 2500 will be the price is something very difficult to identify, so right approach would be accumulate gold in smaller quantities.

Technical Analysis follows trend, very important criterion for this to apply is everything else should remain more or less same. Any fundamental news would mean supply-demand ratio to go for toss, hence it is most important to put stop loss so that your losses are arrested at comfortable level.

Technical Analysis experts apply tons of tools to determine trend, some of them are as follows

1. Elliot Wave
2. Japanese Candlesticks
3. Bollinger Bands
4. Fibonacci Retracements
5. Stochastic Oscillator
6. Relative Strength of Index (RSI)
7. Moving Averages (MACD)
8. Rate of Change (ROC)
9. Williams % R
10. Pivot Points
11. Momentum
12. Chaikin Oscillator and many more

Please note that basic knowledge of technical analysis is dangerous to apply as you may be missing one chart pattern while trying to locate your favorite one. Ideal time period to trade would be 3-10 months. Though some experts also try to trade on intraday basis is it not advisable. I feel since you try to make money in very little price movement in very short span of time, risk of triggering stop loss is higher than your profit making. Also make sure that the counter is very liquid meaning with high turnover.

So when next time your relationship manager/financial advisor try to sell you a story of Silver will soon hit INR 1,00,000/kg you know how to arrive at basic self opinion.

Wealthy Investments need Healthy Methods !!

Financial Plan - 1

Name: Prabhudas Mohanty,35

Resides in: Gurgaon

Profession: Planning Manager with a private firm

Net annual income (Rs 8.64 lakh)

Other details: His wife is a home maker and they are expecting their first child

Status & goals

His key goals are planning for the future of his yet to be born child, and adequate income after retirement

Needed

A financial plan that will ensure adequate funds for maintaining financial well-being and also providing for his goals

Net monthly surplus Rs 30,200

Retirement planning (2036)

Adequate monthly income after retirement

Current Investments

Life insurance cash value: Rs 6.11 lakh, Cover: Rs 59.41 lakh

EPF:           Rs 50,000

Real estate: Rs 10 lakh

Cash:          Rs 50,000

Observations

A review of his investment portfolio reveals that Prabhudas has been misguided by insurance agents. He has a heavy insurance portfolio and high property investment through purchase of land. Apart from this he has not made any other investment. His high monthly surplus is not being utilised effectively. His current financial situation is creating the risk of not meeting his life goals.

Findings

Emergency fund:         Rs 50000 maintained in savings bank account.

Health Insurance:        Rs 2 lakh from employer covering the family.

Life Insurance:            Rs 59.7 lakh

Existing Insurance:      Rs 59.7 lakh

Requirement by Human Life Method Rs 1.31 cr

Existing Investments:

Most insurance policies held are not providing adequate returns. Real estate exposure in three lands is more than required. Investments are ad hoc and hence not meeting life goals.

Recommendations

Emergency Fund: Increase emergency funds up to Rs 2.5 lakh which will cover six months expenses in any adverse situation. Invest Rs 2 lakh in money market mutual funds and keep rest in saving accounts or FD. Dispose one of your land investments to achieve this.

Express Tip: An emergency fund is created to meet uncertain expenses arising in future. It is necessary that you have adequate liquid surplus to avoid dipping into your long term savings.

Child’s education and marriage: Invest Rs 9,000 per month in SIPs for education and Rs 5,000 per month for marriage. The real estate holdings too can be utilised towards this goal. Return assumed 12 per cent p.a.

Express Tip: There are extra costs associated with child education apart from school fees, which also tend to increase. While budgeting for their expenses do take these into consideration.

Health Insurance: Buy standalone health insurance coverage to R5 lakh for the family.

Express Tip: Employer health insurance benefits are being reduced and they ceases with job change. Relying upon it completely can be risky, especially, at a higher age.

Life Insurance: A term insurance of Rs 80 lakh is recommended from any life insurance company with low premium rates and good claim settlement.

Express Tip: Life insurance is an investment, for family protection and not for capital growth. Know the right coverage required and buy the right product.

Retirement Planning: As per expense replacement method he will need a corpus of Rs 3.7 crore, to maintain his current lifestyle, post retirement. EPF can meet this goal partially if the contribution continues to grow at a good rate. To meet the remaining corpus, an investment of Rs 11,000 per month will be required assuming return of 12 per cent per anum.

Express Tip: EPF is an effective tool for retirement. To maximise it, continue your contributions till your retirement and do not withdraw funds in between.

Existing Investments: Planning your life goals through insurance is the biggest mistake. Traditional plans do not yield high returns and ULIPS have their own drawbacks. Review your insurance policies and exit ones which will not generate desired return on maturity. The savings on premium will help in buying protection cover for life insurance and health insurance, along with investments for your other goals. Real estate is a highly illiquid instrument. Dispose some of your property and utilise the proceeds for your goals through investment in other liquid instruments.

Express Tip: Asset allocation is the right approach for investments. It helps you in maintaining the right exposure to any asset class and protecting the downside during bear markets.

Conclusion

Goal based planning is the correct approach for managing your financial well-being. Identifying your goals is very important. Make provisions for emergencies first and then align your savings towards your life goals. A good asset allocation strategy will help in selecting the right instruments towards reaching financial goals.

Source – Indian Express

IFCI Long Term Infrastructure Bonds – SERIES III

Team CrawFin/ Harshal Jawale, CFP^CM

Our Assessment -

Infrastructure bonds were introduced in the last financial year by the Finance Minister to offer tax benefit on the investment of upto Rs 20,000 u/s 80CCF. IFCI is one of the oldest financial Institutions who are engaged into offering such bonds.

Coupon rate has been increased from 8% last year to 8.5% this year. Although it is not very attractive as against Bank FD (Interest rate 9.5-10%) or PPF (even maturity amount is non-taxable); it is worth due consideration for someone who is paying even Rs 500 tax after exhausting Rs 1Lkh limit u/s 80C.

The indicative yield for the option I is 8.5%, 9.65%, 10.95%, 12.44% for zero tax slab, 10% tax slab, 20% tax slab and 30% tax slab respectively. If you sell this bond post 5 years lock in period through BSE or under buyback mode, your yield will move higher. For instance if you are in 30% tax slab and goes through buyback mode after 5 years your yield will be around 16.52% pa. This happens because 30% tax benefit that you receive spreads through lesser time now i.e. 5 yrs against 10 yrs in previous case.

In my view it is a screaming buy if your tax slab is 20% or higher else you have enough options to make investment decisions safest and most favorite being Bank FD at 10% pa interest rate.

Other Details –

Deemed date of allotment – 12, December 2011

Listing – on BSE

Benefits – Tax exemption u/s 80CCF up to investment of Rs 20,000

Options	I	II	III	IV
Interest Payment	Cumulative	Annual	Cumulative	Annual
Tenor	10 yrs	10 yrs	15 yrs	15 yrs
Face Value (Rs/Bond)	Rs 5000
Issue Price	At par
Terms of Payment	Full Amount with Application
Coupon (% pa)	8.5% pa (Compounding)	8.5% pa	8.75% pa (Compounding)	8.75% pa
Coupon Payment date	At the time of redemption	12, Dec. every year	At the time of redemption	12, Dec. every year
Maturity Date	Dec. 12, 2021		Dec. 12, 2026
Buyback Option	Yes	Yes	Yes	Yes
Buyback Dates	Dec 12 of 2016 and 2018		Dec 12 of 2016 and 2018
Buyback Intimation	August 12 to September 11 of  years 2016 and 2018		August 12 to September 11 of  years 2016 and 2018
Redemption Amt (Rs/Bond)	11305/-	5000/-	17596/-	5000/-
Redemption Amount if buyback exercised (Amount in Rs)
End of year 5	7519/-	5000/-	NA	NA
End of year 7	8851/-	5000/-	8995/-	5000/-
End of year 10	NA	NA	11569/-	5000/-
End of year 12	NA	NA	13682/-	5000/-
Lock-in Period	5 years from deemed date of allotment

The ABC of SIP - Systematic Investment Plan

Team CrawFin/ Harshal Jawale, CFP^CM

Source for Sachin Tendulkar Study - Rediff 

Systematic investment plan (SIP) is a simple yet disciplined approach of building wealth over a longer period of time. Investments done in designated mutual funds usually in route to meet specific financial goal.

To build a large corpus over longer period (usually 3-5 years) of time requires focused and regular investment pattern, that is what followed by SIP route. Short term market fluctuation of 10-20% makes it irrelevant for SIP investor to change his/her investment approach.

Convenience of investing small sum on monthly/weekly basis makes more attractive instrument of investment. SIP enables you to invest a pre set amount in the scheme of your choice on the applicable NAV of each transaction date. Each transaction will fetch you additional units that will be added to your investment account, thereby helping you build your investment at regular intervals.

Minimum Amount – INR 500

Frequency of Investment – Monthly/Quarterly

Specified Dates – 1^st, 7^th, 15^th and 25^th of the month

Investment mode – Auto debit/Post dated cheque

Returns Expected – One may assume 10-12%/yr from historical data available

Goal setting Calculator – Use IRR function to determine desired combination of SIP amount, time and Final corpus

Charges – There are no significant entry/exit load, fund management charge ranges from 1.5-2.5%/yr

Tax – Equity schemes when hold more than 1 year attract no on profits generated

One need not follow scheme determined dates for wealth creation; if you are disciplined by yourself you can keep on investing regularly into Mutual funds/ETFs. Purchasing ETFs on exchange at self determined pattern will yield better returns than SIP at pre-determined dates. Investing on a particular date in future need not fetch you best possible NAV for accumulation. Buying on a day when index is down more than 1% with minimum 50 such transactions a year is one possible approach. Daily buying 1 gm of Gold on exchange have practically given me 40% returns in last 7 months.

Just keep playing game like Tendulkar has done over the past two decades. Do not bother about short term declines, Tendulkar never said “My team is losing every game so I will not play next few matches”. Of course Cricket is a team game so invest into index fund while following strategy, investing into single stock with such strategy might backfire.

Make small investments just like taking a sip of coffee to enjoy the experience !!!

Wealthy Investments need Healthy Methods.

EMI vs Rent: Selecting wise option

Team CrawFin/ Harshal Jawale, CFP^CM

Most of us face this dilemma, is it better to buy our own home or should just rent one? Where buying home seems to be ideal option, the other side provides some advantages too. I am here evaluating both options below for your benefit.

Option 1: Renting a home

Advantage 1: Flexibility

Renting a home provides utmost flexibility to stay nearby your workplace or well connected homes. Even in case if you change your job, it is very convenient to move to new place. If you are faced with any financial trouble then you can easily move to home with lower rents.

Advantage 2: Affordability

It is much convenient option to rent a home; rents are much lower than EMIs. If one invests the difference amount and make higher monetary gains. You can also rent home near to your workplace where prices are out of reach and buy affordable home at other location where appreciation in value will be much higher.

Disadvantage 1: Lack of Safety & Freedom

Landlords generally do not allow tenant to stay longer, so you have to vacate the place. Such frequent changing of home is quite nightmare. Modifications, alterations in rented home the way you desire is generally not allowed.

Option 2: Buying a house

Finding perfect home in terms of locality, finances, amenities etc is a tedious job. It sometime takes couple of years to find perfect home.

Advantage 1: Investment

Value of a home increases over time, you could generate considerable profit from your property if you decide to sell it at a later stage.

Advantage 2: Safety, Freedom and Emotional attachment

Owning your home means you can alter your home structure as per your wish. In India there is huge emotional attachment to ownership of house, something that a rented home would never give you, especially for first time home buyers.

Disadvantage 1: Unaffordable

Usually localities where you wish to really purchase a house are very costly. Although home loans are easily available these days, it means paying EMI for as long as 15-20 years. With current interest rates you would pay much more amount than twice the original price of house.

Disadvantage 2: Timing the market

Although real estate is an investment, it requires great knowledge and at times luck to reap significant returns from it. Last three years are good example of investors not being able to make profits from real estate.

Disadvantage 3: Delays & Frauds

These are practical problems that a common man faces while investing into real estate new projects. Infinite delays by builder, land issues, issues related to approval from government agencies makes such investments into horrifying experience for many. Unfortunately even the percentage of such issues is very high.

Need based evaluation

By all means it is always advisable to buy a house that gives you sense of ownership and also creates asset that appreciates in value. Yet if we look from affordability and flexibility point of view rented one seems to be scoring goal.

I feel one should be open minded stay in rented house at nearby to his/her workplace and purchase property at an affordable location which promises higher appreciation in value. Renting it will also share pressure on shoulder towards EMI.

Of course decision making can not only be based on financials, you must consider several other factors as your lifestyle, responsibilities of ownership/renting, taxes etc to arrive at best suit conclusion.