Understanding repo rates,reverse repo rates and CRR

In this post we will discuss about the benefits from the falling repo rates,reverse repo rates ,CRR.

Since last few months RBI has been reducing the repo rates,reverse repo rates ,CRR rates.RBI is taking these measures to curb the liquidity crunch that we are facing.

In this post we will discuss what exactly these rates are and how it will help in solving this liquidity problem. 

1.Repo rate :This is the rate at which banks can borrow from RBI.So if repo rate is decreased then the Banks can borrow more money from RBI and thus will have more money to give to the clients in the form of loans etc and vice versa.

2.Reverse repo rate:This is the rate at which the RBI gives interest on the deposits of the banks with RBI.So if reverse repo rate is decreased then the banks will get less interest on the deposits with RBI and so the banks will tend to keep more money with them rather than depositing it with RBI and vice versa.

3.CRR(Cash reserve ratio):This is the ratio or the amount as the %age of deposits required to be parked by the banks with RBI.So by decreasing the CRR the RBI is reducing the amount of %age of deposits which is to be parked by banks with RBI.So mor money will be there with banks and vice versa.

Basically all these measures of reducing the repo rate,reverse repo rate and CRR are taken by RBI to increase the flow of liquidity in the system and thus try to handle this liquidity crunch.

I hope this post will help in understanding these rates and the effect of changes in the rate. 

History Of Gold Prices

These days the price of Gold is trading at all time high levels.

Below, the history of Gold prices is mentioned which can help an investor to make a right and informed decision as to how much he should invest in Gold.

The data below can help you in finding the returns that Gold has given since 1930 and thus can help you in making decision, as to how much has to be invested in GOLD.

1930: 180 per 10 gram 

1940: 360 per 10 gram 

1950: 1000 per 10 gram 

1960: 1110 per 10 gram 

1970: 1840 per 10 gram 

1975: 5,400 per 10 gram 

2000: 3,000 per 10 gram

2006: 5,400 per 10 gram 

2009: 15,700 per 10 gram.

Few days back i wrote about ETF's  and gold is also traded in the form of ETF's.For further details see ETF's

These days it is good if investors invest through ETF's as it has got many advantages like:

1.Gold will be in Demateralised form and so it can be bought and sold very easily online.

2.There is no worry of theft.

3.You need not have lockers to keep your Gold.

4.The trading(buying/selling) will be very fast.

I hope this article and this data will help you in making informed decisions as far as trading and investing in Gold is concerned.

Happy Investing.

Nice One liners

Here  are some nice one-liners.. .
 
1. I say no to alcohol, it just doesn't  listen. 
 
2. A friend in need is a pest indeed. 
 
3. Marriage is one of the chief causes of divorce.  

4. Work is fine if it doesn't take too much of your  time. 
 
5.  When everything comes in your way you're in the
wrong lane. 

6.  The light at the end of the tunnel may be an oncoming train..

7. Born free, taxed to death.

8. Everyone has a photographic memory, some just don't have film. 
 
9. Life is unsure; always eat your dessert first.  

10. Smile, it makes people wonder what you are thinking. 
 
11.  If you keep your feet firmly on the ground,
 you'll have trouble putting on your pants. 

12. It's not hard to meet expenses, they are
 everywhere.  

13.. I love being a writer... what I can't stand is the
 paperwork.  

14. A printer consists of 3 main parts: the case, the
 jammed paper tray and the blinking red light. 

15. The guy who invented the first wheel was an idiot. The guy who invented the other three, he was the genius.  

16. The trouble with being punctual is that no one is there to appreciate it. 

17. In a country of free speech, why are there phone bills?
 
18. If you cannot change your mind, are you sure you have one?  
 
19. Beat the 5 O'clock rush, leave work at noon! 

20. If you can't convince them, confuse them.. 

21. It's not the fall that kills you. It's the sudden stop at the end. 

22. I couldn't repair your brakes, so I made your horn
 louder! 
 
23. Hot glass looks same as cold glass. - Cunino's Law
 of Burnt Fingers.
 
24. The cigarette does the smoking you are just the
 sucker.

25. Someday is not a day of the week 

26. Whenever I find the key to success, someone changes the lock.

27. To Err is human, to forgive is not a Company policy. 

28. The road to success..... Is always under construction.
 
29. Alcohol doesn't solve any problems, but if you
 think again, neither does Milk.

30. In order to get a Loan, you first need to prove that you don't need it.
 
31. All the desirable things in life are either illegal, expensive, fattening or married to someone else.

These days we come across a word "ETF" alot.

So thought of sharing my views on this product.

Its generally said that one should accumulate Nifty BeES(which is an ETF) for long term as it helps in gaining the profits by the increase in the value of Nifty. As value of Nifty/Sensex changes and these changes(increase/decrease) are because of the changes in the values of lot many securities which are listed on these stock exchanges,so one can have these ETF's as a part of their portfolio.

ETF's are exchange traded funds.These ETF's are actually not traded that heavily as they trade in US markets.One will find less volumes in ETF's, as trading in ETF's is not popular in Indian market.

ETF's have a lot of similarity with Mutual funds.As through mutual funds we can have exposure to a basket of securities,similarly in ETF's also we can have exposure to a basket of securities .So it is like trading a basket of securities as compared to one stock share as we do in normal share trading.

Similarity in ETF's and Mutual Funds.

1. They allow the investor/trader to have exposure to a basket of securities.

2. They are of two types - open ended and close ended.

3. They both track an index or a sector.

Difference in ETF's and Mutual Funds.

1. ETF's are traded on stock exchange and so the price keeps on changing throughout the day like any other stock price.
Mutual funds are traded on the NAV price(Net Asset Value) and it is declared once daily.

2. As ETF's are traded on exchanges so they can be bought on margin depending upon the margin/exposure provided by the brokerage house, through which you are trading.
Mutual funds can't be bought on margins.

3. ETF's can be sold short(means you can sell these ETF's without holding them as you do for shorting any kind of stock shares).
Mutual funds can't be sold short.

4. In ETF's direct buying and selling is done on exchange so very less or barely minimal or no interaction is there between the buyer and the seller.
In Mutual funds there is an interaction with the AMC(Asset management company).

5. Sometimes there is difference in the price which is prevailing in the stock market and its NAV and this can be used for arbitrage.

The different ETF's which are available in India are

1.Gold BeES
2.Liquid BeES
3.Nifty BeES
4.Bank BeES
5.Kotak Sensex ETF
5.Kotak PSU ETF
6.Kotak Gold ETF
7.Quantum Gold ETF - Growth
8.Quantum Index Fund - Growth
9.Relaince Banking ETF
10.PSU Bank BeES
11.ICICI SENSEX Prudential ETF
12.S&P CNX NIFTY UTI National Depository Receipt Scheme
13.UTI Gold ETF
14.Junior BeES
15.PSU Bank BeES

ETF's are very good for those investors/traders who want to have exposure of any particular sector or index and who wants to do the trading on their own on daily basis.So it is just like trading mutual funds on stock exchanges. So you can have benefit of both trading and sector/index exposure.

Happy Investing.

Asset Allocation-Importance in performance equation of your portfolio

How Asset Allocation plays an important role in the performance equation of your portfolio?

Each and every investor maintains a portfolio. But lot many of them don't know the importance that an asset allocation plays in the performance of their portfolio.

Generally portfolio is made up of Equity and debt related products.

But in your portfolio what should be the percentile allocated to the equity and to debt respectively plays a very important role in its performance.

There are basically 3 types of investors - Aggressive investor,Moderate investor and Conservative investor.

The asset allocation for all these different types of investors are different.

For investment a thumb rule can be followed which can be like:

1.Aggressive Investor - 100 minus his age can be invested in equity/equity linked products.
2.Conservative Investor - 80 minus his age can be invested in equity/equity linked products.
3.Moderate investor - Can invest somewhere in between aggressive and conservative investor.

Why there is need to re look and reallocate your assets?

The market goes up and down and the risk appetite of the investor may also change with time so it is always beneficial to re look and reallocate the assets in your portfolio.

Few basis can be considered for re balancing your portfolio:

1.Swings in the market:

If the market swings 25% in any direction(up/down)from your previous review time then that point can be considered as the point to review the portfolio.

2.Periodical review:

Depending upon market ups and downs there can be loss or profit in your portfolio,so it needs to be re looked every year.Like if the market is going up then the equity exposure may go up from lets say 70% to 75% ,so book your profits and shift those profits to debt market.This will help you in booking your profits in time and reducing the risk of loosing these profits in case of a fall.

3.Increase in age:

With the increase in age the risk appetite also changes. So portfolio needs to be re looked and rebalanced after every 3 years.

4.Financial Goals:

With the passing time the financial goals at that particular time are also to be kept in mind,like if money is required for higher education of your child then it needs to be taken care of.

Summary:

Bull Market:Whenever market goes up book your profits and shift these profits to debt market.

Bear Market:Whenever market goes down then shift profits of debt to equity.

Remember one thing that every bull market has a danger of fall and every bear market has an opportunity of investing at low levels.

Few important things about PPF

As we all know that PPF(Public Provident Fund) account which is basically known for investing and saving tax under Section -80C.The things that are known to the people in general are that the maximum investment that can be done every year is 70,000/- and this is secure and the time frame for this account is 15 years.

Few things that are not known to all are as follows:

1. The tax saving limit under section 80c is 1 lakh and you can invest 1 lakh.For this you have to open account in the name of your spouse or chile.You can save 70,000/- in your account and 30,000/- in other account.

2.The time of 15years is excluding the FY in which you opened the account so intotal the time is 16 years.

3.After 16 years also you can continue with the same PPF account and the extension will be in the phases of 5 years each and you can get extension as many times as you want.

4.In case for few years you dont pay minimum 500/-which is to be paid every year ,your account is considered as inactive but you can get it activated by paying penalty of 50/- for the no. of years for which it remained inactive along with 500/- deposit.

5.If you keep on deposting 70,000/- every year till maturity period ,and as the deposit will attract 8% interest , so you end up getting 21 lakhs at the end of maturity period.

Happy Investing.

How trader/Investor mind works?

How Trader / Investor Mind Works?
Just have look on the graph on the right hand side.

Is it not the psychic of each one of us?

Happy investing.

Insurance Industry

Insurance Industry
Few days back i got a call from one of the executive from FUTURE GENERALI and heard that they are saying something like you invest 15k for 3 -5 years and then 11th year onwards you will start getting 15k every year till you attain 99 years or till the time you are alive (whichever is less). It sounded strange to me and then I asked about the product name and to my shock it was an insurance product and the executive himself was not aware of what he was saying.STRANGEDont be befooled by such kind of marketing strategies.Happy Investing.