Why Alternative Investments?

Posted by Mehul Kothari | Published on 15 Mar 2019
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Why Alternative Investments?

A portfolio with a right mix of stocks and bonds may not be enough to achieve your long-term goals. As an intelligent investor, it’s important to know why alternative investments can offer new opportunities. That’s because exploring investment options beyond the primary assets can spice up the returns column and diversify your investments further. So, here are a few reasons why you can opt to invest a part of your money in alternative investments.

✓ Lowers volatility: Traditional assets like bonds and stocks show strong correlation with economic trends that answers why alternative investments make sense. Market risk for such traditional investments cannot be eliminated completely even after diversification across various sectors, avenues and geographies. In that regard, alternative investments depend less on big market trends due to its illiquid nature. Hence, knowing why invest in alternative investments can reduce the effect of market volatility.

Let’s consider why use alternative investments such as private equity to understand this better. Since you are investing in companies that are not listed and traded publicly, your investment is not directly affected by stock market volatility.

✓ Higher return potential: The goal of alternative investments is to generate higher returns. Unlike traditional investments, there is no competition against a benchmark. Furthermore, since these investments involve moderate-to-high risk, they have a potential to deliver high returns. This is why it is a good idea to know why alternative investments in market can be a good choice in one’s portfolio.

For example, venture capital funds invest in start-ups having high potential for growth. If the start-up starts growing, you can receive massive returns. Similarly, hedge funds can deliver higher returns with reduced risk by trading various strategies across different asset classes – commodities, currencies, equities, debts and derivatives (futures and options, forwards, swaps etc).

✓ Widens Portfolio Diversification: There is a wide range of products in alternative investment space. Investing in them can diversify your investments further. After all, a well-diversified portfolio can deliver better returns to achieve long-term goals. Hence, it makes good reason to know why use alternative investments in stocks as part of your portfolio.

✓ Tax benefits: Since most of the alternative investments are for the long-term, they can provide you certain tax benefits. Private equity and venture capital funds can help you avoid long-term capital gain tax as they invest in unlisted companies. However, it would be erroneous to suggest these investments provide 100% tax breaks. All these options do have certain tax obligations.

To sum up
Alternative investments can diversify your portfolio and provide you refuge from the volatility of stocks. So, if you have a sizeable kitty to invest and the patience to reap reward in the long run, putting it in an alternative investment can be an ideal choice.

The world of alternative investments could also include more confined and niche sectors such as collectibles, fine art and other rarities. These non-conventional investments can play an exceptionally crucial role when conventional investments undergo substantial unpredictability. You may want to consider such options as a potent diversifier along with traditional investments.

To know how to best understand alternate investments and make the right decision call, you may want to look into the services of a financial advisor. Investments experts employ progressive and established strategies that can help you to capture opportunities in the various sectors of alternative investments.



Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

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Myths about investing in mutual funds

Posted by Mehul Kothari | Published on 14 Mar 2019

There’s a popular adage that goes like this: A little knowledge is a dangerous thing. That’s true because you are bound to trip at some point if you don’t have the right information on you. It’s no different in the world of investing either. And like with every aspect in life, misconceptions do weave itself into a popular narrative. This article will act as a Good Samaritan and help bust myths on mutual funds investment that have inevitably become a part of mutual funds’ success story.Myth 1. Mutual fund investments require lot of moneyReality: The reality is that there are a variety of mutual fund investment types. Most of them can be started with as low as Rs. 500 through the systematic investment plan (SIP) route. SIPs allow you to invest a certain amount of money on a monthly basis in most mutual fund investment options. This way, you don’t have to invest a lump sum amount in one go.Myth 2. Mutual funds with lower NAV are always betterReality: A mutual fund’s return-generating capacity depends on its underlying assets, past performance, fund management quality and future prospects. Contrary to popular mutual fund investment myths, the size of the net asset value (NAV) has nothing to do with its future performance.Myth 3. You need to be an expert to invest in mutual fundsReality: This is one of the myths about investing in mutual funds; however, it is partially true. You do have to research which mutual fund suits you the best. But once you have selected your kindred fund, leave the rest to the fund manager. You don’t have to be a savant, a consummate number-cruncher to strike gold. That’s because the fund manager, along with a team of analysts, put in their skill and expertise to manage your money. All said and done, it is still advisable to keep monitoring your investment’s performance from time to time. Myth 4. Investing in high-rated funds can deliver better returnsReality: A fund that has done well in the past may not necessary do well in future. You need to remember that you are playing the market, and that markets are dynamic and ever-changing. Therefore, performances of funds are fluid too. The list of high-rated funds keep evolving. It is very difficult for a fund to keep delivering high returns year on year. So, even though you should look at the fund’s past performance to gauge its strength, it is not gospel either. It cannot guarantee you high returns in future. Myth 5. Investing in debt funds is risk-freeReality: Debt funds invest in fixed income securities like bonds, government securities and other debt instruments. Though risk is on the lower side, performance of such funds can vary due changing interest rates and credit risk.Myth 6. Mutual funds are for long-term investors onlyReality: Many investors believe there is no scope for short-term income in mutual fund investments. While it’s true that for higher returns you need to stay invested for longer, there is an opportunity for short-term investors too. That’s because there are many types of mutual funds. For instance, there are liquid funds, ultra-short-term funds and short-term funds that can offer decent returns over a shorter time frame.To sum up, it is important to weed out the fake news associated with mutual funds. Even though we are currently living in a post-truth era, the world of finance is still very well ensconced in the world of facts and numbers. Bending them to your advantage can backfire in the long run. Instead, let myths play truant in the minds of those living in an altered reality.       Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

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All About Real Estate Investing

Posted by Mehul Kothari | Published on 03 Apr 2019

Did you know that the real estate market is expected to grow at 30% in the next ten years? That’s what the Indian Brand Equity Foundation (IBEF) suggests. Also, India is ranked ninth in the Global House Price Index with regards to real estate investing. These reports showcase the country’s real estate prowess. Even though this sector does go through cyclical peaks and troughs, Indian investors have largely relied on properties to fetch them high returns in the long run. So, why should you be in the dark about property investment? As a guide to real estate investing for beginners let’s look at some of the avenues that can help you as well: ✓ Plots: Investing in plots can be a decent and smart real estate investing for investors looking for capital appreciation. However, it’s vital to choose the location carefully as part of real estate investing. For instance, investing in a piece of land in a developing locality can be a good start. You can also give the land on lease for agricultural use or construct a commercial building on it. ✓ Residential properties: Houses and apartments are considered as residential properties. You can earn a steady income by letting them out for people to reside in on rent or lease. As the value increases, it offers you capital appreciation over the long-term. However, there is a vacancy risk associated to it. You may suffer losses if your house is not on rent for some time. ✓ Commercial properties: Basically, it refers to investing in buildings that are exclusively used for business activities. Investing in commercial properties can provide you both a regular income and capital appreciation over the long-term. ✓ Industrial properties: Warehouses, factories and distribution centres’ are a few examples. The key benefit of investing in industrial properties is that it can yield you a higher income with longer leases. Also, these properties are usually low-maintenance because most of the industrial tenants takes care of this part. However, the risk is high as they are more expensive and also vulnerable to economic conditions. Investor need to be prepared for long-term vacancies and higher loan rates. ✓ Real estate investment trust (REIT) funds: REITs gives you an opportunity to make securitised real estate investments. This fund invests ‘pooled money’ from various investors in completed real estate projects. This means that investing in REITs can help you invest in properties in smaller amounts. The income generated from fund investments are majorly distributed in the form of dividend to investors. REIT funds also offer easy and quick liquidation of investment. As they are regulated by SEBI, there is a fair degree transparency in the investment.   To sum up, in a developing country like India, there is always more focus on infrastructure development. Considering the scope of growth over the long-term, real estate investments can be a good option to invest in. Now that we know how to start investing in real estate, it is also important to consider regulatory reforms and the interest rates before you invest in a property or REIT funds. Purchasing real estate is more than just locating a spot and making it one's place of residence. Almost every individual maybe called to conduct a real estate transaction at some point in their lives. The process of real estate investing can be an intriguing opportunity for some, while others find value in the capture and creation of a sale. Since, investing in real estate has become a common investment vehicle; it makes sense to know all about it. The above mentioned pointers can be your helpful guide in making the right decisions with regards to real estate investments.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • Share Buyback – Meaning & Upcoming Buyback of Shares
    Posted by Mehul Kothari | Published on 14 Nov 2019

    “XYZ company announces a buyback of its shares”. You must have seen or read this headline multiple times in the last couple of years. Especially by companies from the IT or technology industry. According to reports, in the financial year 2018, buyback offers worth Rs. 50,000 crores were made in the Indian markets. Have you wondered what is share buyback and what are the technicalities involved with it? Or if you should give up your shares during buyback offers? Then read on and get all your queries resolved. What is share buyback? Buyback of Shares – Meaning:       A share buyback is a process through which a listed company uses its money and repurchases its own shares from the market. It is the opposite of an IPO (Initial Public Offer). Stock repurchase is also seen as a way for the company to re-invest in itself. Once        the stock buyback is complete, they are absorbed and cease to exist. There are two ways in which stock buyback can take place: Tender Offer: In this buyback channel, the company offers to buy back a certain number of stock at a quoted price. The buyback is done directly from the shareholders. Open Market: The open market buyback takes place through the secondary market (stock exchange). The resolution (special or board) needs to specify the maximum price for the buyback.       2. Buyback of Shares – Regulations:       SEBI has laid down the following guidelines for buyback of shares: It cannot be more than 25% of the total paid-up capital value and free reserves held by the company. It needs to be approved by the shareholders through a special resolution. If the buyback value does not exceed 10% of the total paid-up capital value and free reserves held by the company, it necessitates only a board resolution. Why do companies offer stock buyback schemes?1. Surplus cash but lack of investible projects This is one of the primary reasons behind stock repurchase by companies. Idle cash reserves come with a cost. Matured businesses do not need to invest exorbitantly in research, development or other such aspects. Also, holding on to unused equity funding results in ownership dilution without any good reason. Hence, companies prefer to buy-back their own shares.2. Tax-efficiencies Buybacks usually happen at a premium as compared to the market price. Companies prefer this route to reward shareholders rather than paying our dividends due to the tax implications. Dividends attract 15% DDT (Dividend Distribution Tax) for the companies as well as 10% tax in the hands of shareholders if the dividend income exceeds Rs. 10 Lakhs. Hence, earnings through buyback become more tax efficient for both the parties, even after considering the taxes applicable.3. Enhanced valuations Buybacks are associated with enhanced share valuations as a result of an improved PE multiple. Stock repurchase leads to a reduction in the number of outstanding shares and hence, capital base. This, in turn, improves the value of EPS (Earning per Share) as the same amount of dividend is now divided between lesser shareholders. The ROE (Return on Equity) also goes up as the cash assets on the Balance Sheets come down.4. Signal to the market Stock buybacks are also used to send indicators to the market. It signals that the company has great confidence in itself. Hence it is ready to repurchase its own shares (mostly at a premium) as it feels that the company is undervalued currently in the market. For instance, when the company management is highly optimistic about the future prospects but the stock price still reflects bearish sentiments based on past performance only.  In some cases, promoters can also use the buyback channel to tighten their hold on the company. This is especially true when the shareholding is highly diluted or is in the hands of individuals or investors who do not have the best interest of the company in mind. How to evaluate stock buyback offers? Now you know what is share buyback and the reasons why companies offer them. But the fundamental question remains – what should be your stance in case of buyback offers? Should you hold your stock or give them up? These pointers can help you take the final decision:1. Offer Price and buyback quantum Buybacks are lucrative only when they are offered at a significant premium amount. The offer price must be substantially above the current market price to make it worthwhile for the investor. Also, the quantum of the share repurchase amount should be substantial.  2. Look at the tax implications Till recently, shareholders had to pay capital gains tax on their buyback earnings. However, with the introduction of buyback tax for listed companies, investors are now exempted from the same. Companies will now have to pay 20% buyback tax. This move has been done as the Government observed that more companies were distributing their profits through the buyback channel rather than dividend as the latter attracted DDT (Dividend Distribution Tax). Note: The buyback tax is not applicable to companies who had announced their buyback schemes prior to 5th July 2019.3. Promoter Participation Promoters cannot participate in the buyback process if it is being done through the open market. However, they are allowed in case of tender offer. In case of participation by the promoter, there is usually a positive movement for the stock price in the long-term.    Final Words Buyback can be rewarding for both parties (company as well as investors). As an investor, it is important for you to understand the implications of each buyback offer and decide wisely. You should keep an eye out for the upcoming buyback of shares in 2019 and corporate news around the same. In case you feel that you are not able to decide on your own, you can always reach out to an expert like IndiaNivesh. Indiaivesh has been providing excellent financial solutions to investors since the last 11 years. It offers a wide range of products – broking, distribution, equities, strategic investments, investment banking as well as wealth management. With its “client-first” approach, skilled and experienced team members and state-of-the-art research and technological capabilities, you can be rest assured that your financial interests are in safe hands.  Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • SIP vs. RD - Systematic Investment Plan (SIP) Vs Recurring Deposit (RD)
    Posted by Mehul Kothari | Published on 18 Oct 2019

    Financial planning plays an important role in today’s time. For your money to grow into wealth, it is required that you invest it in good avenues. Many individuals set aside a fixed amount every month for investment purpose. The two most popular investment avenues for investing a fixed sum of money every month are Systematic Investment Program (SIP) in Mutual Funds and Recurring Deposits (RD). In this article, you will learn about the difference between RD and SIP. Let us begin by learning the meaning of the two terms. What is SIP? Systematic Investment Plan or SIP is an investment scheme where you can invest a fixed sum of money on a monthly or quarterly basis. It is a disciplined approach of investing your money because you set aside a fixed amount of money for investment purposes. You can start SIP by selecting a mutual fund scheme. The best part of SIP is that you can start it with an amount as low as Rs. 500. Let us now learn the meaning of recurring deposit. What is Recurring Deposit? Recurring Deposit or RD is a term deposit scheme offered by the banks. In this scheme, you have to select the duration of time and amount of monthly deposit. Upon the start of the plan, you have to deposit a fixed amount of money every month during the tenure of the scheme. In general, the duration of the scheme is minimum 6 months and on completion, 3 months of addition can be made up to maximum tenure of 10 years. Recurring deposit schemes are easy on the pocket because in this scheme you get the option to select the amount and tenure for which you want to continue the scheme. Let us now learn about the SIP vs. RD. Scheme of Investment SIP is about investing in mutual fund plans where you have the option to select between debt or equity funds on the basis of your risk-taking capability. Whereas, RD is a deposit scheme that can give you a fixed rate of returns. If you are looking for more flexibility than you can opt for a flexible recurring deposit scheme.  Frequency of Investment SIP can be started with a small amount. It is your choice to invest in SIP on a weekly, monthly and quarterly basis. In the case of recurring deposits, you can invest a fixed amount on a monthly basis. Choice of Investment SIP gives you the option to invest as per your risk appetite. Based on your risk-taking capability you can invest in different mutual fund schemes like equity, debt, hybrid, etc. On the other hand, a recurring deposit has no investment options. To earn a fixed return, you have to invest a fixed amount of money on a monthly basis. Tenure You can opt for SIP investment for any tenure or duration of time. The minimum period of investment is 6 months. Whereas, in the case of recurring deposits, they have a fixed maturity date. The minimum period of investment is for 6 months and the maximum period up to which you can do a recurring deposit is 10 years. Return The rate of return in SIP is not fixed because their performance is linked to the market. In general, over the past 10 years, the equity mutual funds have given return of 12% to 14% per annum and debt mutual funds have given a return of 8% to 9% per annum. On the other hand, when you start investing in RD, the rate of return is already known to you. Liquidity SIP is highly liquid in nature i.e. they can be withdrawn whenever you want. However, you must remember that you would be charged an exit load on redeeming within 1 year of investment. Just like SIP, RD is also liquid in nature. RD attracts pre-withdrawal charges in case you make a withdrawal before the end of the tenure. Risk Investing in mutual funds is risky because the performance of the fund is dependent on market performance. Poor market performance can even lead to capital erosion. However, in comparison to the equity mutual funds, the debt mutual funds are less risky. On the other hand, RD is a safe investment option. This is because the funds are directly deposited into the bank and they have a fixed rate of return. Hence there is no risk of capital loss in RD. Tax Benefit The SIP investments and returns generated on it are exempt from tax only if the investment is made in Equity Linked Savings Scheme (ELSS) funds. Whereas, an investment made in the form of recurring deposit or interest earned on it is not exempt from tax. Investment Goal SIP acts as a one-stop solution to all types of investment goals. In SIP, depending on the frequency of your investment and funds selected, you can invest for short, medium or long term. On the other hand, RD investment, in general, is done for short term purposes. It cannot generate wealth like SIP. The above mentioned are a few differences between the SIP vs. RD scheme. Now the next important question that would arise in your mind is, SIP or RD which is better? Well, the answer to it is very subjective and will vary from person to person. Both the investment schemes are very different from each other and have their own benefits. Depending upon your risk appetite and tenure of the investment, you can select the right scheme for you. You can also refer to the difference between the two schemes and understand which investment option is ideal for you. The beginners or inexperienced investors often find it difficult to take the investment decisions on their own. To assist them in financial planning, IndiaNivesh Ltd. is always at their assistance. We understand your financial goals and risk appetite before suggesting you any investment plan or scheme. We provide our clients with innovative and customised financial solutions. Our aim is to exceed the expectation of client in all our endeavours. You can even open a demat account with us and trade or invest in the stock market on the basis of our regular research reports.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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  • Gold Exchange Traded Funds (Gold ETFs) - Overview & how to invest in it
    Posted by Mehul Kothari | Published on 16 Oct 2019

    Gold Exchange Traded Funds (or Gold ETFs) combine the two passions of many investors – stock trading and gold investments. They provide a channel through which you can be a part of the bullion (gold) market. The investor’s funds are invested in gold stocks but there is no physical delivery of the yellow metal. They are often referred to as open-ended Mutual Funds that invest the corpus in gold bullion. Key highlights of Gold ETFs: Gold ETFs in India started in the year 2007. Slowly but steadily they have started gaining momentum. Some of the key benefits offered by Gold Exchange Traded Funds are:1. Transparency: Transparent pricing is one of the USPs of Gold ETF. Like stock prices, information about gold prices are easily available to the general public. You can easily determine the value of their portfolio by checking the gold prices for that time or day.2. Ease of trade: Just like shares, Gold ETFs can be easily traded on the stock exchange. You need to buy a minimum of one gram of gold which is equivalent to one unit of Gold ETF. Investors can invest in Gold ETFs from any location in India. Moreover, the difference in price (due to GST) will not be applicable.3. Cost efficiencies: Unlike many investment avenues, there are no entry or exit loads with Gold ETFs. The only cost involved would be the brokerage fees. 4. Risk: Unlike physical gold, there are no storage hassles or theft fears with Gold ETFs. Additionally, gold prices are not prone to frequent fluctuations. This makes Gold ETFs a relatively safer choice. 5. Tax efficiencies: Gold ETFs do not attract any wealth tax or securities exchange tax. Also, if they are held for a period of more than one year, the gains are treated as long-term capital gains. For anyone interested in holding gold, these ETFs provide a tax-efficient alternative. 6. Diversification: Gold ETF investments can help to bring diversity in the investment portfolio. During volatile market conditions, they can help to stabilise or improve the overall returns for you.7. Collateral: Gold ETFs are accepted as security collaterals for loans or capital borrowings by many financial institutions. Why is investing in Gold ETFs better than traditional forms of gold? You do not need to worry about impurities or adulteration in the metal As ETFs are held in electronic form, there are no storage related issues or costs Easy trading on the stock exchanges and hence high liquidity Real-time tracking of investments No mark-ups costs such as making charges, wear and tear involved The price of Gold ETFs remains the same throughout the country. However, the gold prices can vary from one location to another.  How does Gold Exchange Traded Fund work? The investment is converted into unit of gold basis the cost applicable at the allotment time. For instance, the cost of gold (per gram) on a particular day is Rs. 3000. Ms. X wants to invest Rs. 60,000 in Gold ETFs. Her investment amount will get translated into 20 gold units. At the back-end, physical gold acts as security for these ETFs. For example, if you invest in Gold ETFs, the entity at the back-end purchases gold. They act as the custodian for the investment and also guarantee for the purity of the metal. The stock exchanges assign the responsibility of buying and selling gold to authorised members or participants which in turn can be used to issue ETFs. These are usually large companies. As a result, these authorised members ensure that there is parity between the gold cost and ETFs. How to invest in Gold ETFs? Gold ETF investments are a simple affair.1. Choose a broker or fund manager: Many financial institutions (including banks) offer Gold ETF products. Similar to the online share trading, you would need to reach out to a fund manager or a firm which will trade on behalf of you.2. Demat and Trading Account: In order to invest in Gold ETFs, you need to have a demat account and an online trading. You can apply for these accounts online with the broker or such service provider by providing details like PAN, Identity Proof, residential proof, photograph and a cancelled cheque (for bank account linkage).3. Online Order: Once the accounts are in place, you can select the desired Gold ETF and place the order through the broker’s online portal. You can also opt for Mutual Funds which have an underlying Gold ETF.4. Confirmation: The placed orders are then routed to the stock exchange. The purchase orders are matched with the corresponding sell orders and accordingly executed. A confirmation email or message is sent to you. Who all should invest in Gold ETFs? Gold is a relatively safe and stable investment. Its prices do not fluctuate as much as equities. Hence, Gold ETFs can be a good choice for you, if you do not want to take too much risk. Additionally, since these ETFs are tradeable easily on the stock exchange, they are useful if you are looking for an investment opportunity with high liquidity. Hence, it is a good option for you to diversify your portfolio. So, if you meet the requisite objective of investment, Gold ETF is a good option for you as well. Things to keep in mind while investing in Gold Exchange Traded Funds Here are some tips that you could use while investing in Gold ETFs Gold is generally considered as a stable asset. However, you should not forget that the Net Asset Value (NAV) of Gold ETFs can also fluctuate basis market volatility As an investor, you need to bear brokerage fees or commission charges for Gold Exchange Traded Funds. Hence, you should check these costs while deciding on the broker or fund manager However, you should not make the decision on the basis of price alone. Consider the broker/ fund house’s past track record, services provided, type of clients handled etc. before choosing the service provider Do not over-invest in Gold ETFs. It is usually suggested to restrict investment in these ETFs to 10% of the entire portfolio. Final Words A smart investor knows that all that glitters is not gold. A good fund manager or firm helps choose the best Gold ETF products in India. IndiaNivesh, a well-known financial services company can help in this regard. With their rich experience in the Indian market and in-depth understanding of the financial ecosystem, they have helped numerous customers to grow their wealth and fulfill their financial goals.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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