Asset Class Selection Process PDF

Which? Selection Process, Major Pointers Selection process – Major pointers Particulars Asset class suitability Understandability of the asset class Homogenous or heterogeneous Access to invest/re-invest in the asset class Is it costly? Ability to possess? Is...

Which? Selection Process, Major Pointers Selection process – Major pointers Particulars Asset class suitability Understandability of the asset class Homogenous or heterogeneous Access to invest/re-invest in the asset class Is it costly? Ability to possess? Is it liquid? How much time will it take to reward me? How is it making me rich? Is it providing me with non-monetary benefits? Confidence and conviction Empirical evidence, historical performance Promising future?  What comes to your mind when you hear “Fixed Income” ? Fixed Income : Building blocks Bonds issued by Bonds issued by the Bonds issued by Government related Banks Deposits Government of India corporates (Tata, agencies (HUDCO, (G-Sec and T-Bills) Adani, Reliance) GAIL, NHAI, etc) Fixed Income : Building blocks Interest bearing securities Principal is safe (deemed to be) Rates : FDs – 6-7%, Govt bonds 5-6%, Corporate Bonds 9-10%. Why?? Selection Process: Major Pointers for Fixed income What comes to your mind when you hear “Real Estate” ? Real Estate : Building blocks Apartments, Land, Commercial Warehouse, Home Vacant plots Buildings rental shops Real Estate : Building blocks Rental income & capital appreciation of the property Illiquid and expensive investment option Rates vary and are difficult to compute cause of the liquidity issues, however one can empirically conclude that it is greater than FD return. Selection Process: Major Pointers for Real Estate  What comes to your mind when you hear “Commodities” ? Commodities : Building blocks Invest in hard asset: Invest in soft asset: Invest in either through Precious metals Agricultural products ETF or Bonds Commodities : Building blocks Interest income in case of bonds & capital appreciation of the commodity. 11% of world's gold reserves are owned by Indian women Rates vary : Estimate of 6-8% is a safe assumption Selection Process: Major Pointers for Commodities What comes to your mind when you hear “Equity” ? Equity : Building blocks Invest in Private Equity Invest in public Equity Equity : Building blocks Private equity does not trade is fairly at an initial stage of business and is usually a sizeable investment with lock-in period and other complex peculiarities Public equity trades in the market with no restrictions on quantity, investment and lock-in period requirements. Unlike Fixed income, equities does not guarantee principal safety. So why do I invest in equity? Because it gives higher returns Rate : Approximately 11-12%, on appropriate stock selection, no limit Selection Process: Major Pointers for Equity Major Pointers for all asset classes Asset class Suitability Particulars Fixed Income Real Estate Commodities Equity Understandability of the asset class High High High Subjective Homogenous or heterogeneous Both Both Homogenous Homogenous Access to invest/re-invest in the asset class Easy Not easily Subjective Very easy Is it costly? Ability to possess? Fairly Affordable Costly Yes, Subjective Very easy Is it liquid? a bit illiquid Illiquid Yes Highly Liquid How much time will it take to reward me? Depends Mid-long term (5-10yrs) Depends (Trade/ invest) Depends (Trade/ invest) Stock upmove, dividends, How is it making me rich? Interest amount Rent, cap appreciation Int on bonds, price movement bonus Is it providing me with non-monetary benefits? Yes, ownership Security, ownership Status Network of investors Confidence and conviction Less risky/ volatile, safe Safe, knowledge req. High High FD - 6%, Govt 2-5%, Corp. Empirical evidence, historical performance bonds 7-10% Real estate > FD % It beats Inflation 15% index Promising future? Yes Yes Yes Yes 200 saal ki kundli How much has Nifty50 moved by every year since 2000? 100 Crore What if we don’t clock an average of 25%, but be realistic and say let’s do 20%, for the next 30 years, with a monthly installment of 25000, with a step up of 10% Where? Market Microstructure : Complex Market Microstructure : What is important for you + Simplified Your Bank Your Broker Your Demat How can I be a share market participant? Become a trader Active Trade stocks, derivatives market (F&O), ETFs Become an investor Passive Invest in stocks, ETFs / Mutual Funds  What is a mutual fund? How?  Investing Trading Buying and holding of themes/securities/stocks based on Buying and selling of stocks/securities based on price value derived by analysis movements of securities Comprises of doing economy analysis, industry analysis, Comprises of doing chart analysis based on price patterns, sector analysis and firm analysis collectively called candlestick patterns, indicators and oscillators collectively FUNDAMENTAL ANALYSIS called TECHNICAL ANALYSIS Bottom line is to create wealth in the long term by Bottom line is to generate a profit in the short term by chasing value chasing price Looks backward as well as forward Looks backward Does not utilize leverage Utilizes leverage Can play only upside Can play both sides, when market goes up as well as down Extensive analysis, conviction and patience are key to be Well suited for quick decision makers having an eye for a good investor graphs, charts, data looking for immediate gratification  What is better, Trading or Investing? What do I choose? Understand yourself Know your strengths and weakness Understand the demands Create a roadmap Follow the roadmap The perfectly imperfect human being Can I do both?