For those who are still considered greenhorns in the investment world, a dividend is the payment distributed by a company to all its shareholders. For the longest time, dividend investing has been a permanent fixture in wealth building and wealth management programs because of the kind of financial security it provides. An investor and expert financial planner earns in divided investments through dividend payments, which forms part of a company’s profit. The other profit portion not distributed to the investors will be pumped back into the capitalization used to fuel the operation of the company. Most wealth management and wealth building programs include dividend investing. To place investments strategically, a professional financial planner would be necessary. One who deals with dividend investing would need the expertise provided by a financial planner when playing with the rise and fall of share prices. With dividend investing as part of an individual’s wealth Continue reading
Investment Management
Mutual Fund Evaluation
The data for evaluating mutual fund can be found in its prospectus, quarterly and annual reports. The following financial parameters should be used in analyzing a mutual fund and its management: 1. Total Return Total Return indicates the impact of appreciation of its value and dividends (if any). It is becoming increasingly common to find total-return numbers published in newspapers, magazines or other sources. One can calculate total return using the following formula: Total Return (TR) = [(Distributions + Change in NAV)/NAV at the beginning of the period] x 100 Distribution is the income received by the investors for having their money in the mutual fund. The components of dividends are stock dividends, bond interest etc. 2. Expense Ratio Expense Ratio is the ratio of total recurring expenses (fees, commission etc.) to average net assets. Lower numbers are desirable. Since the expense ratio fluctuates, it is better to compute Continue reading
Investment Planning Definition
Investors need to identify the financial goals throughout life or for the next 10 to 15 years depending upon the time horizon selected by the investor, and prioritizing them. Investment Planning is important because it helps in deriving the maximum benefit from the investments. Success as an investor depends upon his investment in right instrument in right time and for the right period. This, in turn, depends on the requirements, needs and goals. For most investors, however, the three prime criteria of evaluating any investment option are liquidity, safety and level of return. Investment Planning also helps to decide upon the right investment strategy. Besides individual requirement, investment strategy would also depend upon age, personal circumstances and risk appetite. Investment Planning also helps in striking a balance between risk and returns. By prudent planning, it is possible to arrive at an optimal mix of risk and returns, which suits particular Continue reading
Commodity Market Participants
Commodity market is a place where trading in commodities takes place. Markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized Contracts. It is similar to an Equity market, but instead of buying or selling shares one buys or sells commodities. Commodity market is an important constituent of the financial markets of any country. It is the market where a wide range of products, viz., precious metals, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active and liquid commodity market. This would help investors hedge their commodity risk, take speculative positions in commodities and exploit arbitrage opportunities in the market. In current situation, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for commodity trading Continue reading
Treasury Bills – Meaning, Features, Types and Importance
Just like commercial bills which represent commercial debt, treasury bills represent short-term borrowings of the Government. Treasury bill market refers to the market where treasury bills are brought and sold. Treasury bills are very popular and enjoy higher degree of liquidity since they are issued by the government. Meaning and Features of Treasury Bills A treasury bills nothing but promissory note issued by the Government under discount for a specified period stated therein. The Government promises to pay the specified amount mentioned therein to the beater of the instrument on the due date. The period does not exceed a period of one year. It is purely a finance bill since it does not arise out of any trade transaction. It does not require any ‘grading’ or’ endorsement’ or ‘acceptance’ since it is clams against the Government. Treasury bill are issued only by the RBI on behalf of the Government. Treasury Continue reading
Portfolio Construction
All portfolios, whether they are stock or bond portfolios, are compared to benchmarks to gauge their performance; indices or peer group statistics are used to monitor the success of each fund. As composites, the indices can be thought of as similar to polls: a polling firm that seeks to understand what a certain population thinks about a certain issue will ask representatives of that cross-section of the population. Similarly, a stock or bond benchmark that seeks to measure a certain portion of the market will simply compile the values of representative stocks or bonds. Portfolio construction refers to the manner in which securities are selected and then weighted in the overall mix of the portfolio with respect to these indices. Portfolio construction is a fairly recent phenomenon, and has been driven by the advent of modern portfolio theory. 1. Passive investors or index funds Portfolios that are constructed to mimic Continue reading