Fiscal Policy

In my previous article on macroeconomics, I covered monetary policy of a central bank (RBI in case of India). Now, I will cover another very important macroeconomics concept – Fiscal Policy.
Fiscal Policy is considered to be acts of a government to influence the direction of nation’s economy by using its financial and regulatory powers. The two main important instruments of fiscal policy are government spending and taxation. These are also known as financial powers. By regulatory powers we mean the ability of government to influence or require its people to change their behavior. For example, Indian government might ask all the industries to conform to universal environmental standards to reduce global warming. Thus, we see fiscal policy is different from the other macroeconomic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and the supply of money.
Stances of Fiscal Policy
There are three possible stances of fiscal policy- Neutral, Expansionary and Contractionary.
A neutral stance of fiscal policy implies a balanced budget where Government spending (G) is equal to Tax revenue (T) i.e. G=T. Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.
An expansionary stance of fiscal policy involves a net increase in government spending (G > T) through rises in government spending or a fall in taxation revenue or a combination of the two. This will lead to a larger budget deficit or a smaller budget surplus than the government previously had, or a deficit if the government previously had a balanced budget. Expansionary fiscal policy is usually associated with a budget deficit. Hence, when government decides to adopt expansionary fiscal policy, it actually decides to spend more than what it did earlier.
A contractionary fiscal policy occurs when net government spending is reduced either through higher taxation revenue or reduced government spending or a combination of the two i.e. G < T. This would lead to a lower budget deficit or a larger surplus than the government previously had, or a surplus if the government previously had a balanced budget. Contractionary fiscal policy is usually associated with a surplus.
Government Spending
One of the tools of fiscal policy is government spending. Government expenditure or spending can be categorized in three ways:
1. Spending on goods and service- Governments can buy planes and military equipments for its defense forces. They can also buy materials for constructing schools, colleges, hospitals, ports, airports, highways, factories etc. Governments can also buy consulting and banking services from consulting and banks to help them on specific projects. Thus, government can directly affect the aggregate demand (AD).
2. Transfer payments- It involves payments to individuals by the government under several welfare schemes such as unemployment benefits, elderly pensions, healthcare benefits or food coupons. Economists believe that changes in government transfer payments influence people’s spending decisions. Higher transfer payments are similar to higher income. However, recipients for such payments may decide to either spend or save the amount.
3. Net interest payments- Most governments have debt which they raise by issuing bonds to banks or other brokers. Governments pay interest rates to people who hold these bonds or debt. Hence, any increase or decrease in the interest rate will directly affect the income from these bonds. If interest rates are increased, government will have to pay more interest payments to people who hold these debts. This would be considered as extra income and may influence spending.
By changing its spending, government can influence aggregate demand in the economy. For example- if government decides to spend more (as Indian government has decided to do now) on say infrastructure, there will be increased demand for different goods such as cements and steel and services such as manpower and consulting. This will increase aggregate demand in the economy.
Government Revenue
We discussed about government spending so much on building schools, hospitals and roads. Ever wondered how government generates revenue to spend on all these schemes. Do governments print new currencies to increase its spending? Not really. Government generates revenue by collecting taxes from its people and businesses. Across the globe, maximum tax is collected as payroll taxes i.e. income taxes, followed by corporate taxes. The next largest category is sales taxes and import duties.
By changes tax rates government can influence demand. For example – lowering of income tax rate will increase the disposable income of people. With more money in hand people will spend those money on goods and service; hence, creating a demand for the same.
Fiscal DeficitsFiscal deficit is defined as the difference between government expenditure and its revenue i.e.
        Fiscal deficit = Government spending – Government revenue
It is expressed in terms of percentage of GDP. India's fiscal deficit was brought down to 3.17% (Rs 1,43,653 crore) of the gross domestic product in 2007-08 from 3.8% in 2006-07. The government had promised to cut the deficit further to 2.5% of GDP (Rs 1,33,287 crore) by the end of 2008-09, but it didn’t happen. Thus, India's fiscal deficit continues to be among the highest in the world.
When a government has a deficit it borrows money by issuing debt certificates. The value of the outstanding government debt is called National debt. The gross national debt of USA is eye-popping $10 Trillion which is almost 10 times of India’s GDP.
Effects of fiscal policy
Changes in the level and composition of taxation and government spending can impact on the following variables in the economy:
• Aggregate demand and the level of economic activity
• The pattern of resource allocation
• The distribution of income
Fiscal policy is used by governments to influence the level of aggregate demand in the economy, in an effort to achieve economic objectives of price stability, full employment and economic growth. This is generally done during recession to boost spending and demand. What we see across the globe these days is governments after governments are coming up with their own bailout plan for recession. They have announced trillions of dollars of economic package to boost growth and generate employment.
Fiscal policy in the short-run
The idea of fiscal policy in the short-run is very simple- if aggregate demand is too low, the government would:
• Buy more goods and service
• Increase transfer payments
• Reduce tax rates on income
• Reduce imports and excise duties
If you have read newspapers recently, you might have come across these measures. The government of India recently lowered excise duties on lot of products - naphtha imported for power generation can be imported duty free. Export duty on iron ore fines has been withdrawn; it is 5% (from 10%) on iron ore lumps.
Once AD increases, firms would see an increased demand for their products and react by raising output and/or raising prices.

Buying more goods and services would:	Increase transfer payments would:	Reducing tax rates on household income would:	Reducing taxes or changing regulations that influence corporate income would:
Directly increase spending and AD	Increase disposable income and generally increased spending by households	Increase disposable income due to lower taxes would increase spending power of individuals and hence increase in AD	Increase business spending depending on the overall sentiments in economy

Fiscal policy in the long-run
In the long-run a poor and mismanaged fiscal policy might lead to persistent deficits and accumulating government debt. Let’s start with debt. To find out the health of an economy, the size of national debt is measured w.r.t. it’s GDP. If the national debt is equal to more than 60% of its GDP, the country is considered as a reasonable financial risk. Higher debt might bring up the issue of insolvency, which is inability of the country to meet its obligations. An insolvent government needs to reduce spending and raise tax revenues – but the internal politics and economics are such that it cannot.

Now coming back to government spending, if a government is not saving, it is basically spending whatever it is earning. The nation’s savings is a very important source of investment because it is the nation’s savings that ends up in banks and other financial institutions. This savings come from three main sources- households, retained earnings of business and government. When government is not saving, it will need money to reduce its deficits. The government will then issue bonds to the public to raise money. So governments with deficits are competing with private firms for the nation’s savings. This not only leaves less for the firms but also drives up interest rates. Either way, the end result is that government deficits “crowd out” private investment spending.
Crowding out
Despite the importance of fiscal policy, a paradox exists. In the case of a government running a budget deficit, funds will need to come from public borrowing (the issue of government bonds), overseas borrowing or the printing of new money. When governments fund a deficit with the release of government bonds, an increase in interest rates across the market can occur. This is because government borrowing creates higher demand for credit in the financial markets, causing a lower aggregate demand (AD) due to the lack of disposable income, contrary to the objective of a budget deficit. This concept is called crowding out. Alternatively, governments may increase government spending by funding major construction projects. This can also cause crowding out because of the lost opportunity for a private investor to undertake the same project. Another problem is the time lag between the implementation of the policy and detectable effects in the economy. An expansionary fiscal policy (decreased taxes or increased government spending) is usually intended to produce an increase in aggregate demand; however, an unchecked spiral in aggregate demand will lead to inflation. Hence, checks need to be kept in place.
Source:- http://www.indianmoney.com/article-display.php?cat_id=1&sub_id=113&aid=124&acat=&ahead=Fiscal%2520Policy

NAV and the Myths

Net asset value represents the value of each unit in the portfolio. It is the book value. NAV of a mutual fund always varying depends on the market fluctuations. NAV of any portfolio can be calculated after deducting all liabilities from the total asset value of the portfolio. NAV helps an investor to measure the performance of his investments very easily. Nowadays NAV is becoming very familiar to us with the rapid growth and expansion of mutual funds and insurance industry.

The general formula for calculating NAV is…….
NAV = total asset value – total liabilities
Total no of units

Yes, this is all about NAV. But my dear readers, today I would like to discuss on certain myths and misconceptions around the concept of NAV.

I started my career with selling of insurance and Mutual Funds, and I faced many situations where the clients were very particular about NAV. And of course, they were very keen on investing in low NAV funds. Many a times I did convince them but the misconception what many of us have sometimes ends up with low returns or loss on investments. Even I got many queries from my readers as well as from my clients that -

“Is low NAV cheap?”

Is a fund with lower NAV a better investment option than a fund with a higher NAV? Since you can buy more units, is it cheaper? Should mutual fund schemes with a higher NAV be avoided?

These are some other questions I faced from my clients and readers. The answer to these questions is that it is irrelevant how high or low the NAV of a mutual fund or a ULIP plan is. And, whatever may be the NAV you invested with, the amount you invested remaining unchanged. Because, high NAV means less number of units and low NAV means more number of units. I can prove the same with ‘N’ number of examples.

Let us take an example, where there are two investment options –
- One with the NAV of 10 and
- Other with the NAV of 100.

Ordinary investors always look at first option as the NAV is very low when comparing to option two. But if you look at it with little practicality, you will understand it better that both the option will yield you the same if the investment strategies of both are same. Please go through the below illustration which proves the same-

Let us take the initial investment as 10000 and the NAV value as above. Then, an investor will get 1000 units in case of option one and 100 units in case of option two. If both the investment options yield 30% at the end of year, NAV of option one will become 13 and the second will become 130.

Therefore, the total fund value of option one has become 13*1000=13000 and the second has become 130*100=13000. And, if one sells those units in both the investment options he will get the same amount.

If you still have doubts, I can give you some more reasons to avoid measuring the funds in terms of its NAV. One of them is, low NAV schemes may be new to the market and it is very difficult to predict the future performance of the same as there are no past records to asses. But in case of high NAV funds which are in the market from long time will have their own performance records which help us to measure the performance in a better way.

Therefore, as a financial consultant my advice is kindly stop looking at NAV before investing; instead look at the quality and other performance records.
Source:- http://www.indianmoney.com/article-display.php?cat_id=1&sub_id=11&aid=6&ahead=NAV%2520and%2520the%2520Myths

How to Evaluate Stocks.....?

Warren Buffet is considered to be a genius when it comes to stock investment. He recommends an important thing to the investors that the stock (company) you are thinking to buy or invest should have been around for at least ten years. There are a number of factors to be considered befere investing in a stock. This article will help you in understanding such factors.

Techniques to Evaluate Stocks

Following are the things that will guide you in taking an investment decision. They will show you the strength of the financial position of a company. So that it will be easy for you to select a stock and invest in that.

•      Company History
•      Dividend
•      Market Cap
•      Cash Flow
•      Price Earnings Ratio (P/E)
•      Return on Assets & Return on Equity (ROA & ROE)
•      Financial Leverage

Company History

It is better to invest in companies that have in existence from minimum 10 years. Over the course of a decade, many things can happen to a company. There will be good times and bad times for everything. If a company can survive the bad times for at least ten years then they are more likely to handle future bad times with equivalent skill. So if a company has been around for at least ten years then you can choose these companies to invest. But remember along with this you have to consider other factors also.

 

Dividend

A dividend is an amount paid out by the company to its existing share holders. Dividends can be paid out at various times of the year, most of the times it seems to be given out on a quarterly basis. These dividends are especially useful for long term investors because your dividends will compound over a period of time.

 

Market Cap

A market cap is basically how much sales a company will generate in a given year. Invest only in companies with a market cap of a hundred million or more. Anything less than this and the company might go bankrupt if their sales don't pick up.

Cash Flow

Cash flow generally indicates how much profit the company makes per year. If the company has a good cash flow then they are more likely to avoid bankruptcy. And it is great news for investors. Banks or other similar financial institutions are examples of high cash flow. This is mostly due to these companies accept deposits and offer loans to people. Financial institutions can be great stocks.

 

Price Earnings ratio (P/E)

P/E stands for Price Earnings Ratio. This generally tells you what people expect from this stock. If the P/E ratio is between 10 and 30 then it is considered a reasonably stable stock. On the other hand, if it is really high then that means people have high expectations on this stock. And if those high expectations are not met then the stock is much more likely to lose investors, which will lead the stock to lose its value drastically, this is something that you don't want to happen. So if the stock has a high P/E ratio just be aware of the possible outcomes. If the stock is above 25 then it is usually considered as high.

 

Return on Assets & Return on Equity (ROA & ROE)

ROA stands for Return on Assets and ROE stands for Return on Equity. Normally, investors like to see both of these figures going up or staying stable over a period of years. If the ROA or ROE is negative or falling, you should think twice about purchasing that stock.

 

Financial Leverage

Financial leverage generally tells us how much the company has acquired in debt. You should try to avoid investing in companies that have a financial leverage higher than 5. But again, it is normal for banks and other financial institutions to have a financial leverage ratio more than 5.

 

Picking stocks is a difficult work. It takes time and patience to learn all of the jargon and other tricks of the trade. But when the day is done, you'll be glad to see that your hard work is paying off.

 Instructions for Equity Traders/Investors

Following are the things to be considered by an equity trader before executing the trade. Successful stock trading involves many factors such as selecting a good company, diversifying the portfolio, support of a good broker, etc. If you are lacking any of these factors, it affects your trading very badly. Following are the things to be taken care by an investor before trading or investing.

•      Know your Risk Tolerance
•      Invest in the company not in the stock
•      Know your broker
•      Reduce your risk by diversifying

Know your risk tolerance

Understanding yourself is very important; you should know your risk tolerance, how much you can afford to invest, how much loss you can suffer, etc. Before investing in any type of stock, know how much risk you are willing and capable to take. In simple terms it means having a look at how much money you can afford to lose.

 

Invest in the company not in the stock

People normally go behind the stocks without knowing much about the company. Some stocks might perform well in short term without a strong base of business but this growth is not stable. If a company has to perform well in long run it should have a strong and deep rooted business. It is always better to invest in such companies than going behind market trend.

 

Know your broker

Take time to understand your broker, enquire about his history, past performance, commission charged, etc. Sometimes brokers might have a vested interest in some stocks, including ownership of the stock, in this case they might compel you to buy more stock to raise prices. This could be false inflation of the stock's value therefore making it even more risky.

 

Reduce your Risk by Diversifying

Reduce your risk in stock investments by diversifying. Purchase good stocks from different industry, this will help you to reduce the investment risk because if one stock fails badly, the other will generate profit this will help you to avoid the overall loss.

 

There are thousands of stocks in the market to choose from, how do you determine the one that best suits for you? After all, if you pick incorrectly, you could lose all of your hard-earned money. But if you can understand the terms mentioned above then the likelihood of you losing your money will diminish significantly and the chance of making huge profits is more.

Source:- http://www.indianmoney.com/article-display.php?cat_id=1&sub_id=12&aid=802&acat=&ahead=How%20to%20Evaluate%20Stocks.....?

Financial Planning in Tough Times.....!!

Tough times can never be avoided. It is said that tough times don't last, but tough people do. Financial market is a mixture of tough and good times. Even those who are experts in the financial world will face tough times. Financial planning will help us in reducing the depth of loss and to convert the loss into profit. In this scenario, it is important we should not get carried away by the group mentality. During tough times, we should follow some basic financial steps to make sure that we have our financial plan in place and follow the same carefully to gain its benefits throughout our future life.

The word financial planning can be defined in a number of ways. The objective of financial planning is very simple that a person must not run out of money whenever a present or future requirement occurring to him or his family. In India, especially middle class families are not well conscious about the benefits and importance of a good financial planning. This will put them in trouble once if they don’t have sufficient income to manage their needs.

 

Types of People

Under financial planning context, we can divide people into three major categories such as;

•     Those who let it happen
•     Those who make it happen
•     Those who wonder what happened

The first category “those who let it happen” don’t bother about their future, they just let their life to go without any planning. The second category “those who make it happen” are really hard working and by their proper planning, they will make their future bright. Third category “those who wonder what happened” want to make their future joyful and happy but don’t want to plan. This category of people will always worry after losing an opportunity.

 

Out of these three categories of people, the second category of people will be always successful. The hard work and determination makes them to achieve great goals in life. 

Process of Financial Planning

Accurate financial planning is not a single or simple process. Instead, it involves 3 major phases such as:

•     Self Assessment,
•     Planning
•     Execution.

Self assessment

Self assessment is the primary step one has to complete before planning his finance. Doing a self assessment make him capable to understand his current wealth status and responsibilities. Following are the things to be covered in the self assessment process.

•      Age
•      Main source of income
•      Dependents in your family
•      Expenses
•      Monthly savings
•      Current investment status?
•      Retirement age

Planning

Planning requires your attention to lots of areas where possible mistakes can happen and that can cost you. When planning the finance, one must take care of the following points with great care:

• Self protection and protection of dependents from accidents and medical treatments
• Securing family and dependents from any future consequences happening to your life
• Protect your major assets
• Protect yourself and family from mortgages and loans
• Meet the unexpected expenses that may occur
• Plan for your children
• Plan for your retirement
• Plan your investments and balancing the same as per your age, risk profile, goals, etc.
• Financial advisory if required
• Monitoring your wealth and investment status

Execution

Execution phase required more efforts than the above mentioned 2 phases. Once after completing the same, it is a necessity to monitor the status time to time to understand the status and act as per any action if necessary depends on your life changes or requirements.

Financial Stages of an individual's life

Knowing and understanding the financial phases of life acts as a road map and helps you in designing a strong financial foundation to improve your chances of meeting your goals.  No one wants to become a burden on our families, relatives or friends. The life of a human being goes through three phases of life. If you are able manage these phases in a proper manner, you will have financial stability in life. These financial phases of life can be summarized as:

•      Accumulation phase
•      Distribution phase
•       Preservation phase

The accumulation phase

This is the period of accumulating assets that will contribute to your wealth. In this stage earning potential is huge and your expenses are less. During these phase you are likely to maximize your savings and invest the same to ensure better returns in future. Your risk taking capacity will also be high on this stage.

 

The distribution phase

Distribution phase is the period when you get to enjoy the benefits of wealth, when you are able to withdraw income from your assets. The family responsibilities, repayment of loan EMIs and expenses are playing an important role in your cash flow. In this phase the stress would be more on fulfilling your life goals and parental responsibilities.

 

The preservation phase

This is the period when you plan to preserve and protect your accumulated wealth and prepare to safely transfer it to your legal heirs. Most probably in this stage you will be leading your retired life. Here the cash inflow (income) will be very less.

 

Knowing these three phases of life helps you to understand yourself and lead a better future. Financial planning is the task of determining how an individual will afford to achieve his life goals and objectives. Preparing a written financial plan is very important to the success of any individual's life.

Steps to make your future safe

Following are the basic steps to make your future financially safe;

•      Evaluate your financial status
•      Fix your financial goals
•      Develop a financial plan for you
•      Implement and track the plan

Evaluate your financial status

Prepare a basic financial check list of your income, expense, assets and liabilities. This will help you to understand your financial status. Understanding your overall income and spending habits will help you in fixing your financial goals.

 

Fix your financial goals

Once you evaluate your financial goals, make a list of your future financial goals of life. It may include buying a home, purchase of a car, children’s higher education, daughter’s marriage expenses etc. You won't be able to imagine these cash outflows unless you write them down. Fixing of financial goals will help you in developing the suitable financial plan/strategy. 

 

Develop a financial plan for you

Financial plan depends on your financial goals. Preparing a financial plan is a one-time activity. You should know how you can meet your goals and objectives keeping in mind your present and future resources. Experts can help you in developing a financial plan.

 

Implement and track the plan

Once you design a financial plan it becomes very important to implement the plan and track the same. Having a good plan and not taking any steps to implement will not help you in any respect. This is the most important step as you need to act on the plan if you want to get it going. Mere implementation is not enough to achieve the financial goal, proper tracking also should be there.

 

A good financial planning will help you in finding easy and practical solutions for the following;

•      Managing debt
•      Reducing expenses
•      Coping with unemployment
•      Minimizing complications if your financial institution fails
•      Protecting your retirement savings
•      Making informed decisions about your home and mortgage
•      Improving your credit standing
•      Preparing for financial emergencies

In our next articles we will discuss different financial plans to be adopted in various financial conditions such as:

•      Financial crisis
•      Inflation
•      Unemployment, etc

source:- http://www.indianmoney.com/article-display.php?cat_id=1&sub_id=115&aid=801&acat=&ahead=Financial%20Planning%20in%20Tough%20Times.....!!

How to Do Intraday Trading.....?

Intraday trading

Intraday trading is a method of trading where you buy and sell the stocks within the same day. You won’t carry the position for the next day. This is also called as day trading. If you know how to do intraday trading, you can make huge money out of this at the same time if you don’t know the working of intraday trading you might make huge loss also. You can also take assistance from experts in selecting the stocks to trade. IndianMoney.com is providing excellent trading calls (Trading Tips) for potential traders/investors.

 

Intraday trading looks to be one of the simplest and most rewarding trading methods. If you want to be a successful intraday trader, you have to be very fast and quick. Intraday trader should be very keen and alert always. Strategies for Intraday Trading range from holding a position (buy/sell) for a fraction of minutes to holding until the end of the day. Basically markets are very dynamic in nature. There is no tailor made strategy that fits for all. You need to learn and analyze the strategy and apply whatever fits for the moment. You need to consider a broad range of information to determine which strategy will best suit for the market for the moment. This is where the importance of knowing how to do intraday trading is used. Intraday Trading if done correctly can be a very good source of regular income. This article will help you in understanding the basics of intraday trading.

 

Advantages of Intraday Trading

Following are the major advantages of Intraday Trading

•      Trading opportunities are very high
•      There are thousands of stocks to choose from
•       You can cut losses very quickly by fixing stop loss
•       Helps to earn huge money in a very short period of time
•       There is no overnight risk if a major piece of news hits your market after the close.

Disadvantages of Intraday Trading

Following are the major disadvantages of Intraday Trading

•      It is very risky
•      Possibility of losing capital is very high
•      You will miss the benefits of long term investments
•      Generally profit are smaller because intraday swings are shorter
•      Expenses are higher because of more frequent commission or brokerage.

9 Steps to become a Successful Day Trader

Intraday Trading/ Day Trading are one of the most attractive ways of making money. It is a money game; experts can make huge money, at the same time one who doesn’t know anything about the market may lose huge money. Understanding the below given points will help you in creating a fair idea about intraday trading.

 

• Start saving
• Plan before Trading
• Open a Demat Account
• Learn the Language of Stock Market
• Be ready to face Uncertainty
• Pick the Stock
• Set Targets
• Get Advice from Experts
• Understand the Pulse of Market
  
  
  Start saving

  If you want to participate in intraday trading you should have enough savings with you. You can use 10 – 15% of your savings every day for intraday trading. If you don’t have good money backup with you a considerable loss in the market can place you in financial problem. So before entering in intraday trading make sure that you have enough savings.

   

  Plan before Trading

  There are different kinds of traders in the market such as day trader, swing trader, short term trader, long term trader, etc. before trading you need to decide what kind of trader do you want to be? A Day Trader works in the market every day and requires more research, monitoring of the market, supervision, guidance, etc. before trading you should have a clear plan about your trading pattern other strategies.

   

  Open a Demat Account

  To start trading, you need to open a demat account with a broker. He can help you in placing the orders and all other issues related to trading. While choosing the broker you should be very careful, you need to know about all the charges and commissions imposed by the broker. Their past performance in the industry plays an important role in selecting the broker.

   

  Learn the Language of Stock Market

  The language used in stock market is entirely deferent; a common man may not be able to understand the technical terms used in the field. If you want to be a successful intraday trader you should be able to understand the industry’s language. You must know what you are asking for and when you listen to the talking heads sharing their opinions on news channels, you need to know what they are talking about.

   

  Be ready to face Uncertainty

  There is a learning curve in trading, until you learn to read the chart, read the mood of the market and recognize how to play. Till you learn that invest small amount in different stocks, you might make loss but experience will make you an expert and will help to generate huge profits in future.

   

  Pick the Stock

  Your first trade is the most important, but if you lose money, don't get panic. In the initial stage it is better to take the help of stock experts like IndianMoney.com. Till you learn the processes just stick to the plan with a set entrance and exit strategy.

   

  Set Targets

  While trading set a profit goal (Target) and a loss goal (Stop Loss) and place orders for both. If the stock price drops below a particular limit, your stop loss (loss goal) will save your capital. If you put your money in a gaining market, greed won't take over your profit because it will be triggered in your profit goal. Think if you don’t have a profit goal (target) you will keep your money in the market till the market ends in this case, if the market is coming down again you will lose all your profits.

   

  Get Advice from Experts

  Like any other job, stock trading also requires training and experience, you must practice it. It helps if you have a good guide or mentor who can give you great advice to trade. Day trading can be one of the most financially rewarding careers but you can't do it in half measures. It is always better to take the advice of experts. IndianMoney.com Provides expert opinion on excellent stock tips for intraday, short term and long term trading.

   

  Understand the Pulse of Market

  Stock trading can be a great way to make money but you should learn to read human behavior. You can never control the market. But you have control over how you read the market, how much homework you do to reach your goals, etc.  Always try to understand the market pulse.

  Useful Points for Intra Day Trading

  Most successful day-traders are those that have a system or method in trading and stick to it over a period of time. There is no "magic formula" to achieve success in intraday trading. Most day-traders plan their trades with a theory or method they have faith in and continue this process over a period. Discipline is very important for an intraday trader. Following are some of the useful points to be kept in mind while doing intraday trading.

  • Always have Stop loss while trading intraday.
  • Use technical charts to take trading decisions.
  • Always trade in very liquid stocks because entry and exit will be easy in such stocks.
  • Don’t stick to some selected stocks because any stock can perform well in any day.
  • If index is in falling then you should look to short stocks which are minus and not stocks which are in plus.
  • Do paper-trading before you start actual trading so that when you start making paper profits, then shift to actual trading.
  • Keep fear and greed are at minimum levels when you are trading otherwise mostly you will be under tension.

  Source:- http://indianmoney.com/article-display.php?cat_id=1&sub_id=12&aid=804&acat=&ahead=How%20to%20Do%20Intraday%20Trading.....?

Understand Different Segments of Mutual Fund.....!!

Mutual Funds

Mutual Funds are pool of money collected from investors. The collected money will be invested in the markets such as equity, debt, money market, etc. Mutual Funds are managed by professionally qualified fund managers, the professionalism and experience of the fund manager will help you in generating huge returns out of the investment. There are different types of Mutual Funds in the market such as Stocks funds,      Bonds funds,   Money market funds, Balanced fund, Asset allocation funds, etc. Again these funds have sub category. Selecting the best one that suits your need is very important. This article is designed in such a way to make you understand about all types of mutual funds. So that you will be able to chose the best one.

 

Advantages of Mutual funds

Below given are the major advantages of investing in Mutual Funds

•      Diversification
•      Professional Management
•      Greater convenience
•      High liquidity of Fund
•      Minimum Initial Investment

Types of Mutual Funds

Mutual funds fall into the following major categories;

•      Stocks funds
•      Bonds funds
•      Money market funds
•      Balanced fund
•      Asset allocation funds

Stock funds

As the name implies, stock mutual funds invest mainly in stocks. These stocks may be sold on the Stock exchanges. Unlike bond funds the very objective of stock funds are long-term capital appreciation. In bond funds, major income is generated from interest/dividend. However, stock funds may generate modest dividends from the stocks in the portfolio and from short-term cash investments but major part of income is from capital appreciation. Meaning of capital appreciation is very simple, the value increase/ price increase in the invested stock is called capital appreciation.

 

Types of Stock Funds

There are five basic types of stock funds they are;

•      Large Cap
•      Mid Cap
•      Small Cap
•      International
•      Sector.

Large Cap Funds

Large Cap Mutual Funds are primarily invests in "Blue-chip" companies (large companies). It means well-known industrials, utilities, technology, and financial services companies with large market capitalization. Large cap stocks are perceived to be less risky than small and mid cap companies.

 

Mid Cap Funds

Mid Cap Mutual Funds are primarily invests in companies with relatively small market capitalization. The market capitalization of companies where mid cap mutual funds are investing will be smaller than large cap and larger than Small cap companies. Mid caps are generally considered more risky than large cap stocks but have a higher return potential.

 

Small Cap Funds

Small Cap companies are primarily invests in emerging/budding companies. Small caps are generally considered as the riskiest fund compared to other two types of funds but it carries the expectation of higher returns. Small cap funds are subject to greater volatility than those in other asset categories.

 

International Funds

International funds are primarily invests in stocks traded on foreign exchanges but purchased in India by Indian fund management companies. Apart from the basic risks, international funds are subject to additional risks such as currency fluctuation, political instability and the potential for illiquid markets.

 

Sector Funds

Sector Funds are investing primarily in specific industry sectors such as technology, financials, health, energy, etc. Sector funds focus their investments on companies involved in a specific industry sector. Sector Funds involve a greater degree of risk as it doesn’t diversify the portfolio.

 

Bond funds

Bond funds invest in various types of bonds - issued by corporations, municipalities, and the government of India. Bond mutual funds are designed mostly to provide investors with a steady stream of income versus.

Types of Bond Funds

There are three basic types of bond funds.

•      Government
•      Municipal
•      Corporate

Government bond funds

Government bond funds primarily invest in bonds issued by the government of India. Investing in Government bond funds will be safe compared to any other funds because India Government is the authority issuing the bonds. These funds provide relatively decent returns.

 

Municipal bond funds

Municipal bond funds invest primarily in municipal bonds issued by state and local governments and their agencies to fund projects such as schools, streets, highways, hospitals, bridges, etc. Municipal bonds can be insured or non-insured securities. 

 

Corporate bond funds

Corporate bond funds are those funds in which the invest I made in bonds issued by corporates to fund their business activities. These funds are relatively more risky than other two forms of funds and also offer an opportunity to earn greater returns.

 

Money market funds

Money market funds invest in short-term securities such as Treasury bills. Most money market funds offer a higher rate of interest than bank savings accounts, and some are free of tax. Money market mutual funds are designed to be steadier than stock and bond funds. They are designed in such a way to provide steady income (dividend) on the investment amount, even though the yield may fluctuate daily.

 

Types of Money market Funds

There are two major types of Money market funds such as;

•      Taxable
•      Tax-free

Taxable

Taxable Money market Funds are primarily investing in short-term obligations from corporations. The returns from these funds will be free from tax.

 

Tax-free

Tax-free Money market Funds are primarily investing in short-term obligations from government entities. Returns from these funds are free from tax.

 Balanced Funds

Balanced Funds invest in stocks, bonds, and cash investments, in varying proportions. It produce dividend and capital gain distributions and share price appreciation in proportion to their allocation among the three major asset classes.

 

Asset Allocation Funds

In an asset allocation fund, the manager will diversify the assets among each category such as cash, stocks and bonds, and weight them according to the portfolio strategy. The manager will redistribute the weightings according to market conditions. Portfolio strategies generally differ according to risk tolerance such as;

•      Aggressive Growth Strategy Portfolio
•      Growth Strategy Portfolio
•      Growth and Income Strategy Portfolio
•      Income Strategy Portfolio

Asset allocation funds are generally made up of a mixture of other mutual funds within the same fund family. As market conditions change, the manager has the discretion to lessen exposure in one fund and increase it in another.

Source:- http://indianmoney.com/article-display.php?cat_id=1&sub_id=11&aid=805&acat=&ahead=Understand%20Different%20Segments%20of%20Mutual%20Fund.....!!

Day Trading Techniques....!!

Anyone can become a day trader but not everyone can make money out of it. Day trading is suitable for only those who wish to speculate on the stock market. Generally day traders say that day trading not only gives you the opportunity to make money, but also to lose. No matter whether you are a full time employee or part time employee, you can trade in stocks and enjoy the benefit. Stock market provides you an opportunity to use your knowledge of every-day events and convert them into profits.

 

12 Techniques for Day Trading

Following techniques will help you to become a successful intraday trader. Following the techniques are more important than understanding it.

 

• Fix a target price
• Wait for the buy/sell price to initiate the call
• Always fix Stop Loss
• Take expert Advice
• Analyze the tips carefully
• Wait, Watch and Trade
• Don't Overtrade
• Always follow Market trend
• Wait for an opportunity
• Don’t expect too much
• Confirm the buying & selling volumes
• Don’t get Panic

Fix a target price

Always fix a target price while trading. If you don’t have a target price, the greediness will make you to lose the entire capital in the stock market. Stock market is such a place it can fluctuate to any level. A fair increase in the price of a particular stock may give you a feel that the price will increase further but in the very next moment it may fall down drastically. 

 

For example; Buy Siemens at Rs.500, target Rs. 530 and stop loss is Rs. 495.

In this case you have to buy Siemens stock at Rs. 500 and sell it when it touches Rs.530 so that you can make a profit of Rs. 30. If you hold the share after it achieve the target, there is a possibility that the stock price may come dawn drastically after touching a certain limit. In this case you will lose all your profit and capital because of greediness. So fixing a target price is very important for traders.

 

Wait for the buy/sell price to initiate the call

Before trading in stock market you should fix the buy price and sell price. You should execute the trade only if the stock touches that particular level. For example, if the call is like, buy Unitech at Rs.80 target Rs. 85 and stop loss at Rs. 78. You should not buy below this price; only buy at Rs.80 or slightly higher. Because the given buy price may be the resistance price, if it breaks then share price goes up or else it may not go up. So always buy at given target price.

 

Always fix a Stop Loss

It is very important to maintain a stop loss while trading. This will help you in minimizing the loss in case the stock price is moving is the unfavourable direction. Assume that the share you bought falls down drastically, in this case you may end up with huge loss. But stop loss will help you to restrict your loss to a certain limit.

 

Take expert Advice

Stock market is a very risky place for a fresher lack of knowledge is very dangerous and it will make you to lose huge money. It is always better to do trading or investing by taking the advice and suggestions of an expert who has proper knowledge about the market. IndianMoney.com is providing accurate trading calls for its subscribers.

Analyze the tips carefully

No one is perfect in stock trading; no one can be a master in stock market. So do not blindly trade on the tips given by any one. Before trading observe that stock, check the volume, whether they are increasing or decreasing and then take a decision on your trade. 

 

Wait, Watch and Trade

Do not rush into the market without a proper analysis. Wait, watch and trade. Verify the market direction and place the order because most of the stock-tips do not work if market direction changes. Make sure and confirm all your strategies like resistance and support levels and then plan to trade.

 

Don't Overtrade

One of the most important things that all traders should keep in mind is that do not over trade. Never put all your money in stock, most of the brokers provide margin amount but it is up to you how to make use of this margin amount. It means if you have Rs.100000 in your demat account, you can trade for more than Rs.100000. But before trading you should have a fair idea about how much you can trade, how much you can afford to lose etc.

Always follow Market trend

Always trade with market trend and don’t move against market direction. Don’t short sell, if the market is going up and don’t buy if the market is falling down. Give more importance to market trends than individual perceptions.

 

Wait for an opportunity

If you are not sure about market movement then wait for an opportunity and don’t trade vigorously. It is always better to wait instead of losing money.

 

Don’t expect too much

Greediness will end up in losing all the money. So don’t expect too much from stock market, try to be happy in whatever profit you make. If you try to grab too much from market, the market will grab all your money. Remember that you are doing day trading so square off your positions with appropriate profit instead of waiting for big profit.

 

Confirm the buying & selling volumes

Before buying a stock check out the buying and selling volumes. If buying volume is increasing then the stock may go up and if the selling volume is increasing the stock price may come down.

 

Don’t get Panic

Don’t allow sentiments to rule you. If that is the case you are going to lose all your money in the market. During the day market might go up and dawn but don’t change your decisions continuously. Have a clear plan about the day and start trading. 

 Source:- http://www.indianmoney.com/article-display.php?cat_id=1&sub_id=12&aid=809&acat=&ahead=Day%20Trading%20Techniques....!!