Investor Awareness Week

ZEN Money is glad to announce its investor awareness programme in Gudivada, Bhimavaram and Kakinada. The details are appended in the image below. Register now to make the most of the investor meet. 

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Investing in what you know

In a world dominated by lot of institutional investors what can an individual investor do to stand-out and take advantage of the opportunities that lie ahead of him/her?

Unlike institutional investors, individual investors need not remain invested all time.

The individual investors have inherent advantages over large institutions as large firms either wouldn't or couldn't invest in small-cap companies that have yet to receive big attention from analysts or mutual funds.
To take advantage of the opportunities, individual investor can invest in stocks of companies that he/she understands or knows, provided the valuations are attractive.

For example : As an individual, in your daily routine, you would use lot of products and services from various companies.

Here, let us examine the products & services that you may come across in your daily routine:

Once you wake up you might read a 'Deccan Chronicle' newspaper, thereafter use your 'Colgate' toothpaste/brush, shave with Gillette and use a shampoo made by P&G or HLL. For Breakfast, you might be having 'Britannia's' Cakes and Glaxo's 'Horlicks'. After wearing the dress from 'Zodiac', 'Titan' watch and 'Bata' shoes you might ride your 'Hero Honda' or drive a 'Maruti Suzuki' 4-wheeler to reach your destination. Through the day, you might call your friend from your 'Airtel' mobile and plan a movie in 'PVR' over the weekend.

In most of these cases, you have been using the products or services for quite some time and liked them, and knew that the company was doing well, but might not have taken advantage of the opportunities provided by the stock market to invest in these company's stocks and benefit from the
growth of these companies.

For example: X and Y purchased their 'Whirlpool' refrigerators last March, ahead of Summer, at Rs.20,000. Y, also an investor, investing in the stock market noticed that the company is performing well, and found the valuations were reasonable and purchased Rs.20,000 worth of whirlpool stock as well (800 shares @ Rs.25). After about an year, while 'X' is happy with the refrigerator, 'Y' is not only happy with his refrigerator, but also with his decision to invest in 'whirlpool', which worked wonders for him! You may wonder how? The 'Whirlpool' stock went up by nearly 10 times in the last one year and is currently trading at Rs.250 and value of Y's investment multiplied to Rs.2,00,000(ie.800 shares @ Rs. 250)

Here, we should add a caveat before you think investing is too easy and you want to buy shares of all the companies that you know. A good company is the starting point of investing; we should also study if it is available at reasonable valuations.

Going back to March last year when ‘Y invested in the stock, Whirlpool India, whose parent company was the largest consumer durable company in the world was quoting at around 6 times P/E. It was a debt free company where both sales and the profits were growing at a steady pace and the valuations were certainly attractive.

Buying the stock in a company, just on the basis of its attractiveness may not always be a correct decision. For example, if you would have purchased 'Titan' shares 7 years ago, along with your watch, the amount invested in that stock would have gone up by 40 times, however, if you had invested in 'Jet Airways' after flying with them nearly 5 years ago then you would have lost 60% of your investment.

Finally, identifying the growth potential of the company through positive experience of the company's product or services is not sufficient. One should take an investment decision based on the valuation of the company and future prospects through due diligence.

Let us know what you think of this article. If you are raring to go, visit us to get free research delivered right in to your Inbox.

Get the SIP Advantage

● Reduces Risk: Fixed investments every month makes volatility in the market irrelevant.

● Disciplined Savings: More disciplined in one's savings as one is habituated to save & invest regularly.

● Power of Compounding: The concept of compounding investment earns higher returns on investments.

● Rupee Cost Averaging: SIP is an effective way of investing as rupee cost averaging, lowers the risk of losses in the long run.

● Income Tax Benefits: By investing in SIP-ELSS, one can avail tax benefit on upto a maximum of Rs.100,000/- under section 80 C. SIP-ELSS has the shortest lock-in period as compared to other tax-saving instruments.

● Capital Gains Tax: Long-term capital gains earned on Mutual Funds/SIP are taxed at zero on holdings for a period of more than 12 months. While, short-term capital gains are taxed at 15% on holdings for a period of less than 12 months.

● Investing at early age: Investing in SIP at early age makes your investments earn faster and become bigger as you grow.

● Helps to fulfill one’s Dreams: The investments we make are ultimately for some objectives such as to buy a house, children’s education, marriage etc. And most of them require a huge one-time investment. As it would be difficult to raise such large amounts at short notice, one needs to build the corpus over a longer period of time, through small but regular investments. 

This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations.

● Do not put all your eggs in one basket: Another advantage of investing through SIP is that even with small amounts one can enjoy the benefits of diversification. Huge amounts would be required for an individual to achieve the desired diversification, which would not be possible for many of us.

● Transparent & Regulated: The Mutual Fund industry is well regulated both by SEBI and AMFI.

Discover the Potential of the SIP and Mutual Funds.

To know more on how we can help you invest in SIP and Mutual Funds, please register with us. You also stand to win free market research delivered to your Inbox.

Study Yourself before...

....you study the market.

Investment success or failure depends on your ability to formulate a successful investment strategy and to have the discipline to follow the chosen investment strategy. Understanding one’s own personality traits is essential, both for formulating a successful investment
strategy and in implementing the strategy with discipline. For example: if you are prone to take impulsive decisions, you could end up buying stocks on tips without doing detailed research in stocks where you are investing, whereas if you have an aggressive personality, you might be trading/investing in stocks with high risk-reward ratio.

New investors should make prudent stock investments in the beginning by investing small amount of capital until they gain confidence on their investment strategy. While investing, they should also gain clarity about how their personality traits could affect the successful outcome. Although the investors might not gain during the initial learning period, they can successfully deploy their experience while managing a bigger pool of funds.

If you are an existing investor, the best way to learn and improve the success in investing would be to study whether you are taking buying/selling decisions based on the emotions or based on a sound investment strategy and review the performance of your past investment decisions.

Before you evaluate your performance you need to gather data about your past transactions. Thereafter, you should be reviewing your reasons for purchase and/or sale of your investments.
Check whether the reason to buy a stock was based on some rumour/hot tip from your friends or based on information about the expected stock price movements? Have you bought any stock because it seems to be moving a lot off late and you expect it to continue to rally after you have purchased it?
Did you buy some stock because all your friends and most of the investing crowd seem to be buying it and you do not want to feel left out?
Have you bought a stock because you had a gut feeling that it would go up and you did not want to miss the upside opportunity?

In most of the cases above, 'greed' was the predominant emotion that has dictated the purchases by the investors.

Check whether you have sold the stock, after it witnessed a steep fall and you were afraid that it would continue to fall?
Have you sold your investments because other investors were also exiting and there is panic in the market place?
Have you sold because you had notional losses and were afraid that there could be some negative developments in the company and the stock would fall further?

In most of the cases above, 'fear' was the predominant emotion that has dictated the sales by the investors.

Investors also need to review their current holdings periodically to check whether they are holding stocks as a part of their investment strategy or due to decisions based on the emotions such as hope, love, disbelief.

If the stock you have bought witnessed a steep fall, are you still hoping that the stock would recover to reach your cost price where you bought, so that you can recover your amount?
Are you in love with some of the stocks that you hold, and as a result you do not want to sell those stocks even though the performance of the stock is poor?
Are you still holding the stocks that you have bought at higher prices in an up trend because there is disbelief that the market has turned around and entered a downtrend?

If your answer to the above questions is yes, then you might not be holding
stocks that give you the best upside opportunities in a recovery.

Pls. note that investors whose decisions were dictated by the emotions such as Greed, Fear, disbelief and love are the ones who are not able to establish a proportionate balance between risk and reward. Once they understand their personality traits they can remove the distortion caused by their emotions and they would be able to take a more disciplined approach towards investing.
By reviewing the past experiences in the market and learning from them, investors can improve their success rate in stock market investing. Based on their learning, investors can redefine their investment strategy and apply it successfully to invest in Stocks, Commodities and Real Estate markets!

Needless to say, we are always there to help you. If you haven't realized the potential of ZEN Money, we recommend that you try it. Additionally, you can also avail the offer of free online research newsletter by signing up with us. Meet you soon!

Open Offer

What is Open Offer?

An open offer is an offer made by an acquirer to buy a fixed quantity of shares, when his stake in the target company crosses certain pre-defined limits. In case of takeovers, an open offer can be an exit opportunity for existing shareholders
as the offer price is usually at a premium to the prevailing market prices.

When would an open offer be triggered?

~ If an entity’s stake in a company crosses 15% of the total shares outstanding, then he needs to make an open offer for a further 20% of total shares outstanding.
~ If an acquirer has 15% or more but less than 75% of shares, to get more than 5% of the voting rights of the company in a year, the acquirer needs to make an open offer for further 20% of shares of target company.
~ An acquirer, who already has a stake of 75% or more in a company, can acquire further shares only through an open offer from the shareholders.

Regulatory View

● SEBI's (Substantial Acquisition of Shares and Takeovers) Regulations, 1997: Provides regulations and suggests measures to protect interest of the investors.
● If the shares received by the acquirer under the offer were more than the shares agreed to be acquired by him, the acceptance would be on a proportionate basis.
● After the public announcement of open offer, it should be opened on or before 55 days. The open offer is kept open to the public for a period of 21 days.

How does one determine the offer price?

SEBI does not decide or approve the offer price. The acquirer is required to ensure that all the relevant parameters are justified in the offer, which are
● The highest price at which the acquirer has acquired the shares of the target company as per the agreement.
● If the target company is frequently traded, then the average of weekly high and low prices of shares is taken for 26 weeks or during two weeks prior to the date of the Public Announcement, else the fundamentals of the company are
considered.
● In case of abnormal cases, amendments of regulations are expected from SEBI to deal with pricing issues. (Ex. Satyam Computers)

How can an investor benefit?

● Short-term players might enter for arbitrage when the market price of the stock is lower than offer price, and exit the stock before the close of open offer, as there is a possibility of share price moving towards the offer price.
● If the acquirer is accepting more number of shares, then there is a greater possibility that the shares tendered by the investor would be accepted under the open offer.

More Importantly - The Conclusion:

An investor can benefit under an open offer, as it is an opportunity for him to exit his position in a stock, at a price that is usually higher than the prevailing market price. Short-term traders can also benefit from the arbitrage opportunity in the
open offers as the stock price usually moves closer to the offer price, once the company announces an open offer.

However, if the number of shares tendered by the investors were more than those available under the open offer, the company would acquire the shares on a pro-rata basis. Also there is a risk of a steep fall in the share price once the open
offer concludes. As a result, the investor could end up having to sell the unaccepted stock at lower prices.

On the tax angle, both short-term investors and long-term investors are taxed with the applicable tax rates as open offers are treated as off-market transactions (hence the lower capital gain taxes that are applicable for normal investors in the market would not be applicable to the gains made by submitting the shares in an open offer).

Please feel free to leave comments as feedback or visit us for an extended dialogue. 

ZEN Money launches ZEMO

Did you invest stocks, are constantly worried about the market swings, and would love to be in touch with the swings even on the move. ZEN Money was listening to you all the while and launched ZEMO, your market in pocket.

ZEMO is an innovative Service that brings the stock market literally at the control of your fingertips. With Zemo, you can always stay connected with Zen Money.

Zemo helps you to

View Real time Equity, F&O, currency & Commodities prices on your mobile View Your Stock and Cash Balance, Net worth statements and mutual fund holdings View integrated Market Watch for Equity, F&O, Currency and Commodities No Downloads required, access directly from mobile View your Margin statement and day’s position

All You need is a GPRS enabled mobile phone and you can get connected to the market from anywhere

ZEMO is available only to customers of Zen Money. Interested in becoming one, click here. You now get a free online newsletter when you sign up with us. More information about the launch of ZEMO in leading local dailies: On Eenadu On Sakshi

FCCB - What?

Foreign Currency Convertible Bonds (FCCBs) are debt instruments issued in a currency different than the issuer’s domestic currency with an option to convert them into common shares of the issuer company at the option of the lender. FCCB acts
like a bond by making regular coupon and principal payments and also gives the bondholder the option to convert the bond into a pre-specified number of equity shares.

Features
● FCCB issues have a ‘Call’ and ‘Put’ option to suit the structure of the Bond. In India, both the options are subject to RBI guidelines.
● FCCBs are of either secured or unsecured type and can be converted into Indian shares or ADRs/GDRs (Depository Receipts).

Regulatory View
● FCCBs can be raised through automatic route by all Indian corporates except by financial intermediaries such as Banks, FIs, NBFCs, etc. For the financial institutions dealing exclusively with infrastructure or export finance and banks, FCCB issues have to be approved by the RBI.
● RBI approval is not required for issues up to $500 million during the financial year and this form of financing is treated as FDI and companies have to comply with sectoral FDI regulations. The funds generated should be parked abroad until the actual requirement arises.
● FCCB proceeds should be used for investment purposes and for overseas direct investment in JVs or wholly owned subsidiaries, or acquisition of shares in divestment process etc.
● FCCB coupon rates are capped: 6 month LIBOR plus 300 bps for 3 to 5 year FCCBs; 6 month LIBOR plus 500 bps for FCCBs above 5 years.

Pricing & Buy-back
● FCCB issues are priced higher than the average of weekly high & low of the closing prices of the issuer company, subject to certain conditions for calculating the average price. The option price is fixed at a premium of around 30% to 70% to the prevailing stock price.
● The right to buyback is vested with the issuer of FCCBs. However, the actual buyback is subject to the consent of the bondholders.
● Buy back of FCCBs upto $500 million does not require RBI’s approval but the buyback value should be at a minimum discount of 15% on the book value and the buyback is to be funded by existing foreign currency funds held either in India or abroad.

Advantages
● The issuer has a possibility to skip paying the interest/principal on the FCCBs if the stock price appreciates, while the lender can have an option to take advantage of any favourable movement in the stock prices, apart from earning regular interest/principal payments.
● FCCBs carry a low/zero coupon rate, providing the issuer company with low cost funding.

Disadvantages
● If FCCBs are not converted into equity shares on account of depressed stock prices, there can be a sizeable redemption liability for issuing companies, along with regular interest expenses.
● Conversion of FCCBs can result in equity dilution for the promoter group.

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