Equity Investment Analysis

Equity Valuation

The security analyst when faced with the problem of a buy or sell decision must first evaluate the past performance of the security, and then coupled with his personal experience predict the future performance of the security and the relative market position. The amount of data available to him far exceeds his potential and therefore he has to base his predictions on several basic attributes and modify the results in the light of intuitive beliefs. While the process may be successful, its intuitive segments make the evaluation of errors and improvements of this technique very difficult, if not impossible.… Read the rest

Margin Trading or Buying on Margin

Buying on margin means borrowing money from a broker to purchase stock. Margin trading allows one to buy more stock than normal. To trade on margin an account is required. The margin account is a credit based account. In an account one can avail loan to buy stocks. Marginable securities act as collateral for the loan. Securities traded in the margin account are the marginable securities. Like any other loan there is interest charged on the amount borrowed. One should read the margin agreement and understand its implications. One is required to maintain an equity amount that ranges from 50-90%.… Read the rest

Types of Debt Mutual Funds

Debt mutual funds are those that predominantly invest in debt securities. Since most debt securities pay periodic interest to investors, these funds are also known as income funds. However, it must be remembered that funds investing in debt products can also offer a growth option to their investors. What is more important is that the portfolio is predominantly made up of debt securities. The universe of debt securities comprises of long-term instruments such as bonds issued by central and state governments, public sector organizations, public financial institutions and private sector companies; and short-term instruments such as call money lending, commercial papers and certificates of deposits and treasury bills.… Read the rest

Mutual Fund NAV Calculation

The net asset value is the market value of the assets of the scheme deducting its liabilities. Simply put, the NAV is what investors are required to pay to buy or sell one share of the mutual fund. Keep in mind any additional fees are not included in this amount. In accounting terms, NAV is also known as the book value of the mutual fund.

The net asset value per mutual fund unit on any business day is computed as follows:

NAV = (Market value of the fund’s investments + Receivables + Accrued income -Liabilities -Accrued expenses)/Number of units outstanding

Rules Governing the Mutual Fund NAV Calculation
  1. Accrued Income and Expenses: The correct accrual of all incomes and expenses is a requirement for computing NAV.
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Mutual Fund Products

There are a variety of ways in which mutual funds are created to accommodate varied risk and return requirements of investors. Depending on the investment portfolio that is created and the segments of the various markets in which funds are invested, there is a choice of funds to investors. Mutual funds can offer further broad choices to the investors in terms of:

  • Nature of participation: Open and close-end funds.
  • Nature of income distribution: Dividend, growth and reinvestment of dividends.

Mutual Fund Products based on the Nature of Participation

1. Open-Ended Mutual Funds

An open-ended mutual fund remains open for issue and redemption of its shares throughout its unlimited duration.… Read the rest

Mutual Funds and Stock Analysis

The investment pattern in a mutual fund depends on investment objective. The Asset Management Company (AMC) team includes the research analysts, fund managers and dealers appointed by AMC itself. The fund manager is held responsible for all the investment decisions taken and also takes decision on the investment pattern, of the scheme based on the objectives of the scheme. Information with regard to various investment opportunities are provided by the research team and the dealers implement the decision of the fund manager. The fund manager uses both primary and secondary markets for actually investing the funds. The deals are placed through the fund’s brokers and the custodians take care of the back office operations involved in the investment decisions.… Read the rest