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7 GREAT investment tips for BIG returns

Equity funds, if selected in the right manner and in the right proportion, have the ability to play an important role in achieving most long-term objectives of investors in different segments. While the selection process becomes much easier if you get advice from professionals, it is equally important to know certain aspects of equity investing yourself to do justice to your hard earned money.

Knowing them and by using them in the selection process can make a big difference to the end result. Here are some important investment guidelines:

1. Know your risk profile
Before you take a decision to invest in equity funds, it is important to assess your risk tolerance. Risk tolerance depends on certain factors like emotional temperament, attitude and investment experience. Remember, while ascertaining the risk tolerance, it is crucial to consider one's desire to assume risk as the capacity to assume the risk.

It helps to understand different categories of overall risk tolerance, i.e. conservative, moderate or aggressive. While a conservative investor will accept lower returns to minimise price volatility, a moderate investor would be all right with greater price volatility than conservative risk tolerances to pursue higher returns.

An aggressive investor wouldn't mind large swings in the NAVs to seek the highest returns.

Though identifying the desire for risk is a tough job, it can be made easy by defining one's comfort zone.

2. Don't have too many schemes in your portfolio
While it is true that diversification helps in earning better returns with a lower level of fluctuations, it becomes counter productive when one has too many funds in the portfolio.

For example, if you have 15 funds in your portfolio, it does not necessarily mean that your portfolio is adequately diversified. To determine the right level of diversification, one has to consider factors like size of the portfolio, type of funds and allocation to different asset classes. Therefore, it is possible that a portfolio having 5 schemes may be adequately diversified whereas another one with 10 schemes may have very little diversification.

Remember, to have a well-balanced equity portfolio, it is important to have the right level of exposure to different segments of the equity market like large cap, mid-cap and small cap. In addition, for a decent portfolio size, it is all right to have some exposure in the sector and specialty funds.

3. Longer time horizon provides protection from volatility
As an equity fund investor, you need to understand that volatility is an integral part of the stock market. However, if you remain focused on the long-term objectives and follow a disciplined approach to investing, you can not only handle volatility properly but also turn it to your advantage.

4. Understand and analyse 'Good Performance'
'Good performance' is a subjective thing. Ideally, to analyse performance, one should consider returns as well as the risk taken to achieve those returns. Besides, consistency in terms of performance as well as portfolio selection is another factor that should play an important part while analysing the performance.

Therefore, if an investment in a mutual fund scheme takes you past your risk tolerance while providing you decent returns, it cannot always be termed as good performance. In fact, at times to ensure that your investment remains within the parameters defined in the investment plan, you may to be forced to exit from that scheme.

In other words, you need to assess as to how much risk did the fund manger subject you to, and did he give you an adequate reward for taking that risk. Besides, you also need to consider whether own risk profile allows you to accept the revised level of risk

5. Sell your fund, if you need to
There is no standard formula to determine the right time to sell an investment in mutual fund or for that matter any investment. However, you can definitely benefit by following certain guidelines while deciding to sell an investment in a mutual fund scheme. Here are some of them:
- You may consider selling a fund when your investment plan calls for a sale rather than doing so for emotional reasons.
- You need to hold a fund long enough to evaluate its performance over a complete market cycle, i.e. around three years or so. Many of us make the mistake of either holding on to funds for too long or exit in a hurry. It is important to do a thorough analysis before taking a decision to sell. In other words, if you take a wrong decision, there is always a risk of missing out on good rallies in the market or getting out too early thus missing out on potential gains.
- You should consider coming out of a fund if its performance has consistently lagged its peers for a period of one year or so.
- It doesn't make sense to hold a fund when it no longer meets your needs. If you have made a proper selection, you would generally be required to make changes only if the fund changes its objective or investment style, or if your needs change.

6. Diversified vs. Concentrated Portfolio
The choice between funds that have a diversified and a concentrated portfolio largely depends upon your risk profile. As discussed earlier, a well-diversified portfolio helps in spreading the investments across different sectors and segments of the market. The idea is that if one or more stocks do badly, the portfolio won't be affected as much.

At the same time, if one stock does very well, the portfolio won't reap all the benefits. A diversified fund, therefore, is an ideal choice for someone who is looking for steady returns over the longer term.

A concentrated portfolio works exactly in the opposite manner. While a fund with a concentrated portfolio has a better chance of providing higher returns, it also increases your chances of under performing or losing a large portion of your portfolio in a market downturn. Thus, a concentrated portfolio is ideally suited for those investors who have the capacity to shoulder higher risk in order to improve the chances of getting better returns.

7. Review your portfolio periodically
It is always a good idea to review your portfolio periodically. For example, you may begin reviewing your portfolio on a half-yearly basis. Besides, you may be required to review your portfolio in greater detail when your investments goals or financial circumstances change.

While reviewing the portfolio, you must consider the following:
- How is your portfolio performing from the viewpoint of your personal goals? Are you comfortable with the price fluctuations that may have occurred keeping in view your short term, medium term and long-term goals?
- How are your investments performing compared with others in the same category? It is important as for example, a 15% growth in your fund may look great, but not if the average returns given by other funds in the same category is 25 per cent. However, too much emphasis shouldn't be put on the short-term performance.

Courtesy: www.rediff.com

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How to plan your finances through life

You see them everywhere. In malls, multiplexes and restaurants in every city. Demanding the latest gizmos, the most expensive wines, the most fashionable accessories... They belong to the 300-million-strong mass affluent population, and their motto seems to be 'have money, will spend.'

And that's visible in the record growth in the country's economic indices. It's visible in the fact that 47 commercial banks recorded an increase in retail lending from around 13 per cent in 2001 to almost 41 per cent in 2005. In fact, retail loans account for some 70 per cent of ICICI Bank's portfolio. Over the same period, SBI has reported a two per cent drop in corporate loans.
This is not something confined to the metros; according to RBI estimates, consumer durable loans in rural areas went up from 19 per cent in 2001 to 27 per cent in 2005. All of which points to the fact that across the country, the newly minted mass affluent class is earning enough to borrow and spend on what were hitherto considered luxury goods.

But simply because you are earning a lot and are in a position to spend does not mean you should ignore financial planning. Outlook Money examines the money imperatives at three points of an individual's lifecycle to develop a financial strategy in a time of affluence. This can serve as a roadmap to managing your money in these exuberant times.

Starting out single
This is the stage when you've started earning and are also spending recklessly. Typically, this group consists of 21-29-year-olds. Says certified financial planner Gaurav Mashruwala: "It is crucial in this stage to strike the right balance between spending on current pleasure and saving for future costs." While spending is not barred, this is the time when cash in hand must translate into a solid financial foundation. Money earned should be channelled into building a long-term corpus.

Create an education fund. It's your first job and you simply must have that swanky new mobile phone. And the latest iPod. And... Before you start splurging on gadgets and gizmos, keep some of your money aside to fund further education.

Because there's a very real possibility of being left behind in a knowledge-based economy if you don't constantly upgrade your skill sets. As this money is for short-term expenditure, ensure that you manage risk adroitly.

For instance, if your horizon is two-three years, invest in a debt:equity ratio of 75:25. Park this crucial corpus in a fixed monthly plan that currently yields 8-9 per cent return. If you have a five-year horizon, increase equity to 50 per cent.

Rein in spending. Remember to spend from profits from investments, not income. Typically, living a credit-fuelled life means you are leveraging your future income. Once that leveraging extends beyond the classic rule of thumb that EMI (equated monthly instalments on loans) must be below 30 per cent of your net take-home salary, it's time to cut down spending.

Build real assets. You've got your study corpus going, you've allocated a certain amount for non-discretionary spending, and you're paying all your regular expenses. If you have an investible surplus after this, take a home loan.

You not only buy a tangible asset, you get an extended window of up to 30 years to clear the loan, while, ideally, you should be retiring the loan earlier. And set aside some money for your retirement plan. Adds certified financial planner Lovaii Navlakhi: "It's not too early to start saving for retirement even at 25."

Insurance. If you don't have financial dependants and if your liabilities will not devolve on others, you really don't need insurance now. Ideally, wait till you're married before you take life insurance. However, medical insurance is essential at all stages of life. Says Navlakhi: "If you want to invest any surplus funds in a long-term product, you could pick a whole life policy or pure term loans for specific liabilities."

Mid-career, married

Expenses are high, matched by the outflow of investments. Though your income could be healthy, this is the time that your portfolio requires careful handling. Says Srikanth Bhagavat, CEO of Hexagon, a wealth management company: "This is a time when, if the roadmap is drawn, it takes execution for the rewards to come in."

Insurance. Protection, protection, protection. This should be your mantra at this point in life. Your insurance cover should be large enough to enable your family to live comfortably off the interest on the corpus amount in the event of an unforeseen occurrence.

Financial planners say if you earn Rs 10 lakh (Rs 1 million) a year, buy an insurance cover of Rs 1 crore (Rs 10 million). But remember, you need to have bought insurance by the time you turn 40 if you want to build a cost-effective risk cover.

Financial planning. Writing down your goals in consultation with your partner and then adopting a structured method to reach them is vital in the mid-career stage when expenses shoot up.

Says Navlakhi: "If you have articulated your money plan, then it is easy to prioritise." Once you bring in some method to money management and once you identify your goals, it becomes far easier not to splurge on a fancy plasma TV and to save for your child's college education, instead.
Asset allocation. Fine-tuning your portfolio is vital at this stage. This is the time when you need to constantly track the impact of external environment changes on your money. For instance, if profits of Rs 200,000 are shaved off from your corpus of Rs 10 lakh (Rs 1million) due to a market slump, you must examine your equity-debt allocation. Says Bhagavat: "As long-term goals are crucial at this stage, diversifying across asset classes is important."

Alter and adapt. Financial planning requires agility. For instance, parents typically keep a goal of setting aside Rs 3-7 lakh (Rs 300,000 to 700,000) for a child's education. But if you consider the effect of inflation and erosion in rupee value over the next 10 years, the real cost of funding Junior's education can shoot up.

Make room for changed scenarios in your financial plan. Adds Mashruwala: "The government controls the fees at top colleges at present, but costs may go up in the future if caps on college fees go."

Spending control. Says Bhagavat: "Don't stint on pleasure but make your profits pay for it, not your retirement corpus." That's sage advice.

This is also the time to make your children financially literate. Postponing spending decisions in a time-bound manner can teach them to handle money responsibly. Show them how profits on investments in a two-year time frame can fund a holiday abroad.

Bhagavat, for instance, told his children that they would have to wait a while to get a Basset Hound pup. The pup was bought finally from the profit he booked by selling an IT stock at a high value a week after buying it during a market slump.

Empty nesters
These are often called the golden years, and so they will be if you've planned well and wisely. There are, of course, specific aspects of money that must engage you, including your tax plan, your health cover and income protection.

Growth-oriented portfolio. Bhagavat says, "Inflation is the real threat for senior citizens today." The challenge is to stretch income enough to provide for extended life spans. As equity protects against inflation, ensure that you have at least 30 per cent equity exposure in your portfolio by the time you are 55-60. Trim equity down to 20 per cent by the second decade of retirement and 10 per cent in the third decade.

Realign real assets. Mashruwala says, "Senior citizens will have to ensure that their net worth is not locked up in real estate." Investments in real estate in this stage should be geared to future needs. There is no point in building a four-bedroom house that lies empty in your later years and does not fetch you any returns.

Plan your taxes. Manage your maturing investments outflow by placing it in instruments like the Senior Citizens Savings Scheme and post office deposits. Says Navlakhi: "Even an increased outflow of Rs 20,000 in taxes in the retired years can mean a huge hit on income."

Healthcare. The focus on health cover should ideally begin early enough for you to be in fine form in later years. Says Mashruwala: "Pick up mediclaims for yourself and your spouse at least five years before retirement." More importantly, don't forget to pay the premium on time. A simple memory lapse can cost you your health cover in your later years, as companies can refuse to renew a policy.

Estate planning. Financial planners caution against bequeathing assets while you are alive. The idea is to chart out a legally foolproof will that will allow your inheritors to enjoy the proceeds once you are gone.

It sounds like a lot of hard work, but financial planning is actually easy. Just think of a future without all the luxuries you take for granted today, and you may find it easier to salt away some money regularly instead of splurging all of it. Spend, but remember to plan for the future as well.

SOURCE: www.rediff.com

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Sleeping Beauty

Laughter

Baby Crying .. and then Laughing ....

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BABY

ONE LINERS

Q: What's the difference between a good lawyer and a great lawyer?
A: A good lawyer knows the law. A great lawyer knows the judge.

• Nurse: A beautiful woman who holds your hand for one full minute and then expects your pulse to be normal

• At the scene of an accident a man was crying: O God! I hv lst my hand, oh!
Santa: Control urself. Don't cry. See that man. He has lost his head. Is he crying?

• A blonde was being admonished by the doctor: Until the penicillin cleans out ur infection, u r to have no relations whatsoever!
Pausing for a moment, blonde replied: Ok, but what about friends & neighbors?

• A French guest, staying in a hotel in New York, phoned room service for some pepper.
"Black pepper, or white pepper?" asked the concierge.
"Toilette pepper!" said the Frenchman.

• A history professor and a psychology professor were sitting on a deck at a nudist colony.
The history professor asked the psychology professor, "Have you read Marx?"
The psychology professor replied, "Yes, I think they are from the wicker chairs."

• We sleep in separate rooms, we have dinner apart, we take separate vacations--we're doing everything we can to keep our marriage together

• Mother: So, you want to become my son-in-law?
Boy: Not really, but I don't see any other way to marry your daughter

• Two women were talking about their new milkman.
First: He's very good looking, punctual & dresses so smartly.
And so quickly too!, said the other.

TOP 5 LUCKY GOALS

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The Legends of NIU

This is all about our 2 years of masti during our Masters at Northern Illinois University.

MBAs and the art of job-hopping

There is no doubt that B-schools teach you a great deal, both in terms of the tools, techniques and theory of management and the limited practical experience you pick up while at campus.
But what a management education essentially does is provide a solid grounding that needs to be leveraged and enhanced by the learning provided in the workplace.

In that sense, there is no "magic" in a B-school education alone. There are, however, several things that work experience teaches you.

A significant workplace learning is the need for professional stability. A B-school label certainly increases your marketability, so the temptation to switch jobs frequently for a better designation, a more prominent brand name or a larger pay-cheque is high.

But it's not a good idea from the point of view of professional growth. Of course, this is not to say that you should not change jobs. But to develop as a well-rounded professional, it is important to prove yourself over a period of time within a company.

A team at Genpact did an survey of the top 100 successful private sector companies. You will be surprised to know that the average tenure of the CEOs within their organisations was at least 15 years. This is also true of GE/Genpact, where the average experience of senior leadership team members is 10 years.

Partly connected with the point above is the vital need to develop expertise. With growing competition in business, an in-depth knowledge of a subject helps to manage ambiguity and solve complex problems.

For instance, you can't become a first-rate HR professional if you don't know the laws governing industrial relations, compensation benefits and so on.

Another aspect that you can't really learn at B-school is the need to develop a positive disposition. This may sound simplistic and idealistic, but the importance of a constructive outlook cannot be over-emphasised. It is easy these days to find people with drive, passion and ambition.

COURTESY: www.rediff.com

Here's help on how to plan your investments

Personal profile
Amit should detail out his age, family background, educational qualifications and professional experience. How much does he earn and save?
What are his assets? And what are his liabilities?
This will give an idea about how much Amit is likely to earn and save over his working life.

Investment objective
- What does Amit want in future - a house, a car, education and marriage of his children, retirement corpus, etc.? At what stages of his life would he need them?
- What is the investment amount?
- What is likely to be the investment pattern - regular or one-time or both?
- What is the investment horizon?
- What is the liquidity need? Will he need this money in next two months, six months or one year? Or can he keep it invested for much longer time?

Insurance planning
Is Amit adequately protected - both for life and medical emergencies? Are the amounts of life and mediclaim cover sufficient to meet the eventualities, in case of any unfortunate events?
Does he have the right policies?

Tax planning
Is Amit taking advantage of all the tax benefits available under the law? Is he rightly allocating his savings amongst the various options available, so that they are in line with his financial profile?

Risk assessment
What level of risk is Amit willing to take in equity? How does depreciation in investment value affect him, both financially and emotionally?

How critical are capital preservation, growth, regular income and volatility to Amit?
A broad perspective, taking into account all the above parameters and any other points specific to the investor, will give the appropriate investment solutions. It is said that right planning is 80-85 per cent important. Significance of actual investing is just 15-20 per cent.

COURTESY : www.rediff.com