Ranjan Varma's Blog

Should Banking Be Made Boring? - An Indian Perspective -

2009-11-26T11:45:00.001+05:30

Should Banking Be Made Boring? - An Indian Perspective - Keynote address by Dr. Duvvuri Subbarao, Governor, Reserve Bank of India at the International Finance and Banking Conference organized by the Indian Merchants’ Chamber on ‘Banking - Crisis and Beyond’ on November 25, 2009 in Mumbai.

via SPEECHES FROM RBI on 11/25/09

The global financial system has been engulfed in possibly the deepest crisis of our time shaking our world view of the financial sector to its roots. As attention both around the world and here in India shifts from managing the crisis to managing the recovery, the importance of consolidating the lessons of the crisis and reflecting them in our forward plans can hardly be overemphasized. Being at this conference and sharing some thoughts and ideas with you is therefore an opportunity to which I attach a lot of value.

II. Calls for Making Banking Boring

2. Banks have been at the heart of the global financial crisis and bankers are widely seen as being responsible for the crisis. Quite understandably, there is a deluge of ideas and suggestions on reforming banks, banking and bankers. One of the more influential ideas, one that has generated a vigorous debate, has been the thesis put forward by the noted economist and Nobel Laureate Paul Krugman that the way to reform banking is to once again make it boring.

3. Taking a long term historical view, Krugman argues that there is a negative correlation between the ‘business model’ of banking and economic stability. Whenever banking got exciting and interesting, paid well and attracted intellectual talent, it got way out of hand and jeopardized the stability of the real sector. Conversely, periods when banking was dull and boring were also periods of economic progress.

4. To support his thesis, Krugman divides American banking over the past century into three phases. The first phase is the period before 1930, before the Great Depression, when banking was an exciting and expanding industry. Bankers were paid better than in other sectors and therefore banking attracted talent, nurtured ingenuity and promoted innovation. The second phase was the period following the Great Depression when banking was tightly regulated, far less adventurous and decidedly less lucrative - in other words banking became boring. Curiously, this period of boring banking coincided with a period of spectacular progress. The third phase, beginning the 1980s, saw the loosening of regulation yielding space for innovation and expansion. Banking became, once again, exciting and high paying. Much of the seeming success during this period, according to Krugman, was an illusion; and the business model of banking of this period had actually threatened the stability of the real sector. Krugman’s surmise accordingly is that the bank street should be kept dull in order to keep the main street safe.

5. The challenge for Indian banks, therefore, is to reduce costs and pass on the benefits to both depositors and lenders. This will involve constantly reinventing business models and designing products and services demanded by a rapidly growing and diversifying economy. As we noted earlier, in the wake of the crisis, there are proposals at the global level to mandate higher capital standards, stricter liquidity and leverage ratios and a more cautious approach to risk. Admittedly, all these safeguards are necessary, but they will also raise the banks’ funding costs. Wha54. Let me now conclude by summarizing the issues that I have addressed today. I have referred to the debate generated by Prof. Krugman’s thesis that ‘exciting’ banking will make for an unsafe and unstable financial system and that an important preventive against future crises is to restore boring banking.

55. I have argued that making banking boring is neither a cure to the ills that the banking system was plagued with before the crisis nor an appropriate path for the future of banking. Banking has to evolve, grow and innovate in response to the developments in financial markets and institutions. The excitement lies in responding to the challenges that this growth brings.

56. From an Indian perspective, what banks do and how well they do it is going to be central to accelerating and sustaining our growth momentum. In particular, I have referred to four challenges that the banking sector has to meet head on - deepening financial inclusion, financing infrastructure, strengthening risk management and improving efficiency. These are formidable challenges, and meeting them is going to be an exciting, rewarding and fulfilling opportunity. Perish the thought of Indian banking ever getting boring.

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Rupee Cost Averaging

2009-11-12T17:38:00.001+05:30

Rupee Cost Averaging – Get More Value for Your Buck

Posted: 10 Nov 2009 06:58 PM PST

Sameer is a common investor. He wants to invest in the stock market, but is worried that the market will fall after he invests as the market has run up too much too fast. But at the same time he is worried that the market may continue to rise without a meaningful deep correction as it has being doing so since the last 2-3 months and he might miss the rally and the potential gains that he would make with it. Sameer is in a dilemma whether he should jump into the market immediately at the current level or continue waiting for the correction which refuses to come. In short here Sameer is trying to time the market which lot of common investors try to do. Many a times common investors get it wrong when they try to time their market entry and have burnt their fingers due to the market fall post their investment. Or many a times many investors have been left on the sidelines watching the markets go up, waiting for the correction endlessly which never comes through when required. Concept of Rupee Cost Averaging The simple solution to the problems of people like Sameer is Rupee Cost Averaging. It is very difficult for a common man to predict the day to day movement of the stock markets. Hence it is best to start investing on a staggered basis by making regular monthly investments. This helps the investor to spread out his investments evenly over a period of time. This process of making regular monthly investments over a period of time at various market levels is known as Rupee Cost Averaging. It is not always possible for an investor to buy at the lowest point and sell at the highest point. Rupee cost averaging helps the investor to reduce this risk of timing the market to a great extent.

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You Need Momentum, Not Just Motion

2009-10-29T20:03:00.001+05:30

via Startup Professionals Musings by MartinZwilling on 10/29/09

Too many people confuse motion with momentum. We all know someone who repeatedly tells us how “busy” they are, when it’s hard to see what they get done. Momentum is moving things forward (mass x velocity). Founders or employees in constant motion, but with no momentum, will kill any startup.

It is true that motion in any direction is often better than no motion at all. But motion without momentum is even less productive than no motion at all. For a more thorough discussion of this phenomenon, see a recent book entitled “Fake Work: Why People Are Working Harder than Ever but Accomplishing Less”, by Brent Petersen and Gaylan Neilson.

So how do you fight this, and get real momentum going in your startup? Here are some key recommendations:

Measure results, not work. Build your business plan and day-to-day operations around real results that are quantifiable and measurable. For example, a result is not forty hours of work, but a prototype complete, partner contract signed, or first customer sale.

Focus and prioritize. There will always be more things to do than anyone has hours in a day. Focus means act instead of react, act on the important things. Don’t allow yourself to be interrupted by “urgent” issues of the moment, which may not be important.

Live the 80/20 rule. Pick the 20% of your important tasks that will deliver 80% of the results. Judiciously apply the 20% of your energy where it will achieve 80% of the momentum you desire. Maintain that balance of work, family, sleep, and unwind.

Communicate effectively. People can’t do the job you want unless you communicate effectively. So they scurry around trying to look busy, or work on random things that they hope might generate momentum. Tell people what results you expect, tell them how they measure up so far, and tell them how much you appreciate their efforts.

Recognize the finish line. Don’t burn yourself and everyone out, by continuing a forced march after you pass the finish line, or even a major milestone. Gather your thoughts and savor the small successes along the way.

During the early start-up phase, most of the momentum in a new company derives from the entrepreneur's own commitment and self-sacrifice. You do almost everything by yourself, and your focus is on building enough cashflow so you can start bringing in people to help you. Watch yourself for wasted motion during this stage.

Cashflow is the element of momentum that allows you to hand over jobs to other people and do more of your core passion jobs, like creating content or designing new products. This creates more value in your business and increasing cashflow – more momentum.

What you then want is for the momentum to compound, with each new employee or outsourcer you hire to help, to give you get more time to create value and ultimately, increase profits. At this point especially is where you need to watch out for fake work, which thrives in less dedicated hires, outdated cultures, and old work processes.

Recent research indicates that across all business organizations, as much as 50% the work that people do in that stage is just motion not related to their company’s strategies. Think of the drag this can put on your momentum.

Starting a new business is a little like taking off for the first time as the pilot of a new airplane. You need to push that throttle all the way to the dashboard until your knuckles are white, but never forget the relationship between motion and momentum.

Marty Zwilling

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Links from my Blog

2009-10-28T19:17:00.001+05:30

Weekly Digest of Money Management Updates & Links

Posted: 27 Oct 2009 07:32 PM PDT

Every week, I will post a few updates and links that would be of interest to you for your money management decisions.

Behavioural Aspects of Investing in Stocks: All of us have behavioural biases while we manage our money. More than deciding what’s right or wrong, it’s important to be aware of the biases.
Second Quarter Review of Monetary Policy 2009-10: RBI has kept most rates unchanged other than the SLR, indicating a tightening in view of the inflationary pressure in the future. Higher provisioning for lending to the Real Estate sector also dampened the spirits of this sector.
25 Things That They Will Not Disclose: Original story on Outlook Money on the 51 things they don’t disclose.
Childrens Education and Marriage Planning: A primer on how to get started when you want to plan for your future stars, your children.
Buying Insurance over Other Investments: Opportunity Cost or Opportunity Lost: A lucid comparison on Insurance and Investments.

I also have been adding resources on my Online RupeeManager Workshop. Check it out.

What Startups are Really Like

2009-10-27T19:03:00.001+05:30

This one is truly an essay to read again and again

It's Paul Graham's essay on what startups are really like.

Ranjan Varma
http://ranjanvarma.com
http://rupeemanager.com

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Articles on personal finance

2009-10-27T10:12:00.001+05:30

http://www.personalfinance201.com)" style="color: #888; font-size: 22px; font-family: Arial, Helvetica, sans-serif; font-weight: normal; text-decoration: none;" target="_blank">Website on personal finance

Childrens Education and Marriage Planning

Posted: 25 Oct 2009 08:07 PM PDT

We as human beings don’t have any stronger aspiration than giving the best of everything to our children. “Every child is a Star” says the advertisement of a company. All of us dream of making our kid a star. And to accomplish this dream we are ready to do whatever it takes. The biggest challenge lies in converting this dream into reality. Every parent wishes to make their child a Doctor or an Engineer or a MBA or something else when he/she grows up. To realize this dream, setting aside money for the kid’s education is a top priority for parents.

Buying Insurance over Other Investments: Opportunity Cost or Opportunity Lost

Posted: 25 Oct 2009 01:21 PM PDT

It’s March, the tax planning season is at its peak and Ajay (person earning 6Lakhs pa working in an MNC) has started his yearly ritual of scouting for investments for saving income tax. Ajay tells his financial planner Pankaj that he is looking for an insurance plan which is very low on risks and will give good returns. Pankaj is a smart financial planner and tosses a question to Ajay which puzzles him. Pankaj asks Ajay “Do you buy a general insurance product for your car which gives you car insurance plus returns at the end of the year?” Ajay says “Car insurance plans are meant for protection against risks like accidents and not for returns.” On hearing Ajay’s answer, Pankaj smiles and says “Bingo, you are absolutely right. Don’t you think the same applies to life insurance also? Returns should be best left to investment products and not insurance. Life insurance should be bought only to cover the risk of loss of life and remaining surplus money should be routed through investment products for superior returns. A person should not mix insurance and returns.”

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Seven Zen Principles to Guide Your Money and Your Life

2009-10-27T07:10:00.001+05:30

Posted By Flexo On October 26, 2009 (8:00 am) In Personal Finance

Article taken from Consumerism Commentary: A Personal Finance Blog Since 2003 - http://www.consumerismcommentary.com
URL to article: http://www.consumerismcommentary.com/2009/10/26/seven-zen-principles-guide-your-money-life/

A few years ago, I visited the Japanese Tea Garden in Golden Gate Park in San Francisco. Japanese gardens are designed precisely to appear natural, resulting in an interesting collision between nature and man. There is a set of principles or aesthetics that guide the creation of Japanese gardens, including the dry gardens commonly called “Zen gardens.”

The basis for these modern Japanese aesthetics has existed for thousands of years and is rooted in Buddhist writings and teachings. However, the full concept of aesthetics relating to these ancient ideas has been discussed only within the past two centuries, as the the traditional Japanese concepts have been infused with the Western idea of art and aesthetics.

These same Japanese aesthetics, the attributes that define a Japanese garden, can be further stretched by the Western mind to relate to other areas of thought. If you are particularly interested in personal finances, as we are here at Consumerism Commentary, you might attempt to apply these concepts to attitudes and behaviors surrounding interaction with money.

Here are seven aesthetics rooted in Japanese culture that can be drawn upon to make us think about the way we live with and deal with money, from personal expenses to investing.

kanso 簡素

Keep your finances simple. The extreme limit of necessity would be to have no other financial accounts but one checking account for paying your bills. Simplifying at this level may beyond the limit of practicality even if still possible. But there is no reason I should continue to have savings accounts at seven different banks, even if seven is an odd number, compliant with other aesthetics.

In addition to utilize as few banks as possible, simplify your investment accounts. Keep your investments in one account in one index fund or target retirement fund that matches your risk profile. This also makes it much easier to evaluate your asset allocation to ensure your investments on the whole match your tolerance for risk.

There is rarely a need to have more than one credit card for your personal matters. Zero is an even better number.

Simplicity in all financial matters is an attainable goal.

seijaku 静寂

Managers of actively managed mutual funds earn their pay by buying and selling investments frequently. Index funds take the opposite approach by matching a stock index, adding or removing stocks only when the index does, which is rarely. Index funds embody this concept of stillness. Unnecessary activity, like stock trading, makes the stock broker rich while you’re adding risk and decreasing your chance of beating an index fund’s performance.

Keeping your wealth still and motionless allows time to have a chance to cultivate it. The effect of compound interest increases when you let it work for decades.

If you’ve simplified your finances down to a small number of accounts, you can further keep your money motionless by removing the necessity of transferring funds from one place to another. The 0% balance transfer game or otherwise moving your credit card balances from one card to another is in direct conflict with this aesthetic.

datsuzoku 脱俗

Break free from your possessions. We buy things because they reflect who we are or who we want to be, but no thing can be a true reflection of a self. Not only do material possessions drain you of funds that could be spent on necessities, but you will have less money for sharing with others within and outside of your family.

Break free from conventional thought and following the bandwagon. You are free to be your own person and find your own path. You should never feel trapped in a job or a career. Even a steady bi-weekly paycheck is a pattern that could be broken without fear. With creativity, draw income to you through something unexpected.

Don’t confine yourself to your budget. The ultimate way to grow wealth is to spend less than you earn, so as long as that continues, you can break free from your budget and enjoy flexibility without too much worry.

koko 考古

Focus on the bare essentials. Add something to your life only if it has a functional purpose and fills a need. This concept is a nod to frugality and sparsity. For example, do you need three televisions, one for each large room in your house? Do you even need one television when you can find entertainment, including comedy, nature, and drama — possibly even crime-focused drama — for free, by sitting in a park and watching other people interact? Wouldn’t it be more fulfilling to visit a National Park than to sit on your couch and watch a documentary about it?

Decide what in your life is not essential and eliminate it. If something does not add value more than or equal to its expense, consider it a candidate for elimination. I think immediately of the interest that you pay on a credit card balance. Once you pay interest, you’ve paid more than the value of whatever you’ve purchased with the credit card. If you decide a $1,000 television brings $1,000 worth of value into your life, then it may be worthwhile. But if you put that on a credit card and pay the balance and interest over time, the new question is whether that $1,000 television added $2,000 worth of value into your life.

shizen 自然

You should represent yourself to the world truthfully and without pretense. There is no need to purchase expensive cars and houses when necessity allows for lesser purchases. Don’t concern yourself with “keeping up with the Joneses.” Without the need to show the world you have more money than you really have, you will lose the desire to buy more than you can afford. As a result, the chances of falling into the trap of debt from unnecessary spending will diminish.

My thoughts on this are drawn to people with public-facing careers. Real estate agents, for example, often want to project an aura of success. If clients believe that the agent is rich, the clients will then believe that they are successful agents. The natural conclusion is that these agents are successful because they represent clients fairly and offer quality houses. The same is true for lawyers whose business is representing clients in court trials. Lavish spending projects an image of wealth, which indicates to prospective customers a history of successful court appearances.

This is all show and all pretense. Anyone can look wealthy or successful thanks to the availability of credit. You can’t see what lurks beneath someone else’s surface.

Do not cover up all that is natural. Do not hide money or money-related problems from your partner or spouse. Finances should be part of a communication that is open and honest, not hidden beneath layers of creative stories.

fukinsei 不均整

Create a budget, a monthly spending plan that outlines your limits for expenses in a variety of categories that make sense for you. A budget by definition starts out the same each month but will look different by the month’s final day. Life’s asymmetry is natural, and your budget should reflect this asymmetry while maintaining balance. You spend more for gifts as the December holidays approach, so you might budget more for gifts in November and December than you might in June or July. In order for this asymmetry to be balanced, an increase in one category at one time should correspond with a decrease either in another category or at another time.

This flexibility is essential for creating a workable budget. A budget should free you, not trap you.

Balanced asymmetry appears elsewhere. “Work/life balance” is a relatively new concept that is based on this idea. When my employer talks about “work/life balance,” they are not trying to imply that we should spend an equal amount of hours in our life between our career and everything else we do. It is an asymmetrical approach to living a more fulfilled life.

yugen 幽玄

Whenever your personal financial issues are public rather than private, choose subtlety over directness. Do not brag about your successes. There is no need for you to have your latest business acquisition or marriage listed in your college’s alumni magazine. If you give charitably to an organization, you do not need to publicly list your name or the amount of money you donated.

In the business world, there is a movement towards personal branding. It is good for your career to find ways make yourself stand out among your colleagues or among a sea of job applicants. While I would agree that it’s important to protect your identity, particularly online, from anything that might damage your reputation, the best way to stand out is to be the best rather than to declare you are the best.

Let others declare it for you.

A guide, not a rule

While it would be great if all of the above could apply to our interactions with money all the time, I like to look at these aesthetic concepts as a guide. Just considering these ideas and allowing yourself to think about money in a different way can be enlightening. Perhaps you can strive to achieve several of these concepts in your own life, or perhaps you can appreciate this way of living even if you choose to relate with money in a different manner.

Simplifying my finances is one way I can start applying this approach to my life. As I mentioned above, I currently use seven accounts for my savings. Many of these I open so I can review them for Consumerism Commentary, but even the purely personal bank accounts number too many. Do you or would you apply any of these aesthetics to your finances?

Disclaimer: I am not an expert in Japanese philosophy or, for that matter, in personal finance. I drew the above concepts of Japanese aesthetics from a variety of sources.

Photo credits: semihundido, laRuth, DieselDemon, 田中十洋

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The Idea & the Execution

2009-10-27T07:03:00.001+05:30

Your Idea Sucks!

via Quick Sprout by Neil Patel on 10/26/09

Do you have a business idea that you want to pursue? If so, you are probably wondering if it is going to work and if it is going to make you a ton of money, right?

I am sorry to be the bearer of bad news, but the chances are, neither I nor anyone else is going to know whether your business idea is going to work or not. So instead of asking people what they think about your idea, here is what you need to do:

Start the business

If you are really passionate about your idea, you need to go with your gut and start it. Now, this doesn’t mean you’ll necessarily succeed, but you’ll never know if you don’t try it out.

If you just keep on asking people if they like your idea, you are going to get mixed results. Most people won’t know the industry you are trying to get into, so they won’t know if your idea is good or not. And even if they are in that industry, they could be wrong.

By no means am I saying that you shouldn’t ask people for advice, but take it as a grain of salt. Sometimes you just have to do what you want to do.

Save your money

When you are starting your business money will be tight, so you shouldn’t get fancy when it comes to laying the basic groundwork. For example, there is no need to hire a high priced attorney to incorporate your business when you could just go to Legal Zoom and spend $149.

Once you start making money you can go back and pay a good law firm to work on your incorporation. The point I am trying to make is that there is no need to spend thousands of dollars on things that won’t help your business make money… especially when you first get started.

You should reserve all of your cash for things like infrastructure, supplies, employees, and potentially marketing if you have enough cash. And most importantly, always keep a good portion of your cash on reserve for the unexpected.

Prove me wrong

I said your idea sucks, right? Well now that you have started your business you need to prove me wrong. And the only way you can prove me or anyone else wrong is by making money.

This doesn’t mean you have to be profitable, but instead you have to have meaningful revenue numbers. For example, if your company brings in $1,000 a month, that could be meaningful revenue number as long as your monthly expenses aren’t exceeding $5,000 month. On the other hand if your company brings in $3,000 a month and your monthly expenses are $30,000, that isn’t a meaningful revenue number.

If you are having trouble getting to revenue, I don’t know what to say other than to try harder. I wish I could tell you the secret sauce that will cause your business to boom, but I don’t know it. The secret sauce is different for every business.

The best advice I can give you is to look at your competitors and see what they are doing. This should give you a good understanding of what you need to do to make money. Just don’t copy everything your competitors are doing because what works for them may not work for you.

Don’t get ahead of yourself

Hopefully your business idea is working out and making money, but if it isn’t, don’t stress out. Pick yourself up and keep trying other ideas until something works.

If you are making money, pat yourself on the back because you’re half the way from not having a shitty business idea.

You now need to get to profitability. The two main ways you can do this is by either cutting your costs down (which could be a bad idea) or by figuring out creative ways to make more money.

I typically favor the second option and spend time on sales, marketing, and business development deals to get my companies to profitability.

Whatever route you decide to take, the best advice I can give you is to stop dreaming. What I mean by this is that you’ll tend to spend a lot of your day imagining what will happen if you get more sales, did more marketing, or even locked in a business development deal. You may even dream about what you’ll do with the money you’ll make.

Dreaming is a waste of time and all it will do is cause you not to reach your goals. If you really want to achieve your goals you have to act on things and work hard. And once you get to a point where your business is flourishing you still can’t dream because everything isn’t in your control. Things like lawsuits and recessions can crush your business and cause you to go broke.

Conclusion

I know this blog post is a bit basic compared to most of my blog posts, but I really want to get you to stop asking people for input on a business idea you may have. Just because someone was successful in the past or went to a good college, it doesn’t mean that they’ll know a good business idea if it stares them in their face.

For example if you asked me what I thought about Facebook, Twitter, or even Hulu when they first came out, I would have told you that they would fail. But I was wrong and I probably will be wrong when it comes to predicting thousands of other business ideas.

Remember, just because someone is in the industry you are trying to enter, it doesn’t mean they’ll know what’s best for you!

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How to Build Sustainable Products

2009-10-26T21:04:00.001+05:30

How to Build Sustainable Products

via Trizle by The Trizle Team on 10/26/09

"Step right up! Step right up! Buy the Miracle Growth JOOOOOOOOOOOCE!"
"You will get 10 times taller and 20 times stronger and 400 times sexier by sipping this juice!"
"Get it for $986,594,895,820,958,253,253,233,253,235.99! TODAY ONLY SON!"

The Big Bad Business Amateur

The Big Bad Business Amateur thinks thriving in business is a zero-sum game; that is, the more you take from your customer, the richer you'll become.

So, they screw Customer X for their $ -- which becomes incrementally unsustainable over the long-term.

For instance, take the financial industry:

Bernie Madoff built a ponzi scheme that stole billions from his customers; his ponzi scheme toppled because screwing over customers = not sustainable.
Blackrock, on the other hand, has built a sustainable win/win revenue model by aligning their interests with their customers: the richer their customers become, the richer Blackrock becomes

Experienced business leaders

Experienced business leaders take this mindset:

In a free market economy, buyers will gravitate to those where they can get the greatest value
The sustainable way to build a business then is to build products that provide that value

How do you build sustainable product?

Make customers richer/happier with every purchase of Product X.

For instance, take these sustainable revenue models:

AdWords: the higher you bid, the more customers you attract
Brokerages: the more you invest, the greater value you get
Candy bars: the more you have, the happier you get
Walmart: the more items you buy from them, the more you save on those items

Unsustainable revenue models?

Cars: its depreciating effect will burn you; the higher you pay for a car, the more money in equity you lose
Newspapers: the more you buy, the sadder you get (i.e., you don't need three copies of today's newspaper)
Manufacturing in expensive countries: the more a business spends, the more money in opportunity costs it incurs
Pyramid schemes: the more you spend, the poorer you become

Align your interests with your customers' interests.

You'll build products that will provide customer value ages from now.

Make customers richer.

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Why Warren Buffet Makes Money and You Don’t

2009-10-26T17:15:00.001+05:30

Why Warren Buffet Makes Money and You Don’t

via Trakin' the india business buzz by Arun Prabhudesai on 10/25/09

Yes, You. For the matter it includes me too but the title seems catchy that way !

Jokes apart, what is it that out of so many people invested in the Stock Markets only a few make a real fortune out of it? As a matter of fact, barring Mr. Rakesh Jhunjhunwalla I don’t think there is any self-made millionaire in India who made his fortune via the Stock markets (probably very few unknown others).

Does it mean that the others are ill equipped or the luck isn’t in their stride. No, because there are those Ivy League experts who are adept at number crunching like anyone else, yet they don’t ride the Stock Markets. Luck can be a factor but then not matter how clichéd it sounds,

“Fortune favors the brave”

When we are talking about Stock Market Riches, the Oracle of Omaha – Mr. Warren Buffet’s name has to be taken in the same breath. The world’s richest man sits on the top of the world having made him a fortune investing in stock markets over a period of time. What’s more, he has done it for millions of his shareholders as well, invested in Berkshire Hathaway.

Did you know that a $10,000 investment in Berkshire Hathaway in 1965, the year Warren Buffett took control of it, would grow to be worth nearly $30 million by 2005

The marketplace is abuzz with Buffet’s investment principles with dozens of books and millions of citations on the Internet. But, then we haven’t seen anyone come remotely close to the fortunes that Mr. Buffet has made.

Technical and Fundamental Analysis apart, there are some very simple yet important principles which are highlighted in Mr. Buffet’s Investment rationale.

Never invest in a business you cannot understand

Sound simple. The philosophy is so profound yet how many of us tend to avoid it. One look at his portfolio and the statement makes all the more sense .Coca-Cola, Nike, Procter & Gamble, J&J. The business intricacies apart, the companies make products we can all relate to and probably use them too on a regular basis.

Risk can be greatly reduced by concentrating on only a few holdings

How many of us have heard, “Never put all eggs in one basket” or Diversification is the key to effective investment. But, then aren’t we culprits of over-diversification at times. I remember holding 17 stocks in my portfolio at one time. Over diversification leads to dilution of possible gains and it is difficult to track 17 companies at once.

Mr.Buffet’s portfolio has a list of 41 stocks. It may sound too much, but then he has accumulated them over years and has hundreds of people managing his investments now.

Patience

This single word is the game changer of sorts. This virtue alone separates the likes of Mr. Buffet, Peter Lynch from the average Joe. The explanation for this is best understood in terms of Mr. Buffet’s principles itself.

Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years
Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market
The advice “you never go broke taking a profit” is foolish
Buy a business, don’t rent stocks

The quotes speak for themselves; invest in Stock Markets to become a co-owner and not to make profits out of fluctuations.

It would be wrong to say that these 3 are the principles that made Mr. Buffet his riches. A lot of research and number crunching is responsible for Mr. Buffet buying stocks at a “Fair” price or on the basis of intrinsic value which the whole world is trying to figure out. But these are some no-nonsense jargon free fundamentals that can go a long way in ensuring a long term healthy investment portfolio.

I would like to know from Stock Market Enthusiasts out there – Do you think that if you stick to these 3 principals of Mr. Buffet, you will make money in Stock market?

[This post has been written by our regular contributor Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]

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Buying Insurance over Other Investments: Opportunity Cost or Opportunity Lost

2009-10-26T11:40:00.001+05:30

Buying Insurance over Other Investments: Opportunity Cost or Opportunity Lost

via Personal Finance 2.01 on 10/25/09

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ranjanvarma@gmail.com sent you a link to content of interest

2009-10-26T09:02:00.001+05:30

ranjanvarma@gmail.com sent you a link to the following content:

What’s the best investment you’ve ever made?
http://www.iwillteachyoutoberich.com/blog/best-investment-career-time-money/

The sender also included this note:

Interesting stuff!

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About Page for My Blog

2009-10-25T18:49:00.001+05:30

http://ranjanvarma.com

I am the captain of a personal finance team. I call it the IPFL Team (Indian Personal Finance Literacy Team). Each of my team members have a personality and I have a name for them too.

And the goal of this team is to change the way Indians manage their money.

Let’s take a look at the team. They are:

This Blog, aka Sehwag. The blog has been there for the last three years. And from being an e-scratch pad to improve my own knowledge, it now has an opinion of it’s own. It’s a plain, simple commonsense approach without getiing into too much technicalities. Hitting the ball, aka Sehwag, is all that matters.

RupeeManager, aka Sachin. RupeeManager is a desktop software that helps you track and manage your money. It’s the software that powers my effort to change the way Indians manage their money. For me, it’s the star member!

RupeeCamp Workshops, aka Dhoni. RupeeCamps is a money management workshop which will help you to make better financial decisions. It is the Captain of my team. The workshops would be the lynch pin around which everything revolves.

RupeeManager Online Workshops, aka Yuvraj. This e-Workshop will be an online version of the RupeeCamp in-person workshop. The online workshop would be the cleanest hit, like Yuvraj, the cleanest hitter!

Personal Finance201, aka Raina. This website will offer updated articles, calculators and other resources on personal finance. Among the stars, this one is a cool performer.

Forum, aka Bhajji. The RupeeManager Forum is the place to discuss money management issues. A place where you can learn and share. Like Bhajji, I would like members to speak their mind here.

Zoho Tracket Application, aka Sourav. The online version of RupeeManager software. The app has earned me dollars from around the world and not just India. That’s why it’s named Sourav, who was the first not to fear the global players!

Slideshare Presentations, aka Zaheer. These are presentations on personal finance that I have uploaded on Slideshare. The presentations which make the largest impact. Like Zaheer with his opening bowling.

RupeeManager on Twitter, Praveen Kumar. The twitter channel for RupeeManager. The place with few words. Well 140 characters shouldn’t be hard for Praveen Kumar!

Facebook Page on RupeeManager, aka Ishant. Apparently, Ishant’s the sweetest face in the team.

Advisor’s Directory, aka Gary Kirsten, the Chief Advisor!!. This is the place where all advisors can register and make their webpresence felt.

Apart from the playing 11, I have a few things up my sleave. The future stars. They are:

Financial Products Database,
Satisfaction Surveys,
Financial Freedom Yearbook

So you can see that I am about to change the world! Atleast, change the way Indians manage their money.

There’s a question that doesn’t leave me alone, “What can you offer the world that no one else can?”. It’s a pretty tough question. Maybe this blog will help me with finding the answer. In any case, I believe that I can be the medium which can change the way Indians manage their money!

Thanks for stopping by. Comments and feedback is most welcome.

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What Makes Businesses Fail Financially

2009-10-25T18:40:00.001+05:30

What Makes Businesses Fail Financially

via Trizle by The Trizle Team on 10/25/09

Why did companies fail during the 2008 financial crisis?

It went like this:

Loan mofo: "We want our money!"
Leveraged mofo: "We don't have money!"
Loan mofo: "We will kill ya"
Leveraged mofo: "OH NOOOOOOOOOOOO!"

When the economy tanked, companies that failed had loans that they couldn't repay.

What Will Make You Fail

Debt -- especially the long-term ones with variable interest rates -- will suck you down, and will be the main cause of your impending failure.

Google avoids long-term debt.
Microsoft avoids long-term debt.
Apple avoids long-term debt.
Walgreen's avoids long-term debt.
Any company with great financials = no long-term debt.

Unless your main line of business is providing loans (i.e., you're a bank), leveraging your company = NO GOOD.

(The banks that died over-levered themselves.)

Instead, ask yourself this:

"What if we could get money for free?"

"BAM DANG SON HOW AN I DO THAT?!?!?!!" you're asking.

Raise it.

"No! You shouldn't give away your equity! Boo!"
"You work so hard! Investors are sharks!"

The points:

Equity financing (i.e., raising money from investors) is free money with no interest rates (i.e., helps you grow much quicker).
Avoiding interest costs puts money back into your business to reinvest, and grow exponentially stronger financially.
You can always buy back the sold equity.

Solid businesses perform financially awesome to the awesome to the max avoid long-term debt.

When you: (1) avoid debt, and (2) keep raising money = YOU WILL NEVER FAIL HIGH FIVE

No debt.

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Begrudging

2009-10-25T17:20:00.001+05:30

Being half hearted makes no sense, agree!

Begrudging

via Seth's Blog by Seth Godin on 10/25/09

I don't know if this happens to you, but I'm noticing it more and more. Someone offers you a refund, or agrees to sell you something or even hires you to do a project, but then spend a lot of time explaining that it's a one time thing, or that it's against policy or it's not even something they like to do.

What's the point of agreeing to anything begrudgingly? Does it get your partner to do his best work? Does it increase the chances that you'll get to win next time?

If you're going to do something, do it. Go all in. Doing it half in makes no sense at all to me. It's a like a store that has so many rules and regulations about sales and exchanges that you wonder if they really want to be bothered to sell you anything at all.

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Tinybuddha: Do Happy: Impress Yourself

2009-10-25T17:05:00.001+05:30

October 23, 2009

Posted: 23 Oct 2009 08:14 AM PDT

“Never tell me the sky’s the limit when there are footprints on the moon.” -Unknown

A lot of people find self-imposed limits comforting. If you only believe a brief list of options is possible, you’re not failing by staying within your comfort zone; you’re merely being reasonable.

Unreasonable people make things happen. They dream big dreams and risk pursuing them. They see how things could be, not just how they are. They don’t believe “can’t” until they prove it themselves.

Be unreasonable today. Stretch the limit of what you think is possible, and then take a step along that path. Remember: you’ll regret the things you didn’t do more than the things you did.

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The Honest Truth - Should we fire the Fund Manager?

2009-10-25T16:50:00.001+05:30

Btw, why is it a honest truth? Does that mean it's not a dishonest truth?

Hear this one from Ajit Dayal.


Should we fire the Fund Manager?
23rd Oct 2009

Or should the Board of Quantum Asset Management Company Private Limited fire me?

Or, worse, should investors in the Quantum Long Term Equity Fund bail out and put their money in some other equity mutual fund?

Hang on: let me tell you why I am raising these really important questions.

During the many hours of discussions and presentations of the Path to Profit across many parts of South India, I warned the audience:

"We were the first to say that the BSE 30 Index can touch 21,000 by June or July 2010. We said that when the Index was bouncing around in the 8,000 to 10,000 range. Our performance numbers have been good for a 1-year, 2-year, and 3-year periods. But, I warn you: though we were the first to make the case for a bull market, we will now underperform."

The audience gave me that strange look reserved for really strange people.

"Strange, isn't it? I stand here in front of you, predicting a bull market and then saying that the Quantum Long Term Equity Fund will not do well."

"Why? Because as value managers, the stocks we own will begin to look 'expensive'. And so we will sell those 'expensive' stocks. But we are humble enough to recognise that our selling will have no impact on the market - the stock markets will continue to rise. Remember, in bull markets fear is out and greed is back. Irrational prices will prevail again. As we sell out of stocks, our cash levels will increase. Cash earns us 4% to 5% in a year. That is useless when compared to a roaring bull market when stocks can surge 4% in a day! So, ladies and gentlemen, we will underperform. We are predicting our own death!"

Therefore, what should we do?
This is the background.
This is why I pose the question: should we fire the Fund Manager and all the research analysts?
Or should the Board fire me?

The email hit my inbox today from our internal sales team.
There are 248 diversified equity funds out there.
And the Quantum Long Term Equity Fund was ranked 248.

That's right: dead last.

I rubbed my eyes.
I sent back an email: "Are you sure?" I asked.
"Yes" was the reply, "we are last."

I had not written an Honest Truth for a long time.
Here was a great opportunity: an opportunity to tell you that we are ranked last!

Such an event may not last long. So, I better write about it and let you know about it before this historic moment slips away unnoticed by any ranking tables, unnoticed by anyone.

Table 1: Quantum Long Term Equity Fund ranks last - for the past one week!

Returns (%)	1 Week Ended October 21, 2009	1 Month Ended October 21, 2009
Quantum Long Term Equity Fund	-2.12	+3.27
Category Average (Equity Diversified)	+0.02	+3.60

Quantum Long Term Equity Fund Ranking	248	136
Total	248	248
How many funds have we done better than?	0.00%	45.16%
(Source - www.valueresearchonline.com)	Returns for Growth Plan

But getting back to our prediction and discussions during the Path to Profit: we were right.
But, wow! - That was quick.
My prediction of 'underperformance' was accurate.

And the BSE 30 Index is nowhere near the 21,000 level - we still have another +21% to get there.
Our cash levels have increased. The fact sheets for the Quantum Long Term Equity Fund indicate that the Fund owned 27 stocks as of September 30, 2009 (29 stocks in August) and the cash level in the Fund was 9% (2% in August).

So, clearly the Fund is selling out of some stocks and not putting the money back in the markets.

But how do we get a -2.12% rate of return for the week ended October 21, 2009?

Table 2: QLTEF did not own the winners - for this week!

*The Top 10 stocks owned by the Fund*	*Their weight in the portfolio as of September 30, 2009*	*How did they perform for the week ended October 21?*
HDFC	6.20%	-3.8%
TCS	5.93%	+6.9%
Infosys	5.55%	-4.0%
HDFC Bank	5.30%	-2.5%
Hind UniLever	4.48%	-6.4%
ONGC	4.40%	-6.1%
Bajaj Auto	4.38%	-8.4%
Container Corp	4.04%	-0.4%
Zee	4.03%	-6.0%
BPCL	4.01%	-4.5%

BSE-30 Index		-1.3%

Reliance Ind	Not owned	+0.2%
ICICI	Not owned	+0.9%
L&T	Not owned	-1.0%
Unitech	Not owned	+0.7%
DLF	Not owned	+9.2%

Source: Bloomberg, BSE
Owning cash hurts the upside for sure, but owning the 'wrong' stocks is what can hurt most!

For the week ended October 21st, the stocks we owned did not "rise" in price.
The stocks we did not own, did a lot better.

So, we suffered.
For that one week.

A lesson for all of us
The way stocks are researched for the portfolio of the Quantum Long Term Equity Fund has not changed.
The way stocks are picked for the portfolio of the Quantum Long Term Equity Fund has not changed.

But the way the markets price the stocks we own changes every minute!
The last time we checked, the managements of the companies we own still run the way they ran their businesses last week - or last month.

But, on some days, the stock markets love the share prices of certain companies.
And on some days it loves some other stocks!

A similar portfolio gave the Quantum Long Term Equity Fund a pretty good track record for the 1-year, 2-year, and 3-year time periods ended October 21, 2009.

Table 3: Read our Offer Document carefully to decide where to park your savings for the long term.

Quantum Long Term Equity Fund - Performance Data
Returns (%)	3 Month Ended	6 Month Ended	1 Year Ended	2 Year Ended	3 Year Ended
Quantum Long Term Equity Fund	19.38	66.76	71.63	7.9	14.42
Category Average (Equity Diversified)	17.54	61.94	64.38	-0.71	10.83

Quantum Long Term Equity Fund Ranking	63	71	61	22	45
Total	235	221	210	185	156
How many funds have we done better than?	73.19%	67.87%	70.95%	88.11%	71.15%
Quantum Long Term Equity Fund was launched in March 2006

Source: www.valueresearchonline.com
So, markets bounce.
Share prices jump all over the place.
But the investment thesis for us to own stocks in the Quantum Long Term Equity Fund has not changed.

The ranking numbers are - like the clouds - passing in nature.

I am sure we were ranked number one sometime...I missed writing about that!
I happened to catch our wonderful 248/248 ranking. And I write about it.

Rankings do not change what we do.

Here is what happened to those same stocks for the one day, October 22nd compared to where they ended on October 21st.

Table 4: QLTEF had a far better day on October 22nd!

*The Top 10 stocks owned by the Fund*	*Their weight in the portfolio as of September 30, 2009*	*How did they perform for the one day from October 21st to October 22nd.*
HDFC	6.20%	-0.5%
TCS	5.93%	-0.9%
Infosys	5.55%	+2.1%
HDFC Bank	5.30%	+0.4%
Hind UniLever	4.48%	+1.4%
ONGC	4.40%	-0.6%
Bajaj Auto	4.38%	-1.2%
Container Corp	4.04%	-2.7%
Zee	4.03%	+0.0%
BPCL	4.01%	+0.0%

BSE-30 Index		-1.3%

Reliance Ind	Not owned	-2.2%
ICICI	Not owned	-4.1%
L&T	Not owned	-3.9%
Unitech	Not owned	-5.4%
DLF	Not owned	-4.9%

Source: Bloomberg, BSE
So, the stocks that hurt us because we did not own them for the week ended October 21st had a terrible October 22nd.

We have no clue why.

I have not seen the ranking tables for the one day October 22nd - if they exist - but I can wager we had a better rank than 248 out of 248!

As for firing our fund managers or the research analysts: they are really good people and very disciplined in what they do.

Rankings don't rattle them.
Assessing and pricing risk is what they do very well.
And generating returns over longer periods of time.

They avoided stocks like Reliance, ICICI, L&T, DLF, and Unitech because the risk-return reward was not attractive - or the managements are totally avoidable.

We let others boast about their rankings and their stars and "returns".
We focus on risk we wish to take and the return we wish to be rewarded for the risk we have agreed to take.

Like my late uncle sang in his song: Aadmi ache hai, par waqt bura hota hai...

The Fund manager and their research team that looks after your savings in the Quantum Long Term Equity Fund is good - as is the process - the times are strange.

Or at least the week ended October 21st was strange.

So, my appeal to the Board of Quantum AMC is: please don't fire me.

And my appeal to you is: If you wish to double your money in a day - or are scared to invest in a Fund that is willing to take it on the chin once in a while for correctly assessing long term risks of buying certain stocks - then, please stay away from the Quantum Long Term Equity Fund.

But if you wish to make sensible long term returns - and don't get rattled by this 248/248 ranking for one week (just as we are not) -

Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)

	Quantum Long Term Equity Fund	Quantum Gold Fund (NSE symbol: QGOLDHALF)	Quantum Liquid Fund
Why you should own it:	An investment for the future and an opportunity to profit from the long term economic growth in India	A hedge against a global financial crisis and an "insurance" for your portfolio	Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation	80%	20%	Keep aside money to meet your expenses for 6 months to 2 years
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

Note: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt Ltd and Quantum Asset Management Company Pvt Ltd.. Views expressed in this article are entirely those of the author and may not be regarded as views of the Quantum Mutual Fund or Quantum Asset Management Company Private Limited. To write to Ajit, please click here.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The authors, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use for the web site
©Equitymaster Agora Research Private Limited 2007-08

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Guruji' Ka Gyan...

2009-10-25T16:11:00.001+05:30

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Disclaimer:

This message and the information contained herein is proprietary and confidential and subject to the Tech Mahindra policy statement, you may review the policy at http://www.techmahindra.com/Disclaimer.html externally and http://tim.techmahindra.com/Disclaimer.html internally within Tech Mahindra.

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See and download the full gallery on posterous

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Financial Goals

2009-10-10T13:24:00.002+05:30

Post on setting financial goals

Ranjan Varma

http://ranjanvarma.com
http://rupeemanager.com

RupeeManager in Private Beta Now

2009-10-01T20:18:00.005+05:30

RupeeManager is a easy-to-use personal finance software to manage your money. It primarily helps organize one’s finances and keeps track of where, when and how the money goes and comes.

Measuring something has an uncanny tendency to improve it. And that’s what RupeeManager helps you to get started with.

Other than tracking your earnings and your expenses, it is important to see if your money is working for your future. We have a feature where you can allocate your income among fixed expenses, discretionary expenses, short term savings and long term investments. It’s like assigning goals for your money.

Also, you will get an idea how to balance your portfolio according to your risk profile. You will match the portfolio with your risk appetite and see if you can take more risk or go more conservative. In other words, you get to decide your asset allocation strategy.

It is always good to remember that the software can only be as good as the data it has to process. Garbage In Garbage Out. But if you have started thinking of even using a Personal finance software you are well on your way to making every Rupee count

The guiding principles behind the RupeeManager has been posted before. Link

You may like to see the Manual before you want to participate in the private beta.

I have some of my friends participating in the private beta. Would you like to participate too? Please visit this post

Note to Readers

CFDs offer the ability to trade without having to physically own the underlying asset Contracts for Difference are traded on margin and are therefore a more efficient use of your capital.

My Other Blog

India's first online weekly on Personal Finance

Back to School: Trying Out ToonDude from Zoho

2009-09-16T22:29:00.004+05:30

My Other Blog

India's first online weekly on Personal Finance

Freedom from Hidden Commissions in Mutual Funds

2009-08-01T11:22:00.001+05:30

From the newsletter "The Honest Truth" from EquityMaster.

On August 1st, 2009 the Indian mutual fund industry enters a new era.

After years of pushing mostly irrelevant products through a distribution channel that grew fat on the ignorance of investors, the Indian mutual fund industry has been forced to lay bare the facts. From August 1, 2009 all Indian mutual funds will have a cap on what they pay their distributors. And investors can pay their distributors and financial advisors what they believe to be the value of the advice given.

Over the years, the elephants in the Indian mutual fund industry - and the distributors that made these elephants dance to their tune - have spread a series of questionable "facts".

Each "fact" was in many ways designed to support the immoral practice of letting commissions earned by many distributors determine which mutual funds they recommended. Funds were sold based on the commission structures paid to distributors, not based on which funds were best suited for the investors.

The elephants in the mutual fund were happy to dance along to the tune of many distributors. Every time a fund was sold (or mis-sold) it meant a larger "total assets under management" for the industry - and more fees for the mutual fund house. And better salaries and bonuses for all in the system.

Now, the mutual fund industry is in new territory, not because the giants chose to take the side of the good and right (in fact, they fought it) but because the regulator put a stop to the rot. The days of the symbiotic relationship between the elephants and the distributors are over.
From August 1st the mutual fund industry has to learn to focus on what is good for the investor. A new playing field for those not used to it. So many in the mutual fund industry stand at the gate, nervous and anxious - they don't know what is on the other side. The side that says, "This area reserved for those who are fair and care about their investors".

Welcome to the world of Quantum Mutual Funds
Well, the good news for investors is that Quantum Mutual Funds - the ant of the mutual fund industry - has been standing on the "correct" side of that gate for a long time.

We have been here since 2006. Not paying commissions to any distributors because we were alarmed at the scope for mis-selling in the industry.

Not because the law told us to be on the "correct" side, but because we were keen to build a business around a "correct" practice.

It has been a lonely existence, talking to investors, explaining to the media why we do what we do.

Quantum Mutual Fund was the 29th Asset Management Company, but the 1st to be clear which side of the gate we were on.
We were the smallest mutual fund house amongst all the dancing elephants, but we had the biggest idea: we were keen to build a piece of heaven here in the troubled world of mutual fund investing.

--
Ranjan Varma
http://ranjanvarma.com
http://personalfinance201.com

Mutual Funds to Tap the Retail Customers

2009-07-07T13:36:00.001+05:30

The Economic Survey has called for increasing the participation of retail investors in the mutual fund industry while stating that there is scope for expansion of the industry from the present levels.

The report has pointed out that in 2007-08 only 7.7 per cent of the country's total savings was allocated to mutual funds, thus leaving scope for growth of the industry.

Besides, it also said that the retail participation in mutual funds, which stands at 15 per cent at present, is expected to increase in the years to come as availability of products and investor education improve and the industry takes steps towards transparency and sound corporate governance practices to generate investor confidence.

The report has specially mentioned the turnaround witnessed in the performance of mutual fund industry, which had remained subdued in 2008. The report said mutual fund investments (net) in equity markets turned positive in March 2009 and were Rs 2,320 crore during April-May 2009, while they invested Rs 36,791 crore in debt instruments during the same period.

Mutual fund penetration in India is just around 3 per cent and there indeed is a lot of scope to improve that figure.

--
Ranjan Varma
http://ranjanvarma.com
http://personalfinance201.com

Difference between Debt & Equity Investing

2009-06-26T13:05:00.001+05:30

The basic difference between debt and equity would be the ownership level. Let's take an example where you invest in me.

If you give out some money to me and expect that I return the money along with interest that I pre promise, that would be a debt investment. I'm indebted to you but since I have promised you a return with interest, you don't actually own me.

In another case, you give me money at your own risk. But you trust me/hope that I'll be a billionaire in the future and I'll payback from my profits. The more profits I make, the more you do. If I am bankrupt, you don't get anything back. And so you have invested in my equity. By trusting me, you own me in a way!

In other words, by investing in a debt instrument such as a bond, you are guaranteed the principal of the bond, plus any interest that is owing.

However, for equity investors, you become an owner. As such, you also take on the risk of the company not being a success. Just as a small business owner has no guarantee of success with each new venture, neither is a shareholder. As a shareholder, if the company is successful, you stand to make a lot of money. On the flipside, you stand to lose a lot of money if the company is less than successful.

Now debt and equity is just a classification of financial products and not a product by itself. So let me share the products available within the two classifications:

Equity: You can own any stock on the Stock Exchanges and you have invested in an equity product. If you invest through Mutual Funds who have schemes for equity. Even ULIPs invest in equity and so part of your Insurance buy goes to equity. The NPS also invests in equity.

Shares come in different sizes and categories. There are large, mid and small caps and there are penny stocks. As a beginner, you can invest in large and mid cap companies and only after you gain experience, you can consider investing a small portion in small caps and hot penny stocks. These are the riskiest but if handled adroitly, give the largest returns. However, it needs expertise and nerves of steel.

Debt: Mutual Funds also have debt funds where you can invest. Some people may find investing in bonds simpler than investing in stocks. Your friendly neighbourhood financial advisor can provide you with government bonds like NSC/KVP. Your banker provides you with Fixed Deposits and PPF accounts. You can also pick up some highly rated corporate bonds.

Then there are hybrid funds where the Mutual Funds invest a part in equity and a part in debt.

To compare debt and equity, you need to consider the risk and the reward tradeoff. But that I guess would be another post.

Would you like to add your thoughts on this? Welcome and Thanks.

--
Ranjan Varma
http://ranjanvarma.com
http://personalfinance201.com

Ranjan Varma's Blog

Should Banking Be Made Boring? - An Indian Perspective -

Rupee Cost Averaging

You Need Momentum, Not Just Motion

via Startup Professionals Musings by MartinZwilling on 10/29/09

Links from my Blog

Most Commented

What Startups are Really Like

Articles on personal finance

http://www.personalfinance201.com)" style="color: #888; font-size: 22px; font-family: Arial, Helvetica, sans-serif; font-weight: normal; text-decoration: none;" target="_blank">Website on personal finance

Seven Zen Principles to Guide Your Money and Your Life

kanso 簡素

seijaku 静寂

datsuzoku 脱俗

koko 考古

shizen 自然

fukinsei 不均整

yugen 幽玄

A guide, not a rule

The Idea & the Execution

Your Idea Sucks!

Start the business

Save your money

Prove me wrong

Don’t get ahead of yourself

Conclusion

How to Build Sustainable Products

How to Build Sustainable Products

The Big Bad Business Amateur

Experienced business leaders

How do you build sustainable product?

Make customers richer.

Why Warren Buffet Makes Money and You Don’t

Why Warren Buffet Makes Money and You Don’t

Never invest in a business you cannot understand

Risk can be greatly reduced by concentrating on only a few holdings

Patience

Buying Insurance over Other Investments: Opportunity Cost or Opportunity Lost

Buying Insurance over Other Investments: Opportunity Cost or Opportunity Lost

ranjanvarma@gmail.com sent you a link to content of interest

About Page for My Blog

What Makes Businesses Fail Financially

What Makes Businesses Fail Financially

What Will Make You Fail

"What if we could get money for free?"

No debt.

Begrudging

Begrudging

Tinybuddha: Do Happy: Impress Yourself

The Honest Truth - Should we fire the Fund Manager?

Guruji' Ka Gyan...

Financial Goals

RupeeManager in Private Beta Now

Recent Posts on RanjanVarma.com

Back to School: Trying Out ToonDude from Zoho

Freedom from Hidden Commissions in Mutual Funds

Mutual Funds to Tap the Retail Customers

Difference between Debt & Equity Investing