Global Financial Markets recoups amid the pandemic!

Posted on July 30, 2020Categories Financial Markets, Global finance   Leave a comment on Global Financial Markets recoups amid the pandemic!

Global Financial Markets surprised all investors and economic pundits as they recovered almost all the losses that occurred due to the global pandemic. Indices like SENSEX, NASDAQ and NIFTY made a new lifetime high, whereas Brazilian Bovespa and other emerging markets outperformed by 67 percent. Financial Market experts and economists, who predicted a negative outcome had to take back their words.

Jumbo stimulus packages announced by the central banks seem to be the reason behind this unpredicted recoup. But, a thing to worry about is the fact that institutions like IMF and World Bank were forecasting slowdown for the near future even before the pandemic broke out. So it is advisable for all the traders to remain alert without developing any fear as fall can be a minimum of 10 percent as happened in the past. Global Financial Markets is a wonderful place to follow as it witnesses volatility. To make our youth career-ready in Global Financial Markets, BSE Institute Ltd offers a course on this. To know more, please visit http://gfmp.bsebti.com/

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Financial success with Fundamental analysis

Posted on December 4, 2019Categories Analytics, Corporate Finance, Education, Financial Markets, Investment Banking, Mutual Funds   Leave a comment on Financial success with Fundamental analysis

How do you evaluate a human being? We usually tend to do a background check, look at the person’s past records, his current status, and finally come to a conclusion.

Its the same with a company. An investor, before investing, looks into the financial data of the company before coming at a valuation. This method of financial analysis where every basic detail of a company is studied is known as Fundamental Analysis.

Why is fundamental analysis important?

  1. Evaluation of management

Management is the final decision making body that holds together an entire organization. Fundamental analysis will help you understand the management of an organization, and how efficient they are.

  1. Company and its competitors

A thorough fundamental analysis will not only tell you if a company is profitable, but also about its market share and how it fares as compared to its competitors. If a company cannot outperform its competitors, it won’t last in the longer run.

  1. Fair value

Analyzing a company’s past and present is important to understand its fair value. Fundamental analysis can help in arriving at this value by evaluating the company. This will help in understanding if the company is overvalued or undervalued.

This analysis will help you understand the fair value and pick stocks for investment.

  1. Future pricing

The most important factor an investor is concerned about is the future value of his investment. A company’s business model will help understand if it’s going to make money in the near future.

Fundamental analysis helps in forecasting the future price of a stock. If an analyst finds a favourable future, he will decide to invest his money into the company and vice versa.

How do you conduct fundamental analysis?

  1. Company website

A company’s website is the first place you need to visit. This will give you an idea about the company, its business’, board meetings, objectives, investor information and much more. This will help in getting an overview about the company and understanding if its worth considering.

  1. Company’s financial statements

Any company’s financial statements are readily available on the internet. It is important you go through its profit and loss statements, balance sheet, forecasts, etc to understand it’s health and future prospects. If this shows a year on year increase in sales and profits constantly, it should be a good investment.

  1. Debt ratio

A company’s debt ratio will help you understand if its a good long term investment. A company having a debt ratio of less than 1 is usually seen as a good investment. It means that it is not heavily under debt and can grow quite fast.

It is the duty of an investor to conduct fundamental analysis of a company by looking at various factors that influence its market share, longevity,valuation, and profitability.

Conclusion

Fundamental analysis involves an in depth understanding of a company’s competitors, industry and finances. This is important from an investor’s perspective as it’s his money that will be involved in the business.

To understand how stock markets work, why and how fundamental analysis impacts a company’s shares, opt for BSE Institute Limited’s Basic Program in Stock Markets.

Art of Portfolio Management

Posted on November 21, 2019Categories Corporate Finance, Executive Courses, Financial Markets, Global finance, Indian Economy, Investment Banking, MBA, Mutual Funds   Leave a comment on Art of Portfolio Management

When you look at a financially stable person, you often wonder, “how do they do that”? What differentiates a financially stable and unstable person is their respective investment portfolios.

Today, if you are young and reading this, consider it to be your lucky day. Investing young and building an investment portfolio can take you places. If you know the power of compounding, you will realize how important investing is.

So, where do we begin?

Planning your investment portfolio is not easy. It is quite challenging, even more if you are not good with your personal finance. First of all, managing your portfolios is not simply about, “which stocks to buy”, and “which stocks to sell”. Portfolio management requires self discipline, patience, and a bit of knowledge about the companies you wish to invest in.

I’m not going to talk about the stocks to buy today, instead I will talk about how to build your portfolio and stand out!

Risk taking ability

The first question you must answer before investing and building your portfolio is, what is your risk taking appetite. The stock market today is like a restaurant which offers you variety of food to choose from.

You need to understand that some might have higher risks,but at the same time has the potential to give higher returns.

Similarly, there are shares that come with lesser risks, but the returns could be comparatively lesser. It is up to you to decide your appetite and hand pick the right stocks.

Another important step that you need to take, while deciding your risk taking appetite is to decide your short, medium and long term goals. This will help you construct your portfolio in a better way.

If your appetite for risks is extremely low, you could simply invest in mutual funds which is a much safer option. There are various types of mutual funds in India, starting from equity funds, debt funds, index funds, etc.

Assessing the external financial situation

The next step is crucial- to come up with an investment strategy. By assessing the economic situation of the market, you will be able to predict about the future. This assessment combined with your needs could help you plan for the future.

Since, the market landscape is bound to change with time, it is important that you always keep an eye on it and adjust your portfolio accordingly to reduce losses and maximize gains.

Build your portfolio

Now to the final step. Once you have done your analysis, you can finally start building your portfolio by allocating the necessary asset classes and securities. You can always hire a portfolio manager for expert suggestions. It is important to understand that the whole objective is to minimize the risks and attain your investment goals.

You should not see your investments as a source of long term income. Instead, look at it as a business which could help you make money without actually participating in any business. Once you look at it through a business’ perspective you will realize the impact it could have on your wealth and the benefits that are meant to follow.

Once you have built your investment portfolio, you can relax and continue to keep an eye on the market. Make the appropriate changes as per the market scenario and stick to the strategy.

All the steps we saw are part of a cycle, therefore an investor must ensure that he keeps going about the same steps during suitable intervals. This will ensure that your portfolio is stable and your graph is moving towards your goals.

Conclusion

The world could be a much better place if everyone was financially literate and focused on making their money work for them instead of working for money.

When it comes to the stock market, the potential is endless. BSE Institute Limited’s Executive Program in Wealth Management is a course built for you to exploit the potential of the stock market and multiply your portfolio. This is your chance to learn something incredibly important and secure your future.

Investing in Small-Cap Mutual Funds

Posted on November 13, 2019Categories Financial Markets, Global finance, Indian Economy, Investment Banking, Mutual Funds   Leave a comment on Investing in Small-Cap Mutual Funds

Every person who begins earning is given one common advice,“You become rich only when you consume less than what you produce”.

This doesn’t happen with a salaried job, but by investing regularly in stock market.

Any professional will underscore the importance of being financially independent. You can’t be financially independent just because you have a nice job with a 6 figure salary. Your needs grow faster than your salary. This is where financial intelligence is important. If you can make your money work for you, all your goals shall seem attainable.

That brings us to the Indian Stock Market. An ambitious person will look at the best investing options and diversify his investments. Small-cap funds are popular among investors who are willing to take risks and go big. It is always advisable to have a small portion of your portfolio dedicated to these small-cap mutual funds which might give you some great returns in the longer run.

What are small-cap mutual funds?

Small-cap equity mutual funds invest in equity shares of companies that have a smaller market capitalization. These have potential to give higher returns because of the fact that these companies are young, and tend to expand aggressively. At the same time these are vulnerable to economic slowdown when compared to larger companies. Investors who have an appetite for risks can go for such funds in the market.

What makes it popular?

Small-cap funds are bound to generate higher returns in years to come. There are over 2000 small-cap funds available. When it comes to the BSE small cap index, there is a lack of proper coverage and information. Since the options available in small-cap funds are diverse, it continues to be a great option – as there are many companies which can give you great returns on investment.

Who should invest in small-cap funds?

As we said before, investing in small-cap fund tends to carry greater risk when compared to other mid or large cap funds. An investor who has an appetite for taking risks and is willing to invest for upto 10 years should definitely look at these funds. Someone who has a long term goal like buying a luxury product, a home, education or any such product that could involve lot of money- should keep an eye on small-cap funds.

A good strategy while looking at small-cap funds is to invest through SIPs (Systematic Investment Plans).

Things to consider before investing in small-cap funds?

  1. Risk: Small-cap funds are lesser established companies who can go out of business in case of a market crash. This is one major reason why people avoid investing in such high risk funds. At the same time if everything goes well, the gains could be enormous.
  2. Return on investment: This is better left unsaid. Every single investor has returns on their mind when investing. They look at potential gains before investing and hope that they get best returns in the longer run. No other fund offers better returns than a small cap fund.
  3. Investment period: The market is bound to fluctuate throughout the year. There are times when the downfall is unbearable to an investor. If you cannot manage to stay invested for over 5 years, don’t think about investing here.
  4. Goals: Historically speaking, the market has always seen small cap funds generate better returns. The scope for growth is immense. You could end up making some staggering returns, that can help you retire fast. For someone with a long term financial goal, this is the perfect investment and one that could pay handsome dividends.

Conclusion

Being financially literate is a must, no matter who you are. Master the art of financial investing with BSE Institute Limited’s GFMP Edge Financial Markets Program. With modules that cover basics about capital markets and financial markets, make your money work hard for you and ensure you retire young!

Spread your wings, with mutual funds

Posted on October 1, 2019Categories Financial Markets, Global finance, Mutual Funds, Short term programmes   Leave a comment on Spread your wings, with mutual funds

It is said that only two things in life are unavoidable – death and taxes! Both may be unpleasant, but can be comfortable if you learn to plan well.

There are many things you need to learn in life, but none can be as important as investing. No one can work forever or live off their savings forever. This is why it’s important to know what to invest in and how to profit from it.

Availability of multiple schemes can be a bit confusing, and that is why we are writing to highlight the best bets out there.

Mutual funds is a set of money pooled in by investors who could be individual investors, companies or other organizations. This fund is managed by an Asset Management Company (AMC), who go on to invest the same in stocks, bonds and other investment vehicles.

The Net Asset Value (NAV) is the price of individual mutual fund unit, and an AMC can buy or redeem these units.

 

Benefits of mutual funds

  1. Diversification: One of the golden rules of investing is to diversify. This reduces the risk that comes with investing. When you invest in mutual funds, your funds are invested in a variety of industries. So, even if one of the industry experiences a downfall, the other industries will still keep your fund flying high.
  2. Simple to understand: The world of financial products is quite complex, diverse and most of them are difficult to understand. On the other hand, mutual funds demand no prior experience or knowledge in financial markets. Simple industry knowledge is enough to invest in them.
  3. Investment expertise: Investing in stocks is not easy. You need to be really experienced to do well in the market. Mutual funds are managed by experts with decades of experience of picking the right stocks at the right time.
  4. Variety: Mutual funds offer investors a variety of schemes which suit their risk appetite. Equity funds are schemes for investors with a high risk appetite. Debt funds are suitable for investors with a medium risk appetite. Balanced or hybrid funds are best for people with a low risk appetite.
  5. Affordability: Mutual funds schemes are usually a cheaper option for diversifying your portfolio. In cases where investors opt for SIPs (Systematic Investment Program), they end up investing a very small amount every month. This makes the mutual funds scheme attractive and affordable for any person.

 

Types of Mutual funds

There are many of mutual funds available in the market. We’ll mention a few that will help you get familiar with the schemes available.

  1. Equity funds: The money that you invest in equity funds are used to buy shares/ stocks of companies. The returns are determined by how these shares perform in the market. The chances of quick growth are high.
  2. Debt Funds: These are funds that are invested in bonds, securities, etc. These are suitable for people who are looking for a long term investment plans which gives regular returns.
  3. Balanced or hybrid funds: These are funds that invest in both, equity and debt funds. Basically, its a mixture of the first two funds. It’s the AMC which decides the ratios of the funds allocated to each one.
  4. Open ended funds: These funds don’t have any limitations on the period of time or the number of units. You can enter and exit whenever you like at the current/ existing NAV.
  5. Close ended funds: The name suggests what you can expect from a close ended funds. These funds have a predetermined sum that needs to be invested and at times, a lock in period is also put in place.

 

Conclusion

Be wise with your money and invest in only those assets that match your risk taking appetite. With mutual funds the options are many and that makes it easier for you to choose a specific plan as per your needs.

Putting your money to work sounds easy, but it’s not. BSE Institute Limited gives you the opportunity to do just that with a Basic Program on Mutual Funds Fact Sheet. Understand Mutual Funds to be a master investor and let your money do the talking.

 

Build your wealth, Build it with wealth management

Posted on September 9, 2019Categories Education, Executive Courses, Financial Markets, Global finance, Indian Economy, Investment Banking   Leave a comment on Build your wealth, Build it with wealth management

The money that you earn is what backs you financially throughout your life. The problem is when you realize that the money earned is not sufficient enough to cover certain long term/ short term needs. This is exactly why you need to plan for multiplying your income.

Wealth management is your master plan for building multiple sources of income that can keep you comfortable throughout your life.

In order to have a well-planned wealth management system at your disposal, individuals hire wealth managers who assess their income sources and their financial goals.

Wealth managers act like CFOs for individuals. A wealth manager will start by developing a plan for his client which will involve steps to increase his wealth keeping in mind his risk taking appetite, goals and his financial situation. Once this is done, the client and the manager meet periodically to make changes and update the portfolio as required.

Let us suggest you a few tips that could act as the backbone of your wealth management plan.

  1. Spend less than you earnThis has to be the most basic and obvious tip you’ll ever get. The reason we mentioned this is because if you are planning to start managing your wealth, this is where you need to start.
  2. Invest only after proper research- There are various investment schemes for you to choose from. It is very important that you have thorough knowledge about the scheme you wish to invest in. After all it’s your hard earned money that’s at stake. One of the most common mistakes committed are by people who listen to the words of their friends or people they know personally. Never have blind faith in anyone when it comes to investing.
  3. Diversify your investments- In the words of Warren Buffett, “never test the strength of the current with both feet”. The reason being that the market is a volatile place filled with unpredictability. One of your investments might be giving great returns for years, but that doesn’t mean you should invest all your wealth in the same place. Diversifying your investment will keep you on the safer side at all times and ensure that market fluctuations don’t mess your whole portfolio.
  4. Be patient- Investing is no doubt a thrilling game, but it is important that you be patient at all times. The nature of market is such that it could test your patience and cause frustration. Believe in your investments and keep monitoring them. Always keep an eye and observe the investments that are performing and non-performing and accordingly shuffle your investments.

We have spoken about wealth management from an individual’s point of view, but it’s certainly not that narrow. It is extremely important from a business’ point of view to keep an eye on managing its income, expenditure and planning for the future.

A fine example now in the news, is the story of Micromax. Micromax is a consumer durables company that started off by selling mobile phones and now is getting into selling fridges, washing machines and electric vehicles. From the time they were valued at Rs. 21,000 crores in 2015, to dropping to a valuation of Rs. 1500 crores!

Many Private Equity investors are now selling their stakes in Micromax for heavy losses. These PE players are selling their stake for Rs. 93.65 crore to the promoters, who will now hold over 85%.

So why are investors shifting their money away from Micromax, when the company still has a lot of sales. The reason is that there are many Chinese brands which have flooded the Indian telecom market.

Chinese brands have changed the entire mobile phone market in India. These firms introduced the latest mobile phones, advertised heavily and built a solid distribution network in the market. This put many established players like Micromax on the back foot and they have struggled to adapt ever since.

Venture Capitalists and Private Equity Investors are companies which have raised funds from other HNIs, banks and other financial institutions. They come under tremendous pressure to pull out of loss making investments. PEs and VCs have to make money and reinvest the profits in other businesses. The managers running the funds get paid only when they earn profits. By staying put in a company with a falling valuation, the chances of earning, are quite low.

This is what successful investors do. They move their money from one investment to another – multiplying each time they move it. That’s how they build their wealth. This is how HNIs grow their wealth, but remember this – they all begin at the same place.

Conclusion

Wealth management is one of the most basic financial information that a person needs to know. It doesn’t matter if you’re from a different background, because we all earn money and our goal is to multiply it.

BSE Institute’s Executive Program in Wealth Management offers you an opportunity to manage your money with ease. This is your chance to be the person who doesn’t have to worry about money, because money to work for you!

Building with bonds

Posted on September 4, 2019Categories Corporate Finance, Education, Financial Markets, General, Global finance, Indian Economy, Investment Banking   Leave a comment on Building with bonds

Current account deficits, budget surplus, fund raising, etc, are all big terms which we hear about Governments during budgets. Have you ever wondered how a Government earns revenue when it plans to build bridges, roads and ports?

The Government just cannot print money when it plans to spend! It needs to have money it receives in the form of taxes for planning infrastructure expenditure, social sector spending and to pay employee salaries. A big majority of the income earned by Governments is via taxes – income tax, GST, export and import duties, etc. However only income earned through these is not sufficient to fulfill all budgeted commitments.

This is why Governments also raise funds through financial markets, primarily by selling long term bonds to investors. A bond is basically a loan taken from banks, Private Equity funds, Venture Capital Funds or anyone who has the capacity to lend large sums of money. The investors are paid a certain rate of interest for investing in these bonds.

An advantage of these bonds is that an investor can easily sell these on the bonds market and get his investment and interest almost immediately after purchase. Therefore, an investor can literally invest today and get a great return on his investment in a matter of few hours. Also, the chances of a Government defaulting are very very low, as a country can simply print money in order to meet its debt obligations and hence there is no risk of any debt default.

This has been the greatest attraction for investors, as it’s possible to multiply your funds immediately, without any risk of default.

In India, we have different types of bonds which are as follows:

  1. Government Bonds- These issued by the central government with mandatory periodic returns. The government borrows money to fund roads, schools, etc. These are also known as ‘sovereign debt’, and a good option for people with a low risk appetite.

 

  1. Corporate Bonds- These are bonds used by large financial corporations. They tend to give better returns but, there is a possibility of default as it’s corporates who issuing the bonds. A company’s assets are usually tied as collateral against bonds.

 

  1. Municipal Bonds- These bonds are issued by the state governments or the local governments in order to raise money for the government activities. They need to have a maturity period of 3 years and are backed by the government, and hence are safe for investors.

 

  1. High Yield Bonds- These are bonds rated below investment grade. They offer a high rate of interest because it runs a higher risk of default. It is usually issued by small companies who have just entered the market.

 

  1. Public Sector Bonds- These bonds are issued by Public Sector Concerns, which are companies, owned by the Central or the State Government. Therefore, the risk of default is again very low.

 

France, the second largest economy in the Euro zone is one of the latest European countries to issue negative rate of interests on its bonds. The other few notable names are Germany, Switzerland, Netherlands, Austria and a few others. What this means is that an investor is paying these countries to take his money! This situation arises, when investors don’t find other safe investment option and are basically buying bonds to safeguard their funds from taxes.

It’s quite a turnaround for the European Union, which in 2008 was on the brink of collapse, due to a possible debt (bonds) default by Portugal, Ireland, Italy, Greece and Spain. From sky high bond yields to getting paid for accepting investments – its’ quite a turnaround!

As the Euro Zone countries share the same currency, they have only one bank, .i.e. the European Central Bank (ECB). The bank’s Governor is nominated by taking all Euro zone countries on board. But, here’s the catch! These countries cannot print as much money as they wish to as no single country has any control over the central bank. Therefore, no country can spend without any worry and investors run the risk of facing real defaults.

This was an unseen circumstance for investors and the Governments. It resulted in severe budget cuts for the countries mentioned above in order to have an economy that can pay for these bonds. This resulted in a severe recession across Europe and in effect the World.

Apart from the Euro Zone crisis there have been very few instances of countries defaulting on their bonds. Thus, bonds are a great way for investors to earn money safely and quickly.

Conclusion

An investor is blessed with multiple investment options to choose from. It is time Indian investors start taking bonds seriously. They are one of the most underrated forms of investment.

BSEVarsity.com offers you a Certificate Program on Bond Markets to give you a better understanding of bond markets, and help you diversify your investments.

 

Disciplined Investing

Posted on August 21, 2019Categories Executive Courses, Financial Markets, General, Mutual Funds   Leave a comment on Disciplined Investing

 

“History shows you don’t know what the future brings.”  – G. Richard. Wagoner Jr.

What’s worse than losing the money you invested? Throwing more money behind it, in the hope of recovering all the money.

As Warren Buffett says, “never test the strength of the current with both your feet”. Dividing your investments among different asset classes – stocks, bonds, gold, mutual funds and anything else as per your financial goals is known as asset allocation. It’s necessary to invest in multiple asset classes, in order to reduce our dependence on any one investment.

Why is asset allocation important?

Your asset/ investment prices could move in opposite or the same directions on any given day.It is difficult for seasoned investors and industry watchers to predict an asset’s value at any point of time. Therefore, it is important to invest in different assets in order to protect yourself from a sudden drop in investment value.

By investing in products having different risk profiles, you can insulate yourself from volatile market fluctuations, that could seriously hurt your net worth. This will minimize the risk of losing money and increase your chances of decent returns.

An investor may invest in different type of assets depending on the –

  1. Funds available
  2. Risk taking ability
  3. Financial objectives

A wonderful example of investment diversification/ asset allocation is that of Piramal Fund Management.

The Piramal Fund recently informed investors that they would extend the tenure of its Real Estate Management Fund by a year. The fund has a tenure of 6 years extendable by another 2 years.

Out of the 10 residential projects, it has fully recovered investments from 4 projects and are awaiting funds from 6 other projects. The reasons that were mentioned for this delay ranged from delays in government approvals to land acquisition and drop in land prices.

The extension was done to ensure that they recover all the funds invested and protect the fund from early claims of other fund investors.

The Piramal group has a wide range of business investments ranging from healthcare, life sciences, real estate and many more. This diverse platform enables them to build a portfolio strong enough to withstand any major market fluctuation in one of their asset allocated sectors. Therefore, any fluctuations in one segment allows them to rejig their investments in the market, thus protecting their total sum invested.

How does an investor decide his/ her asset allocation?

A thorough assessment has to be done before investing. Let’s say you’ve got a portfolio of Rs 1 Crore. You decide to invest 50% of this in mutual funds, 30% in gold and 20% to equity, .i.e. 50:30:20. Once the investments are done, you need to track this closely.

If you see a rise in the value of your mutual fund investments, but a drop in the price of stocks, the share allocation of your portfolio changes. Let’s assume it becomes 60:30:10, you need to rebalance or reinvest it in a way to protect yourself from losses.

This is because the value of your investments could fall at any time in the future and at that point the loses could be higher. Similarly, when the value of your allocation decreases significantly, you can switch asset classes in order to protect yourself from heavy losses.

Conclusion

The goal is to stick to the asset allocation plan. This will help you reduce the risk in your portfolio and pave way for smoother flow of income.

Reviewing your portfolio at least 2 times a quarter would be a healthy plan.

BSE Institute Limited’s Executive Program In Wealth Management gives an in depth knowledge of the current market investment scenario. It is most suitable for investors and fund managers looking to build large portfolios using a solid investment strategy.

When and where can you invest?

Posted on July 17, 2019Categories Financial Markets, General, Mutual Funds, Short term programmes   Leave a comment on When and where can you invest?

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”   -Warren Buffet

Investment in the stock markets is believed to be one of the best ways to build a portfolio and a retirement fund. However, the challenge for most is the ability to identify the right companies/ stocks to invest in. It is this ability that sets apart the serial investors from the casual ones.

A small-cap company is one where the total market value of all it’s shares is less than Rs 5,000 crores.

A mid-cap company is one whose total market value is between Rs 5,000-20,000 crores.

A large-cap company is one which has a market value of over Rs 20,000 crores.

Many equity market watchers believe that now is the right time to take interest in the mid- and small-cap segments. The valuations in these segments have been become attractive in the last one-year. By attractive, these advisors mean that they expect the prices of these shares to increase to highs unseen before. The main role of financial advisors is to help decide whether an investor should invest in certain market segments or not.

The mid-cap universe of stocks comprises of stocks that are ranked from 101 to 250 based on their market capitalization. The small-cap segment consists of stocks that are ranked from 251 to 500. Mid and small-cap stocks are most likely to do well in a phase of economic recovery when interest rates are low and there are growth opportunities to exploit. Their smaller size makes them more responsive to changes and opportunities. At the same time, they are most vulnerable when there is a downturn in business cycles. Their revenues and profitability are likely to take a greater hit and, with lower financial muscle to withstand such slowdowns. They are more susceptible to market instability. In a market downturn, these stocks are likely to see a greater cut in stock prices. Mid-caps are in a good spot between large- and small-caps. They still have the flexibility of the small-cap and also have the relative stability of a more established business.

For you, the retail investor, mutual funds are the best way to invest in equity markets, including the mid- and small-cap segments. The categorization of mid-cap mutual fund schemes specifies mid-cap funds as those that invest not less than 65% of the assets in the mid-cap segment. Meanwhile, small-cap funds are those that invest not less than 65% of total assets in the small-cap segment of the market.

A look at the performance of these funds shows that in bullish markets they have outperformed the larger segments significantly. For example, in the bull market of 2014, the average return from the top five funds in the small-cap segment was 85% higher than that from the large-cap funds. Similarly, in 2017 also their returns were stated to be 45% higher than to the large-cap segment. The out performance of the mid-cap segment over large-caps in 2014 has been 56% while it was a more moderate 10% in 2017. On the flip side, in bear markets, they see a steeper fall in prices.

Over five-year and seven-year investment horizons, it has been observed that the mid- and small-cap funds have outperformed the large-cap segment in terms of returns, the higher volatility in returns, especially in the small-cap segment makes them a bit more risky. The Sharpe ratio, which measures the return generated for every unit of risk taken, was at just 0.56 for small-cap funds, and while mid-cap funds had a lower Sharpe ratio of 0.55. Large-cap funds, on the other hand, had a much higher Sharpe ratio of 0.85, indicating that the returns generated for the risk taken were much higher in large-cap funds, while small-cap and medium-cap funds are unable to generate higher returns commensurate with the risk they take.

Conclusion:

The slowing economic trends pose greater risks to this sector and it is important to be able to identify sectors and companies that can sustain in this scenario. If you are willing to ride out the volatility, you can consider some exposure to these segments through mid- and small-cap funds, but there are caveats to be followed.

A well-diversified mid and small-cap portfolio can reduce the risks faced, though the returns will be lower too. Some funds .

At BSEvarsity.com, we offer specialized courses on building wealth with mutual funds, in order to help individuals and professionals be masters at stock market investing.

 

Why do we need Financial Markets?

Posted on January 8, 2019Categories Financial Markets   Leave a comment on Why do we need Financial Markets?

Financial markets are present in every nation of the world. They are very important as no one Government, company, body or person has the funds to finance major projects which are needed for the development of a country. Without the presence of investors, it’s practically impossible to build infrastructure that’s necessary for a country’s development.

Investors always have access to all financial markets and exchanges present in the world. These markets deal with a huge array of financial products such as – foreign exchange, bonds, equities, treasuries, etc. Some of these are accessible for private and foreign investors, while the others remain within the reach of major banks and financial organizations.

Structure of a Financial Economy

To understand the importance of financial markets, one should first understand their individual role in our economy. When it boils down to tapping funds for investments , every economy has two sectors – savings and investment. Savings is what an individual household saves, usually in their savings/ postal bank account. Investment is the capital that every corporation needs to start and run their businesses.

Here, the financial economy acts as a major link between savings and investments. The standard way to convert savings into investments is with the help of banks. Almost all banks depend on the deposits they receive from account holders for lending them out as loans. Loans are the main source of revenue for banks.

Alternatively, savings can be also turned into investments with the help of financial markets. The households can use their savings to buy financial commodities such as shares and bonds, which also help corporates raise funds. In this way a financial market can serve as an allocative function and help mobilize idle funds which can help a business grow, thus giving better returns to shareholders and create critical infrastructure and services for the nation.

Only when the allocation and use of funds is done well, is there all round progress in an economy.

Some retail investors prefer to invest in financial markets because:

l The rate of returns on their savings will be higher than what a bank offers

l Your resources will be invested in firms which have high productivity and which shows great promise in the economy.

Functions of Financial Markets :

1] Mobilization of Funds

In a successful economy, money never sits idle. Investors with savings must be linked with corporations and industries that require investment. So financial markets enable this transaction, where investors invest their savings according to their choices and risk. This utilizes idle funds and the economy experiences growth.

2] Determination of Price

The financial commodities that are traded in a financial market get their prices from the rule of demand and supply. The investors or households are the suppliers of capital and the industries are the ones that demand them. The interaction between the two and other market factors provide help in determining the prices.

3] Liquidity

The instruments or securities sold in the financial market have high liquidity. This means that at any given time, an investor is able to sell his/her financial commodities and convert them to cash in a very short period of time. This is crucial for investors who do not wish to invest for long term.

4] Easy Access

Investors and industries have a symbiotic relationship – they need each other. The financial market provides a platform where both the buyers and the sellers find each other without any third party involvement, without spending too much time, money or effort.

5] The markets are unpredictable

The markets cannot be predicted at any time. For example: Investors predicted a fall in the Indian rupee after a massive increase in international oil prices. They believed that with oil touching $100 per barrel, the Indian Rupee will drop to Rs 80 to the US dollar and more. However, the oil prices dropped in no time to below $60 a barrel and the rupee was trading at Rs 70 to the US dollar resulting in heavy fluctuation in the financial markets.

Investors have to have a deep knowledge about the markets before they make their decisions. It is vital to know about the historic climatic and economic conditions of a certain geography before investing in it. Living in an age where the markets fluctuate on a daily basis, having the right knowledge and information is imperative.

BSE Institute has been successfully training students and working professionals in the field of financial markets for the past few decades. The course on GFMP Edge Financial Markets can help anyone become an expert in the field of financial markets in under 4 months!!