Monday, June 25, 2007

Life Cycle Stage – Financial Needs – Choice of Investment

This is the fourth in the series of Financial literacy series. Previous ones here: 1, 2, 3.

Age of an investor, family situation and health are important determinants of financial goals. Also financial goals and plans depend on the income, expenditures & cash flow requirements of an individual.

For the purpose of ideal financial planning, investors can be segmented according to certain stage in their life cycle

Stage I : Ages: 20 to 30 (Unmarried, Young Professionals)
Stage II : Ages 30-45 (Married, With or Without Kids)
Stage III : Ages 45-55 (Pre Retirement)
Stage IV : Ages >55 (Retirement)

Let's start with the first stage: Life Cycle Stage I : Ages: 20 to 30 (Unmarried, Young Professionals)

• Continuing higher education or just started working
• May or may not own home
• May or may not have dependents

Financial Needs Are Immediate & Short Term

• May still have some support from parents
• May be saving towards future family needs - say buying home
• May be paying off education loans
• Likes to spend money

Ability to Invest :

• Limited due to higher spending

Choice Of Investments :

• Liquid plans & short term investments.
• Some exposure to equity and pension products,
• Term Insurance plan

The second stage comes in another post!

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Saturday, June 23, 2007

Financial Literacy Series: Functions of Financial Markets

I kicked off a series on financial literacy by setting a backgrounder and something on financial systems .

The term `financial market’ refers to the means through which buyers and sellers are brought together to transact the financial products. The Major Functions Performed by the Financial Markets
o Price Discovery
o Liquidity
o Lower Transaction Costs

Price Discovery

Financial markets provide a centralized place for trading in financial products. This `place’ need not be physical. It may be virtual such as the online trading system of the National Stock Exchange. This feature enables the prospective buyers and sellers to discover the going price and take appropriate decisions.


Financial markets also provide a mechanism for the investors to sell their financial assets. For example, if an investor wishes to sell his shares, the equity markets offer an easy exit.

Lower Transaction Costs

Financial markets save a market player the cost of locating counterparty to his transactions. The counterparty can be readily found by going to the appropriate market.

We will discuss Financial Market Segments in the next post. Crossposted on my website's Learning Centre and Blog

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Friday, June 22, 2007

How do you get in touch with your Advisor?

How do you get in touch with an Advisor when you need one? Depend on your friendly neighbourhood guy who is more of a family friend?

I have realised that my friendly neighbourhood finance advisor does not have the knowledge of all financial products and at best he gets work done in his/her area of insurance, mutual funds, stocks or some other financial product. And the knowledgeable financial planner are too hard to find. Media tells me to take my own decisions based on my own risk appetite and financial goals. So the ball is back in my court.

And there are over 700 mutual funds, 5000 stocks, 300 insurance policies and hundreds of other financial products to choose from.

Internet enables information sharing in a powerful manner and is a medium where we can help each other in matters of personal finance. That brings me to the thing I have done!!

Take a look at this one. This is to be launched in August but I’m giving you a preview!!

Financial Advisors Directory: We invite professional and net savvy advisors to register and provide the information needs. This one is a first in India to the best of my knowledge…..

Suggestions are welcome.

Blog on Finance & Business

Thursday, June 21, 2007

My Squidoo Lens on Personal Finance

Squidoo is the world's most popular site for people who want to build a page about their passions. Highlight books, blogs, vids, online shops and/or just spread the word about your stuff.
So that's what I did today. Made a lens about Personal Finance. Go, take a look.

And Seth Godin is the man behind this amazing squidoo!! It's fast, free, and supereasy. So if you have something to talk about, why don't you build a lens for yourself too. It also makes sense for the SEO guys to have your blog/site talked about at a high PageRank site. Go, help yourself.

Blog on Finance & Business

Wednesday, June 20, 2007

India News Box: Interview with the Chief Web Architect

Avinash runs a popular blog on technical trade calls on Nifty 100 and I was a bit surprised to see him launch a news aggregator. But Avinash is an avid news reader and thought that the news aggregator would be useful for like minded people. And he learnt PHP from scratch to pursue this hobby/interest/utility!!

I asked Avinash about his efforts/thoughts on what he and his wife Tejaswini have taken up as an exciting project and am thankful for his prompt and candid replies. Thanks Avinash. (Btw, I'm referring you as the CWA: Chief Web Architect)

1. What is IndiaNewsBox?
IndiaNewsBox is a hyper aggregation service which aims at delivering news in a manner that it gives a comprehensive view of whats happening. The idea is to cover 9 major sources of news/views on subjects ranging from India General , Technology , Business .. to Tech Blogs that a reader gets the comprehensive picture of news. In addition we have also added services like online near real time charting for stocks etc etc because we believe it is also extension of the news service which we provide.

2. Why'd you name it that?
Name !! Its good that you asked this question .. Umm actually i wanted to name it in a manner that it sounded different like my earlier blog and then i chanced upon the name called as GaramGaram and then started to design my site ... Once i had almost completed design i found that domain was no longer available for usage as it was booked by someone !!

As i was getting the website template developed by a professional I had to change the name then and there so was born .. Not much thought went into it !! :)

In fact I never used the website template developed by the professional instead i got my wife to design one for me from scratch !

3. Where did the idea come from? What is the research you have done on the business model? Or do you just see this as a hobby?
I got this idea while i was trying to improve my to incorporate news into the blog. I felt that if ever there existed a service which could aggregate news from my favorite news sources in a single page it would be great ! !

I am an avid news reader and would visit two to three news websites to catch up with news . Thus i thought that if i come up with a news service like this then it would be useful for others .

So I created a prototype and asked for the opinion of a few friends . Based on their feedback I developed a UI along with my wife (who happened to be a web designer at that point of time :))

The research part of this site has happened over the last few months as I am evolving the product to cover more and more things based on user feedback
a) We added Live charting for NSE stocks
b) We are covering 18 of India's Best blogs
c) Regional Language coverage

The business model was quite simple as I did some research on the net and figured that if you are able to get 1000-2000 visitors / day on your site it is quite lucrative, meaning you can earn 300-400 US$ / month based on advertising. So I figured that it would not be difficult to achieve the target over an year (as this is not my full time job)

4. I guess you have some success from your stock calls on your blog? Do you have the same response on this NewsBox? Or better?
Yes Ranjan , I did manage to get a good response to my blog which gave the stock calls and that's why I was able to set IndiaNewsBox service . But i must admit the the business models for both the projects are different !! is dependent on users giving money after making profits in their stock trades . While IndiaNewsBox is based on advertising revenue . I think i would be able to make decent amount of money only when I achieve the scale of 2000 visitors / day.

5. How did you actually build IndiaNewsBox(how much did it cost, where do you host, what did you need to do in terms of paperwork, coding, finding people, etc)?
This is the interesting part of the IndiaNewsBox story because the total cost of setting up of IndiaNewsBox is really zero !! . Meaning i did not spend any money at developing and coding this site as most of the webdesign is done by me wife (who was a web designer earlier) and the coding part has been done by me !! In fact most of the coding has been done with PHP and i had to learn PHP from scratch in order to develop this site.

So we are only a team of two people (me and my wife Tejaswini) who are working on this project.

Now coming to the hosting part it costs me 12 $ a month to host on Yahoo hosting . This hosting is pretty easy to manage . So all i need to break even in my site is to recover the cost of hosting .

Which am managing to do every month since am up and running :)

6. What are your goals with INB? I mean the number of page views daily and the revenue targets.
My Goal with this website is pretty basic meaning i would like to achieve page view of 4000-5000 / day which translates into atleast 1500-2000 visitors / day within the next 3 months . Once we achieve this scale then we will remodel the site to add new features like email delivery of news , customized etc etc .

So initial goal is to reach 2000 visitors/day!! Long term goal is to make the portal to get 100000 page views / day ( has this now) . I believe that this is possible if we constantly react to user feedback and adapt ourselves.

Currently we are having traffic of 200-300 visitors resulting is around 500 page views and we are making revenues of 40-50 US $ / month !! Which is not much as it is not even equal to my one day salary but as things progress and we scale up we will make decent money ..

As they say its always difficult to make the first million and billions will follow later . The same holds in the web domain its difficult to get then first 1000 and then hopefully we will get our million visits soon !

7. How do you market INB?
We don't do any marketing , we have only done some search engine optimization so that we receive visits from Google . This gets us 10-20 new visitors / day . Some of the stick on and thus we are able to build a steady stream of visitors over the past 2-3 months ..

8. What would you say to a person who wants to do something entrepreneurial?
Entrepreneurship !! I think one needs to understand that being an entrepreneur is not that easy as it sounds and it needs huge sacrifices and energy to be spend . So before you start please think through of all the good things which you may have to give up when you take up and entrepreneurship !!

9. How much weightage/importance do you give to finding the funds vis a vis the idea?
I believe that execution is more important than the idea itself because ideas are available in dozens !! But its the execution and the promotions which make or break a product !

Funds .. If the funds are essential for implementing your vision then I would give it more importance than the idea part of it !

Those were some very candid and useful answers from a guy who is taking small steps to build a small business. It also explains the limitless opportunities available on the web. I wish Avinash and Tejaswini the very best. Once again I'm reminded of one of my favourite quotes:
Whatever you can do, or dream you can, begin it.
Boldness has genius, power and magic in it.

Blog on Finance & Business

Tuesday, June 19, 2007

What is your Investment IQ?

I scored 19/20 in the Investment IQ test by MoneyControl !! I would have scored less than 10 some months ago before I started this blog. :)

Use this tool to evaluate whether you should manage your investments yourself or whether you should approach/ use a professional manager.

This evaluation will consider your temperament, aptitude and technical knowledge. It should take you between 5 and 8 minutes to answer the 20 questions.

Scores on temperament(5), aptitude(5) and technical knowledge(10) are taken. The qualifying score( 15) is a Moneycontrol recommended benchmark and it refers to the minimum you need to score if you want to manage your money independently.

As I said, I wouldn't have scored 19 if I was not doing this blog. In fact I was very miserable with all this personal finance. But I have learnt that finance is not rocket science and I owe it to my family that I manage our finances better.

Maybe you score less than 15. But does it mean you should start finding a professional manager? Or should you try and build your financial literacy (backgrounder) levels. Choice is obviously yours!!

Blog on Finance & Business

Saturday, June 16, 2007

Phi Day:Fibonacci Number is a Golden Ratio

Since June 18(Phi day) -- or 6.18 as math junkies know it -- perfectly represents the Fibonacci number or the golden ratio, it is a good time to take alook at what this is all about.

Even though the Fibonacci numbers are named after Leonardo of Pisa, known as Fibonacci, they had been described earlier in India

Fibonacci techniques can identify market turns and senior analysts use charts and explanations to educate you on Fibonacci Retracements, Fibonacci Extensions, Fibonacci Circles, Fibonacci Fans and Fibonacci Time.

I found a site which can teach you how to apply Fibonacci math to real-world trading. Click Here
Did you read The Da Vinci Code? Does math, history, science or technology really get you going? Or in case you are just curious about Fibonacci, head on to this page or to this Wikipedia page

Fibonacci sequences appear in biological settings such as branching in trees, the spiral of shells, the curve of waves. Interesting, no!!

Blog on Finance & Business

Friday, June 15, 2007

Sensible Bull Market Trading Advice

I found this sensible piece in a group by Vivek Karwa. Thanks Vivek for permitting me to quote you here on my blog.
I hope everyone of you know that all kinds of activities pick up in a Bull Market. This happens since each person starts thinking that Money Making in Stock Market is a child's play! And thus people fall to any extent to earn the fast buck. India has been witnessing a Bull run past 3-4 yrs and such activities are bound to happen.
You may not believe that there were around 35 Analysts (I call them Budding Analysts) sending at least 25 recommendations each on my yahoo messenger daily a year back. They started thinking that what ever they recommend goes up hence they have mastered stock picking. Then came the May crash.
I now have just three people on messenger sending calls! And none of them is from the May list. They lost their money, became analysts and then lost peoples money!

In a Bull market , some of the activities which increase are:-

1.. Boom in stock brokers and sub-brokers offices since more and more people want to trade.
2.. People luring others to trade and invest in various financial products including Mutual Funds to earn higher commissions.
3.. Fund houses coming up with NFO's every next day.
4.. Sharp increase in Analysts/Advisors
5.. And why to miss our topic. Boom in Technical Analysis Software Sellers!!

I would like to caution every one on this!!

Before buying any software and spending Lakhs on it think once:-

1. Do people start earning money just because of buying a software? If yes then why cant each one of us buy and make big money.

2. Do people owning software Never Loose Money? They only make??

3. If your main activity of earning money is a different profession then can u utilize the software to its full value?

4. Does it not make sense to subscribe for calls for a portion of the money and concentrate on your main acivity? (Iam not trying to promote myself here or seeking subscription - but there's sense in my words)

So think twice before investing in softwares, may be the same money can be utilized in a better manner.


Vivek Karwa
Mob: +91-98405-40575

Blog on Finance & Business

Thursday, June 14, 2007

Financial Literacy Series: Financial System

I have been busy working on the financial literacy programme for me and you. If you have come here without looking at this backgrounder post, It will be my request that you take a look at the introduction post too.
Before we discuss in detail the various instruments available in the financial market and their role and significance in personal financial planning, it would be helpful to have a brief overview of the financial system in India.
The Financial System Consists of
o Financial Market Segments,
o Players in the Financial Markets
o Financial Instruments

The financial system basically facilitates transfer of funds from the cash surplus economic units to those who need it, and does it in the most efficient manner.

There are three major types of economic units.
a. Households where personal finance is involved.
b. Business entities which resort to Financial management and we can refer it as business finance
c. Government where we come across fiscal and monetary policies.

Usually, the business entities and governments are fund deficit units and require funds to finance their capital and operational expenditure. The householders as a group are net savers and channelise their savings to the other units through the mechanism of the financial markets.

So you and me are surplus economic inits and the government and business use our money and make us look like beggars!!

This fund transfer from the surplus units to deficit units may be done in one of the two ways – directly or through financial intermediaries such as banks or insurance companies.

In case of direct transfer, the deficit units sell financial claims on themselves, which are purchased by the surplus units. An example is the debentures issued by a company. These debentures are sold at a price. These represent financial claims on the issuing company in the form of a promise to pay periodic interest and principal repayment. This method is more cost efficient as no intermediary costs are involved here.

However, deficit and surplus units may not be in a position to access each other directly. E.g. the households are interested in a wide array of assets, and evaluate investment vehicles based on their return, risk characteristics as well as tax treatment.

The corporate houses want to get the best possible price and keep the cost of funds as low as possible. Financial intermediaries (FI) such as banks and insurance companies help bring these two together. They pool funds from the investors, invest money on a large scale.
They are able to diversify their asset base that is rather difficult for individual investors. These intermediaries also gain expertise in the course of their business that enables them to give a better deal to the investors. , FI are able to reap the benefits of Economies of Scale, Lower Transaction Costs, and Reduction in Information Costs due to their intimate knowledge of finance.
The Government simply passes taxation legislation (bullies us) and gets load of money from us to fill its coffer and serve the social needs!

Financial markets can be over the counter (OTC) or organized. In case of an OTC market, the buyer and seller directly meet each other, may negotiate the price and strike the deal.
In case of organized markets (say securities exchanges or Stock markets), buyers and sellers give their price quotes and the exchange facilitates matching of buy and sell orders based on compatibility of price quotes. In fact, the same instrument may be traded either way. For example, if an investor buys units of a mutual fund directly from the fund, it is OTC. However, units of certain mutual funds are also listed and traded on the securities exchange.
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Wednesday, June 13, 2007

Personal Finance 2.01 Website Update

Nine months ago I did not know what a blog is? Stuck up at home due to a back injury, I was casually chatting up with a geeky friend asking him about how to create a website, purely in jest. "Why don't you begin with a blog and then see if you can make it bigger", he said and gave me a link of Blogger

300 posts later, the dream of translating it into a website seems plausible. Just take a look at what I've created without knowing html code! (Well, I can figure out the a href link code, but just!!)

  • Personal Finance 2.01: It's a one stop personal finance website and I urge you to take a test drive. Feedback will be of immense help.

  • Discussion Forum: It's a forum where you can discuss all your doubts and questions about personal finance, planning and various products like insurance, stocks, mutual funds, etc.

  • PF 2.01 Blog: I have started a blog focussed on personal finance and I would invite you to share your thoughts. Let's have a real conversation of PF going on here.

  • Weblinks: I am regularly out on the web. When I find a great site I list it here for you to enjoy. From the list choose one of my weblink topics, then select a URL to visit.

  • NewsFeeds: We have some great news feeds to take a look at. Suggestions are welcome.

  • Financial Advisors Directory: We invite professional and net savvy advisors to register and provide the information needs. This one is a first in India to the best of my knowledge.

The design stage will take another two months after which I'll be ready to go live. The real action begins only after then. Wish me luck.

Blog on Finance & Business

Tuesday, June 12, 2007

The Elliott Wave Principle

This is content from ElliottWave and I have their permission to reproduce it here. It's quite informative. Read on....

In the 1930s, Ralph Nelson Elliott, a corporate accountant by profession, studied price movements in the financial markets and observed that certain patterns repeat themselves. He offered proof of his discovery by making astonishingly accurate stock market forecasts. What appears random and unrelated, Elliott said, will actually trace out a recognizable pattern once you learn what to look for. Elliott called his discovery "The Elliott Wave Principle," and its implications were huge. He had identified the common link that drives the trends in human affairs, from financial markets to fashion, from politics to popular culture.

Robert Prechter, Jr., president of Elliott Wave International, resurrected the Wave Principle from near obscurity in 1976 when he discovered the complete body of R.N. Elliott's work in the New York Library. Robert Prechter, Jr. and A.J. Frost published Elliott Wave Principle in 1978. The book received enthusiastic reviews and became a Wall Street bestseller. In Elliott Wave Principle, Prechter and Frost's forecast called for a roaring bull market in the 1980s, to be followed by a record bear market. Needless to say, knowledge of the Wave Principle among private and professional investors grew dramatically in the 1980s.

When investors and traders first discover the Elliott Wave Principle, there are several reactions:
Disbelief – that markets are patterned and largely predictable by technical analysis alone
Joyous “irrational exuberance” – at having found a “crystal ball” to foretell the future
And finally the correct, and useful response – “Wow, here is a valuable new tool I should learn to use.”

Just like any system or structure found in nature, the closer you look at wave patterns, the more structured complexity you see. It is structured, because nature’s patterns build on themselves, creating similar forms at progressively larger sizes. You can see these fractal patterns in botany, geography, physiology, and the things humans create, like roads, residential subdivisions… and – as recent discoveries have confirmed – in market prices.

Natural systems, including Elliott wave patterns in market charts, “grow” through time, and their forms are defined by interruptions to that growth.

Here's what is meant by that. When your hands formed in the womb, they first looked like round paddles growing equally in all directions. Then, in the places between your fingers, cells ceased growing or died, and growth was directed to the five digits. This structured progress and regress is essential to all forms of growth. That this “punctuated growth” appears in market data is only natural – as Robert Prechter, Jr., the world's foremost Elliott wave expert and president of Elliott Wave International, says, “Everything that thrives must have setbacks.”
The first step in Elliott wave analysis is identifying patterns in market prices. At their core, wave patterns are simple; there are only two of them: “impulse waves,” and “corrective waves.”
Impulse waves are composed of five sub-waves and move in the same direction as the trend of the next larger size (labeled as 1, 2, 3, 4, 5). Impulse waves are called so because they powerfully impel the market.

A corrective wave follows, composed of three sub-waves, and it moves against the trend of the next larger size (labeled as a, b, c). Corrective waves accomplish only a partial retracement, or "correction," of the progress achieved by any preceding impulse wave.

As the figure to the right shows, one complete Elliott wave consists of eight waves and two phases: five-wave impulse phase, whose sub-waves are denoted by numbers, and the three-wave corrective phase, whose sub-waves are denoted by letters.

What R.N. Elliott set out to describe using the Elliott Wave Principle was how the market actually behaves. There are a number of specific variations on the underlying theme, which Elliott meticulously described and illustrated. He also noted the important fact that each pattern has identifiable requirements as well as tendencies. From these observations, he was able to formulate numerous rules and guidelines for proper wave identification. A thorough knowledge of such details is necessary to understand what the markets can do, and at least as important, what it does not do.

You have only just begun to learn the power and complexity of the Elliott Wave Principle. So, don't let your Elliott wave education end here. Join Elliott Wave International's free Club EWI and access the Basic Tutorial: 10 lessons on The Elliott Wave Principle and learn how to use this valuable tool in your own trading and investing.

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Monday, June 11, 2007

Financial Literacy for me, you and your friends

I need to go through a financial literacy programme and I am making that effort. So do you, dude.

I've hated finance. Maybe because I was not able to understand the jargons and the maths. But I guess ignoring personal finance worsens the situation. And the only way to get maximum out of your personal finance is to look it into its eye and grapple with it. You will come out stronger.

If you think it's too early for you to bother, let me tell you that the first principle of investing is to start early and see the magic of compounding. College grads, fresh MBAs and guys under 25, the smart thing to do is to start now.

Do you think that you have mastered the basics but are not able to use it to your advantage, it's time to put your thinking cap on and review your strategies. Learn from your failures. Often we tend to get stricken by some deadly internal enemies which Kartik Jhaveri details here.

Some of you guys would be rich enough not to be bothered about these mundane things. But have you ever given a thought that you are in a position to contribute to the nation's economy by being more efficient about your finances. Wealth has the unique ability to create more wealth. Are you using that power?

Before I move on, let me articulate the background to this financial literacy programme that I am so smitten about. The following facts and questions keep on humming in my mind:
  1. Equities give the best returns and you are putting your money in a professionally managed corporate organisation. Compare this with your insurance products which give much lesser returns and your money is invested in the Government which is inefficient with your money, to say the least.
  2. However the total AUM under Mutual Funds is about Rs 3.5 lakh crores while LIC alone manages funds worth more than Rs 6 lakh crore. Yes it's true that LIC has been there for over 50 years and has a huge distribution reach. But it has hardly tapped the huge insurance potential that India has.
  3. Financial experts scoff at ULIP saying that it's very expensive compared to Mutual Funds. But LIC collected more than Rs 25000 crore in 2006-07 and it's total fund under ULIP is approx 40000 crore which is more than UTI's AUM of approx 39000 crore (since existence)

All this and more points to widespread financial illiteracy at all levels. Be it college grads, software geeks, MBAs, Engineers, even CFA/Economists( they are experts at business finance or government finance) and even Financial advisors (they rarely have a holistic view), everyone needs to be literate about his personal finances.

And there are over 700 mutual funds, 5000 stocks, 300 insurance policies and hundreds of other financial products to choose from!!

Interested! And the literacy programme that I have in mind will have the following details:

  • Financial planning basics.
  • Financial markets.
  • Financial products like Mutual Funds, Stocks.
  • Research reports, Financial analysis, technical analysis.
  • Insurance : Basics, Company review, product review.
  • ETF : Basics, Company review, product review.
  • Bonds : Basics, Company review, product review.
  • Tax Planning : Basics, product review.
  • Retirement Planning : Basics, product review.
  • Children's education. : Basics, Company review, product review.
  • Calculators :Budgeting, Networth, Loan, Asset allocator, Risk analyser,etc.

Any suggestions. And if you are interested why don't you subscribe to my RSS feed or by email. And tell your friends too. I'll cover them one at a time. [ I need to learn them and then only I can share it with you :) ]

Btw, if your eyebrows are tensed up and you are thinking why I am making so much effort working on this financial literacy programme, I'll tell you my secret. It's for the website I dream of every day and night!! The site launches in August'07.

Blog on Finance & Business

Sunday, June 10, 2007

Page3 Bombay Bloggers Party

It's good to be back to blogging after a long vacation. And what a cool way! The Bombay Bloggers had a Pg3 bash and there I was!!. And though I'm incorrigibly reclusive, inarticulate and an introvert, I did have a good time there.

I was also hoping to meet Amit Varma and I was not disappointed. The decibel level of the party hardly allowed us a decent discussion and was thrilled to get his email sent at 3.47 am in the night. Hope to meet up with him again soon amidst quieter surroundings.

It was a pleasure meeting Gaurav, Roshan, Jigar, Moksh and other bloggers. The party had just begun to rock when I had to move on. You can see the pictures at Melody's blog and Sakshi's blog. Melody has posted this one on her blog where I'm with Amit Varma and Mohit.

I'm happy to be back blogging.