Mutual funds constitute a unique investment gateway where you can invest a small sum and reap the benefits of a well-diversified portfolio selected by professionals, who are not only accountable to their seniors at the mutual fund but also responsible to you as the investor. The mutual fund as a concept is not new, the foundation of the modern mutual fund laid with the establishment of Massachusetts Investors Trust (now MFS Investment Management) in 1924. In India, the mutual fund story started in 1964 with establishing the Unit Trust of India (UTI) by an Act of Parliament. Subsequently, in the years 1987-1993, public sector funds entered in the fray. In 1993, the first mutual fund regulations came into existence, under which all mutual funds, except UTI were to be registered and governed. This paved the way to private sector funds and international players. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised set of regulations in 1996. The industry is now governed by the SEBI (Mutual Fund) Regulations 1996.

The composition of mutual fund consists of three entities - sponsors, trustees, and Asset Management Company (AMC).  The sponsors initiate the idea to set-up a mutual fund and arrange/organize capital. Trustees secure the necessary approvals from SEBI to float the schemes. The trustees enter into a management agreement with the AMC to manage the money collected through various schemes. The AMC takes investment decisions, maintains proper accounting and information, calculates the NAV, and provides all relevant information.

Mutual funds offer many types of schemes with the objective of offering many options to the investors to match their investment objectives. These schemes can be broadly divided into following generic categories:

• By structure, such as open-ended/interval/close-ended schemes
• By investment objective, such as growth, income, balanced and money market schemes.
• Other schemes, such as tax-saving schemes, index schemes, and sector-specific schemes

Mutual funds offer many unparalleled advantages in investing, such as professional management, portfolio diversification, low costs, liquidity, transparency, and flexibility.

Criteria of mutual fund selection

There is nothing that can completely ensure that the investor will earn maximum returns but the following fund parameters will help to reduce risk and enhance returns:

• Size of Asset Under Management (AUM): A large-sized AUM not only helps to reduce cost but also puts the fund in a position to absorb risk and liquidity crises in a better way.
• Past Performance: Past performance of a mutual fund does not guarantee anything for the future but it definitely indicates the ability of its fund managers.
• Lower Investment Management Expenses: It is generally favorable for the investor to choose schemes with lower Investment management expenses.
• Low Portfolio Turnover: High portfolio turnover unnecessarily increases transaction cost, hence look for funds with low portfolio turnover to take the cost advantage.
• Evaluation of Indicative Portfolio: An investor should properly evaluate a fund’s indicative portfolio and try to avoid schemes with exposure in underperforming sectors.

Matching Investment Objective with Schemes

Every investor has one goal - to maximize returns subject to his/her risk appetite. Mutual funds give a lot of options to enable one reach or get close to one’s desired goal.

• Corporates/individuals can put idle money in liquid funds rather than savings accounts and earn much better returns. Money can be withdrawn from liquid mutual funds by giving just one day’s notice.
• If an investor plans to earn reasonable returns for a period in the range of three months to more than a year, fixed maturity plans (FMP) are a good option. In case of FMPs of more than one year’s tenure, an investor can also take the advantage of long term capital gains.
• If an investor wants to invest on a recurring basis, a systematic investment plan (SIP) is a good option. Its long duration helps to reduce the impact of bull and bear phases.
• Investors with very high risk appetites and good understanding of the market can always look for equity or equity-oriented mutual funds. If the investor feels that a particular sector will do well, he/she can choose sector-specific schemes. Mutual funds also have the expertise to hedge investments to ensure lesser downside risk.
• If the investor wants to enjoy fixed income with a mix of equity returns, he/she can go for balanced/debt-oriented/equity-oriented mutual fund schemes.
• An investor can choose the dividend/growth option as per his/her requirement of funds. Dividend is tax-free income for the investor.

Final Thoughts

But the bigger fact remains that it is your money, you should not rely on anybody with closed eyes. In the worst scenario, even considerably safe investments like FMPs can give negative returns. You should always be in touch with the market or at least watch the Sensex on a regular basis. An informed investor can always use the option of switching from one particular scheme to a liquid fund and vice versa at appropriate times. However, by investing through mutual funds you can take advantage of expert selection of securities, daily monitoring, risk reduction, lower cost etc. and improve your returns.

Prabhat Varma works as General Manager (Finance), Sahara India Financial Corporation, Mumbai.

Here’s what mutual funds (MFs) are, and how they work.

Let’s say you and I had some money, about 1 lakh rupees each. And we have 8 other friends with the same idea. We all decide that we need to invest this in stocks, but we don’t have the time or energy to do research, tracking, buying selling etc. So we hire a manage who has the right experience and tell him - “Look, you can take up to 2.5% of the total value every year as your fees, but you buy shares that will grow over time, and sell when the time is ripe, etc.”

Ten of us have now put in a lakh each and the total corpus is Rs. 10 lakh. We decide that we will issue ‘units‘ to denote our interest in the fund, so we issue 1 lakh units at Rs. 10 each. (It’s like chips at a casino). So each person gets 10,000 units, corresponding to an investment of Rs. 1 lakh.

The manager, who is quite experienced and informed, makes stock-buying decisions based on what we, the investors, decided up front - i.e. only large cap stocks, or only technology stocks, at least 90% invested (only 10% cash) etc.

As the stock values grow, so does the total corpus value. Let us say the value has gone up to Rs. 15.6 lakh in two years. Now we have to pay the fund manager 2.5% every year, which works out to Rs. 60,000 for two years. That leaves Rs. 15 lakh. So the value of the 1 lakh ‘units’ is now Rs. 15 lakh, meaning each unit is now worth Rs. 15. This is called the ‘Net Asset Value‘ or the NAV. Since each of us has 10,000 units, our individual value is Rs. 1.5 lakh.

Now I decide to take a trip to Singapore and spend Rs. 75,000. So I sell half my units at the current NAV, meaning I sell 5000 units at Rs. 15. To give me money, the fund manager sells some stocks, and now the total corpus is down to Rs. 14.25 Lakhs. But that will again grow with time, but I will see lesser growth than anyone else in the fund because I have only 5000 units and while the others have 10,000.

One day, when the NAV is Rs. 15 per unit, the fund manager decides the market is going to fall. So he sells half the holdings. Now there is half the money in stocks and half the money in the bank. So the manager gives us the money in the bank as a ‘dividend.’ Let’s say he decides to give Rs. 5 per unit as a dividend, for 1 lakh units (ignore my selling bit for a moment here). The dividend would then be 50% (since the initial value of the unit was Rs. 10; your initial value stays the same even after the dividend)
So, each one of us get Rs. 50,000 as dividend. But now, the total corpus has fallen by Rs. 5 lakhs! The NAV (total corpus divided by no. of units) is going to fall by Rs. 5 per unit. So a dividend for this “mutual” fund is the same as no dividend - you get money, but your fund value goes down.

This is how mutual funds work.

Now funds can be misused (manager can run away etc.). Hence, the government has regulations for organised mutual funds. They must have a sponsor (usually a bank), a set of trustees (some independent), and an asset management company (AMC), which appoints a fund manager. Promotion of the fund is done through agents who are recognized by the Association of Mutual Funds in India (AMFI). These people get commissions to sell the mutual funds, and therefore mutual funds carry an ‘entry load’, which is usually between 2 to 2.5%. (This is apart from the AMC/Fund manager fee)

How to invest?
Go to your bank, or go to mutual fund sites online. They will give you forms to fill and you can write a cheque to the fund. The fund will then give you a “holding statement” with a folio number.

Selling (Redemption of units)
You can use your folio number to sell any of your units. Funds release their NAV regularly, sometimes daily. When you sell, it will be at a certain day’s NAV (usually the day you sell or the next working). And usually, you get the money in two-three days.
Some places allow you to invest online - Reliance Mutual Fund does that. HDFC bank’s Netbanking and ICICI Direct too give this facility.

Types of Funds
Mutual funds can invest in anything - not just stocks. There are those that invest in government bonds, fixed income securities, real estate, indexes, part debt-part equity, etc. Read the offer document of a mutual fund carefully before you invest, see what the fund will invest in, and how much.
There are open-ended and closed-ended funds. If you can buy anytime and sell anytime, the fund is open-ended. Closed-ended funds can only be sold at or after a certain date.

Most of us spend more than half of our lives working and saving money. However, most of us spend almost no time planning to make that hard-earned money work more effectively for us. Your success as an investor depends upon your ability to choose the right investment options. This, in turn, depends on your needs, wants and dreams.

I would like to discuss some investment basics that every investor should know while planning their investments. Investment planning isn’t a way to get rich quick, but is a disciplined execution of your lifetime plans.

Investment - Consumption Cycle

By making an investment, you are using money that could otherwise have been consumed. You are sacrificing the pleasures of buying a car, taking a vacation, renovating your home etc. There ought to be some reward for this sacrifice. The reward is that you expect to get back more than what you have put in. You can then consume the amount that you get back. Thus investment refers to a commitment of funds to one or more assets that will be held over some future time period. In simple words, anything not consumed today and saved for future use with some risk can be considered an investment. Thus future consumption is the main motivation of an investment made today. Investing creates wealth and wealth is a driver of consumption. More wealth means more consumption, while less wealth leads to less consumption. Thus all the three: investment, wealth, and consumption are interrelated. This is the investment consumption cycle.

Why do you invest?

You invest for your future well-being and to meet future financial requirements. Anticipated future cash outflows may be in different ways like: children’s education, children’s marriage, buying a home to retire in, etc. There can also be unanticipated cash outflows like: critical disease, accident, natural calamity etc. Thus, investments are made to protect the family against all these anticipated and unexpected cash outflows. The funds for investment comes from assets already owned or borrowed money or savings.

How do you invest?

If you make an investment decision today that will directly affect your future wealth, it would make sense that you make a plan to guide your decisions. Surprisingly, the majority of people do not have in place any type of formalized investment plan. Taking some time to put together an investment plan can reap tremendous benefits. You must have a strategy for your investments backed by a sound reason for investing.

Where do you invest?

Investment can be made into different financial and non-financial asset classes. Financial asset class includes paper assets like:

• Equity shares
• Mutual funds
• Bonds
• Cash equivalent, such as gold, or other precious metals

And the non-financial asset class includes investments in:

• Land and buildings
• Plant and machinery
• Business

And finally, “Be an investor, not a speculator!”…

Investors are defined as: Individuals who purchase assets for the conservation of wealth and the increase of wealth, with the emphasis on the conservation of wealth.

There is another breed of people, speculators, often mistaken as investors. Let us understand speculators - They are individuals who purchase assets for the conservation of wealth and the increase of wealth, with the emphasis on the increase of wealth.

In simple words, ‘Investment is safe speculation and speculation is hazardous investment’. There is a saying in equity markets that, “Those individuals, who invest, make money for themselves and those who speculate make money for their brokers.”

Priyesh Shah is Chief Financial Planner, working with SRE Financial Planners.

Inflation is a money eater that reduces your purchasing power. For instance if the average rate of inflation is 8%, you need to make sure that your investments are earning a minimum of 8% or more, post-tax. Let us assume an investment portfolio of Rs. 1, 00,000, earning returns at 10% and inflation at 8%. The returns in this case would be Rs. 10,000 gross annually, with the net after income tax Rs. 7000 (Assuming you are in the highest tax bracket of 30%). Now if you account for the 8% inflation specified (8000, or 8% of Rs. 100,000), you are left with Rs. -1000 (Return of 7000 minus inflation of 8000)! The best way to grow a retirement corpus is to have a diversified investment portfolio according to the asset allocation designed for your risk profile. An ideal one would be 40% equity (blue chip), 50% debt, 5% gold, and 5% cash. Equity would help appreciate the retirement corpus. Debt investments would provide for regular income and gold would act as a hedge to inflation and equity turmoil. The recent equity market downturn was the perfect example for gold to stand out as a surge. Selective equity investments made for the long term are more often than not investments with high returns.

Equity: Do not sell blue chip stocks when the value increases. This should not be done when you planning for retirement. These stocks provide for the regular incomes by the way of dividends. At the same time if the dividends paid by the companies increase, it will reflect positively on the stock price too. The most crucial aspect that we never consider in an investment is the dividend that companies pay. We always look at just the capital appreciation. Dividend income in India is tax-free. The dividend payouts by all good companies grow proportionate to the growth in the net profit. It means that if you stay invested, your equity dividend income will keep growing year after year, compounded. If you think that the return on your capital is tiny compared to your investments, just be patient and watch out for a few years. Lets assume that your company’s dividend payout grows 20% year on year, in 10 years your dividend income will jump by more than 6 times and in 20 years it will go up by nearly 40 times. And if you consider the occupational windfall gains like rights and bonus issues, your dividend income goes up in compounding multiples over a period of time.

Your Investments should perform better than the market: Is it easy? Yes quite possible. The Bombay Stock Exchange has approximately 3000 shares listed on it but its index, the Sensex, is a weighted average representation of just 30 stocks. So, if the Sensex falls it is an indication that the heavy weights from the 30 stocks fell; not all the 3000 stocks. If your investment portfolio is to beat the Sensex, they will need to have a Beta more than 1. The Beta is a measure of sensitivity of a scrip movement relative to the movement of the benchmark index (in this case, the Sensex). A Beta of 1 means that for every 1% change in the index, your scrip moves by 1%. The caution here is that when you have a Beta of more than 1, your investments will also fall faster than the Sensex fall. Investments in stocks can be very rewarding but with high risk.

If you lack knowledge let mutual funds take care of it: I believe most of you investors who lack knowledge should rely on mutual funds, not individual common stocks. This is not because I think your performance will not be better; rather I think it will be easier for you to operate and will allow less potential for a catastrophe. Investments in mutual funds are managed by professionals who understand and study all the critical aspects before investing your money. This will help in proper diversification, but be sure of you choosing the right scheme to invest in as per your risk profile and aspirations.

Let your debt investments comprise of Government securities and highly-rated bonds (AAA): The most important component in a diversified portfolio is investment-grade fixed income. High-grade bonds and full-faith-and-credit-pledge government securities are the most reliable fixed-income counter balancers.

The balance between debt and equities is a function of (1) your age - the younger you are, the larger your equities percentage; (2) your financial resources; and (3) your need for current income. No two investors have exactly the same risk/reward profile.

Once your debt investments are in place, you need to make adjustments and additions from time to time depending on your changing needs and available new cash for investment. But you should keep rebalancing the portfolio according to your asset allocation strategy once a year.

Biggest mistake is investing based on events: You should never make investment decisions reacting to short term economic indicators or performance. You should build long-term wealth by investing in good companies with strong balance sheets and a history of paying and increasing dividends, and then you remain patient. You don’t jump in and out of stocks based on quarterly earnings reports. Base your investment program on business cycle trends, not market noise created by events.

You should not make many changes to your portfolio in the course of an average year. You should add money to some positions and tinker with others. You should not run from one idea to the next each time the economic wind changes direction.

I would like to urge all the investors reading this to begin weeding out your portfolio’s deadwood. Simplify and organize your investing, and practice the basic rules. As you start to see the profits rolling your way, you’ll be glad that you took the time to read this article to lay a solid investment foundation.

Kirtan Shah, a Certified Financial Planner, is a partner at AmbestinQ Consultancy Services.

No doubt that investing in equity seems to be very attractive option for investment. Why it so? We hear many stories, some true, some fictitious, of people who have become millionaire overnight. But the fact is, earning money is not at all easy on the stock market. Let’s accept this simple fact that it is not everybody’s cup of tea. So, we have to be very objective about it.

It is well understood universally that a diversified portfolio is less risky and much safe than a concentrated portfolio.

In India, small-time investors usually have a very limited capital for investment. Therefore, it follows that it is a lot more difficult for this investor with limited capital to have a diversified portfolio. In other words it is not possible for small-time investors to invest directly in the market and to make their portfolio diverse.

So, how can small investors get the opportunity to make their portfolio diverse? The only option left is investing in mutual fund. Mutual funds offer a well-diversified portfolio even with just Rs 100.

A concentrated portfolio, also, could deliver high or low returns. This means that, again, it is against the small investors’ investment appetite normally. It would suit only selected expert investors with high net-worth.

One more thing to notice is that with limited capital it is difficult for small investors to buy shares with high prices like ICICI Bank, Infosys, Reliance, L&T, and other blue chip shares.
Again mutual funds seem to be the better route.
Let’s now discuss equity and mutual funds from a different perspective keeping in mind the common man’s objective.

Let us be honest as far as possible. Ask yourself the following Yes/No questions:

• Reading balance sheet of the company as a fund manager might do
• Identifying up-coming sectors
• Knowledge about companies, market, economics, and politics as a well-experienced professional fund manager might have
• Identifying the risk elements in an investment
• Predicting the future of the market as per any given scenario

If you have all of the above capabilities, go on and make wealth! In most cases, however, the answers would be “No.” Most of us do not have time to learn all these aspects of investment. Even if we do, we may not be able to do it regularly. Mutual funds are well-equipped with fund managers to do all the above activities.
Let us just concentrate on our jobs and leave our wealth management to the pros.

It is said that “If we all perform our duties meticulously then we are surely on the path of prosperity.” Every individual should be aware about his or her duties towards family members, relatives, friends, and society. In addition to social responsibilities, it is imperative that every individual should also have basic financial literacy.

To take the fist step towards financial literacy, following is a financial check list that you should prepare in consultation with your family members and professionals. This activity will make you more aware about your personal finance documents and will get you motivated towards knowing more about your finances.

Preparing this document will go a long way in enhancing your financial literacy. Do make a resolution to sit with your family members this weekend itself and prepare this important document.

Priyesh Shah is Chief Financial Planner, working with SRE Financial Planners.

By now it’s a known fact that we are in midst of unprecedented global turmoil. India is surely not insulated from whatever is happening around the globe. To add to that we have our own local problems like high inflation, subdued IIP numbers, which in turn have posed a big threat to our GDP growth. Stock markets are bound to react to whatever is happening around the globe and there is no surprise that our own stock index has shaved off almost 50% from its peak much in line with other indexes around the world. Such is the retail investor psyche that these same buyers who were queuing up to buy at 21,000 odd levels now shudder at even the thought of investing in the market!

The fear is well warranted considering the uncertainty we are facing.

I don’t know where this will end or how much more downside we can eye from here. Not because I am ignorant but only because it should not matter for me as a long-term investor in the equity markets. Notwithstanding all the macro and micro gloomy data points together with the uncertainty hovering around, the fact remains that the current turmoil gives an excellent opportunity for an Investor to build a long-term portfolio in equity markets.

Yes, I do agree a lot will depend on the quality of stocks we pick in the portfolio. But here again, remember that investing is simple. It is only as complicated as you make it. Considering the fact that we are almost trading at 2-year lows on the Index, this is an excellent opportunity for first-time investors to build fresh exposure in the equity market. It surely doesn’t get better than this.

So, where does one start??

The index has shaved off more than 50% from its peak dragging with it all the heavy weight stocks.

In times like these it is always advisable to start building exposure in the markets through the frontline stocks for the following reasons:

1. These are fundamentally good stocks, available at attractive valuations. Typically, during periods of panic, market players tend to over-do the concerns surrounding the stocks pushing the prices much below their intrinsic value.
2. Whenever there is a reversal of trend in the markets, these stocks will be the first to bounce from their lows giving a sharp recovery

How can you take exposure to these stocks?
There are various ways in which you can start building exposure to these front liners:

• Index Funds: Index funds (passively managed funds) from mutual funds could be a good option. These could be funds tracking a particular index (say Nifty or Sensex).

• Diversified Equity Funds: One can have exposure to diversified equity fund schemes of mutual funds, where the exposure could be towards the blend of mid & large-cap funds as per the schemes’ objectives. But please make sure you check the top 20 holdings of the scheme you are planning to invest in, as your objective is to be a part of the frontline stocks.

• Nifty BeES: Nifty BeES is the first ETF (Exchange Traded Fund) in India.

The investment objective of Nifty BeES is to provide investment returns that, closely correspond to the total returns of securities as represented by the S&P CNX Nifty. Typically value of Nifty BeES will be 1/10th value of the prevailing Nifty price (For example, if Nifty is currently trading at 3500, Nifty BeES could be available @ 350) and it can be bought and sold on the National Stock Exchange like a share. In short, you buy/sell the broad Indian market using just 1 scrip.

• Direct Equities: You can even directly buy the stocks form the market in a staggered manner, provided you fully understand the nitty-gritty of investing in equities. If you don’t possess the requisite expertise, simply turn to a professional money manager.

Whatever may be your mode of investing make sure you do some serious investing at these levels. If you feel jittery to invest the entire chunk, start investing at least 30-40% of your investible surplus in equities. And remember always, that best of the investments are always made in the worst of the times.

Kapil Mokashi is an Associate Financial Planner, working with Sharekhan Ltd. as an equity advisor.

The full story is at:
http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/Trail_fees_by_any_other_name_pinches_as_much/rssarticleshow/3299673.cms

The story is about MF houses charging illegal fees to their investors.
“In a bid to boost their profitability, several MF houses are now charging trail fees (even for direct investors) under the other expenses head, disguising it with names like miscellaneous marketing expenses or other operating charges,” says a financial planner, who is empanelled with several fund houses.
Why are the fund houses fooling the investor? This shows clearly that the MF houses are only looking at their own benefits. Why is the regulator silent on all these wicked strategies of mutual fund houses? Why is no action being taken? Why is SEBI not taking this seriously?
There will be people who might think that this is a small issue; but my dear friends, this is a very serious issue as the MF houses are eating up investors’ money. They are committing fraud as no one is stopping them. Not even the regulator! I would request all the people who read this to complain to SEBI about it.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/ Life_cos_say_cover_sale_by_MFs_affect_distribution_infrastructure/rssarticleshow/3405002.cms
The above story is about life insurance companies expressing concern on sale of insurance cover by mutual funds.

The insurance industry is strongly opposing this move. Life Insurance Council chief executive SB Mathur said: “Insurance companies are spending hundreds of crores on training agents to sell insurance. If mutual fund distributors are allowed to sell insurance without adequate training, the sanctity of the training would be lost.”

Mr SB Mathur’s self-righteous indignation is pathetic as well as misleading.

Even after spending hundreds of crores on product training, insurance agents are not selling the insurance products in the right spirit. Today unit-linked plans (ULIP) are the hottest product in the market. The reason is not because it is the best. It is one of the most miss-sold products in the market due to the high commissions offered to agents who sell ULIPs. Many cases have been found out were people go to banks to buy mutual funds and end up taking a ULIP Plan in the name of mutual funds. Insurance products are not marketed; they are sold.

In my last article I had mentioned that there are several methods, or styles, to investing profitably in the equity markets.

Let me start with suggesting that you, the potential investor, spend some time analysing your investments. If one were to assume that your money is indeed “hard earned”, would it not be unfortunate if is easily lost?

Most professional advisors compare their performance to benchmarks, which are indices. For example, if a fund generated returns of 20%, while its benchmark’s returns were 15%, this “outperformance” of the index by 5% is called an ‘Alpha’. This is a good measure to evaluate fund performance, provided the benchmark is reliable. If reliable, it would be a good measure to evaluate even personal portfolios returns.

The BSE Sensitivity Index of 30 shares is the most popular Indian stock market index. If one were to track this over 5 year periods, starting in 1992 (this is the year of the infamous Harshad Mehta boom, which is a relevant beginning simply because this is the first time there was retail participation in the capital markets), we would find that pre-2003 (the start of the latest boom), the index returned less than bank FDs. Even if we go from 1992 to the current date, the index returns are disappointing. This should indicate that equities are a poor long term investment, but are actually among the best options!

In fact, a well diversified portfolio, built over time and given a few years, at reasonable valuations (PE of close to 10, certainly lower than the Sensex’s long term average of 14 times) will outperform the benchmark or almost any other investment. The great Warren Buffet, however, considers that “wide diversification is only required when investors do not understand what they are doing”. If you know, and you need to know, why you make an investment, you should also have guts to invest plenty in it. Again, quoting Mr. Buffet, “Why not invest your assets in the companies you really like? As Mae West said, “Too much of a good thing can be wonderful.””

Diversification or concentration of portfolios can be achieved through investments in mutual funds. Concentration is through sectoral or thematic funds. Concentration is good only if you are an expert and can time your entry and, more importantly, your exits. Avoid being carried away by the noise. Most fund managers consider themselves to be God’s Greatest Gift to Investments (GGGI) in a bull market. However, when they crash with the markets they are quick to point to outperformance, if any, on the index, i.e. “The index has fallen 30%, but I have been brilliant and have lost only 25% of your money”. I have not met any investor who hands out money to be lost, whatever the market conditions. My advice is to ignore the froth from the fund managers, or brokers. If you are convinced the market is cheap, put in all your money. In an uncertain market do an SIP. But when the market seems overvalued sell. (By the way, have you ever heard a fund manager advice you to sell, or redeem your units in a bull market?) A crash always follows a euphoric bubble. Cash is supreme in bad times. It is a good feeling, and also very profitable to buy when the market is down 70%!!

Is this a good time to invest? Yes and no. An important lesson from Joseph Kennedy, almost a century old, is to sell when the shoe-shine boy gives stock tips. I believe this is true today. When the taxi driver is thrilled to take you to the share bazaar and asks for stock tips en route, the stranger at the party gives you sure shot stock bets and the daily newspaper has headlines of the local housewives club betting their grocery money on stocks – GET OUT. This is the best signal to sell your shares.

And buying? This would be when that party animal with best buys stops partying, the Big Bull has jumped off the 13th Floor and there is a funereal feeling at Dalal Street. Buy when the mention of a good company has people grit their teeth and give you dirty looks. And, of course, the index has a low, mouth watering PE!

One of my own gurus told me never to confuse the market with stocks. “The market is irrelevant”, he said, “buy the right stocks and you will always make money.” If you have his stock picking skills, which I do not, this article is not for you. If you are one of the simple folk, hoping to beat inflation and make a little money on your savings, the market at over 18 PE all this week (18.80 on Nifty on September 4, 2008) remains expensive. Look then for gems that might become multi-baggers.

Otherwise hang on to your precious cash. A better day to buy will dawn, when PEs are closer to 10 than 20. Get into SIP mode then. Market corrections can be both deep and long. Losing opportunity (interest cost of your money) is about as unfortunate as losing capital.

Naveen Fernandes is a Certified Financial Planner and Vice-president, Orbis Financial Corporation Ltd, Mumbai. Orbis Financial is a SEBI-approved custodian.