With the stock markets reaching dizzying heights, stock prices of many top companies have become unaffordable for many small investors. In such a situation, these investors have just 2 options: either wait for the markets to crash, which can be a very long wait or buy when a company goes for a stock split.

What is a stock split? How does it benefit small investors? In a stock split, the total number of free shares of the company is divided into bigger number of shares, without impacting the shareholder’s equity or the stock’s overall market value. E.g. if the company announces 5-to1 stock split, it means that for one share of the company that each shareholder holds, he now gets 5 shares. He doesn’t have to pay anything to avail of these 5 shares.

Also the market value of the share will be divided by 5. E.g. if the market price of the share is Rs 1000, the new market price of the share now becomes Rs 200. Moreover the company’s market capitalization now becomes 5 times it original market capitalization. The company can achieve this without diluting its equity.

Normally companies take this step if they think that the price of their share has gone so high that many small investors are reluctant to pay the price. With this step, the company brings the stock price within the reach of ordinary investors. HDFC took this step some time back.

An investor gains by buying the shares of good companies at low prices, as stock split doesn’t  affect the company’s performance. However it is important not to get swayed by the stock split when making investment decisions. Instead it is crucial to focus on company performance, management reputation, company’s growth prospects, future plans and its position vis-à-vis its competitors.

Think good returns and safety are a misnomer? Think both these words don’t go hand in hand? Then think again. It is possible to get good returns without taking undue exposure to risk. Here is how.

• Company FDs: The FDs offered by the companies offer higher returns as compared to the bank FDs. However they are also riskier than bank FDs. So always select the FDs that carry at least A+ ratings or those offered by top corporates like Tata Motors, HDFC etc. It will ensure your capital is safe.
• PPF: PPF is one of the best means of earning good returns safely. You not only get 8.5% interest on the corpus invested, it is also completely tax-free for you. Both the interest earned and capital withdrawals do not attract any tax, thus increasing your returns.
• PO Monthly Income Scheme: Here you not only get an interest of 8% per annum, you also earn 1% bonus at the end of the term This interest will be credited to your bank account, every month, thus giving you a monthly income. It is ideal for retired people or people looking for additional income.
• FMPs and short-term income funds: These are excellent alternatives for people eager to take slightly higher risk in order to earn higher returns. You can expect a return of 8-8.5% for a period of 1-3 years.

While all these means offer good returns, always remember that it is the ultimate combination of equities, gold and debt that will help you achieve the highest possible returns.

Today online shopping has grown by leaps and bounds, due to higher penetration of Internet. This has allowed people living in any parts of the world buy items from any other part. However this has necessitated the heavy use of credit cards, thus giving rise to frauds and scams.

So if you are scared of using your credit card online but want to shop online, here are some tips to do your online shopping safely.

• Always buy from secure sites. These are the sites whose web address ends with https instead of http. Also ensure there is a padlock symbol at the bottom of the browser. This means this site is very secure and you can go ahead and shop online.
• Avoid posting your private details like our bank account number, credit card number etc. on public sites.
• Read the privacy policy of the site. If you are uncomfortable with policy, it is advisable to shop elsewhere.
• Keep your browser, antivirus and firewall regularly updated. This will prevent worms, viruses and hackers getting access to your personal data, thus compromising your security.
• Use secure payment methods like Paypal and credit card as they offer higher protection than debit cards and bank transfers.
• Read your credit card statement carefully. If you note any discrepancy in the bill, bring it to your bank’s notice immediately.
• Avoid shopping in insecure places like cybercafés and any other public computers. Your data is far more likely to be compromised if you do so.

These are some simple tips that can help you  shop online safely.

It has become common nowadays for mutual fund industry to lure gullible investors by giving star ratings to their funds. Gullible investors who don’t know better fall prey to these ratings and end up investing in these funds, only to regret later on. This is because star ratings have no meaning when it comes to investing. Here are the drawbacks of star ratings for the funds.

• Variations in rating system: The rating agencies use different rating parameters to rate the funds. This can create inconsistency in the rankings of the funds. So a fund may get higher ranking in the ratings but may give poorer returns than its peers. Also just insisting on the ratings will make the investor ignore the consistent performers.
• Expensive proposal: Fund ratings keep on changing. Now if you keep on focusing only on the star ratings then, you will end up churning your mutual fund portfolio regularly, thus making you pay STT and other duties. Besides you also end up losing the appreciation of your investment amount.
• Suitability: While funds across all categories do get five star ratings, all of them may not be suitable for everybody. E.g. if you have a low risk appetite, then mid-cap funds are a strict no-no for you. So even if these funds do have five star rating, they will not be suitable for you.

So instead of concentrating on the ratings, it is advisable to focus more on the fund performance, your risk appetite, time horizon and fund management. This will help you earn substantial returns over a long time.

Financial advisors are harping on the importance of Systematic Investment Plan (SIP). But what is SIP and how does it benefit you? Should you opt for it?

The term SIP stands  for Systematic Investment Plan. In this you invest a particular sum at regular intervals. This interval can be daily, monthly quarterly or half-yearly. This sum can be as low as Rs 100.

Why opt for SIP? SIP lets you balance out the no of share or mutual fund units that you purchase. E.g. if your Rs 100 lets you buy 2 units of a mutual fund when the markets are high, you can get 3 units when the markets fall. This means you even out your investments.

Studies have shown that those who opt for SIP earn far higher returns than those who make lump sum investments. Also since you are investing small sums, you are not taking a major risk if the markets crash.

However SIPs don’t work in rising markets. If the NAV or share price keeps on increasing, you will not get any substantial returns.

SIP is suitable for those who have a steady source of income. If your income flow is irregular, then go for lump sum option, to prevent being charged for SIP bounce.

The markets are going up and you see all and sundry investing in stocks. Next day the markets crash and everybody panics and starts rushing out from the markets, thus aggravating the market conditions. US economy is down in dumps and the FIIs start pulling out their money, so even your neighborhood uncle withdraws his money from stock markets.

This type of investing is called as emotional investing where human emotions like euphoria, panic, greed and fear impact the decisions made by the investors. But not many know that emotional investing is bad for your wealth. Here is why.

When emotions take over he person’s rational thoughts, he cannot think clearly. He is easily swayed by the emotions and takes decisions that his emotions tell him to do. He doesn’t realize that markets work in cycles. What goes up comes down and vice versa. So if you manage to hold on though the tough times and avoid over exposure to stocks when the markets go up, you can easily make money in the stocks.

Unfortunately not many understand this principle. They lose focus when they get emotionally charged. They make wrong decisions and so don’t make money in the stock markets. So if you don’t get swayed by your emotions, you can rest assured that market movements will not affect the value of your investments in the long run.

‘Green’  is the new buzzword in all the businesses today. Financial industry is no exception. But then how does going green improve your finances? Will ‘green’onomics really make you rich? Let us see the answer to this question.

While solar power may work out cheaper in the long run, its initial costs are quite prohibitive. You may have to spend anywhere from 1-3 lakhs just to get it installed initially. It is due to this that solar power generation has caught on in India. Moreover during rains, solar power my not be adequate. So you may have to install an electric generation as a backup. Also you’ll have to wait for 10 years before you can recover your costs. Not to mention, the  rapid advances in technology will make your current solar power generation equipment obsolete.

However you can opt for energy-efficient appliances, like acs, light bulbs and other electrical and electronic equipments. They will save you a lot of money as they tend to use lesser power but will not impact the performance. Here the benefits are immediate. So you can definitely choose this option.

You can also opt for public transport or car pool to reduce your transportation costs. This will immediately lower your transportation costs.

So when it comes to going green, find out your costs, the time required for you to recover them and their pros and cons. This will give you an idea of how much you will earn and how quickly.

Mutual fund houses are quite adept at catching latest fad in the market and launching new funds based on the fad. Once such fad they have capitalized on is the government’s plan to divest its stake in government-owned companies or PSUs, and introduced mutual funds, called as PSU funds.

PSU funds are those mutual funds that invest in scrips of government-owned companies. These include companies like BHEL, NTPC, IOC, SBI etc. Many fund houses mislead customers by telling them that they will be filthy rich by investing in these companies. But is it true? Will the customer benefit from investing in these funds?

The answer – no. When choosing a company for investment, you have to look at its merits. You need to consider its present and past performance, its growth prospects, its comparison with peers, dividend payout etc. This is applicable even for PSUs. All of them are not gems. You should be able to separate wheat from chaff.

While PSU companies do have an edge when it comes to policy making, there is a major drawback as the government holds a dominant stake, and so can force these companies to bend to the whims of the ministers and MPs and MLAs. Moreover some companies do not have quality customer service, slow decision making etc. All these will impact the functioning of these companies.

Hence it is advisable to give these funds a miss. Instead go for pure diversified fund that will help you get higher returns.

Exchange-traded funds (ETFs) are a type of mutual fund that works like shares, as they can be traded on the stock exchange. Just like stocks, their prices are affected by the trading that takes place on the stock exchange. However they do offer some tactics to help you safeguard your investments. So what are they?

• Proper timing: Proper timing is the key to maximizing your returns. You should have proper timing for both buying and selling the stocks, as you won’t gain anything by holding on to the stocks by hoping that the situation will improve. Instead it is advisable to exit the stocks if there is a decline of 8% in the value of the stock from its highest price. Then once the market has stabilized, you can again buy the stock. It will help you in saving some amount of capital.
• Stop orders: Place a stop loss on your stocks so that if their prices go below this figure, you can sell them. It will help you in protecting your downsides and lower your losses.
• Selling: Sell your ETF to raise cash if you are in desperate need of money, as  it will help you in getting necessary cash for your needs. Alternately you can invest that money in some low-risk investment avenue like bank FD or government bonds, to protect your money.
• Rebalance your portfolio: Divide your portfolio amongst stocks, bonds, gold and mutual funds. This means if the stocks are not doing well, you always have other investments to fall back on. Similarly divide your stocks amongst those belonging to different sectors. So if one sector like IT is not doing well, it will be offset by good performance of another sector like FMCG.

Follow these tactics and protect your wealth even during the downtimes.

It is a normal practice for most investors to look at the NAVs of the funds when evaluating the performance of the funds. However this is not true. Here is why.

The NAV of the mutual fund is calculated on the daily basis, based on the value of its underlying assets divided by the total number of units in the scheme on a specific day. E.g. if the value of the securities in a mutual fund is Rs 3000 and the fund has issued 100 units, then the NAV of the fund is Rs 30. Similarly a fund whose value of the securities is Rs 6000 and has issued 200 units will also have a NAV of Rs 30.

This implies why you should not focus much on the NAV of the mutual fund. Low or high NAV does not matter, when it comes to a mutual fund.

Instead concentrate more on the track record of the fund, dividend history, holdings in the portfolio, service levels, fund manager’s performance etc. This will help you choose the right fund for your needs.