I am a Blogger with a passion for Investment Education. I started blogging in 2007-08. Getmoneyrich is a blog that shares investment experiences with its readers. Follow this blog and learn about Investment & Personal Finance.
When I was in my mid-twenties, my father advised me to start investing money. Hence, he helped me to buy my first life insurance endowment plan. In later years, I started buying mutual funds regularly through SIP route on my own.
This is the way majority invest money, right? There is nothing wrong with this approach. At least we are not needlessly spending the money. The invested money is in a way ‘saved-money’.
But only because we are buying few mutual funds, stocks etc regularly does not qualify as a ‘good investment’. Why? Because there is a process that must be followed as a part of good investment practice.
If I had to advice a beginner on how to start investing money, my suggestion will be to “follow a process“.
The above flow chart highlights the main steps involved in the process of investing money. You can see that ‘buying and selling’ of investments are only one of the steps. More important steps are listed below:
Goal: Even before a single penny is invested, it is essential to identify and quantify the goal. The question that must be asked is, “why I’m investing money?” The answer should have at least two parts: (a) To build a corpus of Rs.x, and (b) Money is needed after ‘n’ number of years. So, one will invest money to build ‘Rs.x’ in ‘n’ years. This is the goal. Read more about goal based investment.
Risk/Vehicle: Once the goal is clear, the next important step is ‘risk analysis’. As a general rule of thumb, when the goal is long term, one can invest in more risky investment vehicles like stocks, equity funds etc. When goal is short term, less risky options like balanced funds, long term debt funds etc are suitable. Read more about how to invest risk free and earn high returns.
Cost: What will be the cost of investing? This is the monthly cost out-go from ones pocket. Suppose ones goal is to have Rs.2.5 Lakhs in next 3 years. He has decided to invest in a hybrid-fund which can generate 10% per annum. In this case the person must contribute Rs.6,000 per month in SIP of this hybrid-fund. Check this online SIP calculator to figure out the monthly contributions.
Track: As important it is to buy a good investment, it is equally important to track its performance regularly. Why? Because tracking will help to ‘judge’ the right selling time. Suppose you bought stock with an expected price appreciation of say 12% in next 12 months. Upon tracking you found that 12% is reached in the first 6th month itself. So what you will do? You must sell the stock. But this is only possible if you are tracking your portfolio regularly. Read more about building investment portfolio from scratch.
Re-invest: Tracking suggests us when to sell our holdings. But selling may not necessarily mean that our target of ‘Rs.x’ is reached. Hence, if the target has not reached, the money must be reinvested. The focus must be on the final goal (Rs.x). In the process of reaching the goal, we may end up buying and selling few investments more than once.
This is a simple investment process. One can follow this approach and start investing money. I am sure, the long term benefits of ‘clear investment decisions’ yields more satisfaction.
Allow me to exemplify furtheron the above five (5) steps. This will help in getting a clearer perspective of how a beginner should start investing money.
How to finalise the goal? Look deeper into your needs. Do not concentrate only on near-term needs. Make a comprehensive list.
Once a comprehensive list is ready, sort them on the basis of priority. Goals which gets the highest priority should be selected for investment.
Example: Suppose you have finalised that you need to buy a car in next 3 years. The car will cost you Rs.10 lakhs. Hence you decide that you will take a car loan of Rs.5 lakhs and the balance, Rs.5 lakhs will be funded from your investment.
What is the goal? Building a corpus of Rs.5.0 Lakhs in next 3 years.
Like this, there will be several other priorities of life. Each priority will ask you to invest money differently. How to do it? For each priority, try to implement the decision making as shown in the above investment process flow chart. Read more about financial planning for future needs…
Before we invest our money, it is essential to understand the risks involved. Accordingly we can take a calculated risk. How to take a calculated risk? By selecting the right investment vehicle.
Example: In our example, the goal is to build a Rs.5.0 Lakhs corpus in 3 years. This is nether a long term goal, nor a short term goal. It is a medium term goal. Which is the investment vehicle which offers least risk in medium term, but also generates good returns?
We must understand here that, in India, in medium term horizon, one can easily expect a return of 10-11% from ones investment. Which is the vehicle which can assure this much return (with minimum risk of loss). An ‘aggressive hybrid mutual fund’. These funds has 70% equity exposure.
What is the point? Note the ‘thought process’ which goes behind selecting a right investment vehicle (for a specified time period). A suitable investment vehicle will take care of the ‘risk of loss’ associated with the investment.
Tip: Depending on the available time horizon, one must pick the right investment vehicle. Read more about the types of mutual funds. It will help you pick right investments depending on the available holding time.
In this step, the investor will know how much he/she must invest each month to build the corpus in time.
Example: In our example, goal is to build a Rs.5.0 Lakhs corpus in 3 years. It has also been identified that a 10% p.a. returns can be expected in this holding period. Hence an ‘aggressive hybrid fund’ is selected as a suitable investment vehicle. Now the question is that, how much the investor must contribute each month to this investment (SIP)?
How to find the answer? You can use my below SIP return calculator. It will help in finding the monthly contributions necessary to build the required corpus.
To build a corpus of Rs.5.0 lakhs in 3 years @10% p.a., one must invest Rs.12,000 per month as SIP.
One of the better ways to track ones portfolio holdings is to do it online. Portfolio tracking facility provided by yahoo finance, moneycontrol, economictimes, valueresearchonline etc to track ones holdings is good.
One can also use Google Finance Attributes to track performance of ones stocks in ‘Google Sheets’.
Example: In our example, investment of Rs.12,000 was necessary to build a corpus of Rs.5.0 lakhs in 3 years at 10% per annum. Suppose after 1 year, you found that the hybrid fund (70% equity exposure) was giving a return of 14% per annum. What you can do? On an average, a hybrid fund generates a maximum return of 12%. Hence 14% return is like an outperformance. In this condition the investor may think to redeem and book profits.
Please note that, here the investors expectation was 10% per annum. The mutual fund was showing an actual return of 14% after one year. Hence the decision of redemption was taken.
But this decision could be taken only because the investor was tracking his/her holdings. Without tracking, such timely profit booking will not be possible.
When reinvestment should be considered? When the investor has booked profits, but target corpus has still not been built.
Example: Investing Rs.12,000 per month for 1 year at 14% p.a. will build a corpus of Rs.1.55 lakhs only. The goal is to build the corpus of Rs.5.0 Lakhs. Hence in this case, the investor must continue investing Rs.12,000/month for next 2 years. In addition to this, the redeemed amount of Rs.1.55 lakhs must also be reinvested to earn a return of < 10% per annum for next 2 years.
Timely profit booking and reinvestment is a very necessary step of the investment process. Till the goal is reached, one must continue doing the following:
Track ones holdings,
Book profits when necessary, and then
Reinvest the total amount.
What has been explained in this article is the process of investment. Let it be a beginner or an experienced adult, anyone can use this process to practice purposeful investment.
This article is specifically more useful for those people who wants to start investing money, and is skeptical about the next steps.
This article has explained the total investment cycle from starting to end.
Before we understand ‘how to analyze stocks in Excel’, we must know ‘why to analyze stocks‘ in first place. Why we cannot simply buy a stock and expect returns? Because stock is a ‘speculative asset’.
What is a speculative asset? An asset whose market price has a tendency to become overpriced. How we can call an asset as overpriced? Asset is said to be overpriced when its market price trading significantly higher than its “fair price‘.
Why stock analysis? Stock analysis is a way to ‘estimate fair price‘. Once fair price of a stock is known, it can be compared with its market price to understand if the stock is ‘overpriced‘ or not.
But there is a problem. The problem lies in estimating fair price of stock. What is the cause of the problem? To estimate fair price of stocks, one must know how to read and comprehend ‘financial statements’ of companies. Which are those financial statements?
Profit & Loss Account.
Cash Flow Statement.
Steps to analyze stocks
I’will try to explain the essential steps necessary to analyze stocks in simple colloquial language. This is an important understanding. If one can understand the correlation between a company’s ‘financials’ and its ‘fair price’, this will be a big-leap towards learning stock analysis.
Step #1. Financial Statements: Learning how to read financial statements of companies is key. When I say reading, I also mean understanding. One must not only read the financial reports, but should also develop the skill to frame a bigger picture about the underlying company. Why bigger picture? Because it will help us to gauge its business fundamentals. Read more about reading a balance sheet.
Step #2. Business Fundamentals: Learning to read financial statements is necessary to understand how strong (or weak) are the company’s fundamentals. What factors decide fundamentals? Future growth prospects, management’s efficiency, profitability, current financial health etc. While reading a financial report, one must be able to comprehend the fundamentals. Read more about fundamentally strong stocks.
Step #3. Mathematical Model: In the above two steps we have seen what it means by reading and comprehending financial statements of a company. But to estimate ‘fair price’ (intrinsic value) of stock, one must know how to convert the numbers into stock’s fair price. To do this one must master a mathematical mode. One such famous mathematical model is called discounted cash flow model.
I am sure you must have figure out by now that why stock analysis (specially estimation of intrinsic value) is not a widely practised skill.
But I will also like to add here for those people who really like to learn stock analysis, irrespective of the complexities involved, that the key lies in developing the skill to read financial reports. Once this skill is developed, the balance seems to fall in place automatically.
MS Excel and Stock Analysis
If you wanted an easier alternative of stock analysis than what is explained in the above three steps, I have a solution. You can use an Excel Sheet. Yes, a simple excel sheet can make ‘stock analysis process’ a lot easier. How?
Easy way: The easier way is like a crash course of stock analysis using MS Excel sheets. This will help us to estimate fair price of stocks without going into too much detailing about the business fundamentals of the company. As a beginner, I started my stock analysis journey like this.
Detailed way: Here you can use my excel based stock analysis worksheet to analyze stocks. Why I describe it as detailed? Because it asks you to feed all financial data of stock into the worksheet. Feeding data will take approximately 15-20 minutes for a beginner. But the balance calculation are done be the worksheet automatically. Know more about my stock analysis worksheet here.
In this article, I will introduce you to the easier way of stock analysis. Using this method, one can fairly estimate if the current price of a stock is fairly priced or not.
Stock Analysis in Excel – Easy Way
What is shown above is the process of checking if the current price of a stock is fairly priced or not. How it is done? In the following 3 ways:
Expected PE after 3 Years: First note down monthly price of stock posted in last 3 years. Then, note down its quarterly EPS (EPS Q). Next, calculate last four quarter EPS for each month (EPS-L4Q). Next, use this formula to calculate EPS for each month (P/E=(Price)/(EPSL4Q)). Finally, calculate Average PE for last 3 years. The calculated ‘average PE of last 3 years’ will be our expected future PE (3 years from now). Please see the snapshot of calculation of an example stock done in MS EXCEL.
Expected EPS after 3 Years: To calculate this, one must use the Future Value (FV) formula of MS Excel. Three parameters must be fed in excel to calculate future EPS: growth rate, holding time, current EPS. Please see the snapshot of calculation of an example stock done in MS EXCEL. The parameters used for Future EPS calculation are: growth rate = 8%, holding time = 3 years, current EPS = 80.17.
Compare: This is the third and final step. In this step we will check if the current price of stock is fairly priced or not. How to do it? Simply by using the data collected in the above steps. We will use the above data to estimate potential future price growth. If future growth meets our expectations, we can say that current stock price is fair.
How we can conclude the stock analysis as explained above? We can follow the sequential thought process as explained below:
What will be the future price? Expected future price (after 3 years) of our example stock is Rs.1,552. We have arrived this by using the P/E formula (PE x EPS = Price).
What is the current price? The current price of the stock is Rs.2,155 (see snapshot used in PE calculation).
What will be the price growth rate? As current price (Rs.2,155) is higher than the expected future price (Rs.1,552), it means its growth rate will be negative (-10.2% p.a.)
Does the growth rate meets the expectation? If the investor expected the stock price to grow at least by 12% p.a. in next 3 years, -10.2% actual growth is much below the expectation. Hence, the current price of the stock can be said to be overpriced.
If you can access the price data, and financial report of a stock, you can use the above method to check if the stock is currently fairly priced or not. It is not a detailed way of analysis, but it works.
My suggestion is that, one must start with this step of stock analysis and then gradually transform self to a more detailed approach.
I will not misguide you in believing that the detailed approach is easy. But it is worth taking the effort. Why? Because if one can master this process of stock analysis, stock can make you good money in times to come.
One good example of a person who has mastered this art is Warren Buffett. Today his net worth is $89 Billion. He is one of the world’s richest man.
Yes, this is the potential of mastering the art of stock analysis. How you can start? See how a detailed stock analysis works by trying your hands on my stock analysis worksheet. Stock report generated by my worksheet looks like this:
Venky’s is a stock which operates in FMCG sector. It’s line of business is Food Processing. People know Venky’s more for their line of product dealing with ‘processed chicken’. It is one of the most well known businesses operating in the small cap sector.
Why Venkys stock?
In last 12 months, the price of Venkys stocks has fallen by more than 47%. It is one of those stocks which has given stellar returns in the past. Check the below table.
Probably the price fall is caused by the weak fundamentals of Venkys. Hence I decided to look into their TTM (Trailing Twelve Month) data. What I could find was this:
The fundamentals of Venkys has only marginally gown down as per TTM data. PAT & EPS is down by 2.4% only. I am sure this small weakness cannot cause a price correction of more than -47%.
What does it mean? It means, there are high chances that Venkys share price today might be trading at undervalued price levels.
Intrinsic Value of Venkys Stocks
There was a doubt that whether Venkys stocks are really undervalued or not. Hence I decided to use ‘my stock analysis worksheet‘ for Venkys. Idea was to check how undervalued or overvalued is this stock.
Having said that, I was also aware that Venkys being in the food processing line of business, its margins will not be too high.
Hence while dealing with such stocks, I always compare the margins of my stock with that of its competitors. It gives me a sense of confidence. Let’s see how Venky’s pans out as compared to its competitors:
Market Cap (Rs.Cr.)
PAT Margin (%)
Tasty Bite Eatables
Though the best PAT Margin among the 3 competitors is enjoyed by ‘Tasty Bite’, but it is a much smaller company compared to Venkys. Both in terms of Revenue and PAT, Venkys is far bigger. Considering the size of Venky, I think PAT Margin of 6.55% is decent.
There are many ways in which a company can enhance the shareholders value. Few ways which I think is most easily recognisable are the following:
Market price growth: We have already seen how fast the market price of Venkys has grown in last years. In Last 10 years its price growth has been from Rs.57 per share to Rs.2083 per share. This is a growth of 43% p.a. in 10 years (also see return table shown above).
Dividend payout & its yield: Venkys being a small cap growth stock, I was not expecting it to pay dividends. But I was pleasantly surprised to see that it has paid dividend in all years since last 10 years. Moreover in terms of growth, dividend per share paid by Venkys has grown from Rs.3.5 per share to Rs.8 per share in 10 years. This is a decent growth rate of 8.6% p.a. But this is also true that at current price levels, dividend yield of Venkys is less than 0.4%.
Return on Equity (ROE): This is one of my favourite metric using which I judge if the stocks has enhanced shareholders value or not. How I do it? I see the ROE trend in last 10 years. If ROE is showing a growing trend, it is a very good hint that the stock is being run by competent managers.
ROE Trend of venkys in last 10 years is shown below:
In terms of overall performance, my stock analysis worksheet considers several parameters to grade a stock. Frankly speaking, intrinsic value estimation should be more than enough, no further checks are necessary.
But I personally find comfort in aggregating all the numbers in one place to finally grade a stock as per its overall performance. My worksheet does it nicely for me.
Let’s see how Venkys shares fares in its overall analysis:
For my worksheet, a good score is 85% plus. But Venkys has scored a rating of 80-81%. What does it mean? It means, there is a bit of apprehension.
Where Venkys has scored high?
Low Price (100%).
Future Growth Prospects (100%).
No Bankruptcy Threat (100%).
Where it has underperformed?
Management’s Efficiency (80% – Not bad).
Profitability (32% – inherently low).
Financial Health (72% – cause of concern).
I will say that it is only the profitability and Financial Health which is looking worrisome. So how to deal with it? Further price correction by 6-7% may take care of the negativity of low profitability and weaker financials.
Its better to wait for further price correction (6-7%). But if one cannot wait, I personally think that the present price levels are also not so bad. At the moment when I am publishing this post, the market price of Venkys is already Rs.1,978 per share.
Venkys is a small cap stock. Its future growth prospects may not be as great as is past 10 years. But even if it can replicate 50% of it – I still like it.
My stock analysis worksheet has almost given a thumbs-up to me for Venkys, but knowing myself – I will add it to my watch list and wait for a better price levels.
Reverse mortgage is also a ‘home based’ loan. But it is different from our typical home loan. The main difference is that, reverse mortgage is available only for elderly people, above 60 years of age.
In working, the reverse mortgage is just the opposite of home loan. Hence the word “Reverse” is used to name this type of loan. In home loan, we pay EMI’s each month to bank. In reverse mortgage, we receive monthly payments from bank.
Let’s see how reverse mortgage works.
How Reverse Mortgage Works?
Collateral: The bank takes the property (home) of the borrower as collateral (mortgage). Based on the valuation of the property, loan is issued to the borrower.
Monthly Payments: Once the property is taken as a collateral, the elderly person becomes eligible for the monthly payments from the bank. Payments can also be made quarterly, annually, lump-sum based on rules, and requirement of the borrower.
Loan Amount: On the first date of the loan disbursal, the loan balance will be zero. But upon every monthly payment, the loan amount will keep building during its entire loan tenure.
Occupation of Property: The borrower & spouse can continue to live in the property (kept as collateral) till lifetime. Yes they can continue to occupy it even after the loan tenure is over.
Selling of Property: After the death of both the borrower and the spouse, the bank can sell the property and recover its loan dues. If there is a differential amount left after loan clearing, it must be paid to the legal heirs.
Legal Heirs: After the death of the borrower and the spouse, their legal heirs can take possession of the property by clearing-off the loan.
Reverse mortgage can best be understood by help of an example. So allow me to take help of a hypothetical case.
Suppose Mr.Ram (59 years of age) is a government employee, whose is about to retire from his job in next 3 months. He has a son who lives in USA.
During his service life, he bought a property for self-occupation in Bangalore. He currently is paying a home loan EMI for this property. The loan balance is Rs.50 lakhs.
Post retirement Mr. Ram will get the following retirement benefits:
Rs.50 Lakhs – As lump-sum from his PF.
Rs.10,000/month – As monthly income from his annuity (pension).
Giving priority to becoming debt free post retirement, Mr. Ram decided to use his full PF monty to clear his home loan.
But after loan prepayment, Mr. Ram will be left with only Rs.10,000 per month income (from his pension fund). This was not enough. He needed more monthly income to maintain a decent lifestyle in Bangalore.
How to get more income? He decided to got for reverse mortgage.
1. Utility of Reverse Mortgage
For people like Mr.Ram, reverse mortgage is a good alternative of income generation post retirement. Hence, Mr. Ram approached his bank to enquire about reverse mortgage.
Mr. Ram’s property value at that moment of time was approx Rs.1.0 Crore.
The Bank informed Mr.Ram that, if he can keep his property as collateral, he can get a loan of 60% of property value sanctioned against reverse mortgage (Rs.60 Lakhs).
Other details provided to Mr. Ram related to reverse mortgage were as below:
Max Loan Amount: Rs.60,00,000 (60%).
Interest: 11% (MCLR of 9%+ 2%).
Loan Tenure: 15 Years.
Monthly Payments: Rs.13,000 per month.
Monthly payment is the income that Mr.Ram’s property will yield after availing reverse mortgage.
2. Calculation for Monthly Payments
Mr.Ram was ok with the Maximum loan amount, interest rates, loan tenure etc because these were as per the rules. But what he was confused about was the monthly payment.
Why he was confused?
Because of the mental calculation Mr.Ram was doing in his mind. If he took a bank loan of Rs.60 Lakhs at 11% p.a. for 15 years, he will pay the EMI of Rs.68,000 per month.
But when he is opting for reverse mortgage, he is getting only Rs.13,000 per month. Why?
The difference is because of the way bank’s consider the monthly payout of Rs.13,000 to Mr.Ram. They are treating it as investment. What does it mean?
Bank’s are considering that, had they invested Rs.13,000 per month in say a mutual fund SIP which pays them 11% p.a. interest, in 15 years, their investment corpus would be Rs.60 lakhs. Check this SIP calculator here.
Hence, what the bank agree to offer (maximum) to Mr.Ram is an equivalent amount of their SIP calculation (which is Rs.13,000 per month).
3. When loan tenure ends…
Mr.Ram availed reverse mortgage for a period of 15 year. Till next 15 years, he and his spouse will continue to get the monthly payment of Rs.13,000.
What happens after the loan tenure ends? Mr.Ram will stop receiving the monthly payments, but he can still continue to occupy the property.
Even after his demise, Mrs.Ram (his spouse) can continue to live in the same property.
Banks can neither ask the borrower or the spouse to vacate the property after the lapse of loan tenure. Only after the demise of both the beneficiaries (joint borrowers), the bank can consider selling the property.
4. Property Sale
The property can be sold only after the demise of the borrower and the spouse. Who can sell the property? Only the bank.
Suppose Mr.Ram and his spouse survived for 5 more years after termination of loan tenure. In these 5 extra years, the value of loan will also appreciate @11% p.a.
The appreciated value of loan in next 5 years will be Rs.1.02 Crore.
After the demise of Mr. and Mrs. Ram, bank decided to sell the bangalore property.
The market value of the property at this point of time is say Rs.3.2 Crore (considering 6% p.a. growth rate in 20 years).
Upon sale, the bank will take away its Rs.1.01 Crore against the loan outstanding, and the balance amount (Rs.2.18 Crore) will be paid to the legal heir of Mr.Ram (in this case his son living in USA).
In case there is no legal heir of the borrower, the banks can keep the full amount as its profit.
5. Legal Heir
It is important for Mr.Ram to declare his son as his legal heir (in his will). In case the same is not done, Mr.Ram’s son cannot make a claim on the property after the demise of his parents.
The legal heir of the property has the first right on the property, after the demise of borrower. A legal heir can do two things here:
First: They can clear the loan balance and take possession of the property.
Second: They can ask the bank to sell the property. Bank in turn will do it, and refund the extra amount to the legal heir as applicable.
6. Important Notes
Loan Free Property: Mr.Ram must make the home loan balance as zero to be eligible for the reverse mortgage
Property Registration: Mr.Ram must have the property registered on his or his spouse’s name to get reverse mortgage.
Joint Borrower: If Mr.Ram wants to include his wise as a joint borrower in Reverse Mortgage, her current age should not be below 55 years.
Not Applicable: Banks cannot give reverse mortgage on, rented, inherited, and commercial properties.
Income Tax: Monthly payments received by Mr.Ram as part of Reverse Mortgage will be tax free.
Revaluation: Banks will do the property revaluation after every 5 years. In case the property value falls, the loan tenure (or monthly payment) may go down.
Processing Fees: A processing fee of 1.5-2.5% will be applicable. This charge shall be born by Mr.Ram. Hence, due to the processing fee, the monthly payment of Mr.Ram will go down (only marginally).
7. Why not to consider Reverse Mortgage?
Why I am talking about “not considering“? Because this is a very important point one must know before availing reverse mortgage.
This is specially applicable for people like Mr.Ram who own a high value property and lives in a costly city like Bangalore.
Mr.Ram wants to avail reverse mortgage, for which he is putting his property worth Rs.1.0 Crore as collateral. By doing this, he is able to earn only Rs.13,000 per month.
Now consider this, Mr.Ram has his home town in Mysore. He decides to sell his Bangalore’s property (@Rs.1.0 Crore) and buy a new property in Mysore.
A similar sized property in Mysore will cost Mr.Ram not more than Rs.55 Lakhs. After considering all cost (including relocation etc), Mr.Ram will still be left with Rs.37 Lakhs. See the working below:
Property Value: Rs.1.0 Crore.
Cost of Sale: Rs.7.0 Lakhs.
Net Profit: Rs.97 Lakhs
Property Value: Rs.55 Lakhs.
Cost of Relocation: Rs.2.0 Lakhs.
Other Costs: Rs.3.0 Lakhs.
Total Cost: Rs.60 Lakhs.
Extra Cash: Rs.37 lakhs (97-60)
If Mr.Ram can put these extra cash of Rs.37 Lakhs in bank’s FD @7.5% for next 10 years. His income will be more than Rs.22,000 per month.
Zee Media Corp. is a company which is in the business of TV news broadcasting. Main channels which comes under the umbrella of Zee Media are: Zee News, Zee Business etc. In totality, Zee Media owns 10 such TV channels.
Above what you can see is last 10 years price history of Zee Media. What makes Zee Media’s stock interesting, is its last 1.5 years price pattern.
In last 1.5 years (since Dec’17), the market price of Zee Media stocks has fallen by 67% (from Rs.46 to Rs.15). Almost all Zee Group companies are facing similar problems. What could be the reason for the price fall?
The reason is attributable to the investments made by the group. They invested aggressively in infra sector, and also acquired Videocon’s D2H service. Though the logic behind these investment were not wrong, but the IL&FS crisis did not help.
So it is clear that, what triggered the price fall. But was it justified? To answer this question, let me give you some numbers.
Zee Media – Recent Performance
These are the trailing twelve months (TTM) figures for Zee Media:
Income, net profit and EPS – all three has grown at fantastic rates in last 12 months. But the price of Zee media stock is still falling. This is not a normal behaviour.
If we want to look deeper into the business fundamental, let’s see its profitability numbers. In last 3 years, net profit of Zee Media has increased from Rs.38.19 (Mar’17) to Rs.52.23 (TTM Dec’18). This is growth rate of ~16.9% p.a.
The profitability margins of Zee Media has almost held itself in last 12 months.
What I mean to say is that, from business fundamentals side, I do not see a major shift which can cause the share price of Zee Media to correct itself so drastically (falling by 67%) in last 1.5 years.
What does it mean? This is a good hint that the current share price (~Rs.15) of Zee Media may be trading at undervalued price levels.
I use my stock analysis worksheet to do the number crunching of my potential stocks. Zee Media was one of those stocks which I have kept in my watchlist for some time now.
After this stock has corrected itself by more than 67% in last 1.5 years, I was expecting more from this stock. Frankly speaking, I was almost sure that my stock analysis worksheet will give it a thumbs up. But the case was not as per my expectation.
What kind of thumbs-up I was expecting?
Undervalued Price: This happens when current price of a stock is below its estimated intrinsic value. But in case of Zee Media, my worksheet has estimated its intrinsic value as Rs.10.2 against its current market price of Rs.15.
Overall Score: For a stock to get a thumbs-up, it must achieve an an overall score of 85%+. But Zee Media could fetch only 72.5%.
Why this deviation from my expectation? My stock analysis worksheet gives lot of weightage to the last 10 years performance (specially EPS and PAT). In this time horizon the growth rates shown by Zee Media has been as below:
My high expectations from Zee Media is based on last 3 years data. Which is encouraging. But my stock analysis worksheet looks at a much bigger data base.
There is sharp difference between an Indian trying to become loan free, and an average American tying to achieve the same goal. What is the difference? Americans handle loans differently than us. They have a more casual approach towards it.
But in India, people handle loans more carefully. This is not because we are better in handling money, it is because American’s are more affluent. They can afford to handle debt with some carelessness.
Let’s try to understand it with an example. Suppose there are two people A & B. Person “A” earns Rs.5.0 Lakhs a month, and “B” earns Rs.1.0 Lakhs a month.
Suppose both of them took a loan of Rs.40 lakhs for different reasons, for which the EMI cost is Rs.40,000 a month.
What do you think, who is more likely to handle the EMI with greater caution? For person “A”, his EMI is only 8% of his monthly income. But for person “B” it is 40% of his income.
Beyond doubt, person “B” will handle his loan EMI’s more carefully. Why? Because a major portion of his income is getting used by the loan.
In this example, “A” is a typical American and “B” is an average middle class Indian.
What is the point?
Recently I was reading an article published by an American blogger on how to get out of debt. It was a great article, but the points that he covered were actually looking less-relevant for Indian audience.
He covered almost all the concepts about transforming self from “being debt-ridden” to “becoming loan free”.
But I thought that the way he has approached the idea of becoming debt free may not be completely relevant for an Indian reader.
Hence I thought to put my own views on the subject of ‘becoming loan free in life‘.
Why you should read me on this topic?
Because by the time I was in my 40’s, I was able to take myself out of the loan cycle. So what I will share here are my personal experiences.
It took me close to 6 years to finally become loan free. Actually, the plan was to become loan free in 10 years. But the smaller the loan outstanding became, it motivated me to try harder.
After my fourth year, a stage came when I started pushing myself more aggressively to become loan free. By the time I was in my sixth year, I was debt free.
But important was not the last 2 years, critical was the initial four years. Why? Because in last 2 years the motivation was high. In the initial 4 years, it was tougher to keep myself goal-bound (there was less motivation).
So let me share with you my plan of becoming loan free in 10 years.
A Plan: To Become Loan Free in 10 Years
I have intentionally added the time line of 10 years into the plan. Why? Because of two reasons:
Simple Reason: To set a visible target.
Less Obvious Reason: To highlight the magnitude of the task in hand.
What I mean by “magnitude of task in hand”?
For a person whose income is high, he can do both:
He can be casual in handling loan.
He can also pay-off loan comparatively easily than other people.
But for a middle class Indian, becoming loan free is one of the tougher financial goals of life. It will take time to convert this goal into a reality.
May target was to do it in 10 years. Other can set a lower or higher timelines based on their plan.
What was my plan to become loan free?
There were two important entities of my plan:
How to reduce loan? Prepay the loans.
How to get the prepayment amount? Generate more savings.
I just followed these 2 steps to become debt free. This plan has been shown in the below infographics.
#1. Prepay the loans…
In America people call it “paying off the debt”. In India we call it ‘part-payment of loan’ or ‘prepayment of loan’.
I have written a separate blog post on loan prepayment. I will request you to read that piece as well. I am sure it will add another dimension to your understanding about loan management.
Digging deeper into my loan prepayment plan – there were 4 important sub-plans to it. Allow me to touch upon each sub-plan briefly.
Listing down all loans: For Americans it is an essential step because they carry variety of loans. But for we Indians we almost remember our loans as good as our salary. But still, listing down all loans is required. It will help in our next sub-step.
Sorting of loans: Suppose one is carrying three types of loans: Home loan, car loan, and credit card balance. Sort these loans in the order of decreasing interest rate. Credit card charges the highest interest rate, So it will come first. Home charges the least, hence it will come at the last.
Prepayment: Out of the above 3 loans, which must be prepaid first? Credit card debt. Why? Because it is the costliest debt. This is an important rule. No matter how small is the loan value, always pay-off the costlier debt first. Moreover, when we make prepayment we have two choices. We can either reduce the EMI or loan tenure. I personally opted for EMI reduction more than tenure reduction, though tenure reduction is more profitable.
Tracking Loan: Though this step looks obvious and less important, but it has its own indirect benefits. How? Tracking loan does two things for the borrower. First: it makes the person totally aware of the loan balance. Second: As we start preying the loans, tracking can further motivate the person to continue prepayments months after months.
What we have seen till now is that, prepayment of loan can make one loan free. But there is a bigger problem that will be handled in this step number two. What is the problem?
From where to get the amount required for making the prepayment?
There are two ways to do it:
Borrow from family.
Generate your own savings.
Generating savings is the best alternative. But ‘savings generation’ is a desire, which is easier said than done. To generate enough savings, a further sub-planning will be necessary.
Lets see the sub-planning related to savings generation:
Extra income generation: For a salaried person, extra income generation can happen by giving more to the work, which in turn will pay-off in terms of salary increments and performance bonuses. Every extra penny generated can go a long way in building savings. Other way of income generation can be converting ones hobby into an income source. I converted my passion for investment into a blog.
Budgeting Expenses: When priority is loan prepayment, one cannot afford to overspend. So how to stop overspending? By preparing an expense budget and sticking to it at all times. While building a budget, set a target for savings. Pay yourself this amount first thing in the month start.
Stop Investments: I took this call. Before, ‘becoming loan free‘ became my priority of life, I used to invest reasonably in mutual funds and stocks. But I stopped all of that – for few years. Whatever extra I saving from my income, I was diverting most of it for loan prepayment.
It is much easier to accumulate debt, than to get out of it. The analogy is very similar to weight gain. Due to bad eating habits people gain weight. Similarly, due to bad money management, people accumulate debt.
In order to shed weight, people has to compromise on their food intake, and also take-up gymming. To reduce loan burden, one must cut their spending habits.
Both these tasks require lot of discipline in life.
Prepayment of loan is the trick which works very effectively to reduce the loan burden.
Though lot of people know that prepayment is the best solution to get out of debt, but only few can actually accumulate sufficient savings for full prepayment.
In this article, we have seen process, using which one can build enough savings and ultimate use this money to prepay all loans.
Recently I was reading about the launch of India’s first Real Estate Invest Trust (REIT). As it was the first such financial instrument in India, I wanted to know more about it. Basically I wanted to know, who is behind this REIT?
This small question took me into a spiral, and what I could unearth was worth sharing with my readers. I could understand that behind a mutual fund (or a REIT) there is a whole TEAM which is working.
It is not as if everything is done and manage by a mutual fund manager. In fact a mutual fund manager is just like any other employee of a company. People who actually are the owners and top-managers of a mutual fund are different sets of people.
What I could decode was the following. If mutual fund is a company, then these are the set of who’s and what’s I wanted to know:
Who owns the mutual fund?
Who are the TOP Managers of a mutual fund?
Who is the AMC of a mutual fund?
What is the role of Custodian, Registrar, Transfer Agent, Auditors etc of a mutual fund.
Mutual Fund Managers comes where in a fund house?
Though these queries were just answered for the sake of enhancing my G.K. but the conclusion of this exercise was rewarding. How?
Because it helped me to see the mutual funds from a difference perspective. Earlier I used to see the fund house as an investor. But after knowing about the organisation structure of mutual funds in India, I can now see the mutual funds like a “business entity”.
What is the utility? It helped me to see if the Mutual Fund is run by people whom I can trust or not.
Why it is important to know the organisation structure of mutual funds? Because it helps us (as an investor) to understand how a mutual fund works, or who controls the mutual fund.
Moreover, if investors know the hierarchy of a mutual fund, they will also know whom to escalate the problem if necessary.
But how many time you have heard that a retail investor had to approach the fund house to sort out a grievance? Rarely it happens. Do you know why? The credit must go to SEBI – the regulator of the mutual fund business.
It is SEBI, who in the interest of the investors, has established a three tier structure for the mutual funds. It will be not be wrong to say that, this 3-tier structure makes our mutual funds so efficient.
This structure is simple, and even a lay-man can understand its built-up and utility.
From the perspective of small investors…
Knowing the organisation structure of mutual fund is like knowing about the board of directors of a company.
Suppose there is a board where people like Rata Tata, Narayana Murthy, Mukesh Ambani, Kumar Manglam Birla etc are chaired. Won’t you trust this board more than others? I am sure we all can trust them.
Why these people are trustworthy? Because they are honest, and most efficient and effective businessmen.
But this is not all, as an investor it is also our responsibility to be aware of the financial instruments in which we are dealing with.
Being ware of the organisation structure of mutual fund is one such necessary awareness. This is one reason why AMFI provides this detail in their websites.
Not only AMFI, private web-portals like Economic Times, Moneycontrol, Valuereserachonline etc has this detail on their pages.
But the problem is, we do not know how to make the meaning out of the information published by them.
I am sure, this blog post will help you in understanding the significance of the published info.
What we often phrase as “Mutual Fund” is actually a type of business. Within this line of business, there are approximately 35-40 nos fund houses.
These fund house are actually the companies, whom SEBI has allowed to operate mutual fund schemes. It is these schemes which we common people buy and sell as investment products.
I am sure you already know this, but allow me to present this information in a more graphical form for clearer understanding.
India’s Top 5 Fund Houses in term of the size of the Asset Under Management (AUM) – as on Dec’18, are listed below:
Mutual Fund Houses
HDFC Mutual Fund
ICICI Prudential Mutual Fund
SBI Mutual Fund
Aditya Birla Sun Life Mutual Fund
Reliance Mutual Fund
The most visible person of a mutual fund is the “Fund Manager”. But do you know, there is a Chairman, CEO, CFO of a fund house?
Example: Aditya Birla Sun Life Mutual Fund.
Chairman: Kumar Mangalam Birla.
CEO: A. Balasubramanian.
To have more clarity about how a mutual fund operates, we will have to know the organisation structure of a typical mutual fund house in India.
Three Tier Structure of Fund House
The three tier structure of a mutual fund house consist of the following heads:
It is SEBI who has prepared the framework of the above 3-tier structure of mutual funds. All mutual funds operates in India under SEBI guidelines.
It is the SPONSORS (also called promoters) who first conceptualise the idea of floating a mutual fund business. Before they can act further, they must approach SEBI for registration of the business.
If the sponsors has the necessary credentials, SEBI will issue the “Certificate of Registration” to the sponsors. Which are the credentials required?
The sponsor must have experience of 5 years in financial services.
They must be a profit making company (3 out of 5 years).
Last 5 years net worth of the company must be positive.
Once the certification is received, further steps can be taken to start a mutual fund activity. Which are the next steps?
Formation of Trust.
Appointment of AMC.
Appointment of Depository (Custodian), Registrar, Transfer Agent, and Auditor.
#1. Trustee – Father Figure
The sponsors of mutual fund forms a Trust. This Trust must have a “Board of Trustees” (like board of directors).
Who shall be in the Board of Trustee (BOT)? There is a stipulation of SEBI which must be followed in the BOT.
The minimum strength of the board must be four (4) members.
Out of the whole board members, two-third members must be “Independent Directors”. Who are independent directors? Those people who have no relation with the sponsors in any way.
The idea of the formation of a Trust is to have a management in place. The priority of this management will be like this:
“Protect the interest of the unit-holders and their invested money”
It is also the responsibility of the Trustee to ensure that, mutual fund operates as per the regulations of SEBI.
As per SEBI guidelines, at all times, out of the total net worth of the AMC, a minimum amount must be contributed by the sponsors.
There is another reason why SEBI has stipulated such strict norms related to the Board of Trustees. What is the reason? Generally corporate houses are the sponsors of mutual fund schemes. Example: Tata Group, ICICI bank, Mahindra and Mahindra Group, HDFC bank etc.
SEBI has stipulated such rules to ensure that the investors pooled money is not used by the sponsors in their group companies.
BOT members may not engaged in the day to day operations of the mutual fund.
Daily operations of the mutual fund is managed by the appointed “Managers (AMC)” and other team members.
#2. AMC – Manager of Mutual Fund
After Trustees, the most important entity in the mutual fund is its AMC (The Asset Management Company).
AMC of a mutual fund is formed as per the “Companies Act 1956”. The AMC must also be registered with the Government of India accordingly.
After an AMC is registered, it will start functioning as a full fledged company. This is one reason why we see the following three types of AMC’s in India:
Private Limited Company.
Wholly Owned Subsidiary of an already Public Limited Co.
Joint Venture (Indian or Overseas Companies).
When the trustees are forming the AMC, it is also their job to appoint the following managers who will in turn run the AMC:
Chief Investment Officer.
Chief Marketing Officer (CMO)
Chief Operations Officer (COO)
Example of Three Tier Structure:
#3. What is the role of the Custodian (Depository)?
A mutual fund scheme purchases various types of financial assets. Some of these assets can be like this:
Sticks of companies.
It is the responsibility of the depository (custodian) to hold all financial assets safely in its custody.
A good analogy of a ‘depository’ is our bank’s locker. In the locker we can keep important documents, jewellery etc.
Example: HDFC Bank provides custodian service to ICICI Pru Mutual Fund.
#4. What a Transfer Agent does?
AMC appoints a transfer agent. The transfer agent handles the following:
Communication with investors.
Maintains investors data.
Process all transactions of units (purchased or redeemed).
Example: For ICICI Pru Mutual Fund, the transfer agent is ICICI Infotech along with CAMS Ltd. For Tata AMC, the transfer agent if CAMS.
#5. What is the role of a Registrar?
Again, it is the AMC who appoints the Registrar for its mutual funds.
These days generally the role of Transfer Agent and Registrar is performed by the same company.
In India the most common registrar utilised by mutual fund companies are CAMS and Karvy.
The main functions of Registrar are the following:
Send Account Statements to Investors.
#6. Role of an Auditor…
As per companies act, all companies must get their book of accounts audited by an external financial auditor. These auditors are basically certified chartered accountants.
All financial transactions done by a mutual fund company must be presented to the auditors for scrutiny. At the end of the financial year, the auditors also checks and certifies the financial reports prepared by the mutual fund companies.
You know, one can use clever tricks to save money. This way one can fool self, and save more. But why to resort to fooling self?
Because saving money does not come naturally to people. We are psychologically better spender than a saver. This is why we need to use tricks to save money.
When I first conceived this idea, it was not clear that how effective will be its implementation. But today, after self practice, I know that these trick are super benefitial.
These tricks to save money cannot make one a millionaire. But for sure, one will be more better-off that he/she is doing today.
Problem with saving money…
As I said, we all are natural spenders of money. Some spend more and other spend less. But all in all, if given a choice we will pick spending over saving.
Hence, it is not easy to consistently save money year after year. Moreover, saving money look less and less lucrative due to the soaring inflation. Why?
Because the saved money looses it’s value with time (due to inflation). So what is the use of savings?
This is the not right way of looking at savings….
No matter if the inflation is high or low, one cannot stop saving money. Because if the target is to beat inflation, we have to invest money. And to invest money, we will have to save it first.
Saving money and innovation….
We need to think innovative, to maintain the habit of saving money. Yes, innovation helps to save a lot more than one can do in normal ways.
Here you will find such innovative tricks to save money that will make saving easy and effective. Try these tricks for one month and you will see the benefits.
As a rule of thumb, one must save at least 25% of their monthly take-home salary. But the problem is, how to implement this rule of thumb?
Lets see some clever tricks to save money:
Which are these tricks? These are tricks about which I have either read about it in books, or I have devised it myself.
Over a period of time, I have noticed that saving money does not come naturally to me. But I was bent to savings as it is necessary. Hence, I thought to give it a hard try and device my own “comfortable” methods to save money.
Saving Tricks which I unearthed myself was these:
Give Yourself a Tip (min. 5%).
Forget Your Annual Perks.
Never stop paying an EMI’s.
But apart from the above listed three tricks, the most effective trick I borrowed from the book of Robert Kiyosaki. It is called “Pay Yourself First“. I have written an elaborate post on it. You can read it for more insights.
So lets start the discussion about trick to save money from my favourite one…
#1 Pay Salary to Yourself (min. 5%)
Yes, if you can pay everyone who works for you then why not pay yourself? Do this first thing every month.
Pay yourself 5% of your monthly income. Before you spend a dime anywhere else, make sure to pay self. How you can do it?
Simply transfer 5% from your salary account to your another savings account. Which is this saving account?
This is that savings account about which you have taken the liberty of loosing its Debit Card. You also willingly, forget its online banking password too.
So this savings account is almost like a dark-well, which only swallows every penny you put-in. The only way to take the money out from this savings account is by cheque.
This trick is really effective. Try it and see the money grow each month.
In last decade, index funds have gained lot of popularity. What makes index funds attractive is their low cost.
Compared to actively managed funds, index funds has lower expense ratio. ‘HDFC Index Fund – Sensex’ is one of the better index funds. It has an expense ratio of 0.3% (Regular Plan), and 0.1% (Direct Plan).
‘Invesco India Multicap Fund’ is one of the better performing multicap funds. It has an expense ratio of 2.46% (Regular Plan), and 0.95% (Direct Plan).
So if we compare the expense ratio of multicap funds and index funds, the latter is a clear winner. Multi cap funds are very expensive compared to index funds.
So which is better – index funds or actively managed funds like multicap funds? A common man like me and you should pick which type of mutual fund?
To answer the above question, I decided to collect some data related to mutual funds.
What was the objective?
The objective was to compare index funds vs actively managed funds with respect to the following parameters, and arrive at a conclusion:
Last 10 Years Average Returns.
Last 5 Years Average Returns.
Last 3 Years Average Returns.
Price Volatility (Last 3 Years).
In addition to the index funds, which are the actively managed funds I am considering for comparison? Following type of active funds:
Large Cap Funds.
Mid Cap Funds.
Small Cap Funds.
Multi Cap Funds.
What is the source of data? I have collected the data from morningstar. I have screened those mutual funds which had at least 10 years past data available for analysis.
Number of mutual funds I have considered for my analysis is as listed below (total: 271 Nos).
Large Cap Funds – 64 Nos.
Mid Cap Funds – 57 Nos.
Small Cap Funds – 23 Nos.
Multi Cap Funds – 73 Nos.
Value Funds – 28 Nos.
Index Funds – 26 Nos.
The range of values that I got out of the above 271 Nos mutual funds has been summarised in the below table:
Analysing the collected data
Before analysing the data, let me highlight a number in the above table which plays a part in the decider between index funds vs actively managed funds.
#A. Three (3) Year Price Volatility Index
In the period of last 3 years, which type of mutual fund was least volatile?
From these values it is clear that index funds (and large cap funds) are least volatile funds. Small cap fund is the most volatile mutual fund.
Hence one distinction between index funds vs actively managed funds is already clear.
Except for the large cap fund, 3 year price volatility of index funds is least compared to other actively managed mutual funds.
#1. Time Horizon of 3 Years
I personally consider the time horizon of 3 years as “small” for equity investors. With my personal experience, I can say that 3 year period is rather a small holding time.
Let’s see, in this holding period which mutual fund has performed best:
What is evident from the numbers in the above table is an important point.
This point will make more impact when we will discuss returns of longer time horizons (like 5 & 10 years).
What is the point? For equity investors who are not investing for a longer terms, index fund is giving good returns.
Important note related to index funds…
When experts claim that index funds are better for common men, they take the following points in consideration:
Holding Time: People will generally buy mutual funds and hold it for only next 3 years or less.
Price Volatility: Within a shorter time horizons like 3 years, price fluctuations of index funds will be lower than actively managed funds.
Returns: When holding time is as short as 3 years, index funds tend to give better returns than actively managed funds.
Expense Ratio: Expense ratio of index funds are anyways low. If people can pick a direct plan, return of index funds (in a 3 year period) will be even better.
Example of an index fund:
Name of Fund
3Y Return (Regular Plan)
3Y Return (Direct Plan)
HDFC Index Fund – Sensex
#2. Time Horizon of 5 Years
Before we proceed further, I would like to first emphasise on a point. Ask yourself this question:
How many mutual funds are there in my portfolio which I’m holding since last 5 years?
If I’m not mistaken, 80% people will give ‘Nil’ as an answer.
The point is, we common people do not stay invested in equity for this long.
Either we stop contributing to the fund and switch, or we simply sell the units and use the money somewhere else.
This is a very strong consideration when expert suggest index funds as a better investment option for we common people. They know that we will not stay invested for more than 3 years at a stretch in a mutual fund.
Now suppose, you are not in the general 80% category. You are the one who will stay invested for 5 years.
Let’s see, in this holding period (5 years), which type of mutual fund has performed the best:
What is clear from the above numbers is that, low volatile/low-risk funds like index and large cap mutual funds are giving low returns.
The top 2 funds in terms of returns are those funds which were considered most volatile (when investment time horizon was 3 years or less).
But now (in 5 years periods), these funds are giving the best returns.
Mid Cap (19.0% p.a.)
Small Cap (17.8% p.a.)
Important Note: If only we decide that no matter what may come we will stay invested for at least 5 years, following will change in our investment patterns:
Fund Selection: We will start picking mid cap funds instead of safer index funds.
Difference in Returns: We may start earning higher returns. There is a difference of 7% between returns generated by index funds compared to actively managed funds (19% – 12%).
#3. Time Horizon of 10 Years+
There are hardly any people who stay invested in equity for a period as long as 10+ years.
My personal guess is, out of 1,000 people investing in mutual funds, only one or two will hold on to their units for this long.
Yes, this holding time is so rare.
But people who follow such holding periods also gets compensated accordingly.
Consider this, we common people who hardly stay invested for more than 3 years, what best returns we can earn? 14.7% from index funds.
But people who will stay glued to their actively managed mutual fund for 10 years or more, can earn a return as high as 20%+.
Let’s see, when holding period is as long as 10 years, which mutual fund has performed best in the past:
What is clear from the above numbers is this, low risk funds like large cap and index funds are giving minimum returns.
The high risk funds like mid cap and small cap funds are giving returns in tune of 20-22% per annum.
The difference in returns between an index fund and a mid cap fund is close to 7.3% p.a.
Index funds can give a returns like 15% p.a. in 10 years. An actively managed fund (like mid cap fund) can give a returns of 22.3% in 10 years.
What is the difference between 15% and 22.3%? Suppose you are investing Rs.25,000 per month in a mid cap fund for next 10 years (@22.3% p.a.). You will build a corpus of Rs.1.1 Crore.
Investing Rs.25,000 per month in an index fund for next 10 years (@15% p.a.) – will build a corpus of Rs.70 Lakhs.
Because of the 7% difference in returns, the difference in corpus built will be Rs.40 Lakhs (1.1 Crore minus 70 lakhs).
Expert and skilful ‘mutual fund manager’ can beat the index. But in order to do so, we must give ‘ample time’ to our fund manager.
What I mean by ‘ample time’? We must stay invested and hold the mutual fund units for periods like 5-10 years.
In our debate between index funds vs actively managed funds, the clear winner is actively managed funds.
Actively managed funds can give higher returns than index funds, but for that one must stay invested for long term.
But we people do not stay invested for so long. Generally speaking, our holding time is three years or less. For such smaller time horizons, index fund is a better investment vehicle.