FAQs: Stocks & Mutual Funds

FAQs: Stocks & Mutual Funds

  • 1.What are the assets available for a retail investor?

    • Typically for corpus of less than 5 Crore, Equities, Debt and Gold are three broad asset classes suitable for investments. Your self-occupied house is not counted as an investment since it does not earn any returns. When your assets increase beyond mentioned level, you can consider Real Estate that you can rent and or sell to earn a return, as an additional asset to diversify your wealth.
  • 2. I invest only in Fixed /Recurring Deposit; how do I know that the MoneyWorks4me Way of investing is right for me?

    • When you are investing in Fixed /Recurring Deposit you are mentally prepared to invest the money for about 5 years and more. This is a reasonably good duration when investing in Equity. However, you are earning a very low, close to zero return after adjusting for tax and inflation. So to earn a healthy inflation adjusted return you must consider investing a significant portion in equity. Now, if you have no experience of investing in equity or your investable amount is small, it is best that you start investing through MoneyWorks4me 'Plan Alpha'
  • 3. What is the MoneyWorks4me Way of Investing?

    • The MoneyWorks4me Way of Investing is anchored in estimating as best as possible the long term fair value of stocks based on fundamentals and using this knowledge intelligently to earn handsome risk-adjusted returns.
  • 4. How is this done?

    • Sensible allocation is done between equity and non-equity assets (Liquid Fund) based on the market level and the individual’s risk profile. We reduce risk by allocating to equity systematically as the markets move between over-valued and under-valued zones.
      Investing in Equity is through:
      1. Specific stocks directly at a discount from their fair value.
      2. Index Funds eg: Nifty50
      3. Select Mutual Funds based on a unique selection criteria
  • 5. How does MoneyWorks4me know when the market is over or under-valued?

    • We have developed a unique measure Nifty@MRP and Sensex@MRP, which is a hypothetical value of the Nifty/Sensex if all the 50/30 stocks were fairly valued. We have analysed the actual movement of the market vis-à-vis Nifty@MRP and Sensex@MRP for more than 5 years (real time) and back-tested our hypothesis over more than a decade. This has enabled us to confidently assess whether the market is over-valued or under-valued at any point of time.
  • 6. Why MoneyWorks4me Plan Alpha?

    • With Plan Alpha you start investing in the equity market through an Index Fund i.e a set of stocks that make the Index eg Nifty50 stocks. This ensures you get returns that are in line with the market with lower risk than investing directly. You are further protected from the volatility of the market through the unique asset allocation method that moves your money between the Index Fund and a very safe Liquid Fund( typically gives a 5% return after tax). This way you enjoy the benefit of market returns at a lower risk than investing in pure equity.
  • 7. What is MoneyWorks4me Plan Omega?

    • Plan Omega is our premium offer that enables you to invest in Select Quality stocks, Index Fund, and Mutual Funds and generate index-beating higher returns. However, this carries higher risk than Plan Alpha.
  • 8. How does Plan Omega increase returns beyond Plan Alpha?*

    • Plan Omega will invest in index fund as well as select quality stocks when they are available at attractive prices. Most of the quality stocks are available at discount prices from time to time due to negative market sentiment. You will buy the stock only if it can provide higher than market returns over long term. This will improve your returns. We will also be advising investment in select Mutual Funds based on our unique selection criteria. This will also help increase returns
  • 9. What is a Liquid Fund?*

    • Liquid Fund is a category of mutual fund which primarily invests our funds in money market instruments like certificate of deposits, treasury bills, commercial papers and term deposits. Since all the above instruments are very liquid and short term assets, Liquid funds can be redeemed easily. They typically earn close to after-tax Fixed Deposit returns. One such fund is listed on exchange which is R*Shares Liquid BEES.
  • 10. What is Index Fund?*

    • An index fund is a type of mutual fund with a portfolio of 50-80 stocks constructed to match or track the market index, such as Nifty 50 or MSCI 80. An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. One such fund is listed on exchange which is R*Shares Nifty BEES.
  • 11. Why not just put all the money in the Index Fund?

    • From time to time, markets trade at expensive or cheap levels. Investing in the Index when it is very high leads to very low returns and results in large losses. Just buy-and-hold Index Fund strategy exposes you to larger volatility. This will make you fearful and sell your portfolio exactly at the wrong time, thereby making real losses. MoneyWorks4me Plan Alpha helps you shift to safer Liquid Funds when markets are at expensive levels thereby avoiding losses from market correction. These funds can be moved back to equities when markets correct to cheaper levels.
  • 12. Why you don’t have to worry about market volatility anymore?

    • We have observed there are very high chances that markets would correct after it goes beyond its fair value (MRP). Since we move into liquid funds in expensive markets, your portfolio corrects marginally. Also it makes money available to buy equity when the market drops; a real possibility in a volatile market. Thus, with the MoneyWorks4me Way of Investing you improve your returns consistently. With this algorithm working for you there is no need to worry about market volatility; in fact you can look forward to it.
  • 13. I save money every month. How will MoneyWorks4me Plans work for me?

    • Once you have subscribed to either Plan Alpha or Omega you will be asked to open a trading account (currently Zerodha) so that you can execute orders, update and rebalance your portfolio seamlessly. Then all you have to do is add the amount saved in the month to you trading account and then click Import Portfolio on MoneyWorks4me.com. You will receive the timely updated allocation advice. Click Execute Order to do the rest. With this you would have invested your saving between Equity and Liquid Fund.
  • 14. I have a significantly large amount saved. Is there a right time to shift it to the Moneyworks4me Way of Investing?

    • The MoneyWorks4me Way of investing allocates money between Liquid and Equity depending on the market level. Therefore, there is no need to worry about whether it is the right time to start investing the MoneyWorks4me Way. If the market levels are higher than our assessment of the fair value, you will invest a smaller percentage in equity to begin with. If you don’t have a method for asset allocation you run the risk of buying into the market at very high prices and earning poor returns.
  • 15. How is the MoneyWorks4me Way of Investing better than doing an SIP in Equity Mutual Funds?

    • An SIP in an Equity Mutual Fund means you keep investing the entire amount in a set of stocks chosen by the Fund Manager. If the market has run up substantially you end up buying these stocks at a high price. SIP works best for Mutual Fund Houses since it guarantees them a steady flow of money immaterial of how the market moves.
      In contrast, the MoneyWorks4me Way of Investing actively allocates your money to Equity and Liquid Funds depending on the market levels. So you don’t buy equity when the markets are over-valued but park your money in a very safe Liquid Fund that earns typically a 5% return after tax. And when the market is under-valued you move this money into equity. When you buy equity cheap you earn higher returns with lower risk. Sure you have to wait, which you can as a retail investor (but a Fund Manager cannot wait for various reasons).
  • 16. What if I need money suddenly?

    • While we ask you to invest for the long term, ie: money you won’t need for the next 5+ years at least, it can happen that you do need to touch this money. Had you invested in Fixed /Recurring Deposit you would have to break it and would lose some money (interest loss), while doing it. With the MoneyWorks4me Way of Investing you can meet this emergency in various ways depending on the market situation. You are likely to hold some money in a Liquid Funds and selling this becomes the obvious way to meet the emergency. When you do this your portfolio will ask you to rebalance it by selling that portion of your equity holding that makes the most sense to sell at that time. You can override this if you expect to put some money back into the plan soon. This may make sense if the market is under-valued and you wish to hold on to your equity portfolio. If the markets are in the over-valued zone you may be comfortable acting on the rebalancing advice. Thus you will have some good flexibility on how you manage such emergencies.
  • 17. What returns can I expect by investing through MoneyWorks4me Plan Alpha?

    • When you are investing through Plan Alpha, you should expect returns in line with the benchmark index and not higher. Most important thing is that Plan Alpha generates close to index returns with relatively lower risk. Focus is more on reducing risk rather than increasing returns beyond the Index. Since investors consider equities to be very risky, they commit lower percentage of wealth to this asset class. You can expect substantially higher returns than what you earn through Fixed /Recurring Deposit especially after adjusting for tax and inflation.
  • 18. How is the MoneyWorks4me Plan Alpha different from a Index Funds-Robo Advisory?

    • A typical Index funds Robo-advisory recommends a set of ETFs based on the investor’s goals, usually preferring Debt and Liquid Funds for short term goals and Equity for long term goals. Once this mix is decided it usually sticks to it and rebalances if required to maintain the allocation at the pre-decided level. MoneyWorks4me Plan Alpha rebalances the portfolio actively between Liquid/Debt and Equity funds based on market levels. This dynamic response helps reduce risk and increase returns depending on how the market moves.
  • 19. How does MoneyWorks4me arrive at the MRP of a stock?

    • At Moneyworks4me equity analysts analyse the company, its current and likely future profitability based on the business and economic cycles over the next 5 years and using the appropriate valuation method arrive at the fair value a company. This we call its MRP.
  • 20. How is MoneyWorks4me MRP different from the Target Price given by Broking Houses?

    • MoneyWorks4me MRP is a fair value estimate of a stock. Fair value depends upon long term profitability of a company. In the long term a company would trade at its fair value. If we buy a stock at price lower than fair price, we get a bargain. This increases our chances of making a profit. Brokerage Target price is basically based on short term company performance and likely stock price movement in 6 to 12 months. This may or may not depend on company performance but has more to do with stock market sentiment.
  • 21. How does the systematic tranche-wise investment in a stock work?

    • On most occasions, great stocks may not trade at large discount to their MRP for obvious reasons. We recommend starting buying them as soon as they reach closer to Discounted Price. As it goes lower we buy more of it till it reaches our desired quantity.
  • 22. How do you lower the risk involved in Direct Equity Investing?

    • Following are three levels of how we reduce risk:
      1. First, we select only best quality stocks after running the stock through our 10Year X-Ray.
      2. Second, we buy the stock at 20-50% discount to its MRP which reduces our downside risk or deviation in future estimates, if any.
      3. Third, we recommend diversifying portfolio in 15-18 stocks. This reduces business specific risks and eliminates risks to a large extent.
  • 23. What is a Mutual Fund?

    • A mutual fund is a pool of funds collected from multiple investors for the purpose of investing in stocks, bonds. Every mutual fund has a fund manager who takes active decision in picking stocks. Mutual Fund charges a fee varying from 1.5 to 2.5% of assets under management typically, with a promise of trying to beat the market. In addition if you buy through a MF distributor (Regular plan) you end up paying 1% towards distribution cost. When you buy a directly (Direct plan) you save the 1% distribution cost. However, you do not get any advice (good or bad) from your distributor/agent when you buy directly.
  • 24. How does an Index Fund compare with a Mutual Fund?

    • Index Fund tracks Index movement and generates Index returns. In exchange of this service it charges a very minimal fee in range of 0.05-0.5% as it doesn’t involve fund manager to pick stocks. Since market is a zero sum game, on an aggregate basis mutual funds would yield market returns only. There is no way to find out in advance which mutual fund will definitely keep generating higher than market returns. When half of mutual funds in industry are earning less than benchmark returns, it is good to have an investment which gives you guaranteed benchmark returns by simply holding an Index Fund.
  • 25. How does MoneyWorks4me select the Mutual Fund that it recommends?

    • Our analysts actively track underlying assets a mutual fund holds rather than popular past performance analysis. We analyse a fund manager’s past process of stock picking and determine strategy across market cycles ,while on an aggregate basis mutual funds would yield market returns only, occasionally some mutual fund might be holding a large percentage in undervalued stocks with a potential of earn very high returns for next 2-3 years. We endeavour to recommend only such Mutual Funds.
  • 26. How is the MoneyWorks4me Way of Investing different from a Mutual Fund-Robo Advisory?

    • MF-Robo typically recommends Mutual Funds based on Past Performance analysis; the most popular way to short list a mutual fund for investment. Rather than analysing past performance which is an outcome, we analyse the underlying assets a mutual fund holds. We are then able to assess the health of the portfolio as well as the potential upsides based on our proprietary methods. We also keep a tab on the quality of churn. In addition we also recommend investment in quality stocks at attractive discounts from their MRPs and lower cost Index Funds. This provides a better portfolio design than only investing in Mutual Funds

Superstars FAQs

  • 1. What should be my goal when investing in stocks?

    • Your goal should be to build a wealth-creating portfolio. A portfolio of very strong and reasonably diversified stocks; all purchased at attractive prices so that you get excellent returns over the long run.
  • 2. How many stocks do I ideally hold in my portfolio?

    • Your portfolio should not contain less than 7 stocks and not more than 18 stocks depending on your portfolio size. Too few increases risk and too many reduce returns. It is good to have some cash in your portfolio so that you can act on very good opportunities when they come.
  • 3. How do I select stocks to add to my portfolio?

    • You should also chose stocks from different sectors eg BFSI, IT, FMCG, etc and not be over invested in only one sector. Simple rule 3 sectors and 7 stocks are minimum, 6 sectors and 18 stocks is maximum. Do not go after every opportunity in the market.

      Make sure you invest mostly in Green colour-coded companies and have moderate exposure to Orange colour-code companies. To find out the current opportunities go to the Homepage and click on BUY tab.
  • 4. How much of a particular stock should I buy?

    • Look at the Right Allocation section of the Decision Maker. For every stock we recommend maximum allocation in terms of percentage of your portfolio. However, you buy this in a phased manner (refer Question 6)
  • 5. How do I calculate my portfolio size for this allocation?

    • Go to the Portfolio Builder. You will be able to see all our signals and recommended allocation. You will see your portfolio and allocation in each stock entered in Bought List. This will help you in making portfolio level decisions.
  • 6. When do I buy and how much?

    • To take action you need to see the Right allocation section of the Decision Maker.

      We have implemented ‘real’ systematic investment plan (SIP) for every stock in your plan. You can see this by clicking the Price Chart.

      This plan tells you that you should buy and sell a stock in tranches (slices).It suggest investing 20% of the max allocation at Rs. 882-971, additional 30% taking the total invested to 50% at Rs. 794-882 and so on. This will ensure you avail of opportunities as it arises and still maintain a very attractive average buying price. Similarly selling is suggested in 3 tranches to ensure great returns without carrying the risk of losing the opportunity to book profits

  • 7. How many calls does MoneyWorks4me generate every year?

    • In our model, calls or alerts are generated as and when stocks prices move to certain levels. However, these are doubly checked by our analyst before they are released. In some cases we may delay buying or selling actions if it is merited. Therefore the number of calls depends on markets levels. If markets are overvalued, there will be less Buy calls and more Sell calls. If markets are undervalued, there will be more Buy calls and less Sell calls. We do not give Buy calls forcibly. We prefer that you wait with cash to buy with conviction when opportunities come. Let’s assume you have portfolio of 5 lakhs and you have invested just 3 lakhs, in that case hold cash of 2 lakhs. Do not be fully invested in the market if there are no opportunities.
  • 8. Do all calls given by MoneyWorks4me perform well?

    • To a large extent Buy signals do perform, but one or two may not go as expected and may be a bad call in retrospect. So we insist you build your portfolio as suggested above and not concentrate your portfolio in only a few stocks chosen by you. Diversification helps overall portfolio to grow despite of one or two losers. You will be able to track all our Buy/Sell triggers and percentage allocation in Portfolio Builder section alongside your portfolio pulled from Bought List.

  • 9. I had invested in XXX Ltd at average buying price of Rs. XX, it is currently down by 10-15%. What should I do, I am really worried?

    • Our analysts are constantly monitoring the stocks. We will give signal what to do with the stock. If not, feel free to call us to ask the future course of action. Do not act on your own, our experts will help you. Since we are keeping overall portfolio view, we will not be affected by a correction in any particular stock. The other stocks in your portfolio will take care of losses, if any. Your goal should be increasing entire portfolio size.
  • 10. I have invested in XXX stock as recommended by MoneyWorks4me. It has neither gone up nor down. What should I do?

    • We give our signals based on what price it will command five years hence. So, it may take at least 12-24 months for the stocks to perform. Few stocks would rise every quarter and few will rise only after some anticipated event. You should hold the stock and ignore short term volatility in the stock.
  • 11. I am currently fully invested and I receive a Buy signal from MoneyWorks4me. What should I do?

    • You need to check whether you have any large exposure to a particular stock or Orange/Red colour stock.

      For eg. let’s say, you have 13% of your portfolio in ABC Ltd. You should partially sell the stock to reduce the exposure to this particular company and invest in new stock, provided you do not diversify beyond 18-20 stocks. Similarly, you should reduce your exposure to Orange/Red colour stock and invest in Green colour stock.

      For queries, call us at (+91)-20-67258333 or mail besafe@moneyworks4me.com

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